UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 
 Form 10-K 
  (Mark One)þ

          

          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2013 OR  o

          

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 814-00809 
 Full Circle Capital Corporation (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 
  MARYLAND

          

          27-2411476(State or jurisdiction ofincorporation or organization)

          

          (I.R.S. EmployerIdentification No.)
  800 Westchester Ave., Suite S-620,Rye Brook, NY

          

          10573(Address of principal executive office)

          

          (Zip Code)
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 220-6300 
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  Title of Each Class

          

          Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share8.25% Notes due 2020

          

          NASDAQ Global MarketNASDAQ Global Market
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ 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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer o

          

          Accelerated filer o

          

          Non-accelerated filer þ

          

          Smaller reporting company o(Do not check if a smaller reporting company)
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No þ The aggregate market value of common stock beneficially owned by non-affiliates of the Registrant on December 31, 2012, based on the closing price on that date of $7.43 on the NASDAQ Stock Market, was $53,169,481. For the purposes of calculating this amount only, all directors and executive officers of the Registrant have been treated as affiliates. There were 7,569,382 shares of the Registrants common stock outstanding as of September 12, 2013. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants definitive Proxy Statement relating to the registrants 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.
     TABLE OF CONTENTS TABLE OF CONTENTS  PagePART IItem 1.Business





1Item 1A.Risk Factors





29Item 1B.Unresolved Staff Comments





50Item 2.Properties





50Item 3.Legal Proceedings





50Item 4.Reserved





50PART IIItem 5.Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities





51Item 6.Selected Financial Data





55Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations





56Item 7A.Quantitative and Qualitative Disclosures about Market Risk





76Item 8.Financial Statements and Supplementary Data





77Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure





110Item 9A.Controls and Procedures





110Item 9B.Other Information





111PART IIIItem 10.Directors, Executive Officers and Corporate Governance





112Item 11.Executive Compensation





112Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters





112Item 13.Certain Relationships and Related Transactions, and Director Independence





112Item 14.Principal Accounting Fees and Services





112PART IVItem 15.Exhibits and Financial Statement Schedules





113Exhibit Index





114Signatures





116
 i    TABLE OF CONTENTS PART I Item 1. Business Full Circle Capital Corporation (Full Circle Capital, the Company, or we), a Maryland corporation formed in April 2010, is an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We are managed by Full Circle Advisors, LLC (Full Circle Advisors or our investment advisor) and
Full Circle Service Company, LLC (Full Circle Service Company or our administrator) provides the administrative services necessary for us to operate. We invest primarily in senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies that operate in a diverse range of industries. In our lending activities, we focus primarily on portfolio companies with both (i) tangible and intangible assets available as collateral and security against our loan to help mitigate our risk of loss, and (ii) cash flow to cover debt service. We believe this provides us with a more attractive risk adjusted return profile, with greater principal protection and likelihood of repayment. Our investments generally range in size from $3 million to $10 million; however, we may make larger or smaller investments from time to time on an opportunistic basis. We focus primarily on senior secured loans and stretch senior secured loans, also referred to as unitranche loans, which combine characteristics of traditional first-lien senior secured loans and second-lien or subordinated loans. We believe that having a first lien, senior secured position provides us with greater control and security in the primary collateral of a borrower and helps mitigate risk against loss of principal should a
borrower default. Our stretch senior secured loans typically possess a greater advance rate against the borrowers assets and cash flow, and accordingly carry a higher interest rate and/or greater equity participation, than traditional senior secured loans. This stretch senior secured loan instrument can provide borrowers with a more efficient and desirable solution than a senior bank line combined with a separate second lien or mezzanine loan obtained from another source. We also may invest in mezzanine, subordinated or unsecured loans. In addition, we may acquire equity or equity related interests from a borrower along with our debt investment. We attempt to protect against risk of loss on our debt investments by securing most of our loans against a significant level of tangible or intangible assets of our borrowers, which may include accounts receivable and contracts for services, and obtaining a favorable loan-to-value ratio, and in many cases, securing other financial
protections or credit enhancements, such as personal guarantees from the principals of our borrowers, make well agreements and other forms of collateral, rather than lending predominantly against anticipated cash flows of our borrowers. We believe this allows us more options and greater likelihood of repayment from refinancing, asset sales of our borrowers and/or amortization. We generally seek to invest in smaller and lower middle-market companies in areas that we believe have been historically under-serviced, especially during and after the 2008/2009 credit crisis. These areas can include industries that are outside the focus of mainstream institutions or investors due to required industry-specific knowledge or are too small to attract interest from larger investment funds or other financial institutions. Because we believe there are fewer banks and specialty finance companies focused on lending to these smaller and lower middle-market companies, we believe we can negotiate more favorable terms on
our debt investments in these companies than those that would be available for debt investments in comparable larger, more mainstream borrowers. Such favorable terms may include higher debt yields, lower leverage levels, more significant covenant protection or greater equity grants than typical of other transactions. We were formed to continue and expand the business of Full Circle Partners, LP and Full Circle Fund, Ltd. (collectively, the Legacy Funds), which were formed in 2005 and 2007, respectively. In connection with our initial public offering in August 2010, we acquired a portfolio of investments (the Legacy Portfolio), valued at approximately $72 million, from the Legacy Funds in exchange for shares of our common stock and senior unsecured notes (the Distribution Notes).
 1    TABLE OF CONTENTS The Investment Adviser We are managed by Full Circle Advisors, whose investment committee members have approximately 18 years of experience financing and investing in smaller and lower middle-market companies. Full Circle Advisors is an investment adviser registered under the Investment Advisers Act of 1940, as amended (the Advisers Act). Full Circle Advisors investment committee also presently manages Full Circle Funding, LP, a specialty lender serving smaller and lower middle-market companies. The investment committee has to date originated approximately $302 million in loans and investments in 58 distinct borrowers since
inception of Full Circle Funding, LP in 2005 and through activities at Full Circle Advisors since August 2010. The existing investment funds managed by Full Circle Funding, LP, which currently consist of the Legacy Funds, have been fully committed and are no longer making investments in new opportunities. The Legacy Funds are expected to be wound down as their remaining investments mature. Full Circle Funding, LP and other affiliates of our investment adviser may manage other funds and accounts in the future. We benefit from the proven ability of our investment advisers investment committee to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate terms, secure collateral against our loans and manage and monitor a diversified portfolio of those investments. Our investment advisers investment committee members have broad investment backgrounds, with prior experience at investment banks, commercial banks, unregistered investment funds and other financial services companies, and have collectively developed a broad network of contacts to provide us with our principal
source of investment opportunities. Our investment adviser is controlled and led by John E. Stuart, our President and Chief Executive Officer. Mr. Stuart is assisted by Lawrence Chua and Crandall Deery, who each serve as a Vice President of Full Circle Advisors. We consider Messrs. Stuart, Chua and Deery to be Full Circle Advisors investment committee. Business Strategy Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We have adopted the following business strategies to achieve our investment objective: 

          Deliver Flexible Financing Solutions.  We believe our ability to provide a broad range of flexible debt financing solutions to smaller and lower middle-market companies sets us apart from other capital providers. We offer to our portfolio companies debt financing facilities that, combined with our ability to recognize the underlying value and security of diverse types of traditional and non-traditional asset based collateral, we believe allows us to provide flexible facilities to fit the capital requirements of each borrower. We believe that our focus on providing senior secured and stretch senior loans provides a more efficient and less complicated capital structure and source of capital for borrowers. We also believe that it maximizes our control of and exposure to asset-based collateral coverage as security for our loans, thereby greatly reducing our risk of possible losses due to deterioration in a borrowers
performance. 

          Target Smaller and Lower Middle-Market Companies.  We generally provide capital to our portfolio companies for growth capital, acquisition financing and refinancing of existing debt facilities. We believe our target portfolio companies are generally involved in industries or markets that are under-followed or serviced because they are either less visible to mainstream institutions or investors, or are too small or localized for larger financial institutions or larger funds, particularly those that lack the requisite industry-specific knowledge and expertise. We believe there have historically been fewer banks and finance companies focused on lending to these types of smaller and lower middle-market companies. As a result, we believe we can negotiate terms on loans to these types of companies that generally possess better risk-adjusted return profiles than terms on loans to larger, more mainstream companies. Such
favorable terms may include higher debt yields, lower leverage levels, more significant covenant protection and/or greater equity grants than typical of transactions involving larger companies. We generally seek to avoid competing directly with other capital providers with respect to specific transactions in order to avoid the less favorable terms we believe are typically associated with such competitive bidding processes.
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          Target Senior Secured Lending and Structuring of Investments to Minimize Risk of Loss.  We seek to structure our loan investments on a favorable LTV exposure based on underlying collateral or enterprise value with high cash yields, cash origination fees, low leverage levels and strong investment protections. We generally seek to protect against risk of loss on our debt investments by securing most of our loans against a significant level of tangible or intangible assets of our borrowers, obtaining a favorable LTV ratio or other financial protections or credit enhancements, rather than lending predominantly against anticipated cash flows of borrowers. We believe this provides us with more options and a greater likelihood of repayment from both cash flow and/or asset sales. 

          Structure Loans with Superior Security and Asset Protection.  Our loan instruments and documentation focus on favorable lender protections with security over the collateral, financial and other covenants and rigorous reporting requirements on behalf of our borrowers. We monitor covenant and other loan compliance on a monthly and quarterly basis and personnel from our investment adviser will have periodic field exams performed at the borrower level. We utilize both term debt and revolving loan structures and, accordingly, often seek to maintain control of our borrowers cash receipts from revenues as additional security for our positions. As of June 30, 2013, we had lockbox or dominion of cash, or account control agreements, on all of the borrowers in our portfolio, as calculated by principal amount, fair value and annual revenue. In addition, we may seek credit enhancements, such as personal guarantees from a
borrowers principal owners or make well features to provide us with additional equity in the event of underperformance. We may also seek a pledge of stock or other assets from a borrower or its operating subsidiaries. 

          Pursue Attractive Risk Adjusted Returns.  As of June 30, 2013, the weighted average annualized yield of the debt investments comprising our portfolio was approximately 12.90%, which includes a cash interest component of 100%. In the future, a component of our interest may be in the form of payment-in-kind, or PIK, interest. PIK interest represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term and recorded as interest income on an accrual basis to the extent such amounts are expected to be collected. For additional information regarding PIK interest and related risks, see Risk Factors  Risks Relating to Our Business and Structure  We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income. As of June 30, 2013, 44% of our debt
portfolio at fair value, consisted of debt securities and asset-based revolving lines of credit for which issuers were not required to make principal payments until the maturity of such debt securities, which could result in a substantial loss to us if such issuers are unable to refinance or repay their debt at maturity. The 32 individual debt investments, from 19 distinct borrowers, included in our portfolio averaged a LTV ratio of approximately 60% as of June 30, 2013 (i.e., each $60 of loan value outstanding is secured by $100 of collateral value). Although it is subject to fluctuation, we believe this LTV ratio, which measures the aggregate amount of our loan positions against the aggregate amount of primary collateral value pledged by our borrowers as security against our loans, reflects the relative strength of the debt investments comprising our portfolio. Finally, our debt investments are designed to have strong protections beyond repayment from cash flow and asset liquidation
coverage, including default penalties, information rights, and affirmative, negative and financial covenants, such as lien protection and prohibitions against change of control. We believe this level of collateral protection helps minimize against the risk of loss, even if a loan goes into default. 

          Leveraging the Skill, Experience and Resources of Full Circle Advisors Investment Committee.  Full Circle Advisors investment committee members have an average of approximately 18 years of experience financing and investing in smaller and lower middle-market companies. The investment committee members have broad investment and operational backgrounds, with prior experience at specialty finance companies, investment management firms, private equity investment funds, investment banks and other financial services companies. We believe their expertise in analyzing, valuing, structuring, negotiating, closing, monitoring and restructuring transactions should provide us with a competitive advantage by allowing us to consider customized financing solutions and non-traditional and complex structures. We believe this experience should also be valuable when we have to work with stressed and distressed credits.
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          Balanced Investing Across Industries with Expertise.  While we seek to maintain a portfolio of investments that is appropriately balanced among various companies, industries, geographic regions and end markets, we focus our investing activities on certain areas that we believe maintain favorable asset coverage positions, including the media, communications and business services industries. We believe that the stable, long term asset values that may be found in many of the industries in which we invest can provide us with significant collateral protection on our loans, in contrast to taking some of the risks of repayment attendant to relying exclusively on a borrowers current cash flows. Going forward, we intend to seek to maintain a balanced portfolio to mitigate the potential effects of negative economic events for particular companies, regions and industries. 

          Capitalize on Strong Transaction Sourcing Network.  Our investment advisers investment committee seeks to leverage their extensive network of referral sources for investments in smaller and lower middle-market companies. We believe through their prior investment experience, the investment committee members have collectively developed a reputation in our target market and in the industries in which we invest as a responsive, efficient and reliable source of flexible financing. 

          Employ Disciplined Underwriting Policies and Rigorous Portfolio Management.  We directly originate most of our investments, which, in our experience, generally allows us to pursue a more rigorous due diligence examination of the investments than if we invest as part of a lending syndicate led by others. Our investment advisers investment committee has developed an extensive underwriting due diligence process which includes a review of the prospects, competitive position, financial performance and industry dynamics of each potential portfolio company. In underwriting a potential borrower, they engage in a variety of quantitative and qualitative stress tests, and analyze our ability to successfully liquidate a favorable collateral package underlying a loan in the event of default. These processes continue during the portfolio monitoring process, when our investment adviser will, depending on the borrower, analyze
monthly and/or quarterly financial statements versus the previous periods and year, review financial projections, conduct field examinations, meet with management, attend board meetings, review all compliance certificates and covenants and regularly assess the financial and business conditions and prospects of borrowers. Market Opportunity We believe that the current credit environment provides favorable opportunities to achieve attractive risk-adjusted returns on the types of asset-based senior secured loans we target. In particular, we believe that demand for financing from smaller to lower middle-market companies is largely outpacing the availability of lenders that have traditionally served this market. While this has traditionally been an underserved market, we believe the supply-demand imbalance of loans to smaller borrowers was exacerbated by the credit crisis in 2008/2009, and has not fully recovered. We believe that bank consolidations, the failure of a
number of alternative lending vehicles due to poor underwriting practices and an overall tightening of underwriting standards has significantly reduced the number and activity level of potential lenders. Thus we believe that the current credit markets combined with certain long term trends associated with lending to smaller and lower middle-market companies provide the ideal market environment. 

          Competitive Edge and Skill Set.  Our core strength of providing efficient and flexible lending solutions to smaller and lower middle-market companies requires a market approach and skill set that we believe is generally not found in larger or more localized regional lenders. We believe that the current credit environment provides favorable opportunities to achieve attractive risk adjusted returns on the types of asset-based senior secured loans we target. In particular, we believe that demand for financing from smaller to lower middle-market companies is largely outpacing the availability of lenders that have traditionally served this market. While this has traditionally been an underserved market, we believe the supply-demand imbalance of loans to smaller borrowers was exacerbated by the credit crisis in 2008/2009, and has not fully recovered. We believe that bank consolidations, the failure of a number of alternative
lending vehicles due to poor underwriting practices and an overall tightening of underwriting standards has significantly reduced the number and activity level of potential lenders. Thus we believe that the current credit markets combined
 4    TABLE OF CONTENTS with certain long term trends associated with lending to smaller and lower middle-market companies provide the ideal market environment for our strategy. The July 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices reported that larger domestic banks noted stronger demand for loans during the second quarter of 2013. In the July survey, it was reported that modest fractions of domestic banks reported having eased their standards across major loan categories during the second quarter. However, bankers easing of standards is more popular among their larger clients than it is with smaller ones. While 20% of respondents said they were easing their standards for large and middle-market firms (annual sales of $50 million or more), only 10% of respondents said they
were doing the same for small firms (defined as those with annual sales of less than $50 million) and the remaining respondents reported no change. Regarding the costs of credit lines, 46% of respondents reported easing terms to larger borrowers, while 37% of respondents reported doing the same for small firms and the remaining respondents reported no change. Furthermore, more than 29% of respondents reported having eased covenant requirements for large clients, while just 16% reported a similar easing of standards for their smaller clients. Banks general reticence to loosen terms to smaller firms remains despite the fact that respondents answers for the outlook for asset quality, revealed in the prior survey, suggest that moderate to large fractions of banks
expect improvements in credit quality in most major loan categories. The report also stated that domestic banks indicated that demand for business loans had strengthened, and they continued to report a rise in the number of inquiries from potential business borrowers, of all sizes, regarding new or increased credit lines. At the same time, U.S. branches and agencies of foreign banks, which mainly lend to businesses, reported little change in their lending standards, while demand for their loans was reportedly stronger on net. Additionally, the report stated that a majority of domestic banks have recently reported strong demand for commercial and industrial loans due to increases in
customers funding needs related to inventories, accounts receivable, investment in plans or equipment and mergers and acquisitions. We believe these bank lending market conditions will continue to exacerbate existing funding gaps for firms comprising our target market. Additionally, we believe our strengths include the ability to originate, underwrite and manage a more labor intensive portfolio consisting of debt investments in smaller companies, and to perform due diligence and manage portfolio activities on an ongoing basis. 

          Strong Demand For Capital Coupled with Fewer Providers.  We believe there has long been a combination of demand for capital and an underserved market for capital addressing smaller and lower middle-market borrowers. Further, we believe the supply-demand imbalance of smaller borrowers to lenders serving that market was exacerbated by the credit crisis in 2008/2009, and has not fully recovered. We believe there is robust demand for continued growth capital as well as demand from very significant refinancing requirements of many borrowers as debt facilities come due, given the lack of willing and qualified capital providers. We believe these market conditions have been further exacerbated in the current environment due to: o

          larger lenders exiting this market to focus on larger investment opportunities which are more appropriate for their operating cost structures; o

          the elimination of many specialized lenders from the market due to lack of capital as a result of, for instance, the closing off of the securitization market or their own poor performance; and o

          the need for certain capital providers to reduce lending activities due to their reduced access to capital and the overall deleveraging of the financial market. With the decreased availability of debt capital for smaller to lower middle-market borrowers, combined with the significant demand for refinancing, we believe there are increased lending opportunities for us. 

          More Conservative Deal Structures.  As a result of, and in the aftermath of, the 2008/2009 credit crisis, we believe lenders are mandating less leverage, more equity and tighter loan covenants than what had previously been customary. We believe that lower purchase prices for assets and lower debt
 5    TABLE OF CONTENTS multiples, combined with greater equity cushions beneath loans, allows for greater cash flow for debt service, creating faster loan repayments despite overall higher debt costs to borrowers. We believe this aspect provides considerable cushion against underperformance and default of borrowers as well as faster de-risking of loan positions as credit statistics improve over the term of the loan facilities. 

          Attractive Return Profile.  We believe the reduced access to, and reduced availability of, debt capital has decreased competition in smaller to lower middle-market lending which had already become less competitive and more fragmented prior to the credit crisis, resulting in a better market for loan pricing. We believe that the withdrawal of many traditional senior lenders from the market, combined with reduced advance rates and leverage levels, allows for stretch senior lenders to charge rates that typically reflect mezzanine or subordinated structures for entire facilities, while maintaining first lien senior secured positions over the loan collateral provided by the borrowers. Our investment advisers investment committee has experienced this attractive return environment since the onset of the credit crisis in the second half of 2008, when transactions originated by them saw increased returns from interest and
fees charged, as well as more meaningful warrant participations. Investments We engage in various investment strategies in order to achieve our overall lending and investment objectives. The strategy we select depends upon, among other things, market opportunities, the skills and experience of our investment advisers investment committee and our overall portfolio composition. Our strategies generally seek to provide current cash yields and favorable loan-to-value ratios, or other financial guarantees or credit enhancements with respect to loan collateral. Many of our debt investments offer the opportunity to participate in a borrowers equity performance through warrant participation, equity
related success fees, direct equity ownership or otherwise, and many notes that we own require the borrower to pay an early termination fee. Collectively, these attributes have been, and are expected to be, an important contributor to the returns generated by our investment advisers investment committee. Full Circle Advisors investment committee uses a disciplined investment, portfolio monitoring and risk management process which emphasizes strict underwriting standards and guidelines, strong due diligence investigation, regular position review and analysis, and proper investment diversification. They allocate capital among different investment sectors on the basis of relative risk/reward profiles as a function of their associated downside risk, volatility, perceived fundamental risk and liquidity. Types of Investments We target debt investments that yield meaningful current income and, in many cases, provide the opportunity for capital appreciation through equity securities. Debt Investments Full Circle Advisors investment committee tailors the terms of each debt investment to the facts and circumstances of the transaction and prospective portfolio company, negotiating a structure that seeks to protect our rights and manage our risk while creating incentives for the portfolio company to achieve its business plan. As of June 30, 2013, our debt investments were secured by first, and in some cases second, priority liens on the assets of the portfolio company. Our primary source of return is the monthly cash interest we collect on our debt investments. 

          First Lien Loans.  Our first lien loans generally have terms of two to five years and generally provide a variable interest rate, subject to a floor to protect against return compression in a falling interest rate environment. These loans generally do not have interest rate ceilings. Such facilities contain prepayment penalties and are secured by a first priority security interest in all existing and future assets of the borrower. Our first lien loans may take many forms, including revolving lines of credit, term loans, multi-draw term loans and other lines of credit. We often seek to employ a lockbox to collect payment receipts, as we believe it protects us against payment delinquencies and provides increased security and protection in the event of a default or under performance. A focus within our first lien loans is senior secured stretch loans which, along with most of the attributes of our first lien loans,
include a greater advance rate against the borrower and accordingly carry a higher interest rate or greater equity participation.
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          Second Lien Loans.  Our second lien loans generally have terms of five to six years, provide for a fixed or floating interest rate, contain prepayment penalties and are secured by a second priority security interest in all existing and future assets of the borrower. We generally avoid second lien exposure without also investing in the first lien loans of the portfolio company. We believe this gives us greater influence and control should any issues arise between the two instruments. Our second lien loans may to a lesser extent include payment-in-kind, or PIK, interest for a portion of the interest, which represents contractual interest accrued and added to the principal that generally becomes due at maturity. 

          Unsecured Loans.  Although our portfolio does not currently have any investments in unsecured loans, we may make such investments in the future. We would expect any unsecured investments generally to have terms of five to six years and provide for a fixed interest rate. We may make unsecured investments on a stand-alone basis, or in conjunction with a senior secured loan, a junior secured loan or a one-stop financing. Our potential unsecured investments may include payment-in-kind, or PIK, interest, which represents contractual interest accrued and added to the principal that generally becomes due at maturity, and an equity component, such as warrants to purchase common stock in the portfolio company. Full Circle Advisors investment committee typically structures debt investments to include covenants that seek to minimize the risk of capital loss. These debt investments generally have strong protections, including default penalties, information rights, board observation rights, and affirmative, negative and financial covenants, such as lien protection and prohibitions against change of control. These debt investments also have substantial prepayment penalties designed to extend the average life of the loans, which we believe will help to grow our portfolio. Equity Investments When we make a debt investment, we may be granted equity participation in the form of three to five year warrants to purchase common equity in the company in the same class of security that the owners or equity sponsors receive upon funding. In addition, we may make equity investments or structure a profit sharing arrangement in conjunction with a loan transaction with a borrower. Full Circle Advisors investment committee generally seeks to structure our equity investments, such as direct equity co-investments, to provide us with minority rights provisions and event-driven put rights. They also seek to obtain limited
registration rights in connection with these investments, which may include piggyback registration rights. Senior Secured Lending Focus In most cases, our investment advisers investment committee attempts to protect against risk of loss on our debt investments by making senior loans secured by the assets of our borrowers, and obtaining favorable loan-to-value ratios or other financial protections or credit enhancements, rather than lending exclusively against cash flows. Loans may be backed by a variety of types of tangible and intangible assets, including, but not limited to, lease obligations, royalty interests, commercial account receivables, contractual revenue and payment rights (including contacts providing for recurring monthly revenue
streams), settlements, franchise rights, licenses, permits, mortgages, easements and other real property interests, and other tangible personal property, and intangible property such as intellectual property and patents. Our debt investments typically have a first, and in some cases a second, priority senior security interest in the operative assets of the borrower and collateral assignment of rights and contracts, though we also may make mezzanine and equity investments where we believe the risk and reward, and level of security, warrants such an investment. As an asset based lender, we seek to provide working capital lines to borrowers secured by accounts receivable, inventory, machinery and equipment, real estate and in some cases, intellectual property or brand values. These facilities will typically be comprised of a borrowing base formula and include revolving loans and term loans as part of their structures. Our investment focus may shift over time, consistent with our overall lending and investment objectives, and desire for senior secured loans with some level of collateral protection. Invested Industries Our portfolio contains investments in a variety of industries where some aspect of tangible or intangible asset is available for collateral protection. Our portfolio contains a number of investments in the business services
 7    TABLE OF CONTENTS industries, communications and media industries, as a result of the Legacy Portfolios emphasis, and the focus and prior investing experience of our investment advisers investment committee, in those sectors. However, these industries are not our only focus, and we seek prospective investments in other commercial and industrial sectors, including industrial manufacturing. As a result, we expect that the relative portion of our portfolio invested in the media and communications and business services industries may decrease over time. As of June 30, 2013, approximately 41% of our portfolio consists of loans to and investments in companies involved in the broader business services industry (such as companies that provide services related to data and information, information retrieval and asset recovery, and energy efficiency services). These companies typically provide a range of services to customers and such services are generally characterized by their non-discretionary spending nature, contracts of varying length which provide recurring monthly revenues and contracts or services that can be sold or assigned to another provider upon liquidation or sale of
a business. As of June 30, 2013, approximately 18% and 9% of our portfolio consists of loans to and investments in companies involved in the communications industry (such as companies that provide digital video satellite and broadband service to multiple dwelling units) and media industry (such as outdoor advertising and radio broadcasting companies), respectively. Our investment advisers investment committee has extensive experience in the media and communication sectors. We believe that these sectors present significant investment opportunities that possess attractive loan attributes. These include, but are not limited to,
long-term tangible and intangible assets, the ability to perfect our security interest in the collateral, relatively stable revenue and cash flow profile, the ability to foreclose on and transport the underlying collateral should we need to take control of it, and a broad market of participants to purchase or operate the business and assets in the event of foreclosure. Our media and communications investments generally are secured by long-term tangible or intangible assets which include, but are not limited to, regulatory licenses, franchises or leasehold values, associated contractual revenue and cash flow streams and intellectual property, including copyrights and patents. Within these parameters, we focus on smaller and lower middle-market media and communications investments. As of June 30, 2013, approximately 17% of our portfolio consists of loans to and investments in companies involved in industrial manufacturing. We believe that this sector can present significant investment opportunities that possess attractive loan attributes. These include, but are not limited to, long-term tangible assets, the ability to perfect our security interest in the collateral and attractive risk exposure when viewed on a debt to EBITDA basis. Investment Selection Our investment advisers investment committee is responsible for all aspects of our investment process. The current members of the investment committee are John Stuart, our Chief Executive Officer and President, and Lawrence Chua and Crandall Deery, who each serve as a Vice President of Full Circle Advisors. While the investment strategy involves a team approach, whereby potential transactions are screened by various members of the investment committee, Mr. Stuart must approve of all investments in order for them to proceed. The stages of our investment selection process are as follows: Deal Generation/Origination Deal generation and origination is maximized through long-standing and extensive relationships with industry contacts, brokers, commercial and investment bankers, entrepreneurs, services providers such as lawyers and accountants, as well as current and former clients, portfolio companies and investors. Our investment advisers investment committee supplements these lead generators by also utilizing broader marketing efforts, such as attendance at prospective borrower industry conventions, an active calling effort to smaller private equity firms and sponsors, and through web presence and search tool optimizations. They
also focus their deal generation and origination efforts on smaller and lower middle-market companies. Our investment advisers investment committee has developed a reputation as a knowledgeable and reliable source of capital, providing value-added industry advice and financing assistance to borrowers businesses.
 8    TABLE OF CONTENTS Screening In screening potential investments, our investment advisers investment committee utilizes the same value-oriented investment philosophy they employed in their work with the Legacy Funds and commits resources to managing downside exposure. Portfolio Company Characteristics We have identified several criteria that we believe are important in identifying and investing in prospective portfolio companies. These criteria provide general guidelines for our investment advisers investment committees decisions; however, not all of these criteria will be met by each prospective portfolio company in which they choose to invest. Generally, our investment adviser seeks to utilize its access to information generated by its investment committee to identify investment candidates and to structure investments quickly and effectively. Established Companies.  We primarily seek to invest in established companies with sound historical financial and operating performance. We typically focus on companies with an operating cash flow profile. We generally do not intend to invest in start-up companies or companies with highly speculative business plans. Defensible and Sustainable Business or Asset Values.  We seek to invest in companies with proven products and/or services and strong regional or national operations and assets that cannot be easily replicated or substituted, and generally hold value through economic downturns, industry consolidation, changing business preferences and other factors that may negatively impact their customers, suppliers and competitors. Ability to Exert Meaningful Influence or Control Over Our Investment.  We target investment opportunities in which we will be the lead or sole investor in our portion of the capital structure, and in which we can add value through active participation, often through advisory positions. Exit Strategy.  We predominantly invest in companies which provide multiple alternatives for an eventual exit. We seek companies that we believe will provide a stable underlying asset value and a steady stream of cash flow that will allow for repayment from refinancing, asset or business sales and principal amortization. We believe that such asset coverage combined with internally generated cash flow, which primarily provides for the payment of interest on, and the repayment of the principal of, our investments in portfolio companies represents a key means by which we will be able to service our loans
and eventually exit from our investments over time. In addition, we also seek to invest in companies whose business models and expected future cash flows offer attractive exit possibilities due to strong asset values and unique or difficult to aggregate assets. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or another capital market transaction. Liquidation Value of Assets.  The prospective liquidation value of the assets, if any, collateralizing loans in which we invest is an important factor in our credit analysis. Our analysis emphasizes both tangible assets, such as accounts receivable, inventory, equipment and real estate, and intangible assets, such as intellectual property, customer lists, networks and databases. Experienced and Committed Management.  We generally require that portfolio companies have an experienced management team. We also generally require portfolio companies have in place proper incentives to induce management to succeed and to act in concert with our interests as investors, including having significant equity interests. In addition to the standards applied in evaluating investments in all industries, our main criteria in analyzing investments in media and communications companies include their site or market area quality, underlying leases, license or franchise terms, stability of revenue streams and asset values through economic cycles, market liquidity of their underlying assets, and our anticipated level of recovery upon foreclosure. Due Diligence.  Our investment adviser conducts diligence on prospective portfolio companies consistent with the approach its investment committee adopted in their work with the Legacy Funds. We believe that the investment committee has a reputation for conducting extensive due diligence investigations in their investment activities. In conducting due diligence, our investment adviser uses publicly available
 9    TABLE OF CONTENTS information as well as information from its relationships with former and current management teams, consultants, competitors and investment bankers. Our investment advisers due diligence typically includes: 

          review of historical and prospective financial information; 

          research relating to the companys management, industry, markets, products and services and competitors; 

          on-site visits and verification of collateral; 

          interviews with management, employees, customers and vendors of the potential portfolio company; 

          review of senior loan documents; 

          asset and business value appraisals by third party advisors; and 

          background checks. Upon the completion of due diligence and a decision to proceed with an investment in a company, the investment professionals leading the investment present the investment opportunity to our investment advisers investment committee, which then determines whether to pursue the potential investment. Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and independent accountants prior to the closing of the investment, as well as other outside third-party advisers, as appropriate. Any fees and expenses incurred by Full Circle Advisors in connection with due diligence
investigations undertaken by third parties are subject to reimbursement by Full Circle Capital, if not otherwise reimbursed by the prospective borrower, which reimbursements are in addition to any management or incentive fees payable under our Investment Advisory Agreement to Full Circle Advisors. While the investment strategy involves a committee approach, Full Circle Capital may not enter into a transaction without the prior approval of Mr. Stuart. Ongoing Relationship with Portfolio Companies Managerial Assistance As a business development company, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. We may also receive fees for these services. Full Circle Service Company provides such managerial assistance on our behalf to portfolio companies that request this assistance. With regard to our control investments in Texas Westchester
Financial, LLC, New Media West, LLC, TransAmerican Asset Servicing Group, LLC, The Finance Company, LLC, and Takoda Resources Inc., we have provided managerial assistance during the year ended June 30, 2013 for which no fees were charged. Our Chief Executive Officer and President, John Stuart, currently serves as a director of The Finance Company, LLC, New Media West, LLC and Takoda Resources Inc. Lawrence Chua, a Vice President of Full Circle Advisors, serves on the board of Takoda Resources Inc. During the year ended June 30, 2013, only Background Images, Inc. and Solex Fine Foods, LLC/Catsmo, LLC had also accepted our offer for such services, for which no fees were charged. Monitoring Our investment adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if it is meeting its business plan and to assess the appropriate course of action for each company. Our investment adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which include the following: 

          Assessment of success in adhering to each portfolio companys business plan and compliance with covenants; 

          Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;
 10    TABLE OF CONTENTS 

          Comparisons to our other portfolio companies in the industry, if any; 

          Attendance at and participation in board meetings; and 

          Review of monthly and quarterly financial statements and financial projections for portfolio companies. In addition to various risk management and monitoring tools, our investment adviser also uses an investment rating system to characterize and monitor our expected level of return on each investment in our portfolio. We use an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment rating:  Investment Rating

          

          Summary Description1

          

          Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit)2

          

          The portfolio company is performing above expectations and the risk profile is generally favorable3

          

          Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 34

          

          The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable5

          

          The investment is performing well below expectations and is not anticipated to be repaid in full
 Our investment adviser monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. As of June 30, 2013, the weighted average investment rating on the fair market value of our portfolio was 3.12. In connection with our valuation process, our investment adviser reviews these investment ratings on a quarterly basis, and our Board of Directors affirms such ratings. The investment rating of a particular investment should not, however, be deemed to be a guarantee of the investments future performance. Valuation Procedures We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP and the 1940 Act. Our valuation procedures are set forth in more detail below: Securities for which market quotations are readily available on an exchange shall be valued at such price as of the closing price on the day of valuation. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, we use 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 our investment adviser or Board of Directors, does not represent fair value, which currently represents all of the investments in our portfolio, except for our Investments in United States Treasury Bills that we may make from item to time, shall each be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii)
preliminary valuation conclusions are documented and discussed with our senior management; and (iii) independent third-party valuation firms engaged by, or on behalf of, the Board of Directors will conduct independent appraisals and review managements preliminary valuations or make their own assessment for all material assets; (iv) the Board of Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the investment adviser and, where appropriate, the respective third-party valuation firms. The recommendation of fair value is generally based on the following factors, as relevant:
 11    TABLE OF CONTENTS 

          the nature and realizable value of any collateral; 

          the portfolio companys ability to make payments; 

          the portfolio companys earnings and discounted cash flow; 

          the markets in which the issuer does business; and 

          comparisons to publicly traded securities. Securities for which market quotations are not readily available or for which a pricing source is not sufficient may include, but are not limited to, the following: 

          private placements and restricted securities that do not have an active trading market; 

          securities whose trading has been suspended or for which market quotes are no longer available; 

          debt securities that have recently gone into default and for which there is no current market; 

          securities whose prices are stale; 

          securities affected by significant events; and 

          securities that the investment adviser believes were priced incorrectly. Determination of fair value involves subjective judgments and estimates. Portfolio Overview Our investments generally range in size from $3 million to $10 million; however, we may make larger investments from time to time on an opportunistic basis. We focus primarily on senior secured loans and stretch senior secured loans, also referred to as unitranche loans, which combine characteristics of traditional first-lien senior secured loans and second-lien or subordinated loans. The following is a representative list of the industries in which we have invested:  Asset Recovery Services          

          Beverages          

          Cable TV/Broadband ServicesConsumer Financing          

          Equipment Rental Services          

          Healthcare ServicesIndustrial Metal Treatings          

          Information and Data Services          

          Information Retrieval ServicesOutdoor Advertising Services          

          Radio Broadcasting          

          Geophysical Surveying and Mapping ServicesEnergy Efficiency Services          

          Munitions          

          Food Distributors & WholesalersAerospace Parts Plating and Finishing          

          Staffing Services          

          Medical Transcription ServicesBuilding Cleaning and Maintenance Services          

          Art Dealers          

          Real Estate Management Services
 At June 30, 2013, our portfolio was invested approximately 88.7% in senior secured loans, 3.4% in subordinated secured loans and the remaining 7.9% in limited liability companies and equity warrants.
 12    TABLE OF CONTENTS TEN LARGEST PORTFOLIO INVESTMENTS AS OF JUNE 30, 2013 Our ten largest portfolio company investments at June 30, 2013, based on the combined fair value of the debt and equity securities we hold in each portfolio company, were as follows:  At June 30, 2013Portfolio Company

          

          Industry

          

          Cost

          

          Fair Value

          

          % of Net AssetValueNew Media West, LLC

          

          

          Cable TV/Broadband Services

          

          

          $

          8,679,679

          

          

          $

          9,282,685

          

          

          

          15.31

          %MDU Communications (USA) Inc.

