Table of Contents

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31, 2015ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission File Number 333-174873
  Triton Pacific Investment Corporation, Inc.(Exact name of registrant as specified in its charter)Maryland

45-2460782(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)
  10877 Wilshire Blvd., 12th Floor

Los Angeles, CA 90024(Address of principal executive offices)(310) 943-4990(Registrant’s telephone number, including area code)(Former name, former address and former fiscal year, if changed since last report)
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer

o

Accelerated filer

oNon-accelerated filer

x(Do not check if a smaller reporting company)

Smaller reporting company

o
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
  As of May 15, 2015, the Registrant had 282,489.60 shares of common stock, $0.001 par value, outstanding.




TABLE OF CONTENTS
  Part I—Financial Information

3Item 1: Financial Statements

3Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

21Item 3: Quantitative and Qualitative Disclosures About Market Risk

37Item 4: Controls and Procedures

37Part II—Other Information

38Item 1: Legal Proceedings

38Item 1A: Risk Factors.

38Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

38Item 3: Defaults Upon Senior Securities

38Item 4: Mine Safety Disclosures

38Item 5: Other Information

38Item 6: Exhibits

39SIGNATURES

40




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Part I—Financial Information




Item 1: Financial Statements





TRITON PACIFIC INVESTMENT CORPORATION, INC.


STATEMENTS OF FINANCIAL POSITION


March 31,2015


December 31,(unaudited)


2014ASSETSInvestments, at fair value (amortized cost - $2,085,792 and $1,472,094, respectively)

$
2,112,072


$
1,471,307Cash


1,085,631



1,654,492Receivable for investments sold


124,517



249,375Principal and interest receivable


1,621



900Prepaid expenses


18,919



38,044Reimbursement due from Adviser (see Note 4)


212,616



252,979$
3,555,376


$
3,667,097LIABILITIES AND NET ASSETSLIABILITIESPayable for investments purchased

$
—


$
246,250Accounts payable and accrued liabilities


256,172



304,643Due to related parties (see Note 4)


1,700



18,300TOTAL LIABILITIES


257,872



569,193COMMITMENTS AND CONTINGENCIES(see Note 9)TEMPORARY EQUITYContingently redeemable common shares (see Note 9)87,481.04 and 87,481.04 shares issued and outstanding respectively


1,181,037



1,181,0371,181,037



1,181,037NET ASSETSCommon stock, $0.001 par value,75,000,000 shares authorized,156,778.60 and 141,993.2 shares issued and outstanding respectively


244



229Capital in excess of par value


2,057,099



1,899,340Accumulated undistributed net realized gains


4,314



1,875Accumulated undistributed net investment income


28,530



16,211Accumulated unrealized appreciation on investments


26,280



(788
)TOTAL NET ASSETS


2,116,467



1,916,867TOTAL LIABILITIES AND NET ASSETS

$
3,555,376


$
3,667,097Net asset value per share of common stock at year end

$
13.50


$
13.50





The accompanying notes are an integral part of these statements.


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TRITON PACIFIC INVESTMENT CORPORATION, INC.


STATEMENTS OF OPERATIONS


THREE MONTHS ENDED MARCH 31, 2015 AND 2014


(UNAUDITED)


2015


2014INVESTMENT INCOMEInterest income

$
28,016


$
—Fee income


514



—Total investment income

$
28,530



—OPERATING EXPENSESManagement fees


18,408



9,786Capital gains incentive fees (see Notes 2 and 4)


5,964



—Board fees


—



23,250Administrator expense


63,074



36,670Professional fees


30,422



12,850Insurance expense


14,083



—Other operating expenses


2,350



1,713Total operating expenses


134,301



84,269Waiver of management fees


—



—Expense reimbursement from Adviser


( 134,301
)


( 84,269
)Net expenses


—



—Net investment income


28,530



—REALIZED AND UNREALIZED GAIN/(LOSS)Net realized gain on investments


3,542



—Net increase in unrealized depreciation on investments

27,069



—Total net realized and unrealized gain (loss) on investments


30,611



—NET INCREASE (DECREASE) IN NET ASSETS  FROM OPERATIONS

$
59,141


$
—PER SHARE INFORMATION — Basic and DilutedNet increase (decrease) in net assets resulting from operations per share

$
0.25


$
—Weighted average common shares outstanding - basic


235,886



14,815Weighted average common shares outstanding - diluted


235,886



47,376





The accompanying notes are an integral part of these statements.