          

          

          Cable TV/Broadband Services

          

          

          

          6,730,000

          

          

          

          6,583,855

          

          

          

          10.85The Finance Company, LLC

          

          

          Consumer Financing

          

          

          

          4,725,619

          

          

          

          6,303,101

          

          

          

          10.40ProGrade Ammo Group LLC

          

          

          Munitions

          

          

          

          7,473,642

          

          

          

          6,211,824

          

          

          

          10.24Modular Process Control, LLC

          

          

          Energy Efficiency Services

          

          

          

          5,941,309

          

          

          

          6,069,246

          

          

          

          10.01Blackstrap Broadcasting, LLC

          

          

          Radio Broadcasting

          

          

          

          6,500,000

          

          

          

          5,622,983

          

          

          

          9.27Global Energy Efficiency Holdings, Inc.

          

          

          Energy Efficiency Services

          

          

          

          5,429,890

          

          

          

          5,560,833

          

          

          

          9.17iMedX, Inc.

          

          

          Medical Transcription Services

          

          

          

          5,087,170

          

          

          

          5,242,221

          

          

          

          8.64Employment Plus, Inc.

          

          

          Staffing Services

          

          

          

          5,000,000

          

          

          

          5,000,000

          

          

          

          8.24Coast Plating, Inc.

          

          

          Aerospace Parts Plating and Finishing

          

          

          

          4,833,401

          

          

          

          4,824,934

          

          

          

          7.96Total

          

          

          

          

          

          $

          60,400,710

          

          

          $

          60,701,682

          

          

          

          100.09

          %
 For a description of the factors relevant to the values of the above portfolio investments for the year ended June 30, 2013, see Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies. Set forth below are descriptions of the ten largest portfolio investments as of June 30, 2013: New Media West, LLC New Media West, LLC provides digital satellite television, high speed internet, voice over IP and other information and communication services, primarily to residents living in the Southwest United States. New Media West derives revenue through the sale of subscription services to owners and residents of MDUs under long-term right of entry agreements. MDU Communications (USA) Inc. MDU Communications (USA) Inc. provides digital satellite television, high speed internet, voice over IP and other information and communication services, primarily to residents living in the United States. MDU Communications derives revenue through the sale of subscription services to owners and residents of MDUs under long-term right of entry agreements. The Finance Company, LLC The Finance Company, LLC operates under the Cashwell trade name. It provides consumer installment loan programs in South Carolina. ProGrade Ammo LLC ProGrade Ammo LLC and its affiliates, based in Montana, are manufacturers and distributors of small arms ammunition and components. ProGrade provides ammunition, accessories and components to retail outlets, ammunition manufacturers, and law enforcement agencies. Modular Process Control, LLC Modular Process Control, LLC, (MPC), based in Missouri, is a 30-year old professional engineering services company targeting the global industrial sector. MPC seeks to reduce its clients energy usage by optimizing operating processes and equipment, thereby replacing the need to make significant capital expenditures.
 13    TABLE OF CONTENTS Blackstrap Broadcasting, LLC Blackstrap Broadcasting, LLC engages in radio broadcasting activities through its ownership and operations of two AM radio stations in the New York, NY and Boston, MA markets. Blackstraps stations are operated on a brokered time model whereby blocks of broadcast time are sold under fixed price, multi-year contracts to independent programmers. Global Energy Efficiency Holdings, Inc. Global Energy Efficiency Holdings, Inc. provides energy efficiency products, installation and maintenance services to small and medium sized businesses in various food sales and service industries. iMedX, Inc. iMedX, Inc. is a healthcare software and services company that provides medical transcription services to the small physician practice and medical clinic markets. The company, headquartered in Shelton, Connecticut, also has operations in South Point, Ohio and three major cities in India. Employment Plus, Inc. Employment Plus, Inc., (EPI), is a human resources solutions firm headquartered in Bloomington, Indiana. Founded in 1993, EPI has grown to over 98 locations across 18 states. EPI offers both temporary and permanent staffing solutions for administrative, call center, customer service, manufacturing, industrial, assembly and warehouse positions. Coast Plating, Inc. Coast Plating, Inc. (Coast) is a provider of metal processing and metal finishing services for the aerospace and defense industries. The companys core services include non-destructive testing, cleaning, anodizing, chemical conversions and painting. Coast is based in Gardena, California and operates another facility in Carson, California. Investment Advisory Agreement Management Services Full Circle Advisors serves as our investment adviser. Full Circle Advisors is an investment adviser that is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our Board of Directors, our investment adviser manages the day-to-day operations of, and provides investment advisory and management services to, Full Circle Capital. Under the terms of our Investment Advisory Agreement, Full Circle Advisors: 

          determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; 

          identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); 

          closes and monitors the investments we make; and 

          provides us with other investment advisory, research and related services as we may from time to time require. Full Circle Advisors services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.
 14    TABLE OF CONTENTS Management Fee Pursuant to the Investment Advisory Agreement, we have agreed to pay Full Circle Advisors a fee for investment advisory and management services consisting of two components  a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.75% of our gross assets, as adjusted. For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, as adjusted, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be appropriately pro-rated. Our investment adviser waived the portion of the base
management fee that exceeded 1.50% of Full Circle Capitals gross assets, as adjusted, from the time we commenced operations to August 31, 2011, when such waiver expired. The incentive fee has two parts. The first part of the incentive fee is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter
(including the base management fee, expenses payable under the Administration Agreement to Full Circle Service Company, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, computed net of all realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00% annualized). Our net investment income used to calculate this part of the incentive fee is
also included in the amount of our gross assets used to calculate the 1.75% base management fee. We pay Full Circle Advisors an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: 

          no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%; 

          100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle but is less than 2.1875%) as the catch-up. The catch-up is meant to provide our investment adviser with 20% of our pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 2.1875% in any calendar quarter; and 

          20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to Full Circle Advisors (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to Full Circle Advisors).
 15    TABLE OF CONTENTS The following is a graphical representation of the calculation of the income-related portion of the incentive fee: Quarterly Incentive Fee Based on Net Investment Income  Pre-incentive fee net investment income  (expressed as a percentage of the value of net assets) [GRAPHIC MISSING] Percentage of pre-incentive fee net investment income allocated to Full Circle Advisors These calculations are appropriately pro-rated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. You should be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to pre-incentive fee net investment income. The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees with respect to each of the investments in our portfolio. For accounting purposes only, in order to reflect the theoretical
capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we will accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Examples of Quarterly Incentive Fee Calculation Example 1: Income Related Portion of Incentive Fee*: Alternative 1: Assumptions Investment income (including interest, dividends, fees, etc.) = 1.25% Hurdle rate(1) = 1.75% Management fee(2) = 0.4375% Other expenses (legal, accounting, transfer agent, etc.)(3) = 0.20% Pre-incentive fee net investment income   (investment income  (management fee + other expenses)) = 0.6125% Pre-incentive net investment income does not exceed hurdle rate, therefore there is no incentive fee.
 16    TABLE OF CONTENTS Alternative 2: Assumptions Investment income (including interest, dividends, fees, etc.) = 2.70% Hurdle rate(1) = 1.75% Management fee(2) = 0.4375% Other expenses (legal, accounting, transfer agent, etc.)(3) = 0.20% Pre-incentive fee net investment income   (investment income  (management fee + other expenses)) = 2.0625% Incentive fee = 100% × pre-incentive fee net investment income, subject to the catch-up(4) = 100% × (2.0625%  1.75%) = 0.3125% Alternative 3: Assumptions Investment income (including interest, dividends, fees, etc.) = 3.00% Hurdle rate(1) = 1.75% Management fee(2) = 0.4375% Other expenses (legal, accounting, transfer agent, etc.)(3) = 0.20% Pre-incentive fee net investment income   (investment income  (management fee + other expenses)) = 2.3625% Incentive fee = 20% × pre-incentive fee net investment income, subject to catch-up(4) Incentive fee = 100% × catch-up + (20% × (pre-incentive fee net investment income  2.1875%)) Catch-up = 2.1875%  1.75% = 0.4375% Incentive fee = (100% × 0.4375%) + (20% × (2.3625%  2.1875%)) = 0.4375% + (20% × 0.175%) = 0.4375% + 0.035% = 0.4725%  *

          The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets. (1)

          Represents 7% annualized hurdle rate. (2)

          Represents 1.75% annualized management fee. (3)

          Excludes organizational and offering expenses. (4)

          The catch-up provision is intended to provide the investment adviser with an incentive fee of 20% on all of Full Circle Capitals pre-incentive fee net investment income as if a hurdle rate did not apply when its net investment income exceeds 2.1875% in any calendar quarter.
 17    TABLE OF CONTENTS Example 2: Capital Gains Portion of Incentive Fee: Alternative 1: Assumptions 

          Year 1: $20 million investment made in Company A (Investment A), and $30 million investment made in Company B (Investment B) 

          Year 2: Investment A sold for $50 million and fair market value (FMV) of Investment B determined to be $32 million 

          Year 3: FMV of Investment B determined to be $25 million 

          Year 4: Investment B sold for $31 million The capital gains portion of the incentive fee would be: 

          Year 1: None 

          Year 2: $6 million capital gains incentive fee ($30 million realized capital gains on sale of Investment A multiplied by 20%) 

          Year 3: None ($5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)) 

          Year 4: $200,000 capital gains incentive fee ($6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains fee taken in Year 2)) Alternative 2: Assumptions 

          Year 1: $20 million investment made in Company A (Investment A), $30 million investment made in Company B (Investment B) and $25 million investment made in Company C (Investment C) 

          Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million 

          Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million 

          Year 4: FMV of Investment B determined to be $35 million 

          Year 5: Investment B sold for $20 million The capital gains incentive fee, if any, would be: 

          Year 1: None 

          Year 2: $5 million capital gains incentive fee (20% multiplied by $25 million ($30 million realized capital gains on Investment A less $5 million unrealized capital depreciation on Investment B)) 

          Year 3: $1.4 million capital gains incentive fee(1) ($6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million capital gains fee received in Year 2) 

          Year 4: $0.6 million capital gains incentive fee ($7.0 million (20% multiplied by $35 million ($35 million cumulative realized capital gains)) less $6.4 million cumulative capital gains fee paid in Year 2 and Year 3) 

          Year 5: None ($5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $7.0 million cumulative capital gains fee paid in Year 2, Year 3, and Year 4)  (1)

          As illustrated in Year 3 of Alternative 1 above, if the Company were to be wound up on a date other than December 31 of any year, the Company may have paid aggregate capital gain incentive fees that are more than the amount of such fees that would be payable if the Company had been wound up on December 31 of such year.
 18    TABLE OF CONTENTS Payment of Our Expenses The investment committee of our investment adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by Full Circle Advisors. We bear all other costs and expenses of our operations and transactions, including (without limitation): 

          the cost of our organization and initial public offering; 

          the cost of calculating our net asset value, including the cost of any third-party valuation services; 

          the cost of effecting sales and repurchases of our shares and other securities; 

          interest payable on debt, if any, to finance our investments; 

          fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees; 

          transfer agent and safekeeping fees; 

          fees and expenses associated with marketing efforts; 

          federal and state registration fees, any stock exchange listing fees; 

          federal, state and local taxes; 

          independent directors fees and expenses; 

          brokerage commissions; 

          fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums; 

          direct costs and expenses of administration and sub-administration, including printing, mailing, long distance telephone and staff; 

          fees and expenses associated with independent audits and outside legal costs; 

          costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and 

          all other expenses incurred by either Full Circle Service Company or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Full Circle Service Company in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer and our Chief Financial Officer and any administrative support staff. Our Investment Advisor had agreed to reimburse us for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public offering, which occurred on August 31, 2010. This agreement was extended through September 30, 2011 and expired on such date. Duration and Termination Our Board of Directors initially approved the Investment Advisory Agreement on July 8, 2010 and most recently re-approved such agreement on June 24, 2013. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect from year to year if approved annually by our Board of Directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not parties to such agreement or who are not interested persons of any such party, as such term is defined in Section 2(a)(19) of
the 1940 Act. The Investment Advisory Agreement will automatically terminate in the event of its assignment. The Investment
 19    TABLE OF CONTENTS Advisory Agreement may also be terminated by either party without penalty upon not more than 60 days written notice to the other party. See Risk Factors  Risks Relating to Our Business and Structure  Our investment adviser has the right to resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. Indemnification The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Full Circle Advisors and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from Full Circle Capital for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of Full Circle Advisors services under the
Investment Advisory Agreement or otherwise as an investment adviser of Full Circle Capital. Organization of our Investment Adviser Full Circle Advisors is a Delaware limited liability company. The principal executive offices of Full Circle Advisors are located at 800 Westchester Ave., Suite S-620, Rye Brook, New York 10573. Board Approval of the Investment Advisory Agreement Our Board of Directors determined at a meeting held on June 24, 2013 to re-approve the Investment Advisory Agreement. In its consideration of the re-approval of the Investment Advisory Agreement, the Board of Directors focused on current, historical and projected information it had received relating to, among other things: 

          the nature, quality and extent of the advisory and other services to be provided to us by Full Circle Advisors over the term of the Investment Advisory Agreement, including our performance relative to other business development companies during the prior year; 

          comparative data with respect to advisory fees or similar expenses currently paid by other business development companies with similar investment objectives; 

          our historical and projected operating expenses and expense ratio compared to business development companies with similar investment objectives; 

          any existing and potential sources of indirect income to Full Circle Advisors or Full Circle Service Company from their relationships with us and the profitability of those relationships, including through the Investment Advisory Agreement and the Administration Agreement; 

          information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement, including the capacity of Full Circle Advisors to handle the anticipated size and nature of our portfolio in the future; 

          the organizational capability and financial condition of Full Circle Advisors and its affiliates; 

          Full Circle Advisors practices regarding the selection and compensation of brokers that may execute our portfolio transactions and the brokers provision of brokerage and research services to Full Circle Advisors; and 

          the possibility of obtaining similar services from other third party service providers or through an internally managed structure, including both the potential benefits and relative costs and expenses involved. Based on the information reviewed and related discussions, the Board of Directors, including a majority of the non-interested directors, concluded that fees payable to Full Circle Advisors pursuant to the Investment Advisory Agreement were reasonable in relation to the services to be provided. The Board of Directors did not assign relative weights to the above factors or the other factors considered by it. In addition, the Board of Directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Board of Directors may have given different
weights to different factors.
 20    TABLE OF CONTENTS Administration Agreement Full Circle Service Company, a Delaware limited liability company, serves as our administrator. The principal executive offices of Full Circle Service Company are located at 800 Westchester Ave., Suite S-620, Rye Brook, New York 10573. Pursuant to an Administration Agreement most recently ratified by our Board of Directors on June 24, 2013, Full Circle Service Company furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, Full Circle Service Company also performs, or oversees the performance of, our required administrative
services, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders. In addition, Full Circle Service Company assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Full Circle Service Companys overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our Chief Financial Officer and our allocable portion of the compensation of any administrative support staff employed
by the Administrator, directly or indirectly. Under the Administration Agreement, Full Circle Service Company will also provide on our behalf managerial assistance to those portfolio companies that request such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days written notice to the other party. Full Circle Service Company also may provide administrative services to our investment adviser, Full Circle Advisors. As a result, Full Circle Advisors also would reimburse Full Circle Service Company for its allocable portion of Full Circle Service Companys overhead, including rent, the fees and expenses associated with performing compliance functions for Full Circle Advisors, and its allocable portion of the compensation of any administrative support staff. To the extent Full Circle Advisors or any of its affiliates manage other investment vehicles in the future, no portion of any administrative services provided by
Full Circle Service Company to such other investment vehicles will be charged to us. The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Full Circle Service Company and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from Full Circle Capital for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of Full Circle Service Companys services under
the Administration Agreement or otherwise as administrator for Full Circle Capital. Our Chief Financial Officer, William E. Vastardis, is the President of Vastardis Fund Services LLC. Full Circle Service Company has engaged Vastardis Fund Services to provide certain administrative services to us. In exchange for providing such services, Full Circle Service Company pays Vastardis Fund Services an asset-based fee with a $200,000 annual minimum. This asset-based fee varies depending upon our gross assets as follows:  Gross Assets

          

          Feefirst $150 million of gross assets

          

          20 basis points (0.20%)next $150 million of gross assets

          

          15 basis points (0.15%)next $200 million of gross assets

          

          10 basis points (0.10%)in excess of $500 million of gross assets

          

          5 basis points (0.05%)
 Additionally, we reimburse the Administrator for the fees charged for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary at an annual rate of up to $250,000. This arrangement will terminate on September 30, 2013 in connection with Michael J. Sells appointment as Chief Financial Officer, Treasurer and Secretary. Mr. Sell previously served as our Assistant Secretary. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Recent Developments.
 21    TABLE OF CONTENTS Vastardis agreed to cap its first year fees at $200,000, plus any reimbursement of expenses, for administrative services to us, and at $100,000 for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary. Those caps expired on August 31, 2011. License Agreement We have entered into a license agreement with Full Circle Advisors pursuant to which Full Circle Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name Full Circle. Under this agreement, we have a right to use the Full Circle name for so long as the Investment Advisory Agreement with Full Circle Advisors is in effect. Other than with respect to this limited license, we will have no legal right to the Full Circle name. Staffing We do not currently have any employees. Mr. Stuart, our Chief Executive Officer and President, currently serves as the manager of our investment adviser, Full Circle Advisors. William E. Vastardis, our Chief Financial Officer, Treasurer and Secretary, is the President of Vastardis Fund Services LLC, and performs his function under the terms of an agreement between Full Circle Service Company and Vastardis Fund Services LLC. Salvatore Faia, our Chief Compliance Officer, is the President of Vigilant Compliance Services and performs his function under the terms of an agreement between Full Circle Service Company and Vigilant
Compliance Services. Our day-to-day investment operations are managed by Full Circle Advisors. Full Circle Advisors investment committee currently consists of Messrs. Stuart, Chua and Deery, its experienced senior investment professionals. Full Circle Advisors may hire additional investment professionals, based upon its needs. See Business  Investment Advisory Agreement. Competition We compete for investments with other business development companies and investment funds (including private equity funds, mezzanine funds and small business investment companies), as well as traditional financial services companies such as commercial banks and other sources of funding. Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to invest in areas they have not traditionally invested in, including making investments in smaller and lower mid-sized companies. As a result of these new entrants,
competition for investment opportunities in smaller and lower mid-sized companies may intensify. Many of these entities have greater financial and managerial resources than we do. We believe we are able to compete with these entities primarily on the basis of the experience and contacts of our investment adviser, our responsive and efficient investment analysis and decision-making processes, the investment terms we offer, and our willingness to make smaller investments. We believe that certain of our competitors will make first and second lien loans with interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete solely on the interest rates and returns that we offer to potential portfolio companies. For additional information concerning the competitive risks we face, see Risk Factors  Risk Relating to Our Business and Structure  We may face increasing competition for investment opportunities. Securities Exchange Act Reports We maintain a website at www.fccapital.com. The information on our website is not incorporated by reference in this annual report on Form 10-K. We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the Securities and Exchange Commission (the SEC) in accordance with the Securities Exchange Act of 1934, as amended (the Exchange Act). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.
 22    TABLE OF CONTENTS Regulation As a business development company, we are regulated by the 1940 Act. A business development company must be organized in the United States for the purpose of investing in or lending to primarily private companies and making managerial assistance available to them. A business development company may use capital provided by public stockholders and from other sources to make long-term, private investments in businesses. A business development company provides stockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits, if any, of investing in primarily privately owned
companies. We may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company unless authorized by vote of a majority of the outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such companys voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company. We do not anticipate any
substantial change in the nature of our business. As with other companies regulated by the 1940 Act, a business development company must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the business development company. Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such persons office. As a business development company, we are generally required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our gross assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 200% after each issuance of senior securities. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the SEC. As a business development company, we are not generally permitted to invest in any portfolio company in which our investment adviser or any of its affiliates currently have an investment or to make any co-investments with our investment adviser or its affiliates without an exemptive order from the SEC, subject to certain exceptions. We are not generally able to sell our common stock at a price below net asset value per share. See Risk Factors  Risks Relating to our Business and Structure  Regulations governing our operation as a business development company affect our ability to raise additional capital and the way in which we do so. As a business development company, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage. We may, however, sell our common stock at a price below net asset value per share (i) in connection with a rights offering to
our existing stockholders, (ii) with the consent of the majority of our common stockholders, or (iii) under such other circumstances as the SEC may permit. For example, we may sell our common stock at a price below the then current net asset value of our common stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve our policy and practice of making such sales. In this regard, at our most recent Annual Stockholders Meeting, our common stockholders voted to allow us to issue common stock at a price below net asset value per share for a period of one year ending on the earlier of February 1, 2014 or our next Annual Stockholders Meeting. The maximum number of shares issuable below net asset value in each offering is limited to 25% of our then outstanding common stock. Any such offering is subject to approval by our Board of Directors and its determination that the price at which our common
stock to be issued and sold is not less than a price which closely approximates the market value of such common stock. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances. We may be examined by the SEC for compliance with the 1940 Act.
 23    TABLE OF CONTENTS As a business development company, we are subject to certain risks and uncertainties. See Risk Factors  Risks Relating to our Business and Structure. Qualifying Assets Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development companys gross assets. The principal categories of qualifying assets relevant to our proposed business are the following: (1)

          Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: (a)

          is organized under the laws of, and has its principal place of business in, the United States; (b)

          is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and (c)

          satisfies any of the following: i.

          does not have any class of securities that is traded on a national securities exchange; ii.

          has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less then $250 million; iii.

          is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or iv.

          is a small and solvent company having gross assets of not more than $4.0 million and capital and surplus of not less than $2.0 million. (2)

          Securities of any eligible portfolio company which we control. (3)

          Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. (4)

          Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. (5)

          Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities. (6)

          Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. Managerial Assistance to Portfolio Companies In addition, a business development company must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the business development company must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the business
development company purchases such securities in conjunction with one or more other persons acting together, one of the
 24    TABLE OF CONTENTS other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the business development company, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. We offer to provide managerial assistance to our portfolio companies. Temporary Investments Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor,
such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions. Senior Securities We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our gross assets for temporary or emergency
purposes without regard to asset coverage. See Risk Factors  We borrow money, which magnifies the potential for gain or loss on amounts invested and increases the risk of investing in us. Code of Ethics We and Full Circle Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain transactions by our personnel. Our codes of ethics generally do not permit investments by our employees in securities that may be purchased or held by us. You may read and copy these codes of ethics at the SECs Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, each code of
ethics is available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. You may also obtain copies of the codes of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549. Compliance Policies and Procedures We and our investment adviser have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures. Salvatore Faia currently serves as our Chief Compliance Officer.
 25    TABLE OF CONTENTS Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. For example: 

          pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Financial Officer must certify the accuracy of the financial statements contained in our periodic reports; 

          pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; 

          pursuant to Rule 13a-15 of the Exchange Act, our management must prepare an annual report regarding its assessment of our internal control over financial reporting; and 

          pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the 1934 Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith. Proxy Voting Policies and Procedures We have delegated our proxy voting responsibility to Full Circle Advisors. The Proxy Voting Policies and Procedures of Full Circle Advisors are set forth below. The guidelines will be reviewed periodically by Full Circle Advisors and our non-interested directors, and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below, we, our and us refers to Full Circle Advisors. Introduction An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, we recognize that we must vote client securities in a timely manner free of conflicts of interest and in the best interests of our clients. These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act. Proxy Policies We will vote proxies relating to our portfolio securities in what we perceive to be the best interest of our clients stockholders. We will review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by our clients. Although we will generally vote against proposals that may have a negative impact on our clients portfolio securities, we may vote for such a proposal if there exist compelling long-term reasons to do so. Our proxy voting decisions will be made by the senior officers who are responsible for monitoring each of our clients investments. To ensure that our vote is not the product of a conflict of interest, we will require that: (1) anyone involved in the decision making process disclose to our manager any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence
from interested parties. Proxy Voting Records You may obtain information about how we voted proxies by making a written request for proxy voting information to: Full Circle Advisors, LLC, 800 Westchester Ave., Suite S-620, Rye Brook, New York 10573. Privacy Principles We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
 26    TABLE OF CONTENTS Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator). We restrict access to non-public personal information about our stockholders to employees of our investment adviser and its affiliates with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders. Material U.S. Federal Income Tax Considerations We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders as dividends. To continue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our investment company taxable income, which is generally our ordinary income plus the
excess of our realized net short-term capital gains over our realized net long-term capital losses (the Annual Distribution Requirement). Taxation as a Regulated Investment Company If we: 

          qualify as a RIC; and 

          satisfy the Annual Distribution Requirement, then we will not be subject to U.S. federal income tax on the portion of our income we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders. We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the Excise Tax Avoidance Requirement). We generally will endeavor in each taxable year to make sufficient distributions to our stockholders to avoid any U.S. federal excise tax on our earnings. In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: 

          continue to qualify as a business development company under the 1940 Act at all times during each taxable year; 

          derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income from certain qualified publicly traded partnerships, or other income derived with respect to our business of investing in such stock or securities (the 90% Income Test); and 

          diversify our holdings so that at the end of each quarter of the taxable year: 

          at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and 

          no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses, or of certain qualified publicly traded partnerships (the Diversification Tests).
 27    TABLE OF CONTENTS We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants, or carrying PIK interest or, in certain cases, increasing interest rates), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation (assuming we believe such amounts are ultimately collectable), regardless of whether cash representing such income is received by us in the same taxable year. We may also
have to include in income other amounts that we have not yet received in cash (assuming we believe such amounts are ultimately collectable), such as contractual PIK interest and deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met. See Regulation  Senior Securities. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC,
including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things: (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions; (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income; (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited); (iv) cause us to recognize income or gain without a corresponding receipt of cash; (v) adversely affect the time as to when a purchase or sale of securities is deemed to occur; (vi)
adversely alter the characterization of certain complex financial transactions; and (vii) produce income that will not be qualifying income for purposes of the 90% gross income test described above. We will monitor its transactions and may make certain tax elections in order to mitigate the potential adverse effect of these provisions. Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. The treatment of such gain or loss as long-term or short-term will depend on how long we held a particular warrant. Upon the exercise of a warrant acquired by us, our tax basis in the stock purchased under the warrant will equal the sum of the amount paid for the warrant plus the strike price paid on the exercise of the warrant. Failure to Qualify as a Regulated Investment Company If we were unable to qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates, regardless of whether we make any distributions to our stockholders. Distributions would not be required, and any distributions made in taxable years beginning before January 1, 2013 would be taxable to our stockholders as ordinary dividend income that, subject to certain limitations, may be eligible for the 15% maximum rate to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributes would be eligible for the
dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholders tax basis, and any remaining distributions would be treated as a capital gain.
 28    TABLE OF CONTENTS Item 1A.  Risk Factors RISK FACTORS Investing in our common stock involves a number of significant risks. In addition to the other information contained in this annual report on Form 10-K, you should consider carefully the following information before making an investment in our common stock. The risks set out below are the principal risks with respect to an investment in our securities, and with respect to business development companies. They may not be the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and performance. If any of the following events
occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Relating to Our Business and Structure Our investment portfolio is recorded at fair value, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, its estimate of fair value and, as a result, there is uncertainty as to the value of our portfolio investments. Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by us in accordance with our written valuation policy, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, our estimate of fair value. Typically, there will not be a public market for the securities of the privately held companies in which we invest. As a result, we value these securities quarterly at fair value based on input from management, third party independent valuation firms and our audit
committee, with the oversight, review and approval of our Board of Directors. The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree, subjective and dependent on a valuation process approved by our Board of Directors. Certain factors that may be considered in determining the fair value of our investments include estimates of the collectability of the principal and interest on our debt investments and expected realization on our equity investments, as well as external events, such as private mergers, sales and acquisitions involving comparable companies. Because such valuations, and particularly valuations of private
securities and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. Our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result, investors purchasing our securities based on an overstated net asset value would pay a higher price than the value of our investments might warrant. Conversely, investors selling securities during a period in which the net asset value understates the value of our investments will receive a lower price for their securities than the value of our investments might warrant. Our financial condition and results of operations depend on our ability to effectively manage and deploy capital. Our ability to achieve our investment objective depends on our ability to effectively manage and deploy capital, which depends, in turn, on our investment advisers ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our investment criteria. Accomplishing our investment objective on a cost-effective basis is largely a function of our investment advisers handling of the investment process, its ability to provide competent, attentive and efficient services and our access to investments offering acceptable terms. In addition to monitoring the performance of our existing investments, our investment advisers investment committee may also be called upon, from time to time, to provide managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow the rate of investment.
 29    TABLE OF CONTENTS Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described herein, it could negatively impact our ability to pay
dividends. We may face increasing competition for investment opportunities. We compete for investments with other business development companies and investment funds (including private equity funds, mezzanine funds and small business investment companies), as well as traditional financial services companies such as commercial banks and other sources of funding. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than us. For example, some competitors have a lower cost of capital and access to funding sources that are not available to us, including from federal government agencies through federal rescue programs such as the U.S.
Department of Treasurys Financial Stability Plan (formerly known as the Troubled Asset Relief Program) or the Small Business Administration. In addition, some of our competitors have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to offer. We may lose investment opportunities if we do not match our competitors pricing, terms and structure. If we are forced to match our competitors pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact that the market for investments in smaller and lower middle-market companies is underserved by traditional commercial banks and other financing sources. A significant
increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a business development company. We believe that certain of our competitors will make first and second lien loans with interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete solely on the interest rates and returns that we offer to potential portfolio companies. We are dependent upon Full Circle Advisors key personnel for our future success. We depend on the diligence, skill and network of business contacts of Mr. Stuart, who serves with Messrs. Chua and Deery as members of the investment committee of Full Circle Advisors. Mr. Stuart, together with the other dedicated senior investment professionals available to Full Circle Advisors, evaluates, negotiates, structures, closes and monitors our investments. Our future success depends on the continued service of Mr. Stuart and the other senior investment professionals available to Full Circle Advisors. We cannot assure you that unforeseen business, medical, personal or other circumstances would not lead Mr. Stuart or
any other such individual to terminate his relationship with us. The loss of Mr. Stuart or any of the other senior investment professionals who serve on Full Circle Advisors investment committee, could have a material adverse effect on our ability to achieve our investment objective as well as on our financial condition and results of operations. In addition, we can offer no assurance that Full Circle Advisors will continue indefinitely as our investment adviser. The members of Full Circle Advisors investment committee are and may in the future become affiliated with entities engaged in business activities similar to those intended to be conducted by us, and may have conflicts of interest in allocating their time. We expect that Mr. Stuart will dedicate a significant portion of his time to the activities of Full Circle Capital; however, he may be engaged in other business activities which could divert his time and attention in the future.
 30    TABLE OF CONTENTS Our success depends on the ability of Full Circle Advisors to attract and retain qualified personnel in a competitive environment. Our growth requires that Full Circle Advisors retain and attract new investment and administrative personnel in a competitive market. Its ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors including, but not limited to, its ability to offer competitive wages, benefits and professional growth opportunities. Many of the entities, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, with which it competes for experienced personnel have greater resources than it has. There are significant potential conflicts of interest which could impact our investment returns. Our executive officers and directors, as well as the current and any future members of our investment adviser, Full Circle Advisors, may serve as officers, directors or principals of other entities that operate in the same or a related line of business as we do. Accordingly, they may have obligations to investors in those entities, the fulfillment of which obligations may not be in the best interests of us or our stockholders. In addition, Full Circle Advisors investment committee presently manages Full Circle Funding, LP, a specialty lender serving smaller and lower middle-market companies. Although the existing
investment funds managed by Full Circle Funding, LP, which currently consist of the Legacy Funds, are no longer making new investments, any affiliated investment vehicle formed in the future and managed by our investment adviser or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, Full Circle Advisors may face conflicts in allocating investment opportunities between us and such other entities. Although Full Circle Advisors will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by our investment adviser or an investment manager affiliated with our investment adviser. In any such case, when Full Circle Advisors identifies an investment, it will be forced to
choose which investment fund should make the investment. Full Circle Advisors has implemented an allocation policy to ensure the equitable distribution of such investment opportunities consistent with the requirements of the 1940 Act. If our investment adviser forms other affiliates in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with applicable regulations and regulatory guidance and our allocation procedures. In the course of our investing activities, we pay management and incentive fees to Full Circle Advisors and reimburse Full Circle Advisors for certain expenses it incurs. As a result, investors in our common stock invest on a gross basis and receive distributions on a net basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the management team of Full Circle Advisors will have interests that differ from those of our stockholders, giving rise to a conflict. Full Circle Advisors is not reimbursed for any
performance-related compensation for its employees. We have entered into a royalty-free license agreement with our investment adviser, pursuant to which Full Circle Advisors grants us a non-exclusive royalty-free license to use the name Full Circle. Under the license agreement, we have the right to use the Full Circle name for so long as Full Circle Advisors or one of its affiliates remains our investment adviser. In addition, we will pay Full Circle Service Company, an affiliate of Full Circle Advisors, our allocable portion of overhead and other expenses incurred by Full Circle Service Company in performing its obligations under the Administration
Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our Chief Financial Officer and any administrative support staff. These arrangements create conflicts of interest that our Board of Directors must monitor. In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain written policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our executive officers and directors. We will not enter into any
 31    TABLE OF CONTENTS agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and approval or exemptive relief for such transaction. Our Board of Directors reviews these procedures on an annual basis. We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individuals personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with
approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K). Our incentive fee structure and the formula for calculating the management fee may incentivize Full Circle Advisors to pursue speculative investments, use leverage when it may be unwise to do so, or refrain from delevering when it would otherwise be appropriate to do so. The incentive fee payable by us to Full Circle Advisors may create an incentive for Full Circle Advisors to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to our investment adviser is calculated based on a percentage of our return on invested capital. In addition, our base management fee is calculated on the basis of our gross assets, including assets acquired through the use of leverage. This may encourage our investment adviser to use leverage to increase the aggregate amount of and the return on our
investments, even when it may not be appropriate to do so, and to refrain from delevering when it would otherwise be appropriate to do so. Under certain circumstances, the use of leverage may increase the Companys likelihood of default, which would impair the value of our securities. In addition, the investment adviser will receive the incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there will be no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, the investment adviser may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. The incentive fee payable by us to our investment adviser also may induce Full Circle Advisors to invest on our behalf in instruments that have a deferred interest feature, even if such deferred payments would not provide cash necessary to enable us to pay current distributions to our stockholders. Under these investments, we would accrue interest over the life of the investment but would not receive the cash income from the investment until the end of the term. Our net investment income used to calculate the income portion of our investment fee, however, will include accrued interest. Thus, a portion of this incentive fee
would be based on income that we have not yet received in cash. In addition, the catch-up portion of the incentive fee may encourage Full Circle Advisors to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and dividend amounts. We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, will bear our ratable share of any such investment companys expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to Full Circle Advisors with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders will bear his or her share of the management and incentive fee of Full Circle
Advisors as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest. In addition, if we repurchase our debt securities that are outstanding and such repurchase results in our recording a net gain on the extinguishment of debt for financial reporting and tax purposes, such net gain will be included in our pre-incentive fee net investment income for purposes of determining the income incentive fee payable to our investment adviser under the Investment Advisory Agreement.
 32    TABLE OF CONTENTS A general increase in interest rates will likely have the effect of making it easier for our investment adviser to receive incentive fees, without necessarily resulting in an increase in our net earnings. Given the structure of our Investment Advisory Agreement with Full Circle Advisors, any general increase in interest rates will likely have the effect of making it easier for Full Circle Advisors to meet the quarterly hurdle rate for payment of income incentive fees under the Investment Advisory Agreement without any additional increase in relative performance on the part of our investment adviser. In addition, in view of the catch-up provision applicable to income incentive fees under the Investment Advisory Agreement, our investment adviser could potentially receive a significant portion of the increase in our investment
income attributable to such a general increase in interest rates. If that were to occur, our increase in net earnings, if any, would likely be significantly smaller than the relative increase in our investment advisers income incentive fee resulting from such a general increase in interest rates. Our investment adviser has the right to resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. Our investment adviser has the right, under the Investment Advisory Agreement, to resign at any time upon not more than 60 days written notice, whether we have found a replacement or not. If our investment adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are
likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations. We have a limited operating history as a business development company. As a result of our limited operating history as a business development company, we are subject to many of the business risks and uncertainties associated with recently formed businesses, including the risk that we will not achieve our investment objective and that the value of your investment could decline substantially. Our investment adviser may not be able to achieve the same or similar returns as those achieved by Mr. Stuart while he was employed at prior positions. Although in the past Mr. Stuart held senior positions at a number of investment firms, including Full Circle Funding, LP, his track record and achievements are not necessarily indicative of future results that will be achieved by our investment adviser. We cannot assure you that we will be able to achieve the results realized by prior vehicles managed by Mr. Stuart, including the Legacy Funds. Any failure on our part to maintain our status as a business development company would reduce our operating flexibility. We have elected to be treated as a business development company under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of business development companies. For example, business development companies are required to invest at least 70% of their gross assets in specified types of securities, primarily in private companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on business development companies by the 1940 Act could
cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw our status as a business development company. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a business development company, we may be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business.
 33    TABLE OF CONTENTS Regulations governing our operation as a business development company affect our ability to raise additional capital and the way in which we do so. As a business development company, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage. We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities, up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we will be permitted, as a business development company, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable
to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. As of June 30, 2013, we had approximately $3.4 million principal amount of Distribution Notes outstanding, $21.1 million principal amount of 8.25% Notes due 2020 (the Notes) outstanding and had approximately $25.6 million outstanding under our $32.5 million senior secured credit facility (the Credit Facility) with Sovereign Bank, N.A. (Sovereign Bank), subject to borrowing base requirements. If we issue preferred stock, the preferred stock would
rank senior to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest. We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our Board of Directors determines that such sale is in the best interests of Full Circle Capital and its stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the
market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and you may experience dilution. We borrow money, which magnifies the potential for gain or loss on amounts invested and increases the risk of investing in us. The use of leverage magnifies the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in our securities. We borrow from and issue senior debt securities to banks, insurance companies and/or other lenders. Holders of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we
not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could also negatively affect our ability to make dividend payments on our common stock. Leverage is generally considered a speculative investment technique. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as the management fee payable to our investment adviser, Full Circle Advisors, is payable based on our gross assets, including those assets acquired through the use of leverage, Full Circle Advisors has a financial incentive to incur leverage which may not be consistent with our stockholders interests. In addition, our common stockholders bear the burden of any increase in our expenses as a result of leverage, including any increase in the management fee payable to Full Circle Advisors.
 34    TABLE OF CONTENTS As a business development company, we are generally required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our gross assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 200% after each issuance of senior securities. If this ratio declines below 200%, we may not be able to incur additional debt and could be required by law to sell a portion of our investments to repay some debt when it is disadvantageous to do so, which could have a material adverse effect on our operations, and we may not be able to make
distributions. The amount of leverage that we employ depends on our investment advisers and our Board of Directors assessment of market and other factors at the time of any proposed borrowing. In addition, the Credit Facility, Distribution Notes and Notes impose, and any other debt facility into which we may enter would likely impose, financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. For example, the Credit Facility requires us to maintain a minimum balance sheet leverage ratio and subjects us to prepayment fees in certain circumstances. Illustration.  The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. Assumed Return on Our Portfolio(1)(2)(net of expenses)  (10.0)%

          

          (5.0)%

          

          0.0%

          

          5.0%

          

          10.0%Corresponding net return to common stockholder

          

          

          (18.36

          )%

          

          

          (11.09

          )%

          

          

          (3.82

          )%

          

          

          3.45

          %

          

          

          10.72

          %
  (1)

          Assumes $88.2 million in total portfolio assets, $32.1 million in average debt outstanding, $60.6 million in net assets, and an average cost of funds of 7.22%. Actual interest payments may be different. (2)

          In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our June 30, 2013 total assets of at least 2.63%. Pending legislation may allow us to incur additional leverage. As a BDC, under the 1940 Act we generally are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Recent legislation introduced in the U.S. House of Representatives, if passed, would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment may increase. An inability to raise capital or access debt financing could negatively affect our business. We will need to periodically access the capital markets to raise cash to fund new investments. We have elected to be treated as a RIC and operate in a manner so as to qualify for the U.S. federal income tax treatment applicable to RICs. Among other things, in order to maintain our RIC status, we must distribute to our stockholders on a timely basis generally an amount equal to at least 90% of our investment company taxable income (as defined by the Code), and, as a result, such distributions will not be available to fund investment originations. As a result, we must continue to borrow from financial institutions and issue
additional securities to fund our growth. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend credit to us. Over the past several years, the capital markets and the credit markets have been experiencing extreme volatility and disruption and, accordingly, there has been and will continue to be uncertainty in the financial markets in general. An inability to successfully access the capital or credit markets for either equity or debt could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any.
 35    TABLE OF CONTENTS If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the 1940 Act. Any such failure, or a tightening or general disruption of the credit markets, would affect our ability to issue senior securities, including borrowings, and pay dividends, which could materially impair our business operations. We may experience fluctuations in our quarterly results. We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of portfolio dividend and fee income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance
in future periods. Our Board of Directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners. Under Maryland General Corporation Law and our charter, our Board of Directors is authorized to classify and reclassify any authorized but unissued shares of stock into one or more classes of stock, including preferred stock. Prior to issuance of shares of each class or series, the Board of Directors will be required by Maryland law and our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of
shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. The cost of any such reclassification would be borne by our common stockholders. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote as a separate class from the holders of common stock on a proposal to cease operations as a business development company. In addition, the 1940 Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. We currently have no plans to issue preferred stock. The issuance of preferred shares convertible into shares of common stock may also reduce the net income and net asset value per share of our
common stock upon conversion, provided, that we will only be permitted to issue such convertible preferred stock to the extent we comply with the requirements of Section 61 of the 1940 Act, including obtaining common stockholder approval. These effects, among others, could have an adverse effect on your investment in our common stock. Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse. Our Board of Directors has the authority to modify or waive our investment objective, current operating policies, investment criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment. We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code. Although we have elected to be treated as a RIC under Subchapter M of the Code, no assurance can be given that we will be able to continue to qualify for and maintain RIC status. To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.
 36    TABLE OF CONTENTS The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to make the required distributions, we could fail to
qualify for RIC tax treatment and thus become subject to corporate-level income tax. The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources. The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. Further, the illiquidity of our investments may make them difficult or impossible to dispose in a timely manner. If we fail to qualify for RIC tax treatment for any reason and become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time. We intend to make distributions on a monthly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a business development company, we may be limited in our ability to make distributions. See Business  Regulation. We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income. For federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the origination of a loan or possibly in other circumstances, or contractual PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discounts or increases in loan balances as a result of contractual PIK arrangements will be included in income before we receive any corresponding cash payments. We are also required to include in income certain other
amounts that we do not receive in cash. Since, in certain cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code. In addition, since our incentive fee is payable on our income recognized, rather than cash received, we may be required to pay advisory fees on income before or without receiving cash representing such income. The base management fee we pay to our adviser may also increase in the event that the accrual of non-cash income results in an increase to the fair value of our investments. Accordingly, we may
have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities in order to pay advisory fees. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. For additional discussion regarding the tax implications of a RIC, please see Business  Material U.S. Federal Income Tax Considerations.
 37    TABLE OF CONTENTS We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive. We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provision of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of shareholders are treated as taxable dividends. The Internal Revenue Service has issued private rulings indicating that this rule will apply even if the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. Under these rulings, if too many shareholders elect to receive their distributions in cash, each such shareholder would receive a pro rata share of the
total cash to be distributed and would receive the remainder of their distribution in shares of stock. If we decide to make any distributions consistent with these rulings that are payable in part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale.
Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock. Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy. We and our portfolio companies are subject to applicable local, state and federal laws and regulations, including, without limitation, federal immigration laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect. Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or
different opportunities. Such changes could result in material differences to the strategies and plans set forth herein and may result in our investment focus shifting from the areas of expertise of our investment advisers investment committee to other types of investments in which the investment committee may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment. We incur significant costs as a result of being a publicly traded company. As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the Securities and Exchange Commission. Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm our business, operating results and financial condition. Terrorist acts, acts of war or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial
condition. Losses from terrorist attacks and natural disasters are generally uninsurable.
 38    TABLE OF CONTENTS Risks Relating to Our Investments Our investments are very risky and highly speculative, and the smaller and lower middle-market companies we target may have difficulty accessing the capital markets to meet their future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity. We invest primarily in senior secured term loans, mezzanine debt and select equity investments issued by leveraged companies. Senior Secured Loans.  There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio companys financial condition and prospects, including its inability to raise additional capital, may be
accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loans terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies. Mezzanine Loans.  Our mezzanine debt investments are generally subordinated to senior loans and are generally unsecured. As such, other creditors may rank senior to us in the event of an insolvency, which could likely in many cases result in a substantial or complete loss on such investment in the case of such insolvency. This may result in an above average amount of risk and loss of principal. Equity Investments.  When we invest in senior secured loans or mezzanine loans, we may acquire equity securities, including warrants, as well. In addition, we may invest directly in the equity securities of portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. In addition, investing in smaller and lower middle-market companies involves a number of significant risks, including: 

          these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; 

          they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors actions and market conditions, as well as general economic downturns; 

          they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; 

          they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; 

          they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity; and 

          a portion of our income may be non-cash income, such as contractual PIK interest, which represents interest added to the loan balance and due at the end of the loan term. Instruments bearing PIK interest typically carry higher interest rates as a result of their payment deferral and increased credit risk. When we recognize income in connection with PIK interest, there is a risk that such income may become uncollectable if the borrower defaults.
 39    TABLE OF CONTENTS Investing in smaller and lower middle-market companies involves a high degree of risk and our financial results may be affected adversely if one or more of our significant portfolio investments defaults on its loans or fails to perform as we expect. Our portfolio consists primarily of debt and equity investments in privately owned smaller and lower middle-market companies. Investing in smaller and lower middle-market companies involves a number of significant risks. Typically, the debt in which we invest is not initially rated by any rating agency; however, we believe that if such investments were rated, they would be below investment grade. Compared to larger publicly owned companies, these smaller and lower middle-market companies may be in a weaker financial position and experience wider variations in their operating results, which may make them more vulnerable to
economic downturns and other business disruptions. Typically, these companies need more capital to compete; however, their access to capital is limited and their cost of capital is often higher than that of their competitors. Our portfolio companies face intense competition from larger companies with greater financial, technical and marketing resources and their success typically depends on the managerial talents and efforts of an individual or a small group of persons. Therefore, the loss of any of their key employees could affect a portfolio companys ability to compete effectively and harm its financial condition. Further, some of these companies conduct business in regulated industries that are susceptible to regulatory changes. These factors could impair the cash flow of our portfolio companies and result in other events, such as bankruptcy. These events could limit a portfolio companys ability to repay its obligations to us, which may have an adverse effect on the
return on, or the recovery of, our investment in these businesses. Deterioration in a borrowers financial condition and prospects may be accompanied by deterioration in the value of the loans collateral and the fair market value of the loan. Most of the loans in which we invest are not structured to fully amortize during their lifetime. Accordingly, if a borrower has not previously pre-paid its loan to us, a significant portion of the principal amount due on such a loan may be due at maturity. As of June 30, 2013, none of the Level 3 debt instruments in our portfolio, on a fair value basis, will fully amortize prior to maturity. In order to create liquidity to pay the final principal payment, borrowers typically must raise additional capital or sell their assets, which could potentially result in the collateral being sold for less than its fair market value. If
they are unable to raise sufficient funds to repay us or we have not elected to enter into a new loan agreement providing for an extended maturity, the loan will go into default, which will require Full Circle Capital to foreclose on the borrowers assets, even if the loan was otherwise performing prior to maturity. This will deprive Full Circle Capital from immediately obtaining full recovery on the loan and prevent or delay the reinvestment of the loan proceeds in other, more profitable investments. Some of these companies cannot obtain financing from public capital markets or from traditional credit sources, such as commercial banks. Accordingly, loans made to these types of companies pose a higher default risk than loans made to companies that have access to traditional credit sources. An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns. We invest primarily in privately held companies. Generally, little public information exists about these companies, and we are required to rely on the ability of Full Circle Advisors investment committee to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors. These factors could
adversely affect our investment returns as compared to companies investing primarily in the securities of public companies. Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies. We invest primarily in senior secured term debt issued by smaller and lower middle-market companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or in some cases senior to, the debt in which we invest. By their terms, such debt instruments may entitle the
 40    TABLE OF CONTENTS holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking
equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims. Even though we may have structured most of our investments as secured loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior loan is
re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for actions taken by us with respect to a borrowers business or instances where we exercise control over the borrower. It is possible that we could become subject to a lenders liability claim, including as a result of actions taken in rendering significant managerial assistance or actions to compel and collect payments from the borrower outside the ordinary course of business. Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us. Certain loans that we make are secured by a second priority security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lenders consent. Prior to and as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged to the senior lender, the senior lender will require assurances that it will control the disposition of
any collateral in the event of bankruptcy or other default. In many such cases, the senior lender will require us to enter into an intercreditor agreement prior to permitting the portfolio company to borrow from us. Typically the intercreditor agreements we will be requested to execute expressly subordinate our debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement. Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans. Capital markets have recently been in a period of disruption and instability. These market conditions have materially and adversely affected debt and equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations. The global capital markets have recently been in a period of disruption as evidenced by a lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of certain major financial institutions. Despite actions of the United States federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and
financial
 41    TABLE OF CONTENTS services firms in particular. While recent indicators suggest improvement in the capital markets, we cannot provide any assurance that these conditions will not worsen. Under current conditions, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital. Equity capital may be difficult to raise because as a business development company we are generally not able to issue additional shares of our common stock at a price less than net asset value. In addition, our ability to incur indebtedness (including by issuing preferred stock) is limited by
applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 200% immediately after each time we incur indebtedness. The debt capital that will be available, if at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at which we have recorded our investments. In addition, significant changes in the capital markets, including the recent extreme volatility and disruption, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business,
financial condition or results of operations. Economic recessions or downturns could impair our portfolio companies and harm our operating results. In recent years, the economy was in the midst of a recession and in a difficult part of a credit cycle. Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record the values of our investments. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments at fair value. Economic slowdowns or recessions could lead to financial
losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results. A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio companys ability to meet its obligations under the debt that we hold. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt, depending on
the facts and circumstances, including the extent to which we actually provided significant managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt holding and subordinate all or a portion of our claim to that of other creditors. The lack of liquidity in our investments may adversely affect our business. Generally, we invest in companies whose securities are not publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. Our investments will
usually be subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
 42    TABLE OF CONTENTS Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio. Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as follow-on investments, in order to: (i) increase or maintain in whole or in part our equity ownership percentage; (ii) exercise warrants, options or convertible securities that were acquired in the original or a subsequent financing; or (iii) attempt to preserve or enhance the value of our investment. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. We will have the discretion to make any follow-on investments, subject to the availability
of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we do not want to increase our concentration of risk, we prefer other opportunities, we are subject to business development company requirements that would prevent such follow-on investments, or the follow-on investment would affect our RIC tax status. Our portfolio may lack diversification among portfolio companies which may subject us to a risk of significant loss if one or more of these companies defaults on its obligations under any of its debt instruments. Our portfolio may hold a limited number of portfolio companies. For example, the 5 largest investments in our portfolio as of June 30, 2013 represented 39.1% of the portfolio assets of the Company. Beyond the asset diversification requirements associated with our qualification as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments may be concentrated in relatively few companies. As our portfolio is less diversified than the portfolios of some larger funds, we are more susceptible to failure if a single loan fails. Similarly, the aggregate returns we realize may be significantly
adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated. Our portfolio may be concentrated in a limited number of industries. A downturn in any particular industry in which we are invested could significantly impact the aggregate returns we realize. As of June 30, 2013, our investments in the business services industry (such as companies that provide services related to data and information, information retrieval, asset recovery, and energy efficiency services) represented approximately 41% of the fair value of our portfolio, our investments in the communications industry (such as companies that provide digital video satellite and broadband service to multiple dwelling units) represented approximately 18% of the fair value of our portfolio, our investments in the industrial manufacturing industry represented approximately 17% of the fair value of our portfolio, and our
investments in the media industry (such as outdoor advertising or radio broadcasting companies) represented approximately 9% of the fair value of our portfolio. In addition, we may from time to time invest a relatively significant percentage of our portfolio in industries we do not necessarily target. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations. Because we generally do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments. We generally do not hold controlling equity positions in our portfolio companies. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt and equity investments that we typically hold
 43    TABLE OF CONTENTS in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments. Defaults by our portfolio companies will harm our operating results. A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio companys ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. If any of these occur, it could
materially and adversely affect our operating results and cash flows. Any unrealized losses we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution. As a business development company, we are required to carry our investments at fair value as determined in good faith by our Board of Directors. Decreases in the fair values of our investments are recorded as unrealized depreciation. Any unrealized losses in our loan portfolio could be an indication of a portfolio companys inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods. Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity. We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments or repay our Credit Facility, depending on future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially
adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock. The investments in our portfolio have historically experienced only limited prepayments. Because we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income. Because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and long-term
debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Our investment adviser does not have significant experience with utilizing these techniques and did not implement these techniques to any significant extent with the Legacy Portfolio. If we do not implement these techniques properly, we could experience losses on our hedging positions, which could be material. You should also be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase in the amount of incentive fees payable to our investment adviser with respect to our pre-incentive fee net investment income.
 44    TABLE OF CONTENTS We may not realize gains from our equity investments. Certain investments that we may make include warrants or other equity securities. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of such
equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these puts rights for the consideration provided in our investment documents if the issuer is in financial distress. Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. Our investment strategy contemplates possible investments in debt securities of foreign companies. Our investment adviser does not have significant experience with investments in foreign securities and did not acquire such investments to any significant extent in connection with its management of the Legacy Portfolio. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information
than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Although all of our investments are U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge
currency risk, or that if we do, such strategies will be effective. We may expose ourselves to risks if we engage in hedging transactions. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other
positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency
fluctuations.
 45    TABLE OF CONTENTS Risks Relating to Our Common Stock Shares of closed-end investment companies, including business development companies, may trade at a discount to their net asset value. Shares of closed-end investment companies, including business development companies, may trade at a discount from net asset value. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our net asset value per share may decline. Our common stock price may be volatile and may decrease substantially, and our stockholders may lose money in connection with an investment in our shares. The trading price of our common stock may fluctuate substantially. The price of our common stock may increase or decrease, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following: 

          price and volume fluctuations in the overall stock market from time to time; 

          investor demand for our shares; 

          significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of these companies; 

          changes in regulatory policies or tax guidelines with respect to RICs or business development companies; 

          failure to qualify as a RIC, or the loss of RIC status; 

          any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; 

          changes, or perceived changes, in the value of our portfolio investments; 

          departures of Full Circle Advisors key personnel; 

          operating performance of companies comparable to us; or 

          general economic conditions and trends and other external factors. In the event our common stock price decreases, our stockholders may lose money. In addition, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price once a market for our stock is established, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business. Shares of closed-end investment companies, including business development companies, may trade at a discount to their net asset value. Shares of closed-end investment companies, including business development companies, may trade at a discount from net asset value. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our net asset value per share may decline. Existing stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock. The 1940 Act prohibits us from selling shares of our common stock at a price below the current net asset value per share of such stock, with certain exceptions. One such exception is prior stockholder approval of issuances below net asset value provided that our Board of Directors makes certain determinations. At our most recent Annual Stockholders Meeting, our stockholders approved a proposal that authorizes us to sell
 46    TABLE OF CONTENTS shares of our common stock below the then current net asset value per share of our common stock in one or more offerings for a period of one year ending on the earlier of February 1, 2014 or our next Annual Stockholders Meeting. Continued access to this exception will require approval of similar proposals at future stockholder meetings. Any decision to sell shares of our common stock below the then current net asset value per share of our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our stockholders best interests. If we were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to the net asset value per share held by our existing stockholders. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and a proportionately greater decrease in a stockholders interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. In addition, if we issue securities to subscribe to, convert to or purchase shares of common stock, the
exercise or conversion of such securities would increase the number of outstanding shares of our common stock. Any such exercise would be dilutive on the voting power of existing stockholders, and could be dilutive with regard to dividends and our net asset value, and other economic aspects of the common stock. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted; however, the example below illustrates the effect of dilution to existing stockholders resulting from the sale of common stock at prices below the net asset value of such shares. Illustration:  Example of Dilutive Effect of the Issuance of Shares Below Net Asset Value. Assume that Company XYZ has 1,000,000 total shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The net asset value per share of the common stock of Company XYZ is $10.00. The following table illustrates the reduction to net asset value, or NAV, and the dilution experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a price below its NAV per share.  Prior to Sale Below NAV

          

          Following Sale Below NAV

          

          Percentage ChangeReduction to NAVTotal Shares Outstanding

          

          

          1,000,000

          

          

          

          1,040,000

          

          

          

          4.0

          %NAV per share

          

          $

          10.00

          

          

          $

          9.98

          

          

          

          (0.2

          )%Dilution to Existing StockholderShares Held by Stockholder A

          

          

          10,000

          

          

          

          10,000

          (1)

          

          

          0.0

          %Percentage Held by Stockholder A

          

          

          1.00

          %

          

          

          0.96

          %

          

          

          (3.8

          )%Total Interest of Stockholder A in NAV

          

          $

          100,000

          

          

          $

          99,808

          

          

          

          (0.2

          )%
  (1)

          Assumes that Stockholder A does not purchase additional shares in the sale of shares below NAV. Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock. The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of Full Circle Capital or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. Our Board of Directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our board, including approval by a majority of our independent directors. If the resolution exempting
business combinations is repealed or our board does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such a transaction.
 47    TABLE OF CONTENTS We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our Board of Directors in three classes serving staggered three-year terms, and authorizing our Board of Directors to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, to amend our charter without stockholder approval and to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or
prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. Risks Relating to our Notes Our Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future. Our Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, our Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred, such as indebtedness under the Credit Facility, and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security). In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that
indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of our Notes. As of June 30, 2013, we had $25.6 million of outstanding borrowings under the Credit Facility. Our Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries. Our Notes are obligations exclusively of Full Circle Capital Corporation and not of any of our subsidiaries. None of our subsidiaries is a guarantor of our Notes and our Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of our Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors) and holders of preferred stock, if any, of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of our Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any
such subsidiary senior to our claims. Consequently, our Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. As of June 30, 2013, none of our subsidiaries had outstanding borrowings to third parties. However, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to our Notes. The indenture under which our Notes are issued contains limited protection for holders of our Notes. The indenture under which our Notes are issued offers limited protection to holders of our Notes. The terms of the indenture and our Notes do not restrict our or any of our subsidiaries ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on investments in our Notes. In particular, the terms of the indenture and our Notes do not place any restrictions on our or our subsidiaries ability to: 

          issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to our Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to our Notes, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to our Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to our Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any
 48    TABLE OF CONTENTS successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC (currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings); 

          pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to our Notes; 

          sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); 

          enter into transactions with affiliates; 

          create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; 

          make investments; or 

          create restrictions on the payment of dividends or other amounts to us from our subsidiaries. In addition, the indenture does not require us to offer to purchase our Notes in connection with a change of control or any other event. Furthermore, the terms of the indenture and our Notes do not protect holders of our Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity. Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of our Notes may have important consequences for you as a holder of our Notes, including making it more difficult for us to satisfy our obligations with respect to our Notes or negatively affecting the trading value of our Notes. Certain of our current debt instruments include more protections for their holders than the indenture and our Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and our Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of our Notes. An active trading market for the Notes may not exist, which could limit your ability to sell the Notes or affect the market price of the Notes. The Notes are listed on the Nasdaq Global Market under the symbol FULLL. However, we cannot provide any assurances that an active trading market for the Notes will exist in the future or that you will be able to sell your Notes. Even if an active trading market does exist, the Notes may trade at a discount from their par value depending on prevailing interest rates, the market for similar securities, our credit ratings, if any, general economic conditions, our financial condition, performance and prospects and other factors. To the extent an active trading market does not exist, the liquidity and trading price for
the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time. If we default on our obligations to pay our other indebtedness, we may not be able to make payments on our Notes. Any default under the agreements governing our indebtedness, including a default under the Credit Facility or other indebtedness to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on our Notes and substantially decrease the market value of our Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to
comply
 49    TABLE OF CONTENTS with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, including our Notes, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Credit Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could
be forced into bankruptcy or liquidation. In addition, any such default may constitute a default under our Notes, which could further limit our ability to repay our debt, including our Notes. If our operating performance declines, we may in the future need to seek to obtain waivers from the lenders under the Credit Facility or other debt that we may incur in the future to avoid being in default. If we breach our covenants under the Credit Facility or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default and our lenders or debt holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including Sovereign Bank under the Credit Facility, could proceed against the collateral securing the debt. Because the Credit Facility has, and any future credit facilities will likely have,
customary cross-default provisions, if the indebtedness thereunder or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due. We may choose to redeem our Notes when prevailing interest rates are relatively low. On or after June 30, 2016, we may choose to redeem our Notes from time to time, especially when prevailing interest rates are lower than the interest rate on our Notes. If prevailing rates are lower at the time of redemption, an investor in our Notes would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on our Notes being redeemed. Our redemption right also may adversely impact an investors ability to sell our Notes as the optional redemption date or period approaches. Item 1B.  Unresolved Staff Comments None. Item 2.  Properties Our executive offices are located at 800 Westchester Ave., Suite S-620, Rye Brook, New York 10573, and are provided by Full Circle Service Company in accordance with the terms of the Administration Agreement. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted. Item 3.  Legal Proceedings None of us, our investment adviser or administrator, is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us, or against our investment adviser or administrator. From time to time, we, our investment adviser or administrator, may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a
material effect upon our financial condition or results of operations. Item 4.  Reserved
 50    TABLE OF CONTENTS PART II Item 5.  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ Global Market under the symbol FULL. The following table sets forth the range of high and low sales prices of our common stock as reported on NASDAQ and our net asset value per share for each fiscal quarter during the last two most recently completed fiscal years:  Price RangeNAV(1)