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TRITON PACIFIC INVESTMENT CORPORATION, INC.


STATEMENTS OF CHANGES IN NET ASSETS
 THREE MONTHS ENDED MARCH 31, 2015 AND 2014
 (UNAUDITED)
 Three
months endedMarch
31,2015


2014OperationsNet investment income

$
28,530


$
—Net realized gain on investments


3,542



—Net increase in unrealized appreciation on investments


27,069



—Net increase in Net Assets resulting from operations


59,141



—Stockholder distributions (see Note 5)Distributions from net investment income


(16,211
)


—Distributions from net realized gain on investments


(1,103
)


—Net decrease in net assets resulting from stockholder distributions


(17,314
)


—Capital share transactionsIssuance of common stock (see Note 3)


191,139



—Reinvestment of stockholder distributions (see Note 3)


8,934Offering costs


(42,300
)


—Net increase in Net Assets resulting from capital share transactions


157,773



—Total increase in net assets


199,600



—Net assets at beginning of period


1,916,867



200,003Net assets at end of period

$
2,116,467


$
200,003Accumulated undistributed net investment income

$
28,530


$
—


The accompanying notes are an integral part of these statements.
 5
 
 Table of Contents  TRITON PACIFIC INVESTMENT CORPORATION, INC.
 STATEMENTS OF CASH FLOWS
 THREE MONTHS ENDED MARCH 31, 2015 AND 2014
 (UNAUDITED)


Three
months endedMarch
31,2015


2014CASH FLOWS FROM OPERATING ACTIVITIESNet increase in net assets resulting from operations

$
59,141


$
—Adjustments to reconcile net increase in net assets resulting from operations to net cash used by operating activitiesPurchases of investments


(742,500
)


—Proceeds from sales and repayments of investments


133,306



—Net realized gain from investments


(3,542
)Net increase in unrealized appreciation on investments


(27,068
)


—Accretion of discount


(961
)


—Increases and decreases in assets and liabilitiesPrincipal and interest receivable


(721
)


—Receivable for investments sold


124,858



—Prepaid expenses


19,125



559Reimbursement due from Adviser


40,363



(84,269
)Payable for investments purchased


(246,250
)


—Accounts payable and accrued liabilities


(48,471
)


83,710Due to related parties


(16,600
)


—NET CASH USED BY OPERATING ACTIVITIES


(709,320
)


—CASH FLOWS FROM INVESTING ACTIVITIESNet increase (decrease) in restricted cash held in escrow


—



(1,011,568
)NET CASH USED IN INVESTING ACTIVITIES


—



(1,011,568
)CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock


191,139



—Proceeds from sale of common stock held in escrow


—



1,011,568Stockholder distributions


(8,380
)


—Offering costs


(42,300
)


—NET CASH PROVIDED BY FINANCING ACTIVITIES


140,459



1,011,568NET DECREASE IN CASH


( 568,861
)


—CASH - BEGINNING OF PERIOD

$
1,654,492


$
85CASH  - END OF PERIOD

$
1,085,631


$
85Supplemental schedule of non-cash investing activitiesDeferred offering costs funded by affiliates

$
—


$
162,138Reinvestment of stockholder distributions

$
8,934


$
—




The accompanying notes are an integral part of these statements.


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TRITON PACIFIC INVESTMENT CORPORATION, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
AS OF MARCH 31, 2015
(UNAUDITED)


Portfolio
Company
Footnotes
Industry

Rate
(b)

Floor

Maturity


PrincipalAmount/ Numberof Shares



Amortized
Cost(f)



Fair
Value(c)Senior
Secured Loans—First Lien—76.3%
(e)Mannington
Mills, Inc.

Construction
Special Trade Contractors


L+3.75%
(4.75%)


1.0
%

10/1/2021

$
248,750


$
246,438


$
250,460Jeld-Wen,
Inc.

Wholesale
Trade-Durable Goods


L+4.25%
(5.25%)


1.0
%

10/15/2021


124,688



123,531



125,518Mister
Car Wash, Inc.

Automotive
Repair, Services, and Parking


L+4.00%
(5.00%)


1.0
%

9/24/2021


124,063



122,882



124,838Ranpak
Corp.

Paper
and Allied Products


L+3.75%
(4.75%)


1.0
%

10/1/2021


124,375



124,087



124,935GK
Holdings, Inc.