          

          High

          

          LowFiscal 2013Fourth quarter

          

          $

          8.01

          

          

          $

          8.10

          

          

          $

          7.48Third quarter

          

          

          8.00

          

          

          

          8.04

          

          

          

          7.30Second quarter

          

          

          8.03

          

          

          

          8.50

          

          

          

          6.68First quarter

          

          

          8.51

          

          

          

          8.25

          

          

          

          7.60Fiscal 2012Fourth quarter

          

          $

          8.59

          

          

          $

          7.73

          

          

          $

          7.09Third quarter

          

          

          8.94

          

          

          

          8.15

          

          

          

          6.99Second quarter

          

          

          8.92

          

          

          

          7.24

          

          

          

          6.55First quarter

          

          

          9.11

          

          

          

          8.15

          

          

          

          6.09
  (1)

          Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sales prices. The net asset values shown are based on outstanding shares at the end of each period. The last reported sale price for our common stock on the NASDAQ Global Market on September 11, 2013 was $8.07 per share. As of September 11, 2013, there were approximately 84 holders of record of the common stock which did not include shareholders for whom shares are held in nominee or street name. Distributions We intend to distribute monthly dividends to our stockholders. Our dividends, if any, will be determined by our Board of Directors on a quarterly basis. We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinary income and our realized net short-term capital gains in excess of our realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to
retain such capital gains for investment. We maintain an opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically opt out of the dividend reinvestment plan so as to receive cash dividends. We may not be able to achieve operating results that will allow us to make dividends and distributions at a specific level or to increase the amount of these dividends and distributions from time to time. In addition, we may be limited in our ability to make dividends and distributions due to the asset coverage test for borrowings when applicable to us as a BDC under the 1940 Act and due to provisions in current and future credit facilities. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our RIC status. We cannot assure stockholders that
they will receive any dividends and distributions or dividends and distributions at a particular level. All dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvested in shares of our common stock. As a result, stockholders that do
 51    TABLE OF CONTENTS not participate in the dividend reinvestment plan may experience dilution over time. Stockholders who do not elect to receive dividends in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the dividend payable to a stockholder. The following table lists the cash distributions, including dividends and returns of capital, if any, per share that we have declared since our formation on April 16, 2010. There were no dividends declared prior to our initial public offering. The table is divided by fiscal year according to record date.  Date Declared

          

          Record Date

          

          Payment Date

          

          AmountFiscal 2011July 21, 2010

          

          

          September 30, 2010

          

          

          

          October 15, 2010

          

          

          $

          0.076

          (1)November 5, 2010

          

          

          December 31, 2010

          

          

          

          January 14, 2011

          

          

          

          0.225February 4, 2011

          

          

          March 31, 2011

          

          

          

          April 15, 2011

          

          

          

          0.225May 6, 2011

          

          

          June 30, 2011

          

          

          

          July 15, 2011

          

          

          

          0.225Total (2011)

          

          

          

          

          

          

          

          

          

          $

          0.751Fiscal 2012June 28, 2011

          

          

          July 29, 2011

          

          

          

          August 15, 2011

          

          

          $

          0.075

          (2)June 28, 2011

          

          

          August 31, 2011

          

          

          

          September 15, 2011

          

          

          

          0.075June 28, 2011

          

          

          September 30, 2011

          

          

          

          October 14, 2011

          

          

          

          0.075September 8, 2011

          

          

          October 31, 2011

          

          

          

          November 15, 2011

          

          

          

          0.077September 8, 2011

          

          

          November 30, 2011

          

          

          

          December 15, 2011

          

          

          

          0.077September 8, 2011

          

          

          December 30, 2011

          

          

          

          January 13, 2012

          

          

          

          0.077November 7, 2011

          

          

          January 31, 2012

          

          

          

          February 15, 2012

          

          

          

          0.077November 7, 2011

          

          

          February 29, 2012

          

          

          

          March 15, 2012

          

          

          

          0.077November 7, 2011

          

          

          March 30, 2012

          

          

          

          April 13, 2012

          

          

          

          0.077February 3, 2012

          

          

          April 30, 2012

          

          

          

          May 15, 2012

          

          

          

          0.077February 3, 2012

          

          

          May 31, 2012

          

          

          

          June 15, 2012

          

          

          

          0.077February 3, 2012

          

          

          June 29, 2012

          

          

          

          July 13, 2012

          

          

          

          0.077Total (2012)

          

          

          

          

          

          

          

          

          

          $

          0.918Fiscal 2013May 7, 2012

          

          

          July 31, 2012

          

          

          

          August 15, 2012

          

          

          

          0.077May 7, 2012

          

          

          August 31, 2012

          

          

          

          September 14, 2012

          

          

          

          0.077May 7, 2012

          

          

          September 28, 2012

          

          

          

          October 15, 2012

          

          

          

          0.077September 10, 2012

          

          

          October 31, 2012

          

          

          

          November 15, 2012

          

          

          

          0.077September 10, 2012

          

          

          November 30, 2012

          

          

          

          December 14, 2012

          

          

          

          0.077September 10, 2012

          

          

          December 31, 2012

          

          

          

          January 15, 2013

          

          

          

          0.077November 5, 2012

          

          

          January 31, 2013

          

          

          

          February 15, 2013

          

          

          

          0.077November 5, 2012

          

          

          February 28, 2013

          

          

          

          March 15, 2013

          

          

          

          0.077November 5, 2012

          

          

          March 29, 2013

          

          

          

          April 15, 2013

          

          

          

          0.077February 5, 2013

          

          

          April 30, 2013

          

          

          

          May 15, 2013

          

          

          

          0.077February 5, 2013

          

          

          May 31, 2012

          

          

          

          June 14, 2013

          

          

          

          0.077February 5, 2013

          

          

          June 28, 2013

          

          

          

          July 15, 2013

          

          

          

          0.077Total (2013)

          

          

          

          

          

          

          

          

          

          $

          0.924
 52    TABLE OF CONTENTS Date Declared

          

          Record Date

          

          Payment Date

          

          AmountFiscal 2014May 3, 2013

          

          

          July 31, 2013

          

          

          

          August 15, 2013

          

          

          $

          0.077May 3, 2013

          

          

          August 30, 2013

          

          

          

          September 13, 2013

          

          

          

          0.077May 3, 2013

          

          

          September 30, 2013

          

          

          

          October 15, 2013

          

          

          

          0.077September 9, 2013

          

          

          October 31, 2013

          

          

          

          November 15, 2013

          

          

          

          0.077September 9, 2013

          

          

          November 29, 2013

          

          

          

          December 13, 2013

          

          

          

          0.077September 9, 2013

          

          

          December 31, 2013

          

          

          

          January 15, 2014

          

          

          

          0.077Total (2014 to date)

          

          

          

          

          

          

          

          

          

          $

          0.462
  (1)

          This quarterly dividend was prorated for the number of days remaining in the third calendar quarter after our initial public offering. Our initial public offering was on August 31, 2010, and the gross amount of the prorated dividend was $0.225. (2)

          From our initial public offering through the fourth fiscal quarter of 2011, we paid quarterly dividends, but in the first fiscal quarter of 2012 we began paying, and we intend to continue paying, monthly dividends to our stockholders. Our monthly dividends, if any, will be determined by our Board of Directors on a quarterly basis. To the extent our taxable earnings fall below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a tax return of capital to our stockholders. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our taxable ordinary income or capital gains. In this regard, $1,089,055 of our distributions during the year ended June 30, 2013 constituted a return of capital to our stockholders. Stockholders should read any written disclosure accompanying a dividend payment carefully and should not assume that the source of
any distribution is our taxable ordinary income or capital gains. During the year ended June 30, 2013, our distributions were made primarily from undistributed net investment income. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a business development company under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of favorable regulated
investment company tax treatment. We cannot assure shareholders that they will receive any distributions. Sales of Unregistered Securities We did not engage in unregistered sales of equity securities during the year ended June 30, 2013. Issuer Purchases of Equity Securities For the quarter ended June 30, 2013, as a part of our dividend reinvestment plan for our common stockholders, we purchased 1,292 shares of our common stock for an average price of approximately $7.85 per share in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines repurchases of our common stock during the quarter ended June 30, 2013.  Month

          

          Total Number ofShares Purchased

          

          Average Price Paid per Share

          

          Total Number of Shares Purchased as Part of PubliclyAnnounced Plans or Programs

          

          Maximum Number(or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or ProgramsApril 2013

          

          

          278

          

          

          $

          7.83

          

          

          

          

          

          

          

          May 2013

          

          

          530

          

          

          $

          7.77

          

          

          

          

          

          

          

          June 2013

          

          

          484

          

          

          $

          7.96

          

          

          

          

          

          

          

          Total

          

          

          1,292

          

          

          $

          7.85

          

          

          

          

          

          

          

          
 53    TABLE OF CONTENTS Performance Graph This graph compares the return on our common stock with that of the Standard & Poors 500 Stock Index and the Russell 2000 Index, for the period from September 1, 2010, the date our common stock began trading on the NASDAQ Stock Market, through June 30, 2013, we do not believe there is an appropriate index of companies with an investment strategy similar to our own with which to compare the return on our common stock. The graph assumes that, on September 1, 2010, a person invested $100,000 in each of our common stock, the Standard & Poors 500 Stock Index and the Russell 2000 Financial Services Index. The
graph measures total shareholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are reinvested in like securities. [GRAPHIC MISSING] The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance.
 54    TABLE OF CONTENTS Item 6.  Selected Financial Data The following selected financial data for the years ended June 30, 2013, 2012 and 2011 derived from our financial statements which have been audited by Rothstein, Kass, our independent registered public accounting firm. The data should be read in conjunction with our financial statements and related notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report.  Year ended June 30, 2013

          

          Year ended June 30, 2012

          

          Year ended June 30, 2011(1)Income Statement Data:Total Investment Income

          

          $

          12,046,023

          

          

          $

          9,827,011

          

          

          $

          7,959,637Total Gross Expenses

          

          

          6,665,442

          

          

          

          5,307,300

          

          

          

          4,172,566Total Net Expenses

          

          

          6,665,442

          

          

          

          4,993,508

          

          

          

          3,625,258Net Investment Income

          

          

          5,380,581

          

          

          

          4,833,503

          

          

          

          4,334,379Per Share Data:Net Increase in Net Assets Resulting from Net Investment Income(2)

          

          

          0.77

          

          

          

          0.78

          

          

          

          0.70Net Increase in Net Assets Resulting from Operations(2)

          

          

          0.54

          

          

          

          0.43

          

          

          

          0.47Dividends Declared(2)

          

          

          0.92

          

          

          

          0.92

          

          

          

          0.75Balance Sheet Data:Total Assets

          

          

          113,063,839

          

          

          

          99,449,379

          

          

          

          88,495,049Total Net Assets

          

          

          60,644,039

          

          

          $

          53,442,785

          

          

          $

          56,474,006Other Data:Total Return based on Market Value

          

          

          15.12

          %(3)

          

          

          8.71

          %(3)

          

          

          (4.03

          )%(4)Total Return based on Net Asset Value

          

          

          4.94

          %(3)

          

          

          6.20

          %(3)

          

          

          5.62

          %(4)
  (1)

          Because we began full operations on August 31, 2010, the date of our initial public offering, our financial results for the year ended June 30, 2011 reflect approximately ten months of operations. (2)

          Per share data is based on average weighted shares outstanding. (3)

          Total return based on market value is based on the change in market price per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized. (4)

          Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $9.00 per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized.
 55    TABLE OF CONTENTS Item 7.  Managements Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This annual report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about Full Circle Capital, 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. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation: 

          an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; 

          an expiration or contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; 

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

          currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and 

          the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this annual report on Form 10-K and in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this annual report on Form 10-K 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 Risk Factors and elsewhere in this annual report on
Form 10-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report on Form 10-K. The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Form 10-K. Overview We are an externally managed non-diversified closed-end management investment company formed in April 2010, and have elected to be treated as a business development company under the 1940 Act. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We are managed by Full Circle Advisors, and Full Circle Service Company provides the administrative services necessary for us to operate. We invest primarily in senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies that operate in a diverse range of industries. In our lending activities, we focus primarily on portfolio companies with both (i) tangible and intangible assets available as collateral and security against our loan to help mitigate our risk of loss, and (ii) cash flow to cover debt service. We believe this provides us with a more attractive risk adjusted return profile, with greater principal protection and likelihood of repayment. Our investments generally range in size from $3 million to $10 million; however, we may make larger or smaller investments from time to time on an opportunistic basis. We focus primarily on senior secured loans and stretch senior secured loans, also referred to as unitranche loans, which combine characteristics of
 56    TABLE OF CONTENTS traditional first-lien senior secured loans and second-lien or subordinated loans. We believe that having a first lien, senior secured position provides us with greater control and security in the primary collateral of a borrower and helps to mitigate risk against loss of principal should a borrower default. Our stretch senior secured loans typically possess a greater advance rate against the borrowers assets and cash flow, and accordingly carry a higher interest rate and/or greater equity participation, than traditional senior secured loans. This stretch senior secured loan instrument can provide borrowers with a more
efficient and desirable solution than a senior bank line combined with a separate second lien or mezzanine loan obtained from another source. We also may invest in mezzanine, subordinated or unsecured loans. In addition, we may acquire equity or equity related interests from a borrower along with our debt investment. We attempt to protect against risk of loss on our debt investments by securing our loans against a significant level of tangible or intangible assets of our borrowers, which may include accounts receivable and contracts for services, and obtaining a favorable loan-to-value ratio, and in many cases, securing other financial protections or credit enhancements, such as personal guarantees from the principals of our borrowers, make well agreements and other forms of collateral, rather than lending predominantly against anticipated cash flows of our borrowers. We believe this allows us more options and greater likelihood of repayment from refinancing, asset sales of our
borrowers and/or amortization. We generally seek to invest in smaller and lower middle-market companies in areas that we believe have been historically under-serviced, especially during and after the 2008/2009 credit crisis. These areas include industries that are outside the focus of mainstream institutions or investors due to required industry-specific knowledge or are too small to attract interest from larger investment funds or other financial institutions. Because we believe there are fewer banks and specialty finance companies focused on lending to these smaller and lower middle-market companies, we believe we can negotiate more favorable terms on our
debt investments in these companies than those that would be available for debt investments in comparable larger, more mainstream borrowers. Such favorable terms may include higher debt yields, lower leverage levels, more significant covenant protection or greater equity grants than typical of other transactions. We generally seek to avoid competing directly with other capital providers with respect to specific transactions in order to avoid the less favorable terms we believe are typically associated with such competitive bidding processes. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Basis of Consolidation Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of Full Circle West, Inc., FC New Media Inc., TransAmerican Asset Servicing Group, Inc., FC New Specialty Foods, Inc., and FC Takoda Holdings, LLC, our only wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. Valuation of Investments in Securities at Fair Value  Definition and Hierarchy In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, Full Circle Capitals Board of Directors uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
 57    TABLE OF CONTENTS Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Board of Directors. Unobservable inputs reflect the Board of Directors assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1  Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. Level 2  Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3  Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be
reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Board of Directors in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Companys own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be
reclassified to a lower level within the fair value hierarchy. Change in realized gain (loss) and unrealized gain (loss) on investments Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. From time to time the Company may enter into a new transaction with a portfolio company as a result of the sale, merger, foreclosure, bankruptcy or other corporate event involving the portfolio company. In such cases, the Company may receive newly-issued notes, securities and/or other consideration in exchange for, or resulting from, the cancellation of the instruments previously held by the Company with regard to that portfolio company. In such cases, the Company may experience a realized loss on the instrument being sold or cancelled, and, concurrently, an elimination of any previously recognized unrealized losses on the
portfolio investment. Such elimination of unrealized loss is included on the Statements of Operations as an increase in the Change in Unrealized Gain (Loss) on Investments.
 58    TABLE OF CONTENTS Valuation Techniques Senior and Subordinated Secured Loans Our portfolio consists primarily of private debt instruments (Level 3 debt). The Company considers its Level 3 debt to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Companys Board of Directors considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative
and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Companys Board of Directors will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument. This evaluation will be updated no less than quarterly for Level 3 debt instruments, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired and analyzed by Management and the Companys Board of Directors. Investments in Private Companies The Companys Board of Directors determines the fair value of its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value hierarchy. Warrants The Companys Board of Directors ascribes value to warrants based on fair value analyses that may include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate. Fair Value The Companys assets measured at fair value on a recurring basis subject to the requirements of ASC Topic 820 at June 30, 2013 and 2012 were as follows: As of June 30, 2013  Level 1

          

          Level 2

          

          Level 3

          

          TotalAssetsSenior and Subordinated Loans, at fair value

          

          $

          

          

          

          $

          

          

          

          $

          81,195,958

          

          

          $

          81,195,958Investments in private companies, at fair value

          

          

          

          

          

          

          

          

          

          

          6,784,435

          

          

          

          6,784,435Investments in other securities, at fair value

          

          

          

          

          

          

          

          

          

          

          194,108

          

          

          

          194,108$

          

          

          

          $

          

          

          

          $

          88,174,501

          

          

          $

          88,174,501
 59    TABLE OF CONTENTS As of June 30, 2012  Level 1

          

          Level 2

          

          Level 3

          

          TotalAssetsSenior and Subordinated Loans, at fair value

          

          $

          

          

          

          $

          

          

          

          $

          70,970,152

          

          

          $

          70,970,152US Treasury Securities, at fair value(1)

          

          

          22,499,881

          

          

          

          

          

          

          

          

          

          

          

          22,499,881Investments in private companies, at fair value

          

          

          

          

          

          

          

          

          

          

          1,376,737

          

          

          

          1,376,737$

          22,499,881

          

          

          $

          

          

          

          $

          72,346,889

          

          

          $

          94,846,770
  (1)

          U.S. Treasury Securities were purchased and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the Code. During the years ended June 30, 2013 and 2012, there were no transfers in or out of levels. Revenue Recognition Realized gains or losses on the sale of investments are calculated using the specific identification method. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a senior or subordinated secured loan, any unamortized loan origination, closing and commitment fees are recorded as interest income. Dividend income is recorded on the ex-dividend date. Structuring fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when paid. Other fee income, including annual fees and monitoring fees are included in Other Income. Use of Estimates The preparation of the financial statements of Full Circle Capital in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts disclosed in the financial statements of Full Circle Capital. Actual results could differ from those estimates. Current Market Conditions and Market Opportunity We believe that the current credit environment provides favorable opportunities to achieve attractive risk-adjusted returns on the types of senior secured loans and other investments we may target. In particular, we believe that, despite an overall fall off in loan demand due to the depressed economic conditions, demand for financing from smaller to lower middle-market companies is largely outpacing the availability of lenders that have traditionally served this market. We believe that bank consolidations, the failure of a number of alternative lending vehicles due to poor underwriting practices and an overall tightening of
underwriting standards has significantly reduced the number and activity level of potential lenders. We believe there has long been a combination of demand for capital and an underserved market for capital addressing smaller and lower middle-market borrowers. We believe there is robust demand for continued growth capital as well as demand from very significant refinancing requirements of many borrowers as debt facilities come due, given the lack of willing and qualified capital providers. We believe these market conditions have been further exacerbated in the current environment due to: o

          larger lenders exiting this market to focus on larger investment opportunities which are more appropriate for their operating cost structures; o

          the elimination of many specialized lenders from the market due to lack of capital as a result of, for instance, the closing off of the securitization market or their own poor performance, and o

          the need for certain capital providers to reduce lending activities due to their reduced access to capital and the overall deleveraging of the financial market.
 60    TABLE OF CONTENTS With the decreased availability of debt capital for smaller to lower middle-market borrowers, combined with the significant demand for refinancing, we believe there are increased lending opportunities for us. As always, we remain cautious in selecting new investment opportunities, and will only deploy capital in deals which are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns. Waiver and Expense Reimbursement Our investment adviser agreed to waive the portion of the base management fee that exceeded 1.50% of Full Circle Capitals gross assets, as adjusted, until August 31, 2011 when such waiver expired (the Management Fee Waiver). In addition, our investment adviser agreed to reimburse the Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public offering, which occurred on August 31, 2010 (the Expense
Reimbursement Agreement). This agreement was extended through September 30, 2011 and expired on such date. Portfolio Composition and Investment Activity Our portfolio of investments consists primarily of senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. The following is a summary of our quarterly investment activity since the completion of our initial public offering. Such amounts are not inclusive of our holdings of United States Treasury Bills.  Time Period

          

          Acquisitions(1)(dollars in millions)

          

          Dispositions(2) (dollars in millions)

          

          Weighted Average Interest Rate of Portfolio at End of PeriodLegacy Portfolio Acquisition (August 31, 2010)

          

          $

          72.3

          

          

          $

          N/A

          

          

          

          12.10

          %August 31, 2010 through September 30, 2010

          

          

          0.4

          

          

          

          1.4

          

          

          

          12.16

          %October 1, 2010 through December 31, 2010

          

          

          3.7

          

          

          

          10.1

          

          

          

          12.09

          %January 1, 2011 through March 31, 2011

          

          

          4.0

          

          

          

          19.9

          

          

          

          12.39

          %April 1, 2011 through June 30, 2011

          

          

          9.6

          

          

          

          1.2

          

          

          

          12.68

          %Fiscal 2011

          

          

          90.0

          

          

          

          32.6July 1, 2011 through September 30, 2011

          

          

          27.7

          

          

          

          15.9

          

          

          

          12.89

          %October 1, 2011 through December 31, 2011

          

          

          5.9

          

          

          

          9.4

          

          

          

          13.04

          %January 1, 2012 through March 31, 2012

          

          

          6.7

          

          

          

          5.7

          

          

          

          12.98

          %April 1, 2012 through June 30, 2012

          

          

          15.0

          

          

          

          7.1

          

          

          

          12.93

          %Fiscal 2012

          

          

          55.3

          

          

          

          38.1July 1, 2012 through September 30, 2012

          

          

          11.4

          

          

          

          8.1

          

          

          

          12.84

          %October 1, 2012 through December 31, 2012

          

          

          29.1

          

          

          

          25.1

          

          

          

          12.55

          %January 1, 2013 through March 31, 2013

          

          

          22.4

          

          

          

          12.1

          

          

          

          12.69

          %April 1, 2013 through June 30, 2013

          

          

          12.2

          

          

          

          12.8

          

          

          

          12.90

          %Fiscal 2013

          

          

          75.1

          

          

          

          58.1Since inception

          

          $

          220.4

          

          

          $

          128.8

          

          

          

          N/A
  (1)

          Includes new deals, additional fundings, refinancings (inclusive of those on revolving credit facilities) and payment in kind PIK interest (2)

          Includes scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities)
 61    TABLE OF CONTENTS Portfolio Activity for Year Ended June 30, 2013 The primary investment activities for the year ended June 30, 2013, were fundings under the revolving credit facilities and the funding of the following loan facilities: 

          On September 7, 2012 the Company originated a $3,250,000 credit facility, comprised of a $1,000,000 senior secured term loan and a $2,250,000 senior secured revolving credit facility, both bearing interest at LIBOR plus 12.25% to Global Energy Efficiency Holdings Inc. (GEE). GEE provides energy efficiency products, installation and maintenance services to small and medium sized businesses in multiple food sales and service industries. 

          On September 27, 2012, the Company funded an additional $600,000 to iMedX, Inc. as part of the Companys existing senior secured term loan. 

          On December 19, 2012, Ygnition Networks, Inc. (Ygnition) entered into transactions which involved the sale of substantially all of its assets to Access Media 3, Inc. (Access Media 3) and to New Media West, LLC (New Media West), an affiliate of the Company and of Access Media 3. Pursuant to this transaction the Company, in exchange for its secured interest in the Ygnition assets, received: (i) an equity interest in New Media West, valued at $3.60 million, (ii) a $5.80 million five year note due from New Media West bearing interest at 9%, and (iii) cash consideration from Access Media 3 valued at $0.40 million. Such amounts are subject to final purchase price adjustments, which through June 30, 2013 aggregated $0.8 million resulting in an additional $0.2 million realized loss. At December 19, 2012, immediately prior to these transactions, the Company had $13.00 million of debt outstanding to Ygnition, held at
approximately $12.05 million. As a result of the transaction, the Company recognized a loss of $2.20 million, comprised of a realized loss of $3.03 million on the disposition of the Ygnition debt and the reversal of a previously unrealized loss of $0.83 million. 

          On December 28, 2012, the Company funded $3,900,000 to SOLEX Fine Foods, LLC and Catsmo, LLC, as co-borrower, as a first out participation under a $5,600,000 senior secured term loan bearing interest of LIBOR plus 12.25% and maturing December 28, 2016. The Company also purchased $250,000 of common equity units as part of the transaction. SOLEX Fine Foods, LLC and Catsmo, LLC are providers of specialty foods in New York City and the surrounding areas. 

          On March 28, 2013, the Company funded $5,500,000 of a $6,000,000 senior secured credit facility to Modular Process Control, LLC, an energy efficiency services firm focused on energy efficiency solutions for industrial companies. 

          On March 31, 2013, the Company entered into a $4,385,000 senior secured credit facility with Pristine Environments, Inc., which provides building cleaning and maintenance services to large commercial and government clients. 

          On April 15, 2013, the Company funded $1.4 million of a $1.7 million senior secured credit facility to Takoda Resources, Inc., a provider of seismic data acquisition services in Canada and the United States. The senior secured note bears interest at 16.00% and has a final maturity of April 1, 2016. Additionally, the Company received proceeds, including scheduled repayments, prepayments, and repayments under revolving credit facilities, during the year ended June 30, 2013 related to the following companies: 

          On January 31, 2013, the senior secured credit facility with The Selling Source, LLC, an information and data services company was paid off at par value of $2,017,700. On February 1, 2013, the Company funded $4,000,000 in a new senior secured credit facility with The Selling Source, LLC. 

          During February 2013, the senior secured credit facility with European Evaluators, LLC, an art dealer, was paid off at par value of $615,000. 

          During May 2013, the senior secured term loan with Matt Martin Real Estate Management, LLC, was paid off at par value of $3,140,000, plus accrued interest and fees.
 62    TABLE OF CONTENTS Portfolio Activity for Year Ended June 30, 2012 The primary investment activities for the year ended June 30, 2012, were fundings under the revolving credit facilities and the funding of the following loan facilities: 

          On August 3, 2011, the Company invested $1,000,000 in a revolving loan bearing interest at LIBOR plus 9.00% and $6,250,000 in a term loan bearing interest at LIBOR plus 13.00% to ProGrade Ammo Group, LLC as part of an $8,250,000, three year loan facility. ProGrade Ammo Group, LLC provides ammunition, accessories and components to retail outlets, ammunition manufacturers and law enforcement agencies. 

          On September 14, 2011, the Company invested $300,000 in a revolving loan bearing interest at LIBOR plus 9.75%, $4,000,000 in a term loan bearing interest at LIBOR plus 11.50% and $4,500,000 in a term loan bearing interest at LIBOR plus 13.00% to Coast Plating, Inc. as part of a $10,500,000 three year loan facility. Coast Plating, Inc. provides metal processing and metal finishing services for the aerospace and defense industries. 

          On September 20, 2011, the Company invested $5,785,000 in a term loan bearing interest at 15.00% and received equity interests in The Finance Company, LLC as part of a $7,000,000 four year loan facility. The Finance Company, LLC, through its subsidiaries which operate under the Cashwell trade name, provides consumer finance loan programs in South Carolina. 

          On September 20, 2011, the Company invested $500,000 in a revolving loan bearing interest at LIBOR plus 9.85% and $2,500,000 in a term loan bearing interest at LIBOR plus 14.75% to iMedX, Inc. as part of a $4,500,000 loan facility. iMedX, Inc. is a medical transcription services company that addresses the small physician practice and medical clinic markets. 

          On February 28, 2012, the Company invested an additional $400,000 in a term loan to iMedX, Inc. as part of the $4,500,000 loan facility. 

          On March 22, 2012, the Company invested $615,000 in a term loan to European Evaluators, LLC bearing interest at LIBOR plus 11.70%. European Evaluators is a dealer in fine art. 

          On March 31, 2012, the Company invested an additional $1,000,000 in a term loan to US Path Labs, LLC and extended the maturity of the loan agreement to March 30, 2014. 

          On April 30, 2012, the Company invested $4,250,000 in a term loan bearing interest at LIBOR plus 12.75% to Matt Martin Real Estate Management, LLC. Matt Martin Real Estate Management, LLC is a real property marketing and management company that provides services in multiple regions of the United States of America. 

          On May 7, 2012, the Company invested $5,000,000 in a full recourse accounts receivable facility with Employment Plus, Inc. Employment Plus, Inc. provides temporary staffing services for multiple industries. Additionally, the Company received proceeds, including sales proceeds and prepayments, and repayments under revolving credit facilities during the year ended June 30, 2012 related to the following companies: 

          On August 15, 2011, VaultLogix, LLC pre-paid, at par, its loan from the Company, remitting a total of $5,023,333 to the Company for outstanding principal and interest. 

          On September 1, 2011, West World Media, LLC pre-paid, at par, its loan from the Company, remitting a total of $6,992,171 to the Company for outstanding principal, interest and fees. 

          On November 30, 2011, the Company sold participations in Coast Plating, Inc.s Term A and Term B loans to a third party for an aggregate of $3,500,000, which represented par value for the loans sold. 

          On December 31, 2011, the Company received a principal prepayment of $964,276 from The Selling Source, LLC based upon the borrowers cash flow, as defined in their loan documents.
 63    TABLE OF CONTENTS 

          On January 31, 2012, Iron City Brewing, LLC repaid, at par, its loan from the Company, remitting a total of $521,666 of outstanding principal. Portfolio Activity for Year Ended June 30, 2011 The primary investment activity for the year ended June 30, 2011 was the purchase of the Legacy Portfolio on August 31, 2010 which coincided with the commencement of operations on that date. The investments included in the Legacy Portfolio had a collective fair value of approximately $72.3 million as of June 30, 2010, as determined by our Board of Directors. Accordingly, the results for the year ended June 30, 2011 relating to portfolio activity primarily cover ten months of operations commencing on August 31, 2010. During the year ended June 30, 2011, the Company made investments in the following companies: 

          The Company entered into a $2.5 million, multi-draw loan facility with US Path Labs, LLC on March 2, 2011. 

          The Company entered into a $5.0 million, multi-draw loan facility, comprised of a Term A loan and a Term B loan, with CSL Operating, LLC on May 11, 2011. 

          The Company entered into a $3.6 million loan facility, comprised of a Term A loan and a Term B loan, with Background Images, Inc. on June 29, 2011. During the year ended June 30, 2011, the Company had the following investments fully repay the Company. All repayments were at par: 

          On November 1, 2010 and February 1, 2011, Georgia Outdoor Advertising, LLC pre-paid, at par, its loan from the Company, remitting a total of $1.9 million to the Company for outstanding principal and interest. 

          On December 10, 2010 the Companys $6.0 million investment in First Capital Lotus Asset-Based Fund I, LP was redeemed at Net Asset Value. 

          On January 10, 2011 the Companys loans to Exist, Inc., BLSCO Newco, Inc. and Miken Sales, Inc. were paid off in full, at par, in an aggregate amount of $9.7 million, including accrued interest. 

          On January 31, 2011, Icon Groupe, LLC pre-paid, at par, its loan from the Company, remitting a total of $5.1 million to the Company for outstanding principal, interest and fees. 

          On February 15, 2011, Verifier Capital LLC/Verifier Capital Limited pre-paid, at par, its loan from the Company, remitting a total of $1.5 million for outstanding principal, interest and fees.
 64    TABLE OF CONTENTS Portfolio Reconciliation The following is a reconciliation of the investment portfolio for the years ended June 30, 2013, 2012 and 2011:  Year Ended June 30, 2013

          

          Year Ended June 30, 2012

          

          Year Ended June 30, 2011Beginning Investment Portfolio

          

          $

          94,846,770

          

          

          $

          82,794,117

          

          

          $

          Portfolio Investments Acquired

          

          

          75,145,289

          

          

          

          55,279,880

          

          

          

          17,468,968Treasury and Money Market Purchases(1)

          

          

          62,001,462

          

          

          

          120,000,601

          

          

          

          120,295,651Portfolio Investments Acquired in the Initial Public Offering

          

          

          

          

          

          

          

          

          

          

          72,280,294Amortization of fixed income premiums and discounts

          

          

          368,279

          

          

          

          522,732

          

          

          

          835,861Portfolio Investments Repaid

          

          

          (58,107,861

          )

          

          

          (38,164,798

          )

          

          

          (32,588,630

          )Sales of Treasury and Money Market securities(1)

          

          

          (84,500,000

          )

          

          

          (123,499,273

          )

          

          

          (94,292,528

          )Payment in Kind

          

          

          

          

          

          

          68,842

          

          

          

          246,566Net Unrealized Depreciation

          

          

          2,636,310

          

          

          

          (1,979,965

          )

          

          

          (1,796,547

          )Net Realized Losses

          

          

          (4,215,748

          )

          

          

          (175,366

          )

          

          

          (344,482

          )Ending Investment Portfolio

          

          $

          88,174,501

          

          

          $

          94,846,770

          

          

          $

          82,794,117
  (1)

          U.S. Treasury Securities were purchased and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the Code. During the year ended June 30, 2013, we recorded net unrealized appreciation of $2,636,310. This consisted of $1,005,263 of net unrealized appreciation on debt investments and $1,631,047 of net unrealized appreciation on equity investments. On December 19, 2012, Ygnition Networks, Inc. (Ygnition) entered into transactions which involved the sale of substantially all of its assets to Access Media 3, Inc. (Access Media 3) and to New Media West, LLC (New Media West), an affiliate of the Company and of Access Media 3. Pursuant to this transaction the Company, in exchange for its secured interest
in the Ygnition assets, received: (i) an equity interest in New Media West, valued at, $3,600,000, (ii) a $5,800,000 five year note from New Media West bearing interest of 9% annually, and (iii) cash consideration from Access Media 3 valued at $412,483. Such amounts are subject to final purchase price adjustments, which through June 30, 2013 aggregated $0.8 million resulting in an additional $0.2 million realized loss. At December 19, 2012, immediately prior to these transactions, the Company had $13,000,000 of debt outstanding to Ygnition, held at approximately $12,050,000. As a result of the transaction, the Company recognized a loss of $2,203,806, comprised of a realized loss of $3,031,842 on the disposition of the Ygnition debt and the reversal of a previously unrealized loss of $828,036. The Company recorded unrealized appreciation of $994,164 on its equity investment in The Finance Company, LLC. The Company recorded unrealized depreciation of $900,925 on its loan to TransAmerican
Asset Servicing Group, LLC. During the year ended June 30, 2012, we recorded net unrealized depreciation of $1,979,965. This consisted of $2,535,306 of net unrealized depreciation on debt investments and $555,341 of net unrealized appreciation on equity investments. Equisearch Acquisition, Inc., (Equisearch), filed for protection under Chapter 7 of the U.S. Bankruptcy Code. At June 30, 2012, the Company had an investment in Equisearch of $2,580,201 through a first lien, senior secured loan facility, which had a fair value of $1,959,363. For the year ended June 30, 2012, the Company recognized an unrealized loss on ProGrade Ammunition Group,
LLC of $1,476,339. During the year ended June 30, 2011, we recorded net unrealized depreciation of $1,796,547. This consisted of $682,995 of net unrealized depreciation on debt investments and $1,113,552 of net unrealized depreciation on equity investments. On February 17, 2011, the Company placed Bloomingdale Partners, LP in default on its loan. The Company is actively pursuing recovery, and in connection therewith, the assets of Bloomingdale Partners, LP have been transferred to Texas Westchester Financial, LLC. Accordingly, the Company has acquired a Control Investment in Texas Westchester Financial, LLC through the Companys
 65    TABLE OF CONTENTS ownership of LLC units therein. The Companys Board of Directors determined that the value of this investment should be written down, resulting in a $815,668 unrealized loss for the year ended June 30, 2011. Portfolio Classifications The following table shows the fair value of our portfolio of investments by asset class as of June 30, 2013 and 2012, excluding United States Treasury Bills. At June 30, 2013 we did not hold United States Treasury Bills. At June 30, 2012 we held approximately $22.5 million of United States Treasury Bills.  June 30, 2013

          

          June 30, 2012Investments at Fair Value (dollars in millions)

          

          Percentage of Total Portfolio

          

          Investments at Fair Value (dollars in millions)

          

          Percentage of Total PortfolioSenior Secured Loans

          

          $

          78.2

          

          

          

          88.7

          %

          

          $

          67.5

          

          

          

          93.3

          %Subordinated Secured Loans

          

          

          3.0

          

          

          

          3.4

          

          

          

          3.4

          

          

          

          4.8Limited Liability Company Interests

          

          

          6.8

          

          

          

          7.7

          

          

          

          1.4

          

          

          

          1.9Warrants

          

          

          0.2

          

          

          

          0.2

          

          

          

          

          

          

          

          Total

          

          $

          88.2

          

          

          

          100.0

          %

          

          $

          72.3

          

          

          

          100.0

          %
 At June 30, 2013 the 19 borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 60% (i.e., each $60 of loan value outstanding is secured by $100 of collateral value). At June 30, 2012 the sixteen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 62% (i.e., each $62 of loan value outstanding is secured by $100 of collateral value). The following table shows the fair value of our portfolio of investments by industry, as of June 30, 2013 and 2012, excluding United States Treasury Bills. At June 30, 2013 we did not hold United States Treasury Bills. At June 30, 2012 we held approximately $22.5 million of United States Treasury Bills.  June 30, 2013

          

          June 30, 2012Investments at Fair Value (dollars in millions)

          

          Percentage of Total Portfolio

          

          Investments at Fair Value (dollars in millions)

          

          Percentage of Total PortfolioCable TV/Broadband Services

          

          $

          15.9

          

          

          

          18.0

          %

          

          $

          17.7

          

          

          

          24.5

          %Energy Efficiency Services

          

          

          11.7

          

          

          

          13.2

          

          

          

          

          

          

          

          Consumer Financing

          

          

          6.9

          

          

          

          7.8

          

          

          

          6.8

          

          

          

          9.4Munitions

          

          

          6.2

          

          

          

          7.0

          

          

          

          4.9

          

          

          

          6.8Radio Broadcasting

          

          

          5.6

          

          

          

          6.4

          

          

          

          6.3

          

          

          

          8.7Medical Transcription Services

          

          

          5.2

          

          

          

          5.9

          

          

          

          4.1

          

          

          

          5.6Staffing Services

          

          

          5.0

          

          

          

          5.7

          

          

          

          5.0

          

          

          

          6.9Aerospace Parts Plating and Finishing

          

          

          4.8

          

          

          

          5.5

          

          

          

          4.9

          

          

          

          6.8Information and Data Services

          

          

          4.2

          

          

          

          4.8

          

          

          

          3.5

          

          

          

          4.9Food Distributors and Wholesalers

          

          

          4.0

          

          

          

          4.6

          

          

          

          

          

          

          

          Building Cleaning and Maintenance Services

          

          

          3.9

          

          

          

          4.4

          

          

          

          

          

          

          

          Industrial Metal Treatings

          

          

          3.8

          

          

          

          4.2

          

          

          

          3.9

          

          

          

          5.4Healthcare Services

          

          

          3.5

          

          

          

          3.9

          

          

          

          3.5

          

          

          

          4.8Outdoor Advertising Services

          

          

          2.3

          

          

          

          2.6

          

          

          

          1.9

          

          

          

          2.6Equipment Rental Services

          

          

          2.2

          

          

          

          2.6

          

          

          

          3.1

          

          

          

          4.4Geophysical Surveying and Mapping Services

          

          

          1.5

          

          

          

          1.7

          

          

          

          

          

          

          

          Asset Recovery Services

          

          

          1.5

          

          

          

          1.7

          

          

          

          2.0

          

          

          

          2.7Information Retrieval Services

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Real Estate Management Services

          

          

          

          

          

          

          

          

          

          

          4.1

          

          

          

          5.7Art Dealers

          

          

          

          

          

          

          

          

          

          

          0.6

          

          

          

          0.8Total

          

          $

          88.2

          

          

          

          100.0

          %

          

          $

          72.3

          

          

          

          100.0

          %
 66    TABLE OF CONTENTS Portfolio Grading We have adopted a credit grading system to monitor the quality of our debt investment portfolio. As of June 30, 2013, our portfolio had a weighted average grade of 3.12, based upon the fair value of the debt investments in the portfolio. Equity securities and investments in United States Treasury Bills are not graded. This was an improvement of 0.18 from the weighted average grade of 3.30 at June 30, 2012. At June 30, 2013, our debt investment portfolio was graded as follows:  June 30, 2013Grade

          

          Summary Description

          

          Fair Value

          

          Percentage of Total Portfolio1

          

          

          Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).

          

          

          $

          

          

          

          

          

          %2

          

          

          The portfolio company is performing above expectations and the risk profile is generally favorable.

          

          

          

          1,412,666

          

          

          

          1.603

          

          

          Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.

          

          

          

          68,397,783

          

          

          

          77.584

          

          

          The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable.

          

          

          

          11,385,509

          

          

          

          12.915

          

          

          The investment is performing well below expectations and is not anticipated to be repaid in full.

          

          

          

          

          

          

          

          $

          81,195,958

          

          

          

          92.09

          %
 At June 30, 2012, our debt investment portfolio was graded as follows:  June 30, 2012Grade

          

          Summary Description

          

          Fair Value

          

          Percentage of Total Portfolio1

          

          

          Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).

          

          

          $

          

          

          

          

          

          %2

          

          

          The portfolio company is performing above expectations and the risk profile is generally favorable.

          

          

          

          6,788,625

          

          

          

          9.383

          

          

          Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.

          

          

          

          44,638,741

          

          

          

          61.704

          

          

          The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable.

          

          

          

          17,583,423

          

          

          

          24.315

          

          

          The investment is performing well below expectations and is not anticipated to be repaid in full.

          

          

          

          1,959,363

          

          

          

          2.71$

          70,970,152

          

          

          

          98.10

          %
 67    TABLE OF CONTENTS We expect that a portion of our investments will be in grades 4 or 5 from time to time, and, as such, we will be required to work with portfolio companies to improve their business and protect our investment. The number and amount of investments included in grades 4 or 5 may fluctuate from period to period. Results of Operations Comparison of the years ended June 30, 2013 and June 30, 2012 Total Investment Income Total investment income includes interest and dividend income on our investments and other income, which is comprised of fee income. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused line fees. Total investment income for the year ended June 30, 2013 was $12,046,023. This amount consisted of $10,492,257 of interest income from portfolio investments (which included $0 of PIK interest), $223,474 of dividend income and $1,330,292 of fee income. Total investment income for the year ended June 30, 2012 was $9,827,011. This amount consisted of $8,980,837 of interest income from portfolio investments (which included $68,842 of PIK interest), $57,216 of dividend income and $788,958 of fee income. The increase in interest income for the year ended June 30, 2013 relative to the year ended June 30, 2012 was due to a larger portfolio of interest earning assets. The decrease in PIK interest for the year ended June 30, 2013 as compared to the year ended June 30, 2012 was due to the fact that the Company received a prepayment from West World Media, LLC and ceased generating PIK interest from any of its portfolio investments. The increase in dividend income for the year ended June 30, 2013 as compared to the year ended June 30, 2012 was primarily due to the Company receiving regular dividend payments from its investment in The
Finance Company, LLC. Expenses Gross operating expenses for the year ended June 30, 2013 were $6,665,442. Gross operating expenses for the year ended June 30, 2012 were $5,307,300. Net operating expenses (offset by the waived portion of the base management fee and the accrual for the expense reimbursement) for the year ended June 30, 2012, were $4,993,508. The increase in net operating expenses for the year ended June 30, 2013 relative to the year ended June 30, 2012 was partially due to increased interest expense and increased management and incentive fees resulting from the Company having a larger portfolio and higher interest and net investment income during the period. Additionally, net operating expenses increased due to the expiration of the Expense Reimbursement Agreement and Management Fee waiver. Net Investment Income Net investment income was $5,380,581, or $0.77 per share for the year ended June 30, 2013. Net investment income was $4,833,503, or $0.78 per share for the year ended June 30, 2012. The increase in Net Investment Income for the year ended June 30, 2013 as compared to the same period in 2012 was primarily due to the increase in interest income offset by increased interest expense and management and incentive fees resulting from the Company having a larger portfolio and higher interest and pre-incentive fee net investment income during the period. Realized Gain (Loss) on Investments Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. During the year ended June 30, 2013, we recorded a realized loss of $4,215,748, primarily in connection with the disposition of our investment in Ygnition Networks, Inc., and the conversion of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group, LLC upon the finalization of Equisearch Acquisitions, Inc.s bankruptcy proceedings. Realized loss per share for the year ended June 30, 2013 was $0.60.
 68    TABLE OF CONTENTS During the year ended June 30, 2012, we recorded a realized loss of $175,366, primarily in connection with a realized loss on our investment in Texas Westchester Financial, LLC and a gain related to the repayment of our loan to West World Media, LLC. Realized loss per share for the year ended June 30, 2012 was $0.03. Change in Unrealized Gain (Loss) on Investments Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See  Critical Accounting Policies  Change in Unrealized Gain (Loss) on Investments. During the year ended June 30, 2013, we recorded net unrealized appreciation of $2,636,310. This consisted of $1,005,263 of net unrealized appreciation on debt investments and $1,631,047 of net unrealized appreciation on equity investments. Change in unrealized appreciation per share was $0.37 for the year ended June 30, 2013, and resulted primarily from appreciation of the Companys equity investment in The Finance Company, LLC, as well as the disposition of our investment in Ygnition Networks, Inc., and the conversion of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in
TransAmerican Asset Servicing Group, LLC upon the finalization of Equisearch Acquisitions bankruptcy proceedings. During the year ended June 30, 2012, we recorded net unrealized depreciation of $1,979,965. This consisted of $2,535,306 of net unrealized depreciation on debt investments and $555,341 of net unrealized appreciation on equity investments. Change in unrealized depreciation per share was $0.32 for the year ended June 30, 2012. On January 19, 2012, Equisearch Acquisition, Inc. (Equisearch) filed for protection under Chapter 7 of the U.S. Bankruptcy Code. At that date, the Company had an investment in Equisearch of $2,580,201 through a first lien, senior secured loan facility. At June 30, 2012 the fair value of our
investment in Equisearch was $1,959,363. For the year ended June 30, 2012, the Company recognized an unrealized loss on ProGrade Ammunition Group, LLC of $1,476,339. Comparison of the years ended June 30, 2012 and June 30, 2011 Total Investment Income Total investment income includes interest and dividend income on our investments and other income, which is comprised of fee income. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused line fees. Total investment income for the year ended June 30, 2012 was $9,827,011. This amount consisted of $8,980,837 of interest income from portfolio investments (which included $68,842 of PIK interest), $57,216 of dividend income and $788,958 of fee income. Total investment income for the year ended June 30, 2011 was $7,959,637. This amount consisted of $6,997,481 of interest income from portfolio investments (which included $246,566 of PIK interest), $215,260 of dividend income and $746,896 of fee income. The increase in interest income for the year ended June 30, 2012 relative to the year ended June 30, 2011 was primarily due to the Company being in operations for the full fiscal year. The decrease in PIK interest for the year ended June 30, 2012 as compared to the year ended June 30, 2011 was primarily due to the fact that the Company received a prepayment from West World Media, LLC and ceased generating PIK interest from any of its portfolio investments. The decrease in dividend income for the year ended June 30, 2012 as compared to the year ended June 30, 2011 was primarily due to the Company redeeming its holding in First
Capital Lotus Asset Based Fund. Expenses Gross Operating Expenses for the year ended June 30, 2012 were $5,307,300. Net Operating Expenses (offset by the waived portion of the base management fee and the accrual for the expense reimbursement) for the year ended June 30, 2012, were $4,993,508. Gross Operating Expenses for the year ended June 30, 2011 were $4,172,566. Net Operating Expenses (offset by the waived portion of the base management fee and the accrual for the expense reimbursement) for the year ended June 30, 2011, were $3,625,258.
 69    TABLE OF CONTENTS As the Company commenced operations on August 31, 2010, the expenses for the year ended June 30, 2011 represent approximately ten months of operations, except for organizational expenses of $178,979, which were expensed as incurred over the year ended June 30, 2011 and operating expenses of $18,465, which were incurred in the months of July and August 2010. Organizational expenses are not expected to reoccur. The increase in Gross Operating Expenses for the year ended June 30, 2012 relative to the year ended June 30, 2012 was primarily due to the Company being in operations for the full fiscal year. The increase in Net Operating Expenses was due to the Company being in operations for the full fiscal year and the management fee and expense waiver expiring during the year ended June 30, 2012. Net Investment Income Net investment income was $4,833,503, or $0.78 for the year ended June 30, 2012. As the Company commenced operations on August 31, 2010, the net investment income of $4,334,379 for the year ended June 30, 2011 represents approximately ten months of operations, except for organizational expenses of $178,979, which were expensed as incurred over the year ended June 30, 2011, and operating expenses of $18,465, which were incurred in the months of July and August. Organizational expenses are not expected to reoccur. Net investment income per share was $0.70 for the period from August 31, 2010 to June 30, 2011. The increase in Net Investment Income and Net Investment Income per share was primarily due to the Company being in operations for the full fiscal year. Realized Gain (Loss) on Investments Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. During the year ended June 30, 2012, we recorded a realized loss of $175,366, primarily in connection with a realized loss on our investment in Texas Westchester Financial, LLC and a gain related to the repayment of our loan to West World Media, LLC. Realized loss per share for the year ended June 30, 2012 was $0.03. During the year ended June 30, 2011, we recorded a realized gain of $344,482. Of this gain, $240,509 was associated with the full repayment of the loans to Icon Groupe, LLC on January 31, 2011. Realized gain per share for the period from August 31, 2010 to June 30, 2011 was $0.06. Change in Unrealized Gain (Loss) on Investments Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See  Critical Accounting Policies  Change in realized gain (loss) and unrealized gain (loss) on investments. During the year ended June 30, 2012, we recorded net unrealized depreciation of $1,979,965. This consisted of $2,535,306 of net unrealized depreciation on debt investments and $555,341 of net unrealized appreciation on equity investments. Change in unrealized depreciation per share was $0.32 for the year ended June 30, 2012. On January 19, 2012, Equisearch Acquisition, Inc. (Equisearch) filed for protection under Chapter 7 of the U.S. Bankruptcy Code. At that date, the Company had an investment in Equisearch of $2,580,201 through a first lien, senior secured loan facility. At June 30, 2012 the fair value of our
investment in Equisearch was $1,959,363. For the year ended June 30, 2012, the Company recognized an unrealized loss on ProGrade Ammunition Group, LLC of $1,476,339. During the year ended June 30, 2011, we recorded net unrealized depreciation of $1,796,547. This consisted of $682,995 of net unrealized depreciation on debt investments and $1,113,552 of net unrealized depreciation on equity investments recognized between the commencement of operations on August 31, 2010 and June 30, 2011. On February 17, 2011, the Company placed Bloomingdale Partners, LP in default on its loan, with the assets being transferred to Texas Westchester Financial, LLC. The Companys Board of Directors determined that the value of this investment should be written down, resulting in a $815,668 unrealized loss
for the year ended June 30, 2011. Change in unrealized depreciation per share was $0.29 for the period from August 31, 2010 to June 30, 2011.
 70    TABLE OF CONTENTS Liquidity and Capital Resources At June 30, 2013, we had investments in debt securities of 19 companies, totaling approximately $81.2 million, and equity investments in 10 companies, totaling approximately $7.0 million. As of June 30, 2013, the Company had cash of $18.0 million. Cash was temporarily high due to the issuance of notes on June 28, 2013. Refer to Note 8 Long Term Liabilities for further detail. For the year ended June 30, 2013, cash provided by operating activities, consisting primarily of repayments of investments and the items described in Results of Operations, was approximately $4.8 million, reflecting the repayments of investments, income resulting from operations, offset by non-cash income related to PIK interest and OID income, changes in working capital and accrued interest receivable. Net cash used for purchases and sales of investments was approximately $17.0 million, reflecting net additional investments in securities, offset by principal repayments. Such amounts are not inclusive of our
purchase of United States Treasury Bills or Money Market Funds. As of June 30, 2013, we had $25.6 million of outstanding borrowings under a Credit Facility with FCC, LLC d/b/a First Capital and $21.1 million of aggregate principal amount of Notes Payable outstanding. As of June 30, 2013, we had Distribution Notes outstanding of approximately $3.4 million. On July 3, 2013, we repaid the Distribution Notes at par plus accrued interest. At June 30, 2012, we had investments in debt securities of 16 companies, totaling approximately $71.0 million, and equity investments in seven companies, totaling approximately $1.4 million. As of June 30, 2012, the Company had cash and cash equivalents of $0.6 million. For the year ended June 30, 2012, cash provided by operating activities, consisting primarily of repayments of investments and the items described in Results of Operations, was approximately $13.3 million, reflecting the repayments of investments, income resulting from operations, offset by non-cash income related to PIK interest and OID income, changes in working capital and accrued interest receivable. Net cash used for purchases and sales of investments was approximately $17.2 million, reflecting net additional investments in securities, offset by principal repayments. Such amounts are not inclusive of our
purchase of United States Treasury Bills or Money Market Funds. As of June 30, 2012, we had $18.5 million of outstanding borrowings with FCC, LLC d/b/a First Capital Credit Facility. As of June 30, 2012, we had Distribution Notes outstanding of approximately $3.4 million. As a business development company, we generally have an ongoing need to raise additional capital for investment purposes. As a result, we expect, from time to time, to access the debt and equity markets when we believe it is necessary and appropriate to do so. In this regard, we continue to explore various options for obtaining additional debt or equity capital for investments. This may include expanding or extending our Credit Facility, or the issuance of additional shares of our common stock, possibly at prices below our then current net asset value per share pursuant to a proposal, approved by our stockholders at our most
recent Annual Meeting of Stockholders, authorizing us to sell shares of our common stock below its then current net asset value per share in one or more offerings for a period of one year ending on the earlier of our next annual meeting of stockholders or February 1, 2014. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. If we are unable to obtain leverage or raise equity capital on terms that are acceptable to us, our ability to grow our portfolio will be substantially impacted.
 71    TABLE OF CONTENTS Contractual Obligations  Payments Due By Period(dollars in millions)Total

          

          Less than 1 year

          

          1  3 years

          

          3  5 years

          

          More than 5 yearsCredit Facility(1)

          

          $

          25.6

          

          

          $

          

          

          

          $

          25.6

          

          

          $

          

          

          

          $

          Distribution Notes(2)

          

          

          3.4

          

          

          

          3.4

          

          

          

          

          

          

          

          

          

          

          

          Notes

          

          

          21.1

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          21.1Total

          

          $

          50.1

          

          

          $

          3.4

          

          

          $

          25.6

          

          

          $

          

          

          

          $

          21.1
  (1)

          At June 30, 2013, $6.9 million remained unused under the Credit Facility. (2)

          On July 3, 2013, we repaid the $3.4 million of Distribution Notes at par plus accrued interest. In addition to the contractual obligations set forth above, we have certain obligations with respect to the investment advisory and administration services we receive. See Overview. For the years ended June 30 2013, 2012 and 2011, we incurred fees of approximately $2,771,684, $2,384,431 and $2,099,723, respectively, for investment advisory services. For the years ended June 30 2013, 2012 and 2011, we incurred fees of $834,577, $895,783 and $672,185, respectively, for administrative services. As of June 30, 2013, we had approximately $5.9 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies. Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices. Borrowings Secured Revolving Credit Facility.  On June 3, 2013, we entered into a credit agreement with Sovereign Bank which provided us with our $32.5 million Credit Facility. The Credit Facility replaced our prior senior secured revolving credit facility with FCC, LLC d/b/a First Capital. The Credit Facility matures on June 3, 2016 and bears interest based on a tiered rate structure, depending upon utilization, ranging from LIBOR (1-month, 2-month or 3-month, depending on our option) plus 3.25% to 4.00% per annum, or from Sovereign Banks prime rate plus 1.25% to 2.00% per annum, based on our election. In addition, a fee of 0.50% per annum is charged on unused amounts under the Credit Facility. The Credit Facility is secured by all of our assets. Under the Credit Facility, we have made certain customary representations and warranties, and are required to comply with various covenants, reporting
requirements and other customary requirements, including a minimum balance sheet leverage ratio, for similar credit facilities. The Credit Facility includes usual and customary events of default for credit facilities of this nature. Notes.  On June 28, 2013, we issued approximately $21.1 million in aggregate principal amount of our 8.25% Notes due June 30, 2020 (including a partial exercise of the underwriters overallotment option in July 2013) for net proceeds of approximately $20.2 million after deducting underwriting commissions of approximately $0.9 million. Offering expenses of approximately $0.2 million were incurred. The Notes were issued pursuant to an indenture, dated June 3, 2013, as supplemented by the first supplemental indenture, dated June 28, 2013 (collectively, the Indenture), between us and U.S. Bank National Association (the Trustee). The Notes are our unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including
existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries or financing vehicles. Interest on the Notes is paid quarterly in arrears on March 30, June 30, September 30 and December 30, at a rate of 8.25% per annum, beginning September 30, 2013. The Notes mature on June 30, 2020 and may be redeemed in whole or in part at any time or from time to time at our
 72    TABLE OF CONTENTS option on or after June 30, 2016. The Notes are listed on the Nasdaq Global Market under the trading symbol FULLL with a par value of $25.00 per share. The Indenture contains certain covenants, including covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the Notes and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture. We may repurchase the Notes in accordance with the 1940 Act and the rules
promulgated thereunder. Any Notes repurchased by us may, at our option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by us. Any Notes surrendered for cancellation will be promptly cancelled and no longer outstanding under the Indenture. As of June 30, 2013, we had not repurchased any of the Notes in the open market. Distribution Notes.  On July 3, 2013, we repaid the $3.4 million of Distribution Notes issued in connection with our initial public offering at par plus accrued interest. As a result, the Distribution Notes are no longer outstanding. Distributions In order to qualify as a regulated investment company and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. The following table lists the cash distributions, including dividends and returns of capital, if any, per share that we have declared since our formation on April 16, 2010. The table is divided by fiscal year according to record date.  Date Declared

          

          Record Date

          

          Payment Date

          

          AmountFiscal 2011:July 21, 2010

          

          

          September 30, 2010

          

          

          

          October 15, 2010

          

          

          $

          0.076

          (1)November 5, 2010

          

          

          December 31, 2010

          

          

          

          January 14, 2011

          

          

          

          0.225February 4, 2011

          

          

          March 31, 2011

          

          

          

          April 15, 2011

          

          

          

          0.225May 6, 2011

          

          

          June 30, 2011

          

          

          

          July 15, 2011

          

          

          

          0.225Total (2011)

          

          

          

          

          

          

          

          

          

          $

          0.751Fiscal 2012:June 28, 2011

          

          

          July 29, 2011

          

          

          

          August 15, 2011

          

          

          $

          0.075

          (2)June 28, 2011

          

          

          August 31, 2011

          

          

          

          September 15, 2011

          

          

          

          0.075June 28, 2011

          

          

          September 30, 2011

          

          

          

          October 14, 2011

          

          

          

          0.075September 8, 2011

          

          

          October 31, 2011

          

          

          

          November 15, 2011

          

          

          

          0.077September 8, 2011

          

          

          November 30, 2011

          

          

          

          December 15, 2011

          

          

          

          0.077September 8, 2011

          

          

          December 30, 2011

          

          

          

          January 13, 2012

          

          

          

          0.077November 7, 2011

          

          

          January 31, 2012

          

          

          

          February 15, 2012

          

          

          

          0.077November 7, 2011

          

          

          February 29, 2012

          

          

          

          March 15, 2012

          

          

          

          0.077November 7, 2011

          

          

          March 30, 2012

          

          

          

          April 13, 2012

          

          

          

          0.077February 3, 2012

          

          

          April 30, 2012

          

          

          

          May 15, 2012

          

          

          

          0.077February 3, 2012

          

          

          May 31, 2012

          

          

          

          June 15, 2012

          

          

          

          0.077February 3, 2012

          

          

          June 29, 2012

          

          

          

          July 13, 2012

          

          

          

          0.077Total (2012)

          

          

          

          

          

          

          

          

          

          $

          0.918
 73    TABLE OF CONTENTS Date Declared

          

          Record Date

          

          Payment Date

          

          AmountFiscal 2013:May 7, 2012

          

          

          July 31, 2012

          

          

          

          August 15, 2012

          

          

          $

          0.077May 7, 2012

          

          

          August 31, 2012

          

          

          

          September 14, 2012

          

          

          

          0.077May 7, 2012

          

          

          September 28, 2012

          

          

          

          October 15, 2012

          

          

          

          0.077September 10, 2012

          

          

          October 31, 2012

          

          

          

          November 15, 2012

          

          

          

          0.077September 10, 2012

          

          

          November 30, 2012

          

          

          

          December 14, 2012

          

          

          

          0.077September 10, 2012

          

          

          December 31, 2012

          

          

          

          January 15, 2013

          

          

          

          0.077November 5, 2012

          

          

          January 31, 2013

          

          

          

          February 15, 2013

          

          

          

          0.077November 5, 2012

          

          

          February 28, 2013

          

          

          

          March 15, 2013

          

          

          

          0.077November 5, 2012

          

          

          March 29, 2013

          

          

          

          April 15, 2013

          

          

          

          0.077February 5, 2013

          

          

          April 30, 2013

          

          

          

          May 15, 2013

          

          

          

          0.077February 5, 2013

          

          

          May 31, 2012

          

          

          

          June 14, 2013

          

          

          

          0.077February 5, 2013

          

          

          June 28, 2013

          

          

          

          July 15, 2013

          

          

          

          0.077Total (2013)

          

          

          

          

          

          

          

          

          

          $

          0.924Fiscal 2014:May 3, 2013

          

          

          July 31, 2013

          

          

          

          August 15, 2013

          

          

          $

          0.077May 3, 2013

          

          

          August 30, 2013

          

          

          

          September 13, 2013

          

          

          

          0.077May 3, 2013

          

          

          September 30, 2013

          

          

          

          October 15, 2013

          

          

          

          0.077September 9, 2013

          

          

          October 31, 2013

          

          

          

          November 15, 2013

          

          

          

          0.077September 9, 2013

          

          

          November 29, 2013

          

          

          

          December 13, 2013

          

          

          

          0.077September 9, 2013

          

          

          December 31, 2013

          

          

          

          January 15, 2014

          

          

          

          0.077Total (2014 to date)

          

          

          

          

          

          

          

          

          

          $

          0.462
  (1)

          This quarterly dividend was prorated for the number of days remaining in the third calendar quarter after our initial public offering. Our initial public offering was on August 31, 2010, and the gross amount of the prorated dividend was $0.225. (2)

          From our initial public offering through the fourth fiscal quarter of 2011, we paid quarterly dividends, but in the first fiscal quarter of 2012 we began paying, and we intend to continue paying, monthly dividends to our stockholders. Our monthly dividends, if any, will be determined by our Board of Directors on a quarterly basis. Related Parties We have entered into a number of business relationships with affiliated or related parties, including the following: 

          We have entered into the Investment Advisory Agreement with Full Circle Advisors. John E. Stuart, our Chief Executive Officer and President, is the manager of, and has financial and controlling interests in, Full Circle Advisors. 

          We have entered into the Administration Agreement with Full Circle Service Company. Pursuant to the terms of the Administration Agreement, Full Circle Service Company provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. Mr. Stuart, our Chief Executive Officer and President, is the managing member of, and has financial and controlling interests in, Full Circle Service Company. 

          We have entered into a license agreement with Full Circle Advisors, pursuant to which Full Circle Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name Full Circle. 