Business
Services


L+5.50%
(6.50%)


1.0
%

1/30/2021


124,688



123,468



124,999Verdesian
Life Sciences LLC

Wholesale
Trade-Nondurable Goods


L+5.00%
(6.00%)


1.0
%

7/1/2020


243,677



241,410



244,896Curo
Health

Healthcare
& Pharmaceuticals


L+5.00%
(6.50%)


1.0
%

2/2/2022


125,000



123,778



125,677Flavors
Holdings, Inc. Tranche B

Beverage,
Food & Tobacco


L+5.75%
(6.75%)


1.0
%

4/7/2020


121,875



117,317



118,371FHC
Health Systems, Inc.

Healthcare
& Pharmaceuticals


L+4.00%
(5.00%)


1.0
%

12/23/2021


125,000



123,840



125,743TIBCO
Software

High
Tech Industries


L+5.50%
(6.50%)


1.0
%

12/5/2020


125,000



122,619



125,234Omnitracs,
LLC

Transportation:
Cargo


L+3.75%
(4.75%)


1.0
%

11/25/2020


124,370



123,513



124,838Total
Senior Secured Loans—First Lien














1,611,486


$
1,592,883


$
1,615,509Senior
Secured Loans—Second Lien—11.7%
(e)Flavors
Holdings, Inc.

Beverage,
Food & Tobacco


L+10.00%
(11.00%)


1.0
%

10/7/2021


125,000



120,347



121,250GK
Holdings, Inc.

Business
Services


L+9.50%
(10.50%)


1.0
%

1/30/2021


125,000



122,562



125,313Total
Senior Secured Loans—Second Lien














250,000


$
242,909


$
246,563Equity/Other—11.8%
(e)Javlin
Capital LLC Class C-2 Preferred Units
(a)
(d)
Specialty
Finance












71,429



250,000



250,000Total
Equity/Other














71,429


$
250,000


$
250,000TOTAL
INVESTMENTS—99.8%

















$
2,085,792


$
2,112,072OTHER
ASSETS IN EXCESS OF LIABILITIES—0.2%




















$
4,395NET
ASSETS - 100.0%





















$
2,116,467








(a)
Affiliated investment as defined by the 1940 Act, whereby the Company owns between 5% and 25% of the portfolio company’s outstanding voting securities and the investments are not classified as controlled investments.The aggregate fair value of non-controlled, affiliated investments at March 31, 2015 represented 11.8% of the Company’s net assets. Fair value as of March 31, 2015 along with transactions during the period ended March 31, 2015 in affiliated investments were as follows):


Period ended March 31, 2015Non-controlled, Affiliated Investments

Fair Value atDecember 31, 2014

Gross Additions(Cost)*

Gross Reductions (Cost)**

Fair Value atMarch 31, 2015

Net RealizedGain (Loss)Javlin Financial, LLC

$
—

$
250,000

$
—

$
250,000

$
—Total

$
—

$
250,000

$
—

$
250,000

$
—




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


(b)
Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate spread.

As of March 31, 2015, the three-month London Interbank Offered Rate, or LIBOR, was 0.27%.(c)
Fair value and market value are determined by the Company’s board of directors (see Note 7.)(d)
Security held within TPJ Holdings, Inc., a wholly-owned subsidiary of the Company.(e)
All investments are considered qualifying assets under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of March 31, 2015, 100% of the Company’s total assets represented qualifying assets.(f)
See Note 5 for a discussion of the tax cost of the portfolio.




The accompanying notes are an integral part of these statements.




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TRITON PACIFIC INVESTMENT CORPORATION, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)




NOTE 1 – DESCRIPTION OF BUSINESS




Triton Pacific Investment Corporation, Inc. (the “Company”), incorporated in Maryland on April 29, 2011, is a specialty finance company. Pursuant to the Articles of Incorporation, the Company is authorized to issue 75,000,000 shares of common stock with a par value of $0.001 per share. Additionally, the Company is authorized to issue 25,000,000 shares of preferred stock with a par value of $0.001 per share. The Company is offering for sale a maximum of 20,000,000 shares of common stock at an initial price of $15.00 per share, on a “best efforts” basis pursuant to a registration statement on Form N-2 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Offering”). On June 25, 2014, the Company met its minimum offering requirement of $2,500,000 and released all shares held in escrow.