          Our Chief Financial Officer, Treasurer and Secretary, William E. Vastardis, is the President of Vastardis Fund Services LLC (Vastardis). Full Circle Service Company engaged Vastardis to provide certain administrative services to us. For the years ended June 30, 2013, 2012, and 2011, Vastardis was paid $223,429, $312,457 and $260,381, respectively, for services provided under the Administration Agreement and $250,000, $225,000, and $100,000 respectively, for the services of Mr. Vastardis as the Chief Financial Officer.
 74    TABLE OF CONTENTS Full Circle Advisors investment committee presently manages Full Circle Funding, LP, a specialty lender serving smaller and lower middle-market companies. Although the existing investment funds managed by Full Circle Funding, LP, which currently consist of the Legacy Funds, are no longer making investments in new opportunities, any affiliated investment vehicle formed in the future and managed by our investment adviser or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by
us. Full Circle Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, Full Circle Advisors or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with Full Circle Advisors allocation procedures. In connection with our acquisition of the Legacy Portfolio, we issued an aggregate of 4,191,415 shares of our common stock and approximately $3.4 million of Distribution Notes to investors in the Legacy Funds. We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individuals personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with
approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K). Recent Developments Personnel Changes On September 9, 2013, the Companys Board of Directors appointed Michael J. Sell to succeed William E. Vastardis as the Companys Chief Financial Officer, Secretary and Treasurer, effective September 30, 2013. Mr. Vastardis has determined to resign from such positions to focus on Vastardis Fund Services LLC, the Companys sub-administrator (the Sub-Administrator) where he serves as President and Chief Executive Officer. He will continue to serve the Company as Assistant Treasurer and Assistant Secretary. Dividend On September 9, 2013, the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on November 15, 2013 for holders of record at October 31, 2013, December 13, 2013 for holders of record at November 29, 2013 and January 15, 2014 for holders of record at December 31, 2013. Recent Portfolio Activity On August 1, 2013, the Company funded $4.5 million of a $9.0 million senior secured credit facility to Infinite Aegis Group, LLC. Infinite Aegis Group, LLC is a provider of revenue cycle management services to healthcare service providers including large hospital systems and doctor-owned clinics, and owns and operates urgent care and occupational care centers in Colorado. The senior secured credit facility bears annual interest at one-month LIBOR plus 12% and has a final maturity of July 31, 2017. Of the $9.0 million facility, $4.0 million was funded by another lender. On September 4, 2013, the Company funded $1.5 million of a $5.0 million senior secured credit facility to Franklin Place Shops  Red, LLC. Franklin Place Shops  Red, LLC is a manager and owner of commercial real estate assets in northwest Ohio. The senior secured credit facility bears interest at 12% per annum and has a final maturity of March 3, 2014. Of the $5.0 million facility, $3.5 million was funded by other lenders. Credit Facility On July 2, 2013, the Company repaid $18.4 million of its outstanding balance on the Credit Facility from unrestricted cash. The current balance of the Credit Facility as of September 11, 2013 is $16.5 million.
 75    TABLE OF CONTENTS Item 7A.  Quantitative and Qualitative Disclosures about Market Risk We are subject to financial market risks, including changes in interest rates. As of June 30, 2013, 5 debt investments in our portfolio bore interest at a fixed rate, and the remaining 27 debt investments bore interest at variable rates, representing approximately $13.4 million and $67.8 million in principal debt, respectively. The variable rates are based upon the Prime rate or LIBOR. To illustrate the potential impact of a change in the underlying interest rate on our net investment income, we have assumed a 1% increase in the underlying Prime rate or LIBOR, and no other change in our portfolio as of June 30, 2013. We have also assumed outstanding borrowings by the Company of $50.1 million, with $25.6 million having a floating rate based upon LIBOR. Under this analysis, net investment income would increase by approximately $0.1 million annually. If we had instead assumed a 1% decrease in the underlying Prime rate or LIBOR, net investment income would decrease by approximately $0.1 million. Although
management believes that this analysis is indicative of our existing interest rate sensitivity at June 30, 2013, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis. We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.
 76    TABLE OF CONTENTS Item 8.  Financial Statements and Supplementary Data Index to Financial Statements  PageReport of Independent Registered Public Accounting Firm





78Consolidated Statements of Assets and Liabilities as of June 30, 2013 and June 30, 2012





79Consolidated Statements of Operations for the years ended June 30, 2013, June 30, 2012 and June 30, 2011





80Consolidated Statements of Changes in Net Assets for the years ended June 30, 2013, June 30, 2012 and June 30, 2011





81Consolidated Statements of Cash Flows for the years ended June 30, 2013, June 30, 2012 and June 30, 2011





82Consolidated Schedule of Investments as of June 30, 2013 and June 30, 2012





83Notes to Consolidated Financial Statements





90
 77    TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders ofFull Circle Capital Corporation We have audited the accompanying consolidated statements of assets and liabilities of Full Circle Capital Corporation (the Company), including the consolidated schedules of investments as of June 30, 2013 and 2012, the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended June 30, 2013. We have also audited the accompanying consolidated financial highlights for each of the two years in the period ended June 30, 2013, as well as for the periods from August 31, 2010 (commencement of operations) to June 30, 2011 and April 16, 2010 (date of
inception) to June 30, 2010. These consolidated financial statements and financial highlights are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2013 and 2012, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Full Circle Capital Corporation as of June 30, 2013 and 2012, the results of their operations and their cash flows for each of the three years in the period ended June 30, 2013, and the consolidated financial highlights for each of the two years in the period ended June 30, 2013 as well as for the periods from April 16, 2010 (commencement of operations) to June 30, 2011 and April 16, 2010 (date of inception, to June 30, 2010 in conformity with accounting principles generally
accepted in the United States of America. /s/ Rothstein Kass Roseland, New JerseySeptember 12, 2013
 78    TABLE OF CONTENTS PART I  FINANCIAL INFORMATION Item 1.  Financial Statements FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES  June 30, 2013

          

          June 30, 2012AssetsControl Investments at Fair Value (Cost of $18,139,543 and $6,639,648, respectively)

          

          

          (NOTE 2, 9)

          

          

          $

          19,115,440

          

          

          $

          6,777,511Affiliate Investments at Fair Value (Cost of $17,954,622 and $6,802,017, respectively)

          

          

          (NOTE 2, 9)

          

          

          

          16,547,903

          

          

          

          5,112,142Non-Control/Non-Affiliate Investments at Fair Value (Cost of $53,220,538 and $85,181,617, respectively)

          

          

          (NOTE 2, 9)

          

          

          

          52,511,158

          

          

          

          82,957,117Total Investments at Fair Value (Cost of $89,314,703 and $98,623,282, respectively)

          

          

          

          

          

          

          88,174,501

          

          

          

          94,846,770Cash

          

          

          

          

          

          

          18,029,115

          

          

          

          639,149Deposit with Broker

          

          

          

          

          

          

          

          

          

          

          2,350,000Interest Receivable

          

          

          (NOTE 2)

          

          

          

          1,097,970

          

          

          

          902,711Principal Receivable

          

          

          

          

          

          

          104,768

          

          

          

          513,372Dividends Receivable

          

          

          

          

          

          

          36,705

          

          

          

          Due from Portfolio Investment

          

          

          

          

          

          

          105,030

          

          

          

          11,140Receivable from Notes Offering

          

          

          

          

          

          

          2,299,704

          

          

          

          Prepaid Expenses

          

          

          

          

          

          

          61,198

          

          

          

          43,053Other Assets

          

          

          

          

          

          

          1,437,273

          

          

          

          25,499Deferred Offering Expenses

          

          

          

          

          

          

          86,834

          

          

          

          67,685Deferred Debt Issuance Costs

          

          

          (NOTE 8)

          

          

          

          1,086,895

          

          

          

          Deferred Credit Facility Fees

          

          

          (NOTE 8)

          

          

          

          543,846

          

          

          

          50,000Total Assets

          

          

          

          

          

          

          113,063,839

          

          

          

          99,449,379LiabilitiesDue to Affiliate

          

          

          (NOTE 5)

          

          

          

          728,371

          

          

          

          580,353Accounts Payable

          

          

          

          

          

          

          471,297

          

          

          

          115,741Accrued Liabilities

          

          

          

          

          

          

          10,172

          

          

          

          79,651Due to Broker

          

          

          

          

          

          

          

          

          

          

          22,500,041Dividends Payable

          

          

          

          

          

          

          582,842

          

          

          

          478,892Interest Payable

          

          

          

          

          

          

          134,167

          

          

          

          142,518Other Liabilities

          

          

          

          

          

          

          358,696

          

          

          

          140,458Accrued Offering Expenses

          

          

          

          

          

          

          

          

          

          

          19,697Line of Credit

          

          

          (NOTE 8)

          

          

          

          25,584,147

          

          

          

          18,544,660Notes Payable 8.25% due June 30, 2020

          

          

          (NOTE 8)

          

          

          

          21,145,525

          

          

          

          Distribution Notes

          

          

          (NOTE 8)

          

          

          

          3,404,583

          

          

          

          3,404,583Total Liabilities

          

          

          

          

          

          

          52,419,800

          

          

          

          46,006,594Net Assets

          

          

          

          

          

          $

          60,644,039

          

          

          $

          53,442,785Components of Net AssetsCommon Stock, par value $0.01 per share (100,000,000 authorized; 7,569,382 and 6,219,382 issued and outstanding, respectively)

          

          

          

          

          

          $

          75,694

          

          

          $

          62,194Paid-in Capital in Excess of Par

          

          

          

          

          

          

          66,319,579

          

          

          

          57,455,232Distributions in Excess of Net Investment Income

          

          

          

          

          

          

          (200,200

          )

          

          

          (122,763

          )Accumulated Net Realized Losses

          

          

          

          

          

          

          (4,410,832

          )

          

          

          (175,366

          )Accumulated Net Unrealized Losses

          

          

          

          

          

          

          (1,140,202

          )

          

          

          (3,776,512

          )Net Assets

          

          

          

          

          

          $

          60,644,039

          

          

          $

          53,442,785Net Asset Value Per Share

          

          

          

          

          

          $

          8.01

          

          

          $

          8.59
 See notes to consolidated financial statements.
 79    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF OPERATIONS  Year ended June 30, 2013

          

          Year ended June 30, 2012

          

          Year ended June 30, 2011Investment IncomeInterest Income from Non-Control/Non-Affiliate Investments

          

          

          

          

          

          $

          7,400,633

          

          

          $

          7,068,048

          

          

          $

          5,872,321Interest Income from Affiliate Investments

          

          

          

          

          

          

          1,587,281

          

          

          

          1,203,935

          

          

          

          1,125,160Interest Income from Control Investments

          

          

          

          

          

          

          1,504,343

          

          

          

          708,854

          

          

          

          Dividend Income from Non-Control/Non-Affiliate Investments

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          4,427Dividend Income from Affiliate Investments

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          210,833Dividend Income from Control Investments

          

          

          

          

          

          

          223,474

          

          

          

          57,216

          

          

          

          Other Income from Non-Control/Non-Affiliate Investments

          

          

          (NOTE 2)

          

          

          

          1,136,661

          

          

          

          489,882

          

          

          

          685,823Other Income from Affiliate Investments

          

          

          (NOTE 2)

          

          

          

          143,631

          

          

          

          155,187

          

          

          

          61,073Other Income from Control Investments

          

          

          (NOTE 2)

          

          

          

          50,000

          

          

          

          143,889

          

          

          

          Total Investment Income

          

          

          

          

          

          

          12,046,023

          

          

          

          9,827,011

          

          

          

          7,959,637Operating ExpensesManagement Fee

          

          

          (NOTE 5

          )

          

          

          1,431,851

          

          

          

          1,186,841

          

          

          

          969,533Incentive Fee

          

          

          (NOTE 5)

          

          

          

          1,339,833

          

          

          

          1,197,590

          

          

          

          1,130,190Total Advisory Fees

          

          

          

          

          

          

          2,771,684

          

          

          

          2,384,431

          

          

          

          2,099,723Allocation of Overhead Expenses

          

          

          (NOTE 5)

          

          

          

          310,412

          

          

          

          316,173

          

          

          

          300,900Sub-Administration Fees

          

          

          (NOTE 5)

          

          

          

          223,429

          

          

          

          312,457

          

          

          

          260,381Officers Compensation

          

          

          (NOTE 5)

          

          

          

          300,736

          

          

          

          267,153

          

          

          

          110,904Total Administration Fees

          

          

          

          

          

          

          834,577

          

          

          

          895,783

          

          

          

          672,185Directors Fees

          

          

          

          

          

          

          124,500

          

          

          

          119,500

          

          

          

          117,982Interest Expenses

          

          

          (NOTE 8)

          

          

          

          1,854,495

          

          

          

          889,055

          

          

          

          525,982Professional Services Expense

          

          

          

          

          

          

          567,126

          

          

          

          625,101

          

          

          

          300,066Bank Fees

          

          

          

          

          

          

          16,429

          

          

          

          12,228

          

          

          

          16,135Tax Expenses

          

          

          

          

          

          

          4,369

          

          

          

          

          

          

          

          3,515Other

          

          

          

          

          

          

          492,262

          

          

          

          381,202

          

          

          

          257,999Organizational Expenses

          

          

          (NOTE 2)

          

          

          

          

          

          

          

          

          

          

          

          178,979Total Gross Operating Expenses

          

          

          

          

          

          

          6,665,442

          

          

          

          5,307,300

          

          

          

          4,172,566Management Fee Waiver and Expense Reimbursement

          

          

          

          

          

          

          

          

          

          

          (313,792

          )

          

          

          (547,308

          )Total Net Operating Expenses

          

          

          

          

          

          

          6,665,442

          

          

          

          4,993,508

          

          

          

          3,625,258Net Investment Income

          

          

          

          

          

          

          5,380,581

          

          

          

          4,833,503

          

          

          

          4,334,379Net Change in Unrealized Gain (Loss) on Investments

          

          

          

          

          

          

          2,636,310

          

          

          

          (1,979,965

          )

          

          

          (1,796,547

          )Net Realized Gain (Loss) on Investments

          

          

          

          

          

          

          (4,215,748

          )

          

          

          (175,366

          )

          

          

          344,482Net Increase in Net Assets Resulting from Operations

          

          

          

          

          

          $

          3,801,143

          

          

          $

          2,678,172

          

          

          $

          2,882,314Earnings per Common Share Basic and Diluted

          

          

          (NOTE 4)

          

          

          $

          0.54

          

          

          $

          0.43

          

          

          $

          0.56Net Investment Income per Common Share Basic and Diluted

          

          

          

          

          

          $

          0.77

          

          

          $

          0.78

          

          

          $

          0.84Weighted Average Shares of Common Stock Outstanding Basic and Diluted

          

          

          

          

          

          

          7,018,286

          

          

          

          6,219,382

          

          

          

          5,152,573
 See notes to consolidated financial statements.
 80    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS  Year ended June 30, 2013

          

          Year ended June 30, 2012

          

          Year ended June 30, 2011Increase in Net Assets Resulting from Operations:Net Investment Income

          

          $

          5,380,581

          

          

          $

          4,833,503

          

          

          $

          4,334,379Net Change in Unrealized Gain (Loss) on Investments

          

          

          2,636,310

          

          

          

          (1,979,965

          )

          

          

          (1,796,547

          )Net Realized Gain (Loss) on Investments

          

          

          (4,215,748

          )

          

          

          (175,366

          )

          

          

          344,482Net Increase in Net Assets Resulting from Operations

          

          

          3,801,143

          

          

          

          2,678,172

          

          

          

          2,882,314Dividends to Shareholders

          

          

          (6,578,309

          )

          

          

          (5,709,393

          )

          

          

          (4,662,368

          )Capital Share Transactions:Issuance of Common Stock

          

          

          10,665,000

          

          

          

          

          

          

          

          60,425,564Reinvested Dividends and Distributions

          

          

          

          

          

          

          

          

          

          

          241,608Less Offering Costs and Underwriting Fees

          

          

          (686,580

          )

          

          

          

          

          

          

          (2,402,067

          )Net Increase in Net Assets Resulting from Capital Share Transactions

          

          

          9,978,420

          

          

          

          

          

          

          

          58,265,105Total Increase (Decrease) in Net Assets

          

          

          7,201,254

          

          

          

          (3,031,221

          )

          

          

          56,485,051Net Assets at Beginning of Period

          

          

          53,442,785

          

          

          

          56,474,006

          

          

          

          (11,045

          )Net Assets at End of Period

          

          $

          60,644,039

          

          

          $

          53,442,785

          

          

          $

          56,474,006Capital Share Activity:Shares issued

          

          

          1,350,000

          

          

          

          

          

          

          

          6,219,282Shares Outstanding at Beginning of Period

          

          

          6,219,382

          

          

          

          6,219,382

          

          

          

          100Shares Outstanding at End of Period

          

          

          7,569,382

          

          

          

          6,219,382

          

          

          

          6,219,382
 See notes to consolidated financial statements.
 81    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF CASH FLOWS  Year ended June 30, 2013

          

          Year ended June 30, 2012

          

          Year ended June 30, 2011Cash Flows from Operating Activities:Net Increase in Net Assets Resulting from Operations

          

          

          

          

          

          $

          3,801,143

          

          

          $

          2,678,172

          

          

          $

          2,882,314Adjustments to reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Provided by (Used in) Operating ActivitiesPurchases of Investments

          

          

          

          

          

          

          (137,146,751

          )

          

          

          (175,349,323

          )

          

          

          (138,011,185

          )Proceeds from Sale or Refinancing of Investments

          

          

          

          

          

          

          142,607,861

          

          

          

          161,664,071

          

          

          

          126,881,158Net Realized (Gain) Loss on Investments

          

          

          

          

          

          

          4,215,748

          

          

          

          175,366

          

          

          

          (344,482

          )Net Change in Unrealized Loss on Investments

          

          

          

          

          

          

          (2,636,310

          )

          

          

          1,979,965

          

          

          

          1,796,547Amortization of Discount

          

          

          

          

          

          

          (368,279

          )

          

          

          (522,732

          )

          

          

          (835,861

          )Amortization of Deferred Debt Issuance Costs

          

          

          

          

          

          

          1,277

          

          

          

          

          

          

          

          Amortization of Deferred Credit Facility Fees

          

          

          

          

          

          

          16,950

          

          

          

          

          

          

          

          Change in Operating Assets and LiabilitiesDeposit with Broker

          

          

          

          

          

          

          2,350,000

          

          

          

          307,859

          

          

          

          (2,657,859

          )Interest Receivable

          

          

          

          

          

          

          (195,259

          )

          

          

          (222,184

          )

          

          

          (9,265

          )Dividends Receivable

          

          

          

          

          

          

          (36,705

          )

          

          

          

          

          

          

          143,750Principal Receivable

          

          

          

          

          

          

          408,604

          

          

          

          (513,372

          )

          

          

          Due from Portfolio Investment

          

          

          

          

          

          

          (93,890

          )

          

          

          (11,140

          )

          

          

          Prepaid Expenses

          

          

          

          

          

          

          (18,145

          )

          

          

          (9,411

          )

          

          

          (33,642

          )Other Assets

          

          

          

          

          

          

          (1,411,774

          )

          

          

          187,462

          

          

          

          (130,317

          )Due to Affiliate

          

          

          

          

          

          

          148,018

          

          

          

          (12,065

          )

          

          

          592,418Accounts Payable

          

          

          

          

          

          

          355,556

          

          

          

          (548

          )

          

          

          116,289Accrued Liabilities

          

          

          

          

          

          

          (69,479

          )

          

          

          6,423

          

          

          

          73,228Due to Broker

          

          

          

          

          

          

          (22,500,041

          )

          

          

          (3,499,591

          )

          

          

          25,999,632Interest Payable

          

          

          

          

          

          

          (8,351

          )

          

          

          119,157

          

          

          

          23,361Other Liabilities

          

          

          

          

          

          

          218,238

          

          

          

          (271,713

          )

          

          

          126,513Accrued Organizational Expenses

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (71,284

          )Net Cash Provided by (Used in) Operating Activities

          

          

          

          

          

          

          (10,361,589

          )

          

          

          (13,293,604

          )

          

          

          16,541,315Cash Flows from Financing Activities:Borrowings Under Credit Facility

          

          

          

          

          

          

          98,538,884

          

          

          

          74,148,309

          

          

          

          36,061,951Payments Under Credit Facility

          

          

          

          

          

          

          (91,499,397

          )

          

          

          (55,603,649

          )

          

          

          (63,538,183

          )Dividends Paid to Shareholders

          

          

          

          

          

          

          (6,474,359

          )

          

          

          (6,629,862

          )

          

          

          (3,021,399

          )Deferred Credit Facility Fees

          

          

          

          

          

          

          (510,796

          )

          

          

          

          

          

          

          (50,000

          )Payment of Offering Expenses and Underwriting Fees

          

          

          

          

          

          

          (725,426

          )

          

          

          (47,988

          )

          

          

          (579,196

          )Proceeds From Notes Payable

          

          

          

          

          

          

          17,757,649

          

          

          

          

          

          

          

          Proceeds From Shares Issued

          

          

          

          

          

          

          10,665,000

          

          

          

          

          

          

          

          16,650,000Net Cash Provided by (Used in) Financing Activities

          

          

          

          

          

          

          27,751,555

          

          

          

          11,866,810

          

          

          

          (14,476,827

          )Total Increase (Decrease) in Cash

          

          

          

          

          

          

          17,389,966

          

          

          

          (1,426,794

          )

          

          

          2,064,488Cash Balance at Beginning of Period

          

          

          

          

          

          

          639,149

          

          

          

          2,065,943

          

          

          

          1,455Cash Balance at End of Period

          

          

          

          

          

          $

          18,029,115

          

          

          $

          639,149

          

          

          $

          2,065,943Supplemental Disclosure of Non-Cash Financing Activity:Assets Purchased for Shares

          

          

          (NOTE 6)

          

          

          $

          

          

          

          $

          

          

          

          $

          73,306,379Debt Issued to Purchase Shares

          

          

          (NOTE 6)

          

          

          $

          

          

          

          $

          

          

          

          $

          (30,880,815

          )Dividends Declared, not yet Paid

          

          

          

          

          

          $

          582,842

          

          

          $

          478,892

          

          

          $

          1,399,361Accrued Offering Expenses

          

          

          

          

          

          $

          

          

          

          $

          19,697

          

          

          $

          Common Shares (0, 0 and 27,867) Issued in Connection with Dividend Reinvestment Plan

          

          

          

          

          

          $

          

          

          

          $

          

          

          

          $

          241,608Supplemental Disclosure of Cash Flow Information:Cash Paid During the Period for Interest

          

          

          

          

          

          $

          1,844,619

          

          

          $

          769,898

          

          

          $

          475,995
 See notes to consolidated financial statements.
 82    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS June 30, 2013  Description(1),(2)

          

          Industry

          

          Par Amount/ Quantity

          

          Cost

          

          Fair Value

          

          % of Net Asset ValueControl Investments(4)New Media West, LLC

          

          

          Cable TV Broadband ServicesSenior Secured Term Loan, 9.00%, 12/31/2017

          

          

          

          

          

          $

          5,079,679

          

          

          $

          5,079,679

          

          

          $

          5,079,679

          

          

          

          8.38

          %Limited Liability Company Interests,(5)

          

          

          

          

          

          

          720

          

          

          

          3,600,000

          

          

          

          4,203,006

          

          

          

          6.93

          %Total

          

          

          

          

          

          

          

          

          

          

          8,679,679

          

          

          

          9,282,685

          

          

          

          15.31

          %Takoda Resources Inc.

          

          

          Geophysical Surveying and Mapping ServicesSenior Secured Loan  Term Loan, 16.00%, 4/01/2016

          

          

          

          

          

          $

          1,469,063

          

          

          

          1,469,063

          

          

          

          1,469,063

          

          

          

          2.42

          %Common Stock(6)

          

          

          

          

          

          

          520

          

          

          

          

          

          

          

          

          

          

          

          0.00

          %Total

          

          

          

          

          

          

          

          

          

          

          1,469,063

          

          

          

          1,469,063

          

          

          

          2.42

          %Texas Westchester Financial, LLC

          

          

          Consumer FinancingLimited Liability Company Interests

          

          

          

          

          

          

          9,278

          

          

          

          905,819

          

          

          

          602,154

          

          

          

          0.99

          %The Finance Company, LLC

          

          

          Consumer FinancingSenior Secured Loan, 15.00%, 9/30/2015

          

          

          

          

          

          $

          4,663,547

          

          

          

          4,585,205

          

          

          

          4,698,524

          

          

          

          7.75

          %Limited Liability Company Interests

          

          

          

          

          

          

          50

          

          

          

          140,414

          

          

          

          1,604,577

          

          

          

          2.65

          %Total

          

          

          

          

          

          

          

          

          

          

          4,725,619

          

          

          

          6,303,101

          

          

          

          10.40

          %TransAmerican Asset Servicing Group, LLC

          

          

          Asset Recovery ServicesSenior Secured Loan, 14.25%, 7/25/2016

          

          

          

          

          

          $

          2,400,000

          

          

          

          2,359,362

          

          

          

          1,458,437

          

          

          

          2.40

          %Limited Liability Company Interests,(7)

          

          

          

          

          

          

          75

          

          

          

          

          

          

          

          

          

          

          

          0.00

          %Total

          

          

          

          

          

          

          

          

          

          

          2,359,363

          

          

          

          1,458,437

          

          

          

          2.40

          %Total Control Investments

          

          

          

          

          

          

          

          

          

          

          18,139,543

          

          

          

          19,115,440

          

          

          

          31.52

          %Affiliate Investments(3)Modular Process Control, LLC

          

          

          Energy Efficiency ServicesSenior Secured Loan  Revolving Loan, 15.00%, 3/28/17

          

          

          

          

          

          $

          3,500,000

          

          

          

          3,310,894

          

          

          

          3,500,000

          

          

          

          5.77

          %Senior Secured Loan  Term Loan, 15.00%, 3/28/17

          

          

          

          

          

          $

          2,500,000

          

          

          

          2,342,415

          

          

          

          2,407,833

          

          

          

          3.97

          %Modular Process Control, LLC  Warrants for 8% of the outstanding Class B LLC Interests (at a $0.01 strike price), expire 3/28/23

          

          

          

          

          

          

          1

          

          

          

          288,000

          

          

          

          161,413

          

          

          

          0.27

          %Total

          

          

          

          

          

          

          

          

          

          

          5,941,309

          

          

          

          6,069,246

          

          

          

          10.01

          %ProGrade Ammo Group, LLC

          

          

          MunitionsSenior Secured Revolving Loan, 9.20%, 8/1/2014

          

          

          

          

          

          $

          1,907,735

          

          

          

          1,907,735

          

          

          

          1,907,735

          

          

          

          3.14

          %Senior Secured Term Loan, 15.20%, 8/1/2014

          

          

          

          

          

          $

          5,468,750

          

          

          

          5,389,137

          

          

          

          4,304,089

          

          

          

          7.10

          %Warrants for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018

          

          

          

          

          

          

          181,240

          

          

          

          176,770

          

          

          

          

          

          

          

          0.00

          %Total

          

          

          

          

          

          

          

          

          

          

          7,473,642

          

          

          

          6,211,824

          

          

          

          10.24

          %SOLEX Fine Foods, LLC; Catsmo, LLC

          

          

          Food Distributors & WholesalersSenior Secured Term Loan, 12.45%, 12/28/2016

          

          

          

          

          

          $

          3,900,000

          

          

          

          3,801,116

          

          

          

          3,859,440

          

          

          

          6.37

          %Limited Liability Company Interests,(8)

          

          

          

          

          

          

          1

          

          

          

          250,000

          

          

          

          139,247

          

          

          

          0.23

          %Warrants for 1.6% of the outstanding LLC interests (strike price 0.01), expire 12/28/2022,(8)

          

          

          

          

          

          

          1

          

          

          

          58,055

          

          

          

          32,695

          

          

          

          0.05

          %Total

          

          

          

          

          

          

          

          

          

          

          4,109,171

          

          

          

          4,031,382

          

          

          

          6.65

          %West World Media, LLC(9)

          

          

          Information and Data ServicesLimited Liability Company Interests

          

          

          

          

          

          

          85,210

          

          

          

          430,500

          

          

          

          235,451

          

          

          

          0.39

          %Total Affiliate Investments

          

          

          

          

          

          

          

          

          

          

          17,954,622

          

          

          

          16,547,903

          

          

          

          27.29

          %
 See notes to consolidated financial statements.
 83    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) June 30, 2013  Description(1),(2)

          

          Industry

          

          Par Amount/ Quantity

          

          Cost

          

          Fair Value

          

          % of Net Asset ValueOther InvestmentsAttention Transit Advertising Systems, LLC

          

          

          Outdoor Advertising ServicesSenior Secured Loan, 14.50%, 9/30/2016

          

          

          

          

          

          $

          2,321,626

          

          

          

          2,321,626

          

          

          

          2,321,626

          

          

          

          3.83

          %Background Images, Inc.

          

          

          Equipment Rental ServicesSenior Secured Loan  Term A, 14.70%, 6/28/2015

          

          

          

          

          

          $

          1,466,250

          

          

          

          1,456,440

          

          

          

          1,465,419

          

          

          

          2.42

          %Senior Secured Loan  Term B, 16.45%, 6/28/2015

          

          

          

          

          

          $

          828,750

          

          

          

          823,118

          

          

          

          783,058

          

          

          

          1.29

          %Total

          

          

          

          

          

          

          

          

          

          

          2,279,558

          

          

          

          2,248,477

          

          

          

          3.71

          %Blackstrap Broadcasting, LLC

          

          

          Radio BroadcastingSenior Secured Loan, 5.00%, 7/31/2014

          

          

          

          

          

          $

          3,000,000

          

          

          

          3,000,000

          

          

          

          2,588,600

          

          

          

          4.27

          %Subordinated Secured Loan, 16.00%, 7/31/2014

          

          

          

          

          

          $

          3,500,000

          

          

          

          3,500,000

          

          

          

          3,034,383

          

          

          

          5.00

          %Total

          

          

          

          

          

          

          

          

          

          

          6,500,000

          

          

          

          5,622,983

          

          

          

          9.27

          %Coast Plating, Inc.

          

          

          Aerospace Parts Plating and FinishingSenior Secured Loan  Term A, 11.70%, 9/13/2014

          

          

          

          

          

          $

          1,401,686

          

          

          

          1,401,687

          

          

          

          1,412,666

          

          

          

          2.33

          %Senior Secured Loan  Term B, 12.45%, 9/13/2014

          

          

          

          

          

          $

          3,431,714

          

          

          

          3,431,714

          

          

          

          3,412,268

          

          

          

          5.63

          %Total

          

          

          

          

          

          

          

          

          

          

          4,833,401

          

          

          

          4,824,934

          

          

          

          7.96

          %CSL Operating, LLC

          

          

          Industrial Metal TreatingsSenior Secured Loan  Term A, 11.70%, 5/11/2014

          

          

          

          

          

          $

          1,866,720

          

          

          

          1,863,691

          

          

          

          1,860,435

          

          

          

          3.07

          %Senior Secured Loan  Term B, 11.70%, 5/11/2014

          

          

          

          

          

          $

          1,866,720

          

          

          

          1,863,691

          

          

          

          1,856,142

          

          

          

          3.06

          %Total

          

          

          

          

          

          

          

          

          

          

          3,727,382

          

          

          

          3,716,577

          

          

          

          6.13

          %Employment Plus, Inc.

          

          

          Staffing ServicesSenior Secured Loan, 12.00%, 10/24/2013

          

          

          

          

          

          $

          5,000,000

          

          

          

          5,000,000

          

          

          

          5,000,000

          

          

          

          8.24

          %Global Energy Efficiency Holdings, Inc.

          

          

          Energy Efficiency ServicesSenior Secured Revolving Loan, 13.20%, 9/7/2015

          

          

          

          

          

          $

          4,444,961

          

          

          

          4,439,802

          

          

          

          4,523,933

          

          

          

          7.46

          %Senior Secured Loan, 13.20%, 9/7/2015

          

          

          

          

          

          $

          1,000,000

          

          

          

          990,088

          

          

          

          1,036,900

          

          

          

          1.71

          %Total

          

          

          

          

          

          

          

          

          

          

          5,429,890

          

          

          

          5,560,833

          

          

          

          9.17

          %iMedX, Inc.

          

          

          Medical Transcription ServicesSenior Secured Revolving Loan, 13.75%, 09/19/2014

          

          

          

          

          

          $

          1,578,962

          

          

          

          1,578,962

          

          

          

          1,685,752

          

          

          

          2.78

          %Senior Secured Loan  Term A, 13.75%, 09/19/2014

          

          

          

          

          

          $

          2,450,686

          

          

          

          2,437,028

          

          

          

          2,482,790

          

          

          

          4.09

          %Senior Secured Loan  Term B, 13.75%, 09/19/2014

          

          

          

          

          

          $

          1,071,180

          

          

          

          1,071,180

          

          

          

          1,073,679

          

          

          

          1.77

          %Total

          

          

          

          

          

          

          

          

          

          

          5,087,170

          

          

          

          5,242,221

          

          

          

          8.64

          %MDU Communications (USA) Inc.

          

          

          Cable TV Broadband ServicesSenior Secured Loan  Tranche A, 12.85%, 12/31/2013

          

          

          

          

          

          $

          5,000,000

          

          

          

          5,000,000

          

          

          

          4,914,000

          

          

          

          8.10

          %Senior Secured Loan  Tranche C, 10.75%, 12/31/2013

          

          

          

          

          

          $

          250,000

          

          

          

          250,000

          

          

          

          242,642

          

          

          

          0.40

          %Senior Secured Loan  Tranche D, 9.75%, 12/31/2013

          

          

          

          

          

          $

          1,480,000

          

          

          

          1,480,000

          

          

          

          1,427,213

          

          

          

          2.35

          %Total

          

          

          

          

          

          

          

          

          

          

          6,730,000

          

          

          

          6,583,855

          

          

          

          10.85

          %Pristine Environments, Inc.

          

          

          Building Cleaning and Maintenance ServicesSenior Secured Loan  Revolving Loan, 12.70%, 3/31/2017

          

          

          

          

          

          $

          2,764,801

          

          

          

          2,737,585

          

          

          

          2,774,017

          

          

          

          4.57

          %Senior Secured Loan  Term Loan, 12.70%, 3/31/2017

          

          

          

          

          

          $

          1,135,000

          

          

          

          1,123,828

          

          

          

          1,143,437

          

          

          

          1.89

          %Total

          

          

          

          

          

          

          

          

          

          

          3,861,413

          

          

          

          3,917,454

          

          

          

          6.46

          %
 See notes to consolidated financial statements.
 84    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) June 30, 2013  Description(1),(2)

          

          Industry

          

          Par Amount/ Quantity

          

          Cost

          

          Fair Value

          

          % of Net Asset ValueThe Selling Source, LLC

          

          

          Information and Data ServicesSenior Secured Loan, 12.54%, 1/31/2017

          

          

          

          

          

          $

          4,000,000

          

          

          

          3,964,978

          

          

          

          4,000,000

          

          

          

          6.60

          %US Path Labs, LLC

          

          

          Healthcare ServicesSenior Secured Loan, 14.00%, 3/30/2014

          

          

          

          

          

          $

          3,470,000

          

          

          

          3,428,973

          

          

          

          3,472,198

          

          

          

          5.73

          %VaultLogix, LLC

          

          

          Information Retrieval ServicesWarrants for Variable% Ownership, (at a $307.855 strike price), expire 1/14/2019

          

          

          

          

          

          

          3,439

          

          

          

          56,147

          

          

          

          

          

          

          

          0.00

          %Total Other Investments

          

          

          

          

          

          

          

          

          

          

          53,220,538

          

          

          

          52,511,158

          

          

          

          86.59

          %Total Investments

          

          

          

          

          

          

          

          

          

          $

          89,314,703

          

          

          $

          88,174,501

          

          

          

          145.40

          %
 See notes to consolidated financial statements.
 85    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) June 30, 2013 The following table shows the fair value of our portfolio of investments by industry, as of June 30, 2013.  June 30, 2013Investment at Fair Value (dollars in millions)

          

          Percentage of Net AssetsCable TV/Broadband Services

          

          $

          15.9

          

          

          

          26.16

          %Energy Efficiency Services

          

          

          11.6

          

          

          

          19.18Consumer Financing

          

          

          6.9

          

          

          

          11.39Munitions

          

          

          6.2

          

          

          

          10.24Radio Broadcasting

          

          

          5.6

          

          

          

          9.28Medical Transcription Services

          

          

          5.2

          

          

          

          8.64Staffing Services

          

          

          5.0

          

          

          

          8.24Aerospace Parts Plating and Finishing

          

          

          4.8

          

          

          

          7.96Information and Data Services

          

          

          4.2

          

          

          

          6.98Food Distributors and Wholesalers

          

          

          4.0

          

          

          

          6.65Building Cleaning and Maintenance Services

          

          

          3.9

          

          

          

          6.46Industrial Metal Treatings

          

          

          3.8

          

          

          

          6.13Healthcare Services

          

          

          3.6

          

          

          

          5.73Outdoor Advertising Services

          

          

          2.3

          

          

          

          3.83Equipment Rental Services

          

          

          2.2

          

          

          

          3.71Geophysical Surveying and Mapping Services

          

          

          1.5

          

          

          

          2.42Asset Recovery Services

          

          

          1.5

          

          

          

          2.40Total

          

          $

          88.2

          

          

          

          145.40

          %
  (1)

          Our investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally subject to certain limitations on resale, and may be deemed to be restricted securities under the Securities Act of 1933. (2)

          A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or the U.S. prime rate, and which is reset daily, monthly, quarterly or semi-annually. For each debt investment we have provided the interest rate in effect as of June 30, 2013. (3)

          Affiliate Investments are investments in those companies that are Affiliated Companies of the Company, as defined in the Investment Company Act of 1940, which are not Control Investments. A company is deemed to be an Affiliate of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5% or more, but less than 25%, of the voting securities of such company. (4)

          Control Investments are investments in those companies that are Control Investments of the Company, as defined in the Investment Company Act of 1940. A company is deemed to be a Control Investment of Full Circle Capital Corporation if Full Circle Capital Corporation owns more than 25% of the voting securities of such company. (5)

          Full Circle Capital Corporations equity investment in New Media West, LLC is held through its wholly-owned subsidiary FC New Media, Inc. (6)

          Full Circle Capital Corporations equity investments in Takoda Resources Inc. are held through its wholly-owned subsidiary FC Takoda Holdings, LLC. (7)

          Full Circle Capital Corporations equity investment in TransAmerican Asset Servicing Group, LLC is held through its wholly-owned subsidiary TransAmerican Asset Servicing Group, Inc. (8)

          Full Circle Capital Corporations equity investments in SOLEX Fine Foods, LLC; Catsmo, LLC are held through its wholly-owned subsidiary FC New Specialty Foods, Inc. (9)

          A portion of Full Circle Capital Corporations investment in West World Media, LLC is held through its wholly-owned subsidiary Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation. **

          Interest rate shown reflects yield to maturity at time of purchase. 

          Security is a non-income producing security. See notes to consolidated financial statements.
 86    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS(7) June 30, 2012  Description (1),(2)

          

          Industry

          

          Par Amount/ Quantity

          

          Cost

          

          Fair Value

          

          % of Net Asset ValueControl Investments(4)Texas Westchester Financial, LLC

          

          

          Consumer FinancingLimited Liability Company Interests

          

          

          

          

          

          

          9,278

          

          

          $

          905,819

          

          

          $

          549,360

          

          

          

          1.03

          %The Finance Company, LLC

          

          

          Consumer FinancingSenior Secured Term Loan, 15.00%, 9/30/2015

          

          

          

          

          

          $

          5,724,261

          

          

          

          5,593,415

          

          

          

          5,617,738

          

          

          

          10.51

          %Limited Liability Company Interests

          

          

          

          

          

          

          50

          

          

          

          140,414

          

          

          

          610,413

          

          

          

          1.14

          %Totals

          

          

          

          

          

          

          

          

          

          

          5,733,829

          

          

          

          6,228,151

          

          

          

          11.65

          %Total Control Investments

          

          

          

          

          

          

          

          

          

          

          6,639,648

          

          

          

          6,777,511

          

          

          

          12.68

          %Affiliate Investments(5)West World Media, LLC(6)

          

          

          Information and Data ServicesLimited Liability Company Interests

          

          

          

          

          

          

          85,210

          

          

          

          430,500

          

          

          

          216,964

          

          

          

          0.41

          %ProGrade Ammo Group LLC

          

          

          MunitionsSenior Secured Revolving Loan, 9.24%, 8/1/2014

          

          

          

          

          

          $

          383,798

          

          

          

          383,798

          

          

          

          383,798

          

          

          

          0.72

          %Senior Secured Term Loan, 15.24%, 8/1/2014

          

          

          

          

          

          $

          5,968,750

          

          

          

          5,810,949

          

          

          

          4,511,380

          

          

          

          8.44

          %Warrants for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018

          

          

          

          

          

          

          181,240

          

          

          

          176,770

          

          

          

          

          

          

          

          

          %Totals

          

          

          

          

          

          

          

          

          

          

          6,371,517

          

          

          

          4,895,178

          

          

          

          9.16

          %Total Affiliate Investments

          

          

          

          

          

          

          

          

          

          

          6,802,017

          

          

          

          5,112,142

          

          

          

          9.57

          %Other InvestmentsAttention Transit Advertising Systems, LLC

          

          

          Outdoor Advertising ServicesSenior Secured Loan, 14.50%, 11/1/2012

          

          

          

          

          

          $

          2,060,150

          

          

          

          2,048,859

          

          

          

          1,900,282

          

          

          

          3.56

          %Background Images, Inc.

          

          

          Equipment Rental ServicesSenior Secured Loan  Term A, 14.74%, 6/28/2014

          

          

          

          

          

          $

          2,012,500

          

          

          

          1,986,949

          

          

          

          2,027,594

          

          

          

          3.79

          %Senior Secured Loan  Term B, 16.49%, 6/28/2014

          

          

          

          

          

          $

          1,137,500

          

          

          

          1,122,922

          

          

          

          1,123,433

          

          

          

          2.10

          %Totals

          

          

          

          

          

          

          

          

          

          

          3,109,871

          

          

          

          3,151,027

          

          

          

          5.89

          %Blackstrap Broadcasting, LLC

          

          

          Radio BroadcastingSenior Secured Loan, 5.00%, 9/25/2012

          

          

          

          

          

          $

          3,000,000

          

          

          

          2,959,844

          

          

          

          2,850,600

          

          

          

          5.33

          %Subordinated Secured Loan, 16.00%, 9/25/2012

          

          

          

          

          

          $

          3,500,000

          

          

          

          3,495,844

          

          

          

          3,465,700

          

          

          

          6.48

          %Totals

          

          

          

          

          

          

          

          

          

          

          6,455,688

          

          

          

          6,316,300

          

          

          

          11.81

          %Coast Plating, Inc.

          

          

          Aerospace Parts Plating and FinishingSenior Secured Loan  Term A, 11.74%, 9/13/2014

          

          

          

          

          

          $

          1,450,000

          

          

          

          1,449,081

          

          

          

          1,464,790

          

          

          

          2.74

          %Senior Secured Loan  Term B, 12.49%, 9/13/2014

          

          

          

          

          

          $

          3,550,000

          

          

          

          3,540,361

          

          

          

          3,484,325

          

          

          

          6.52

          %Totals

          

          

          

          

          

          

          

          

          

          

          4,989,442

          

          

          

          4,949,115

          

          

          

          9.26

          %CSL Operating, LLC

          

          

          Industrial Metal TreatingsSenior Secured Loan  Term A, 11.74%, 5/11/2014

          

          

          

          

          

          $

          2,000,000

          

          

          

          1,993,354

          

          

          

          1,957,933

          

          

          

          3.66

          %Senior Secured Loan  Term B, 11.74%, 5/11/2014

          

          

          

          

          

          $

          2,000,000

          

          

          

          1,993,354

          

          

          

          1,944,400

          

          

          

          3.64

          %Totals

          

          

          

          

          

          

          

          

          

          

          3,986,708

          

          

          

          3,902,333

          

          

          

          7.30

          %Employment Plus, Inc.

          

          

          Staffing ServicesSenior Secured Loan, 12.00%, 10/24/2013

          

          

          

          

          

          $

          5,000,000

          

          

          

          5,000,000

          

          

          

          5,000,000

          

          

          

          9.36

          %
 See notes to consolidated financial statements.
 87    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)(7) June 30, 2012  Description(1),(2)

          

          Industry

          

          Par Amount/ Quantity

          

          Cost

          

          Fair Value

          

          % of Net Asset ValueEquisearch Acquisition, Inc.

          

          

          Asset Recovery ServicesSenior Secured Loan, 14.00%, 5/31/2012

          

          

          

          

          

          $

          2,580,201

          

          

          

          2,580,201

          

          

          

          1,959,363

          

          

          

          3.67

          %Warrants for 47.9056 shares (at a $0.01 strike price), expire 1/31/2016

          

          

          

          

          

          

          48

          

          

          

          225,000

          

          

          

          

          

          

          

          

          %Totals

          

          

          

          

          

          

          

          

          

          

          2,805,201

          

          

          

          1,959,363

          

          

          

          3.67

          %European Evaluators, LLC(3)

          

          

          Art DealersSenior Secured Loan, 11.99%, 8/29/2012

          

          

          

          

          

          $

          615,000

          

          

          

          614,240

          

          

          

          614,240

          

          

          

          1.15

          %iMedX, Inc.

          

          

          Medical Transcription ServicesSenior Secured Revolving Loan, 10.09%, 9/19/2014

          

          

          

          

          

          $

          1,298,517

          

          

          

          1,295,589

          

          

          

          1,298,517

          

          

          

          2.43

          %Senior Secured Loan  Term A, 15.99%, 9/19/2014

          

          

          

          

          

          $

          2,755,000

          

          

          

          2,727,654

          

          

          

          2,772,448

          

          

          

          5.19

          %Totals

          

          

          

          

          

          

          

          

          

          

          4,023,243

          

          

          

          4,070,965

          

          

          

          7.62

          %Matt Martin Real Estate Management, LLC

          

          

          Real Estate Management ServicesSenior Secured Loan, 12.99%, 4/30/2015

          

          

          

          

          

          $

          4,139,000

          

          

          

          4,104,413

          

          

          

          4,104,413

          

          

          

          7.68

          %MDU Communications (USA) Inc.

          

          

          Cable TV Broadband ServicesSenior Secured Loan  Tranche A, 11.85%, 6/30/2013

          

          

          

          

          

          $

          5,000,000

          

          

          

          5,000,000

          

          

          

          4,889,000

          

          

          

          9.15

          %Senior Secured Loan  Tranche C, 9.75%, 6/30/2013

          

          

          

          

          

          $

          250,000

          

          

          

          250,000

          

          

          

          240,275

          

          

          

          0.45

          %Senior Secured Loan  Tranche D, 8.75%, 6/30/2013

          

          

          

          

          

          $

          1,480,000

          

          

          

          1,480,000

          

          

          

          1,399,537

          

          

          

          2.62

          %Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013

          

          

          

          

          

          

          37,500

          

          

          

          298

          

          

          

          

          

          

          

          

          %Totals

          

          

          

          

          

          

          

          

          

          

          6,730,298

          

          

          

          6,528,812

          

          

          

          12.22

          %The Selling Source, LLC

          

          

          Information and Data ServicesSenior Secured Loan, 12.00%, 12/21/2012

          

          

          

          

          

          $

          3,323,508

          

          

          

          3,323,508

          

          

          

          3,323,508

          

          

          

          6.22

          %US Path Labs, LLC

          

          

          Healthcare ServicesSenior Secured Loan, 13.00%, 3/30/2014

          

          

          

          

          

          $

          3,500,000

          

          

          

          3,434,191

          

          

          

          3,465,117

          

          

          

          6.48

          %VaultLogix, LLC

          

          

          Information Retrieval ServicesWarrants for Variable% Ownership, (at a $307.855 strike price), expire 1/14/2019

          

          

          

          

          

          

          3,439

          

          

          

          56,147

          

          

          

          

          

          

          

          

          %Ygnition Networks, Inc.

          

          

          Cable TV Broadband ServicesSenior Secured Loan, 12.74%, 9/6/2012

          

          

          

          

          

          $

          11,999,743

          

          

          

          11,999,781

          

          

          

          11,171,761

          

          

          

          20.90

          %United States TreasuryUnited States Treasury Bill** (0.01)%, 7/5/2012

          

          

          

          

          

          $

          22,500,000

          

          

          

          22,500,027

          

          

          

          22,499,881

          

          

          

          42.10

          %Total Other Investments

          

          

          

          

          

          

          

          

          

          

          85,181,617

          

          

          

          82,957,117

          

          

          

          155.22

          %Total Investments

          

          

          

          

          

          

          

          

          

          $

          98,623,282

          

          

          $

          94,846,770

          

          

          

          177.47

          %
 See notes to consolidated financial statements.
 88    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)(7) June 30, 2012 The following table shows the fair value of our portfolio of investments by industry, as of June 30, 2012, excluding United States Treasury Bills of approximately $22.5 million.  June 30, 2012Investment at Fair Value(dollars in millions)

          

          Percentage ofNet AssetsCable TV/Broadband Services

          

          $

          17.7

          

          

          

          33.12

          %Consumer Financing

          

          

          6.8

          

          

          

          12.68Radio Broadcasting

          

          

          6.3

          

          

          

          11.81Staffing Services

          

          

          5.0

          

          

          

          9.36Aerospace Parts Plating and Finishing

          

          

          4.9

          

          

          

          9.26Munitions

          

          

          4.9

          

          

          

          9.16Real Estate Management Services

          

          

          4.1

          

          

          

          7.68Medical Transcription Services

          

          

          4.1

          

          

          

          7.62Industrial Metal Treatings

          

          

          3.9

          

          

          

          7.30Information and Data Services

          

          

          3.5

          

          

          

          6.63Healthcare Services

          

          

          3.5

          

          

          

          6.48Equipment Rental Services

          

          

          3.1

          

          

          

          5.89Asset Recovery Services

          

          

          2.0

          

          

          

          3.67Outdoor Advertising Services

          

          

          1.9

          

          

          

          3.56Art Dealers

          

          

          0.6

          

          

          

          1.15Total

          

          $

          72.3

          

          

          

          135.37

          %
  (1)

          Our investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally subject to certain limitations on resale, and may be deemed to be restricted securities under the Securities Act of 1933. (2)

          A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or the U.S. prime rate, and which is reset daily, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of June 30, 2012. (3)

          Full Circle Capital Corporations loan to European Evaluators, LLC is held through its wholly-owned subsidiary Art Credit Company, LLC. (4)

          Control Investments are investments in those companies that are Control Investments of the Company, as defined in the Investment Company Act of 1940. A company is deemed to be a Control Investment of Full Circle Capital Corporation if Full Circle Capital Corporation owns more than 25% of the voting securities of such company. (5)

          Affiliate Investments are investments in those companies that are Affiliated Companies of the Company, as defined in the Investment Company Act of 1940, which are not Control Investments. A company is deemed to be an Affiliate of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5% or more but less than 25% of the voting securities of such company. (6)

          A portion of Full Circle Capital Corporations investments in West World Media, LLC is held through its wholly-owned subsidiary Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation. (7)

          The June 30, 2012 Consolidated Schedule of Investments was reclassified to be consistent with the new format used for the June 30, 2013 Consolidated Schedule of Investments. **

          Interest rate shown reflects yield to maturity at time of purchase. 

          Security is a non-income producing security. See notes to consolidated financial statements.
 89    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 1. Organization References herein to we, us or our refer to Full Circle Capital Corporation and Subsidiaries (Full Circle Capital or the Company) unless the context specifically requires otherwise. We were formed as Full Circle Capital Corporation, a Maryland corporation, on April 16, 2010 and were funded in an initial public offering, or IPO, completed on August 31, 2010. We are a non-diversified, closed-end investment company that has filed an election to be treated as a business development company, or BDC, under the Investment Company Act of 1940 (the 1940 Act). As a BDC, we expect to qualify annually as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code. We invest primarily in senior secured term debt issued by smaller and lower middle-market companies. Our investment
objective is to generate both current income and capital appreciation through debt and equity investments. Note 2. Significant Accounting Policies Use of Estimates and Basis of Presentation The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ. The June 30, 2012 Consolidated Financial Statements were reclassified to be consistent with the new format used for the June 30, 2013 Consolidated Financial Statements. Investment Classification We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Affiliated Investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through
the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another company or person. Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other, non-security financial instruments, such as a limited partnership or private company, are recorded on the basis of subscription date or redemption date, as applicable. Amounts for investments recognized or derecognized but
not yet settled are reported as receivables for investments sold and payables for investments acquired, respectively, in the Consolidated Statements of Assets and Liabilities. Basis of Consolidation Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are generally precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of Full Circle West, Inc., FC New Media, Inc., TransAmerican Asset Servicing Group, Inc., FC New Specialty Foods, Inc., and FC Takoda Holdings, LLC, our wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
 90    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 2. Significant Accounting Policies   (continued) Valuation of Investments In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, Full Circle Capitals Board of Directors (the Board) uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Board. Unobservable inputs reflect the Boards assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Board or the Audit Committee of the Board (the Audit Committee), does not represent fair value, are valued as follows: 1.

          The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment; 2.

          Preliminary valuation conclusions are then documented and discussed with the Companys senior management. Independent third-party valuation firms are engaged by, or on behalf of, the Audit Committee to conduct independent appraisals or review managements preliminary valuations or make their own independent assessment, for certain assets; 3.

          The Audit Committee discusses valuations and recommends the fair value of each investment in the portfolio in good faith based on the input of the Company and, where appropriate, the independent valuation firms; and 4.

          The Board then discusses the valuations and determines in good faith the fair value of each investment in the portfolio based upon input from the Company, estimates from the independent valuation firms and the recommendations of the Audit Committee. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1  Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. Level 2  Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3  Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 91    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 2. Significant Accounting Policies   (continued) The availability of valuation techniques and observable inputs can vary from investment to investment and is affected by a wide variety of factors including, the type of investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that
cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Board in determining fair value is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Companys own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause an investment to be
reclassified to a lower level within the fair value hierarchy. Valuation Techniques Senior and Subordinated Secured Loans The Companys portfolio consists primarily of private debt instruments (Level 3 debt). The Company considers its Level 3 debt to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Board considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and
quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Board may evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument. This evaluation will be updated no less than quarterly for Level 3 debt instruments that are not performing, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired and analyzed by management and the Board. Investments in Private Companies The Board determines the fair value of its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value hierarchy. Warrants The Board will ascribe value to warrants based on fair value analyses that can include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate.
 92    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 2. Significant Accounting Policies   (continued) Cash The Company places its cash with J.P. Morgan Chase Bank N.A. and Sovereign Bank, N.A., and at times, cash held in such accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash in money market funds, within the limitations of the 1940 Act. Revenue Recognition Realized gains or losses on the sale of investments are calculated using the specific identification method. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a senior or subordinated secured loan, any unamortized loan origination, closing and commitment fees are recorded as interest income. Dividend income is recorded on the ex-dividend date. Structuring fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when received. Other fee income, including administrative fees and unused line fees, is included in Other Income. Income from such sources was $1,330,292, $788,958, and $746,896 for the years ended June 30, 2013, 2012, and 2011, respectively. Federal Income Taxes The Company has elected to be treated as a RIC under subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify 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 90% of the sum of investment company taxable income (ICTI) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to
be eligible for tax treatment under subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI. Permanent differences between ICTI and net investment income for financial reporting purposes are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the years ended June 30, 2013 and 2012, the Company reclassified for book purposes amounts arising from permanent book/tax differences related as follows:  Year ended June 30, 2013

          

          Year ended June 30, 2012Capital in excess of par value

          

          $

          (1,100,573

          )

          

          $

          (749,179

          )Accumulated undistributed net investment income (loss)

          

          

          1,120,291

          

          

          

          1,093,661Accumulated net realized gain (loss) from investments

          

          $

          (19,718

          )

          

          $

          (344,482

          )
 93    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 2. Significant Accounting Policies   (continued) For income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The tax character of distributions paid for the years ended June 30, 2013 and 2012 were as follows:  Year ended June 30, 2013

          

          Year ended June 30, 2012Ordinary income

          

          $

          5,489,254

          

          

          $

          4,979,135Distributions of long-term capital gains

          

          

          

          

          

          

          Return of capital

          

          

          1,089,055

          

          

          

          730,258Distributions on a tax basis

          

          $

          6,578,309

          

          

          $

          5,709,393
 For federal income tax purposes, the tax cost of investments owned at June 30, 2013 and 2012 were approximately $90,254,434 and $98,623,283, respectively. The net unrealized depreciation on investments owned at June 30, 2013 and 2012 were approximately $2,079,933 and $3,776,513, respectively. At June 30, 2013 and 2012, the components of distributable earnings on a tax basis detailed below differ from the amounts reflected in the Companys Statement of Assets and Liabilities by temporary and other book/tax differences, primarily relating to the tax treatment of certain investments in partnerships and wholly-owned subsidiary corporations, fee income and organizational expenses, as follows:  As of June 30, 2013

          

          As of June 30, 2012Accumulated capital gains (losses)

          

          $

          (3,471,100

          )

          

          $

          (175,366

          )Unrealized appreciation (depreciation)

          

          

          (2,079,933

          )

          

          

          (3,776,512

          )Components of distributable earnings at year end

          

          $

          (5,551,033

          )

          

          $

          (3,951,879

          )
 For the years ended June 30, 2013 and 2012, the net capital loss carryfowards were $3,471,100 and $175,366, respectively. The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (ASC 740). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Companys tax returns to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax positions deemed to meet a more-likely-than-not threshold would be recorded as a tax benefit or expense
in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statement of operations. There were no material uncertain income tax positions at June 30, 2013. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company remains subject to examination by the Internal Revenue Service for the initial tax year ending June 30, 2011 and all future years. Dividends and Distributions Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, of our monthly dividends are approved by our Board each quarter and are generally based upon our managements estimate of our earnings for the quarter. Net realized capital gains, if any, are distributed at least annually. Guarantees and Indemnification Agreements We follow ASC Topic 460, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. ASC Topic 460 elaborates on the disclosure requirements of a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for
 94    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 2. Significant Accounting Policies   (continued) those guarantees that are covered by ASC Topic 460, the fair value of the obligation undertaken in issuing certain guarantees. ASC Topic 460 did not have a material effect on the consolidated financial statements. Refer to Note 5 and Note 8 for further discussion of guarantees and indemnification agreements. Per Share Information Basic and diluted earnings (loss) per common share is calculated using the weighted average number of common shares outstanding for the period presented. Basic and diluted earnings (loss) per share are the same since there are no potentially dilutive securities outstanding. Organizational Expenses and Offering Costs The Company did not incur organizational expenses during the years ended June 30, 2013, and 2012. During the year ended June 30, 2011 the company incurred organizational expenses of $178,979. The Company complies with the requirements of ASC 340-10-S99-1, Expenses of Offering. Deferred offering costs consist principally of legal and audit costs incurred through the balance sheet date that are related to an offering of equity securities. Such costs are charged against the gross proceeds of the offering or will be charged to the Companys operations if the offering is not completed. Offering expenses related to
the Companys November 27, 2012 and August 31, 2010 offerings were $153,330 and $1,052,067, respectively. Capital Accounts Certain capital accounts including undistributed net investment income, accumulated net realized gain or loss, net unrealized appreciation or depreciation, and paid in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP. Recent Accounting Pronouncements In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01). ASU 2013-01 limits the scope of the new balance sheet offsetting disclosure requirements to derivatives (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and certain securities borrowing and lending arrangements. Public companies are required to apply ASU 2013-01 prospectively for interim and annual reporting periods beginning
after January 1, 2013. In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-08, Financial Services  Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (ASU 2013-08). ASU 2013-08 amends the criteria that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013. In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (ASU 2013-04). ASU 2013-04 provides additional guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. Public companies are required to apply ASU
2013-04 prospectively for interim and annual reporting periods beginning after December 15, 2013.
 95    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 2. Significant Accounting Policies   (continued) The Company does not believe that the adoption of any recently issued accounting standards will have a material impact on its current financial position and results of operations. Note 3. Concentration of Credit Risk and Liquidity Risk In the normal course of business, the Company maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties. The Company utilizes one financial institution to provide financing, which is essential to its business. There are a number of other financial institutions available that could potentially provide the Company with financing. Management believes that such other financial institutions would likely be able to provide similar financing with generally comparable terms. However, a change in financial institutions at the present time could cause a delay in service provisioning or result in potential lost opportunities, which could adversely affect operating results. As of June 30, 2013, we had approximately $5.9 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies. Note 4. Earnings (Loss) per Common Share The following information sets forth the computation of basic and diluted earnings (loss) per common share for the years ended June 30, 2013, June 30, 2012, and June 30, 2011:  Year ended June 30, 2013

          

          Year ended June 30, 2012

          

          Year ended June 30, 2011Per Share Data(1):Net Increase in Net Assets Resulting from Operations

          

          $

          3,801,143

          

          

          $

          2,678,172

          

          

          $

          2,882,314Average weighted shares outstanding for period

          

          

          7,018,286

          

          

          

          6,219,382

          

          

          

          5,152,573Basic and diluted earnings per common share

          

          $

          0.54

          

          

          $

          0.43

          

          

          $

          0.56
  (1)

          Per share data based on weighted average shares outstanding. Note 5. Related Party Agreements and Transactions Investment Advisory Agreement On June 24, 2013, the Board re-approved an investment advisory agreement (the Investment Advisory Agreement) with Full Circle Advisors, LLC (the Adviser) under which the Adviser, subject to the overall supervision of our Board, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, our Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we
make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make. The Advisers services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Adviser receives a fee from us, consisting of two components, a base management fee and an incentive fee.
 96    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 5. Related Party Agreements and Transactions   (continued) The base management fee is calculated at an annual rate of 1.75% of our gross assets, as adjusted. For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, as adjusted, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be appropriately pro-rated. In addition, our investment adviser agreed to waive any
portion of the base management fee that exceeded 1.50% of Full Circle Capitals gross assets, as adjusted, until August 31, 2011 when such waiver expired. The total base management fees earned by the Adviser for the years ended June 30, 2013, 2012, and 2011, respectively, were, $1,431,851, $1,186,841 and $969,533, respectively, after adjusting for the waivers of $0, $28,124 and $138,505, respectively. The total base management fee payable to the Adviser as of June 30, 2013, 2012, and 2011 was $389,945, $308,271 and $310,809 after reflecting payment of $1,350,177, $1,189,379 and $520,219 for the years ended June 30, 2013, 2012, and 2011, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The incentive fee has two parts. The first part of the incentive fee (the Income incentive fee) is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our
operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement to Full Circle Service Company (the Administrator), and any interest expenses and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include organizational costs or any realized capital gains, computed net of all realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00%
annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management fee. We pay the Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: 

          no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%; 

          100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle but is less than 2.1875%) as the catch-up. The catch-up is meant to provide our investment adviser with 20% of our pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 2.1875% in any calendar quarter; and 

          20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to the Adviser (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Adviser).
 97    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 5. Related Party Agreements and Transactions   (continued) These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter. The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees with respect to each of the investments in our portfolio, provided that, the incentive fee determined as of December 31,
2010 was calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation from the inception of Full Circle Capital. There were no incentive fees paid on realized capital gains for the years ended June 30, 2013, 2012, and 2011, respectively. Income incentive fees of $1,339,833, $1,197,590 and $1,130,190 were earned by the Adviser for the years ended June 30, 2013, 2012, and 2011, respectively, and the total income incentive fee payable to the Adviser as of June 30, 2013, 2012, and 2011 was $338,426, $272,082 and $281,609, after reflecting payment of $1,273,489, $1,207,117 and $848,581 during the years ended June 30, 2013, 2012, and 2011, respectively, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The Adviser had agreed to reimburse the Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public offering, which occurred on August 31, 2010. This agreement was extended through September 30, 2011, and equated to an accrual offset against the Advisors management fee of $285,668 and $408,803 for the years ended June 30, 2012 and 2011, respectively. There was no offset for the year ended June 30, 2013. Administration Agreement On June 24, 2013, the Board re-approved an Administration Agreement with the Administrator under which the Administrator, among other things, furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, the Administrator also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders. In addition, the Administrator assists us in determining and publishing our
net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Full Circle Service Companys overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our chief financial officer and our allocable portion of the compensation of any administrative support staff employed by the Administrator, directly or indirectly. Under the Administration Agreement, the Administrator will also provide on our behalf managerial assistance to those portfolio companies that request such assistance. The Administration Agreement may be
terminated by either party without penalty upon 60 days written notice to the other party. The Administrator, and Vastardis Fund Services LLC (Vastardis or the Sub-Administrator), may also provide administrative services to the Adviser. As a result, the Adviser also reimburses the Administrator and/or the Sub-Administrator for its allocable portion of the Administrators and/or Sub-Administrators overhead, including rent, the fees and expenses associated with performing compliance functions for Full Circle Advisors, and its allocable portion of the compensation of any administrative support staff. To the
 98    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 5. Related Party Agreements and Transactions   (continued) extent the Adviser or any of its affiliates manage other investment vehicles in the future, no portion of any administrative services provided by the Administrator to such other investment vehicles will be charged to us. The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Administrator and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from Full Circle Capital for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of the Administrators services under the Administration
Agreement or otherwise as administrator for Full Circle Capital. Sub-Administration Agreement Our Chief Financial Officer, William E. Vastardis, is the President of Vastardis. The Administrator has engaged Vastardis to provide certain administrative services to us. In exchange for providing such services, the Administrator pays Vastardis an asset-based fee with a $200,000 annual minimum as adjusted for any reimbursement of expenses. This asset-based fee will vary depending upon our gross assets, as adjusted, as follows:  Gross Assets

          

          Feefirst $150 million of gross assets

          

          20 basis points (0.20%)next $150 million of gross assets

          

          15 basis points (0.15%)next $200 million of gross assets

          

          10 basis points (0.10%)in excess of $500 million of gross assets

          

          5 basis points (0.05%)
 Additionally, we reimburse the Administrator for the fees charged for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary at an annual rate of up to $250,000. Vastardis agreed to cap its first year fees at $200,000, plus any reimbursement of expenses, for administrative services to us, and at $100,000 for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary. Those caps expired on August 31, 2011. For the years ended June 30, 2013, 2012, and 2011, respectively, the Company incurred $834,577, $895,783 and $672,185, respectively, of expenses under the Administration Agreement, $223,429, $312,457 and $260,381, respectively, of which were earned by the Sub-Administrator and $300,736, $267,153 and $110,904, respectively, were paid for officers compensation. The remaining $310,412, $316,173 and $300,900, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator in the Consolidated Statement of Operations. Managerial Assistance As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. With regard to the Control Investments in Texas Westchester Financial, LLC, New Media West, LLC, TransAmerican Asset Servicing Group, LLC and The Finance Company, LLC, the Company has provided managerial assistance during
the period for which no fees were charged. Our Chief Executive Officer and President, John Stuart, currently serves as a director of The Finance Company, LLC, New Media West, LLC and Takoda Resources Inc. Lawrence Chua, a Vice President of Full Circle Advisors, serves on the board of Takoda Resources Inc. During the year ended June 30, 2013, only Background Images, Inc. and Solex Fine Foods, LLC; Catsmo, LLC had accepted our offer for such services. No fees were charged to Background Images, Inc. or Solex Fine Foods, LLC; Catsmo, LLC for such services.
 99    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 6. Equity Offerings, Related Expenses and Other Stock Issuances During the year ended June 30, 2011, we issued 6,219,282 shares of our common stock through an initial public offering, a private placement and our dividend reinvestment plan. On November 27, 2012, we issued 1,350,000 shares of our common stock through a follow on offering. Offering expenses were charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us. The proceeds raised, the related underwriting fees, the offering expenses, and the price at which common stock was issued, since inception, are detailed in the following table:  Issuances of Common Stock

          

          Number of Shares Issued

          

          Gross Proceeds Raised, Net Assets Acquired and DividendsReinvested

          

          Underwriting Fees

          

          Offering Expenses

          

          Gross Offering PriceApril 16, 2010

          

          

          100

          

          

          $

          1,500

          

          

          

          

          

          

          

          

          

          

          $

          15.00 per/shareAugust 31, 2010

          

          

          4,191,415

          (1)

          

          $

          42,425,564

          

          

          

          

          

          

          

          

          

          

          $

          10.13 per/share

          (2)August 31, 2010

          

          

          2,000,000

          

          

          $

          18,000,000

          

          

          $

          1,350,000

          

          

          $

          1,052,067

          (3)

          

          $

          9.00 per/shareJanuary 14, 2011

          

          

          27,867

          (4)

          

          $

          241,608

          

          

          

          

          

          

          

          

          

          

          $

          8.67 per/shareNovember 27, 2012

          

          

          1,350,000

          

          

          $

          10,665,000

          

          

          $

          533,250

          

          

          $

          153,330

          

          

          $

          7.90 per/share
  (1)

          Includes 403,662 shares that were issued on September 30, 2010 upon the expiration of the overallotment option granted to the underwriters in connection with our initial public offering. Such shares were deemed to be outstanding at August 31, 2010. (2)

          Based on weighted average price assigned to shares. (3)

          Includes $190,894 of offering expenses that were accrued as of December 31, 2010. (4)

          Issued pursuant to the Companys dividend reinvestment plan.
 100    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 7. Financial Highlights  Year Ended June 30, 2013

          

          Year Ended June 30, 2012

          

          For the period from August 31, 2010 (commencement of operations) to June 30, 2011

          

          For the period from April 16, 2010 (date of inception) to June 30, 2010Per Share Data(1):Net asset value at beginning of period

          

          $

          8.59

          

          

          $

          9.08

          

          

          $

          9.40

          

          

          $

          15.00

          (6)Dilution from offering

          

          

          (0.18

          )(2)Offering costs

          

          

          (0.02

          )

          

          

          

          

          

          

          (0.04

          )Net investment income (loss)

          

          

          0.77

          

          

          

          0.78

          

          

          

          0.70

          

          

          

          (125.45

          )Change in unrealized gain (loss)

          

          

          0.37

          

          

          

          (0.32

          )

          

          

          (0.29

          )Realized gain (loss)

          

          

          (0.60

          )

          

          

          (0.03

          )

          

          

          0.06Dividends declared

          

          

          (0.92

          )

          

          

          (0.92

          )

          

          

          (0.75

          )Net asset value at end of period

          

          $

          8.01

          

          

          $

          8.59

          

          

          $

          9.08

          

          

          $

          (110.45

          )Per share market value at end of period

          

          $

          7.83

          

          

          $

          7.65

          

          

          $

          7.90

          

          

          $

          (110.45

          )Total return based on market value

          

          

          15.12

          %(4)

          

          

          8.71

          %(4)

          

          

          (4.03

          )%(3)

          

          

          (836.33

          )%(7)Total return based on net asset value

          

          

          4.94

          %(4)

          

          

          6.20

          %(4)

          

          

          5.62

          %(3)

          

          

          (836.33

          )%(7)Shares outstanding at end of period

          

          

          7,569,382

          

          

          

          6,219,382

          

          

          

          6,219,382

          

          

          

          100Weighted average shares outstanding for period

          

          

          7,018,286

          

          

          

          6,219,382

          

          

          

          6,206,824

          

          

          

          100Ratio/Supplemental Data:Net assets at end of period

          

          $

          60,644,039

          

          

          $

          53,442,785

          

          

          $

          56,474,006

          

          

          $

          (11,045

          )Average net assets

          

          $

          57,842,601

          

          

          $

          55,531,518

          

          

          $

          57,455,987

          

          

          $

          (4,773

          )Annualized ratio of gross operating expenses to average net assets(5)

          

          

          11.52

          %

          

          

          9.56

          %

          

          

          8.49

          %

          

          

          1,279.28

          %Annualized ratio of net operating expenses to average net assets(5)

          

          

          11.52

          %

          

          

          8.99

          %

          

          

          7.34

          %

          

          

          1,279.28

          %Annualized ratio of net investment income to average net assets(5)

          

          

          9.30

          %

          

          

          8.70

          %

          

          

          9.29

          %

          

          

          (1,279.28

          )%Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets(5)

          

          

          3.53

          %

          

          

          3.15

          %

          

          

          2.00

          %

          

          

          1,279.28

          %
  (1)

          Financial highlights are based on weighted average shares outstanding. (2)

          Dilution from offering is based on the change in net asset value from a follow on offering on November 27, 2012. (3)

          Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $9.00 per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized. (4)

          Total return based on market value is based on the change in market price per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized. (5)

          Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment income (loss) to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. For the period from August 31, 2010 (commencement of
 101    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 7. Financial Highlights   (continued) operations) to June 30, 2011 the Company incurred $102,609 of organizational expenses, which were deemed to be non-recurring. For the period from April 16, 2010 to June 30, 2010, the Company incurred $12,500 of Organizational Expenses, which were deemed to be non-recurring. (6)

          For the period from April 16, 2010 (date of inception) to June 30, 2010, the net asset value of the Companys common stock at issuance was $15.00. (7)

          Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on market value is the same as total return based on net asset value as our shares were not publicly traded from inception through June 30, 2010. The total returns are not annualized. Note 8. Long Term Liabilities Line of Credit On August 31, 2010, the Company entered into the First Capital Credit Facility with FCC, LLC d/b/a First Capital. The facility size was $35 million and was initially scheduled to expire in January 2012. On January 27, 2012, the Company extended the First Capital Credit Facility through July 31, 2012. On July 31, 2012, the Company extended the First Capital Credit Facility though October 31, 2012. On October 31, 2012, the Company extended the First Capital Credit Facility through December 31, 2013. Under the First Capital Credit Facility, base rate borrowings bore interest at LIBOR (0.246% at June 30, 2012) plus
5.50%, subject to a floor. The Company incurred unused line, average usage and other fees related to the First Capital Credit Facility. The First Capital Credit Facility was secured by all of the assets of the Company. Under the First Capital Credit Facility, the Company was required to satisfy several financial covenants, including maintaining a minimum level of stockholders equity, a maximum level of leverage and minimum asset coverage and earnings. In addition, the Company was required to comply with other general covenants, including with respect to indebtedness, liens, restricted payments and mergers and consolidations. On June 3, 2013, the Company entered into the Credit Facility with Sovereign Bank, N.A. The facility size is $32.5 million and replaced the Companys First Capital Credit Facility. The Credit Facility matures on June 3, 2016 and bears interest based on a tiered rate structure, depending upon utilization, ranging from 1-month LIBOR to 3-month LIBOR plus 3.25% to 4.00% per annum, or from Sovereign Banks prime rate plus 1.25% to 2.00% per annum, based on the Companys election. As of June 30, 2013, the 1-month LIBOR to 3-month LIBOR rates respectively were: 0.19%, 0.24%, and 0.27%. As of June 30, 2013, the prime rate was 3.25%. In addition, a fee of 0.50% per annum is charged on unused amounts under the Credit Facility. The Credit Facility is secured by all of the Companys assets. Under the
Credit Facility, the Company has made certain customary representations and warranties, and is required to comply with various covenants, reporting requirements and other customary requirements, including a minimum balance sheet leverage ratio, for similar credit facilities. The Credit Facility includes usual and customary events of default for credit facilities of this nature. At June 30, 2013 and June 30, 2012, the Company had outstanding borrowings of $25,584,147 under the Credit Facility, and $18,544,660, under the First Capital Credit Facility, respectively, which amounts are included in the Consolidated Statement of Assets and Liabilities. Distribution Notes On August 31, 2010, the Company entered into multiple senior unsecured notes (the Distribution Notes). The Distribution Notes consist of $3,404,583 in senior unsecured notes, which bear interest at a rate of 8% per annum, payable quarterly in cash, and are scheduled to mature on February 28, 2014. The Distribution Notes are callable by the Company at any time, in whole or in part, at a price of 100% of their principal amount, plus accrued and unpaid interest. The Distribution Notes subject Full Circle Capital to customary covenants, including, among other things, a restriction on incurring any debt on a junior lien
basis,
 102    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 8. Long Term Liabilities   (continued) or any debt that is contractually subordinated in right of payment to any other debt unless it is also subordinated to the Distribution Notes on substantially identical terms. The agreement under which the Distribution Notes were issued contains customary events of default. At June 30, 2013 and June 30, 2012, the Company had a balance of $3,404,583 on the Distribution Notes, which is included in the Consolidated Statement of Assets and Liabilities (See Note 11). Notes Payable On June 28, 2013, the Company issued $21,145,525 in aggregate principal amount of 8.25% Notes due 2020, the Notes, (including a partial exercise of the underwriters overallotment option in July 2013) for net proceeds of $20,284,704 after deducting underwriting commissions of approximately $860,822 and offering expenses of $227,350 that are being amortized over the term of the notes in accordance with ASC 470 Debt.As of June 30, 2013, of the total $1,088,172 incurred, $1,086,895 remains to be amortized and is included within deferred debt issuance costs on the consolidated statements of assets and
liabilities. The Notes were issued pursuant to an indenture, dated June 3, 2013, as supplemented by the first supplemental indenture, dated June 28, 2013 (collectively, the Indenture), between the Company and U.S. Bank National Association (the Trustee). The Notes are unsecured obligations of the Company and rank senior in right of payment to the Companys existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to the Companys existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to
any of the Companys secured indebtedness (including existing unsecured indebtedness that is later secured) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Companys subsidiaries or financing vehicles. Interest on the Notes is paid quarterly in arrears on March 30, June 30, September 30 and December 30, at a rate of 8.25% per annum, beginning September 30, 2013. The Notes mature on June 30, 2020 and may be redeemed in whole or in part at any time or from time to time at the Companys option on or after June 30, 2016. The Notes are listed on the Nasdaq Global Market under the trading symbol FULLL with a par value of $25.00 per share. The Indenture contains certain covenants, including covenants requiring compliance with (regardless of whether the Company is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring the Company to provide financial information to the holders of the Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture. The Company may repurchase the Notes in accordance with the
1940 Act and the rules promulgated thereunder. Any Notes repurchased by the Company may, at the Companys option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by the Company. Any Notes surrendered for cancellation will be promptly cancelled and no longer outstanding under the Indenture. As of June 30, 2013, the Company had not repurchased any of the Notes in the open market. At June 30, 2013 and June 30, 2012, the Company had a balance of $21,145,525 and $0 on the Notes, which is included in the Consolidated Statement of Assets and Liabilities. Note 9. Fair Value Measurements The Companys assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with Accounting Standards Codification (ASC) Topic 820 Fair Value Measurements and Disclosures (ASC 820). See Note 2 for a discussion of the Companys policies.
 103    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 9. Fair Value Measurements   (continued) The following table presents information about the Companys assets measured at fair value as of June 30, 2013 and June 30, 2012, respectively: As of June 30, 2013  Level 1

          

          Level 2

          

          Level 3

          

          TotalAssetsSenior and Subordinated Loans, at fair value

          

          $

          

          

          

          $

          

          

          

          $

          81,195,958

          

          

          $

          81,195,958Investments in private companies, at fair value

          

          

          

          

          

          

          

          

          

          

          6,784,435

          

          

          

          6,784,435Investments in securities, at fair value

          

          

          

          

          

          

          

          

          

          

          194,108

          

          

          

          194,108$

          

          

          

          $

          

          

          

          $

          88,174,501

          

          

          $

          88,174,501
 As of June 30, 2012  Level 1

          

          Level 2

          

          Level 3

          

          TotalAssetsSenior and Subordinated Loans, at fair value

          

          $

          

          

          

          $

          

          

          

          $

          70,970,152

          

          

          $

          70,970,152US Treasury Securities, at fair value(1)

          

          

          22,499,881

          

          

          

          

          

          

          

          

          

          

          

          22,499,881Investments in private companies, at fair value

          

          

          

          

          

          

          

          

          

          

          1,376,737

          

          

          

          1,376,737$

          22,499,881

          

          

          $

          

          

          

          $

          72,346,889

          

          

          $

          94,846,770
  (1)

          U.S. Treasury Securities were purchased and temporarily held in connection with compliance with RIC diversification requirements under Subchapter M of the Code. During the year ended June 30, 2013 and the year ended June 30, 2012, there were no transfers in or out of levels. The following table presents additional information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the net unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
 104    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 9. Fair Value Measurements   (continued) Changes in Level 3 assets measured at fair value for the year ended June 30, 2013 and for the year ended June 30, 2012 are as follows:  Year ended June 30, 2013Beginning Balance July 1, 2012

          

          Accretion of Original Issue Discount

          

          Realized & Unrealized Gains (Losses)

          

          Purchases

          

          Sales And Settlements

          

          Ending Balance June 30, 2013

          

          Change in Unrealized Gains (Losses) for Investments still held at June 30, 2013AssetsSenior and Subordinated Loans, at fair value

          

          $

          70,970,152

          

          

          $

          358,947

          

          

          $

          (2,974,512

          )

          

          $

          70,949,232

          

          

          $

          (58,107,861

          )

          

          $

          81,195,958

          

          

          $

          (443,443

          )Investments in private companies, at fair value

          

          

          1,376,737

          

          

          

          

          

          

          

          1,557,697

          

          

          

          3,850,001

          

          

          

          

          

          

          

          6,784,435

          

          

          

          1,557,697Investments in securities, at fair value

          

          

          

          

          

          

          

          

          

          

          (151,948

          )

          

          

          346,056

          

          

          

          

          

          

          

          194,108

          

          

          

          (151,947

          )$

          72,346,889

          

          

          $

          358,947

          

          

          $

          (1,568,763

          )

          

          $

          75,145,289

          

          

          $

          (58,107,861

          )

          

          $

          88,174,501

          

          

          $

          962,307
   Year ended June 30, 2012Beginning Balance July 1, 2011

          

          Accretion of Original Issue Discount

          

          Realized & Unrealized Gains (Losses)

          

          Purchases

          

          Sales And Settlements

          

          Ending Balance June 30, 2012

          

          Change in Unrealized Gains (Losses) for Investments still held at June 30, 2012AssetsSenior and Subordinated Loans, at fair value

          

          $

          55,537,458

          

          

          $

          523,307

          

          

          $

          (2,407,353

          )

          

          $

          55,031,538

          

          

          $

          (37,714,798

          )

          

          $

          70,970,152

          

          

          $

          (2,976,991

          )Investments in private companies, at fair value

          

          

          1,197,384

          

          

          

          

          

          

          

          488,939

          

          

          

          140,414

          

          

          

          (450,000

          )

          

          

          1,376,737

          

          

          

          791,672Investments in securities, at fair value

          

          

          59,561

          

          

          

          

          

          

          

          (236,331

          )

          

          

          176,770

          

          

          

          

          

          

          

          

          

          

          

          (236,331

          )$

          56,794,403

          

          

          $

          523,307

          

          

          $

          (2,154,745

          )

          

          $

          55,348,722

          

          

          $

          (38,164,798

          )

          

          $

          72,346,889

          

          

          $

          (2,421,650

          )
  Realized and unrealized gains and losses are included in net realized gain (loss) on investments and net change in unrealized gain (loss) on investments in the consolidated statements of operations. The change in unrealized gains for Level 3 investments still held at June 30, 2013 of $962,307 is included in net change in net unrealized gain on investments in the consolidated statement of operations for the year ended June 30, 2013. The change in unrealized loss for Level 3 investments still held at June 30, 2012 of $2,421,650 is included in net change in net unrealized loss on investments in the consolidated statement of
operations for the year ended June 30, 2012.
 105    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 9. Fair Value Measurements   (continued) The following table provides quantitative information regarding Level 3 fair value measurements as of June 30, 2013:  Description:

          

          Fair Value

          

          Valuation Technique

          

          Unobservable Inputs

          

          Range (Average)(1)Secured debt

          

          $

          78,268,458

          

          

          

          Discounted cash flows (income approach)

          

          

          

          Discount Rate

          

          

          

          2.00%  37.53% (14.56)%Equity

          

          

          6,376,389

          

          

          

          Market comparable companies (market approach)

          

          

          

          EBITDA multiple

          

          

          

          3.50  7.50 (4.95

          )Debt or Equity subject to liquidation

          

          

          2,060,591

          

          

          

          Liquidation Value

          

          

          

          Asset Value

          

          

          

          N/ASecured Debt

          

          

          1,469,063

          

          

          

          Precedent Transactions

          

          

          

          Cost Basis

          

          

          

          N/ATotal investments

          

          $

          88,174,501
  (1)

          The average values were determined using the weighted average of the fair value of the investments in each investment category. The following table provides quantitative information regarding Level 3 fair value measurements as of June 30, 2012:  Description:

          

          Fair Value

          

          Valuation Technique

          

          Unobservable Inputs

          

          Range (Average)(1)Secured debt

          

          $

          69,010,789

          

          

          

          Discounted cash flows (income approach)

          

          

          

          Discount Rate

          

          

          

          3%  33% (17%)Equity

          

          

          827,377

          

          

          

          Market comparable companies (market approach)

          

          

          

          EBITDA multiple

          

          

          

          3.5  7.5 (4.5)Debt or Equity subject to liquidation

          

          

          2,508,723

          

          

          

          Liquidation Value

          

          

          

          Asset Value

          

          

          

          N/ATotal investments

          

          $

          72,346,889
  (1)

          The average values were determined using the weighted average of the fair value of the investments in each investment category. The primary significant unobservable input used in the fair value measurement of the Companys debt securities (first lien debt, second lien debt and subordinated debt), including income-producing investments in funds, is the discount rate. Significant increases (decreases) in the discount rate in isolation would result in a significantly lower (higher) fair value measurement. In determining the discount rate, for the income, or yield, approach, the Company considers current market yields and multiples, portfolio company performance, leverage levels and credit quality, among other factors in its analysis. Changes in one
or more of these factors can have a similar directional change on other factors in determining the appropriate discount rate to use in the income approach. The primary significant unobservable input used in the fair value measurement of the Companys equity investments is the EBITDA multiple, or the Enterprise Value. Significant increases (decreases) in the Enterprise Value in isolation would result in a significantly higher (lower) fair value measurement. To determine the Enterprise Value for the market approach, the Company considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public and private peer
 106    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 9. Fair Value Measurements   (continued) companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate multiple to use in the market approach. Note 10. Derivative Contracts In the normal course of business, the Company may utilize derivative contracts in connection with its investment activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The derivative activities and exposure to derivative contracts primarily involve equity price risks. In addition to the primary underlying risk, additional counterparty risk exists due to the potential inability of counterparties to meet the terms of their contracts. Warrants The warrants provide exposure and potential gains upon equity appreciation or depreciation of the portfolio companys equity value. As described in the chart below, the value of a warrant has two components: time value and intrinsic value. A warrant has a limited life and expires on a certain date. As a warrants expiration date approaches, the time value of the warrant will decline. In addition, if the stock underlying the warrant declines in price, the intrinsic value of an in the money warrant will decline. Further, if the price of the stock underlying the warrant does not exceed the strike price of the warrant on the expiration date, the warrant will expire worthless. As a result, there is the potential for the entire value of an
investment in a warrant to be lost. The Company has written a warrant to sell within a limited time, a financial instrument at a contracted price based on differentials between specified prices. Written warrants may expose the Company to market risk of an unfavorable change in the financial instrument underlying the written warrant. Counterparty risk exists from the potential failure of an issuer of warrants to settle its exercised warrants. The maximum risk of loss from counterparty risk is the fair value of the contracts and the purchase price of the warrants. The Companys Board of Directors considers the effects of counterparty risk when determining the fair value of its investments in warrants. Volume of Derivative Activities At June 30, 2013, the notional amounts and number of warrants, categorized by primary underlying risk, are as follows:  Long Exposure

          

          Short ExposureNotionalAmounts

          

          Number of Warrants

          

          NotionalAmounts

          

          Number of WarrantsPrimary Underlying RiskEquity Price Warrants(a),(b)

          

          $

          194,108

          

          

          

          184,681

          

          

          $

          2,101,503

          

          

          

          1
  (a)

          Notional amounts presented for warrants are based on the fair value of the underlying shares as if the warrants were exercised at June 30, 2013. (b)

          The written warrant is on 360 of the Companys 720 limited liability company interests in New Media West, LLC and has a strike price of $3,000,000, which increases over time to $3,500,000. This warrant expires on December 18, 2019.
 107    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 11. Subsequent Events Personnel Changes On September 9, 2013, the Companys Board of Directors appointed Michael J. Sell to succeed William E. Vastardis as the Companys Chief Financial Officer, Secretary and Treasurer, effective September 30, 2013. Mr. Vastardis has determined to resign from such positions to focus on Vastardis Fund Services LLC, the Companys sub-administrator (the Sub-Administrator) where he serves as President and Chief Executive Officer. He will continue to serve the Company as Assistant Treasurer and Assistant Secretary. Dividend On September 9, 2013, the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on November 15, 2013 for holders of record at October 31, 2013, December 13, 2013 for holders of record at November 29, 2013 and January 15, 2014 for holders of record at December 31, 2013. Distribution Notes On July 3, 2013, the Company repaid the entire $3.4 million of outstanding Distribution Notes at par plus accrued interest. Recent Portfolio Activity On August 1, 2013, the Company funded $4.5 million of a $9.0 million senior secured credit facility to Infinite Aegis Group, LLC. Infinite Aegis Group, LLC is a provider of revenue cycle management services to healthcare service providers including large hospital systems and doctor-owned clinics, and owns and operates urgent care and occupational care centers in Colorado. The senior secured credit facility bears annual interest at one-month LIBOR plus 12% and has a final maturity of July 31, 2017. Of the $9.0 million facility, $4.0 million was funded by another lender. On September 4, 2013, the Company funded $1.5 million of a $5.0 million senior secured credit facility to Franklin Place Shops  Red, LLC. Franklin Place Shops  Red, LLC is a manager and owner of commercial real estate assets in northwest Ohio. The senior secured credit facility bears interest at 12% per annum and has a final maturity of March 3, 2014. Of the $5.0 million facility, $3.5 million was funded by other lenders. Credit Facility On July 2, 2013, the Company repaid $18.4 million of its outstanding balance on the Credit Facility from unrestricted cash. The current balance of the Credit Facility as of September 11, 2013 is $16.5 million.
 108    TABLE OF CONTENTS FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 Note 12. Selected Quarterly Financial Data (Unaudited)  Total Investment Income

          

          Net Investment Income

          

          Net Realized and Unrealized Gains (Losses)

          

          Net Increase (Decrease) in Net Assets from OperationsQuarter Ended

          

          Total

          

          Per Share(1)

          

          Total

          

          Per Share(1)

          

          Total

          

          Per Share(1)

          

          Total

          

          Per Share(1)September 30, 2010

          

          $

          867,582

          

          

          $

          0.42

          

          

          $

          306,783

          

          

          $

          0.15

          

          

          $

          (99,791

          )

          

          $

          (0.05

          )

          

          $

          206,992

          

          

          $

          0.10December 31, 2010

          

          

          2,678,197

          

          

          

          0.43

          

          

          

          1,495,125

          

          

          

          0.24

          

          

          

          (137,707

          )

          

          

          (0.02

          )

          

          

          1,357,418

          

          

          

          0.22March 31, 2011

          

          

          2,305,423

          

          

          

          0.37

          

          

          

          1,361,635

          

          

          

          0.22

          

          

          

          (799,361

          )

          

          

          (0.13

          )

          

          

          562,274

          

          

          

          0.09June 30, 2011

          

          

          2,108,426

          

          

          

          0.34

          

          

          

          1,170,836

          

          

          

          0.19

          

          

          

          (415,206

          )

          

          

          (0.07

          )

          

          

          755,630

          

          

          

          0.12September 30, 2011

          

          

          2,558,243

          

          

          

          0.41

          

          

          

          1,544,342

          

          

          

          0.25

          

          

          

          54,991

          

          

          

          0.01

          

          

          

          1,599,333

          

          

          

          0.26December 31, 2011

          

          

          2,398,665

          

          

          

          0.39

          

          

          

          1,098,640

          

          

          

          0.18

          

          

          

          (846,099

          )

          

          

          (0.14

          )

          

          

          252,541

          

          

          

          0.04March 31, 2012

          

          

          2,388,960

          

          

          

          0.38

          

          

          

          1,118,574

          

          

          

          0.18

          

          

          

          405,240

          

          

          

          0.07

          

          

          

          1,523,814

          

          

          

          0.25June 30, 2012

          

          

          2,481,143

          

          

          

          0.40

          

          

          

          1,071,947

          

          

          

          0.17

          

          

          

          (1,769,463

          )

          

          

          (0.28

          )

          

          

          (697,516

          )

          

          

          (0.11

          )September 30, 2012

          

          

          2,773,303

          

          

          

          0.45

          

          

          

          1,238,245

          

          

          

          0.20

          

          

          

          (343,354

          )

          

          

          (0.06

          )

          

          

          894,891

          

          

          

          0.14December 31, 2012

          

          

          3,099,599

          

          

          

          0.46

          

          

          

          1,465,650

          

          

          

          0.22

          

          

          

          (1,893,852

          )

          

          

          (0.28

          )

          

          

          (428,202

          )

          

          

          (0.06

          )March 31, 2013

          

          

          2,843,041

          

          

          

          0.38

          

          

          

          1,312,164

          

          

          

          0.18

          

          

          

          168,654

          

          

          

          0.02

          

          

          

          1,480,818

          

          

          

          0.20June 30, 2013

          

          

          3,330,080

          

          

          

          0.44

          

          

          

          1,364,522

          

          

          

          0.18

          

          

          

          489,114

          

          

          

          0.06

          

          

          

          1,853,636

          

          

          

          0.24
  (1)

          Per share amounts are calculated using weighted average shares outstanding during the period.
 109    TABLE OF CONTENTS Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A.  Controls and Procedures (a)  Evaluation of Disclosure Controls and Procedures As of June 30, 2013 (the end of the period covered by this report), we, 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 Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including our 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 in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized 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 was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. (b)  Managements Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2013. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements. Management performed an assessment of the effectiveness of the Companys internal control over financial reporting as of June 30, 2013 based upon criteria in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management determined that the Companys internal control over financial reporting was effective as of June 30, 2013 based on the criteria in Internal Control  Integrated Framework issued by COSO. This annual report on Form 10-K does not include an attestation report of the Companys independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report on Form 10-K. (c)  Attestation Report of the Independent Registered Public Accounting Firm Not applicable.
 110    TABLE OF CONTENTS (d)  Changes in Internal Controls Over Financial Reporting Management did not identify any change in the Companys internal control over financial reporting that occurred during the fourth fiscal quarter of the year ending June 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. Item 9B.  Other Information Not applicable.
 111    TABLE OF CONTENTS PART III Item 10.  Directors, Executive Officers and Corporate Governance The information required by Item 10 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year. Item 11.  Executive Compensation The information required by Item 11 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year. Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year. Item 13.  Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year. Item 14.  Principal Accountant Fees and Services The information required by Item 14 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year.
 112    TABLE OF CONTENTS PART IV Item 15.  Exhibits and Financial Statement Schedules a.  Documents Filed as Part of this Report The following financial statements are set forth in Item 8:  PageReport of Independent Registered Public Accounting Firm





78Consolidated Statements of Assets and Liabilities as of June 30, 2013 and June 30, 2012





79Consolidated Statements of Operations for the years ended June 30, 2013, June 30, 2012 and June 30, 2011





80Consolidated Statements of Changes in Net Assets for the years ended June 30, 2013, June 30, 2012 and June 30, 2011





81Consolidated Statements of Cash Flows for the years ended June 30, 2013, June 30, 2012 and June 30, 2011





82Consolidated Schedule of Investments as of June 30, 2013 and June 30, 2012





83Notes to Consolidated Financial Statements





90
 113    TABLE OF CONTENTS b.  Exhibits The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:  Exhibit Number

          

          Description3.1

          

          Articles of Amendment and Restatement(2)3.2

          

          Bylaws(1)4.1

          

          Form of Common Stock Certificate(1)4.2

          

          Form of Note Agreement for Distribution Notes(1)4.3

          

          Form of Distribution Note(1)4.4

          

          Indenture, dated as of June 3, 2013(6)4.5

          

          Form of First Supplemental Indenture(7)4.6

          

          Form of Global Note (included as Exhibit A to the Form of First Supplemental Indenture)(7)10.1

          

          Form of Dividend Reinvestment Plan(1)10.2

          

          Investment Advisory Agreement by and between Registrant and Full Circle Advisors, LLC(1)10.3

          

          Administration Agreement by and between Registrant and Full Circle Service Company, LLC(1)10.4

          

          Credit Agreement by and among Registrant, Sovereign Bank, N.A., as agent, and the lenders party thereto, dated as of June 3, 2013(5)10.5

          

          Pledge Agreement by Registrant in favor of Sovereign Bank, N.A., as agent, dated as of June 3, 2013(5)10.6

          

          Security Agreement by Registrant in favor of Sovereign Bank, N.A., as agent, dated as of June 3, 2013(5)10.7

          

          Form of Indemnification Agreement by and between Registrant and each of its directors(1)10.8

          

          Trademark License Agreement by and between Registrant and Full Circle Advisors, LLC(1)10.9

          

          Form of Purchase and Sale Agreement by and between Registrant, Full Circle Partners, LP, Full Circle Fund, Ltd., Full Circle Offshore, LLC, and FCC, LLC d/b/a First Capital(2)11

          

          Computation of Per Share Earnings (included in the notes to the audited financial statements contained in this report).14.1

          

          Code of Ethics*14.2

          

          Code of Business Conduct*31.1

          

          Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended*31.2

          

          Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended*32.1

          

          Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002*32.2

          

          Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002*
  (1)

          Incorporated by reference to Registrants registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-166302) filed on August 5, 2010. (2)

          Incorporated by reference to Registrants registration statement on Form N-2 Pre-Effective Amendment No. 3 (File No. 333-166302) filed on August 26, 2010. (3)

          Incorporated by reference to Registrants registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-180321) filed on July 13, 2012. (4)

          Incorporated by reference to the Registrants registration statement on Form N-2 (File No. 333-187207) filed on March 12, 2013.
 114    TABLE OF CONTENTS (5)

          Incorporated by reference to Registrants current report on Form 8-K (File No. 814-00809) filed on June 4, 2013. (6)

          Incorporated by reference to Registrants registration statement on Form N-2 Pre-Effective Amendment No. 1 (File No. 333-188280) filed on June 11, 2013. (7)

          Incorporated by reference to Registrants registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-188280) filed on June 19, 2013. *

          Filed herewith. c.  Financial statement schedules No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned financial statements.
 115    TABLE OF CONTENTS SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FULL CIRCLE CAPITAL CORPORATION  Date: September 12, 2013

          

          /s/ John E. StuartJohn E. Stuart, Chief Executive Officer and President
 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 capacity and on the dates indicated.  Date: September 12, 2013

          

          /s/ John E. StuartJohn E. Stuart, Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)Date: September 12, 2013

          

          /s/ William E. VastardisWilliam E. Vastardis, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)Date: September 12, 2013

          

          /s/ Mark C. BidermanMark C. Biderman, DirectorDate: September 12, 2013

          

          /s/ Edward H. CohenEdward H. Cohen, DirectorDate: September 12, 2013

          

          /s/ Thomas A. Ortwein, Jr.Thomas A. Ortwein, Jr., Director
 116