The Company was formed to make debt and equity investments in small to mid-sized private U.S. companies either alone or together with other private equity sponsors. The Company is an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, or the 1940 Act. As a BDC, the Company is required to comply with certain regulatory requirements. The Company has elected to be treated for U.S. federal income tax purposes, and intends to annually qualify as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue code of 1986, as amended, or the Code.




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




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




NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Basis of Presentation.These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission for interim financial statements. These financial statements reflect all adjustments and accruals of a normal recurring nature that, in the opinion of management, are necessarily indicative of results expected for any future period. These interim unaudited financial statements and related notes should be read in conjunction with the financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.




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




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




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




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




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





the Company’s quarterly valuation process begins with the Adviser’s management team providing a preliminary valuation of each portfolio company or investment to the Company’s board of directors, which valuation may be obtained from an independent valuation firm, if applicable;





preliminary valuation conclusions are then documented and discussed with the Company’s board of directors;





the Company’s board of directors reviews the preliminary valuation and the Adviser’s management team, together with its independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the board of directors; and






the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on various statistical and other factors, including the input and recommendation of the Adviser and any third-party valuation firm, if applicable.




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




Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that the Company’s board of directors may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments. The one equity position was valued at its purchase price as the offering in which it participated was still underway and selling at the same price per unit.




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




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




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




Capital Gains Incentive Fees. The Company has entered into an investment advisory agreement with the Adviser dated as of July 27, 2012. Pursuant to the terms of the investment advisory agreement, the Incentive Fee shall be determined and payable in arrears as of the end of each quarter, upon liquidation of the Company or upon termination of this Agreement, as of the termination date, and shall equal 20.0% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each quarter, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid Incentive Fees. The fees for the period ended March 31, 2015 was $5,964, of which $5,256 was for Incentive fees calculated on unrealized gains.




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




Offering Costs.The Company has incurred certain expenses in connection with registering to sell shares of its common stock in connection with the Offering. These costs principally relate to professional and filing fees. Simultaneously with selling common shares, the deferred offering costs were and will be charged to stockholders’ equity. The Adviser may reimburse the Company for all or part of these amounts pursuant to the Expense Support and Conditional Reimbursement Agreement (“Expense Reimbursement Agreement”) discussed below. As of March 31, 2015, $1,166,655 of offering costs have been reclassified and included as part of the Expense Reimbursement Agreement and accordingly included in Reimbursement due from the Adviser.




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




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




GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability if the Company has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service or other tax authorities. Management has analyzed the tax positions taken by the Company, and has concluded that as March 31, 2015 and March 31, 2014, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Company is subject to routine audits by the Internal Revenue Service or other tax authorities, generally for three years after the tax returns are filed; however, there are currently no audits for any tax periods in progress.




NOTE 3 – SHARE TRANSACTIONS




Below is a summary of transactions with respect to shares of the Company’s common stock during the periods ended March 31, 2015 and December 31, 2014:


Three months ended March 31,2015

2014Shares

Amount

Shares

AmountGross proceeds from Offering


14,158.46

$
211,989


—

$
—Reinvestment of Distributions


626.95


8,934Commissions and Dealer Manager Fees


—


(20,850
)

—


—Net Proceeds to Company from Share Transactions


14,785.41

$
200,073


—

$
—




Status of Continuous Public Offering




During the three months ended March 31, 2015 and 2014, the Company sold 14,785.41 and 0 shares of common stock, respectively, for gross proceeds of approximately $220,923 and $0, at an average price per share of $13.53 and $0, respectively. The gross proceeds received during the three months ended March 31, 2015 and 2014 include reinvested stockholder distributions of $8,934 and $0, respectively, for which the Company issued 626.95 and 0 shares of common stock, respectively.




The proceeds from the issuance of common stock as presented on the accompanying statements of changes in net assets and statements of cash flows are presented net of selling commissions and dealer manager fees of $20,850 and $0 for the periods ended March 31, 2015 and 2014, respectively.




NOTE 4 – RELATED PARTY TRANSACTIONS AND ARRANGEMENTS




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




In connection with the Offering, the Company has incurred registration, organization, operating and offering costs. Such costs have been advanced by the Adviser. As discussed below, the Company has entered into an Expense Reimbursement Agreement with its Adviser. For the period from inception through March 31, 2015, certain registration, organization, operating and offering costs have been accounted for under the Expense Reimbursement Agreement and accordingly included in Reimbursement due from the Adviser on the statements of financial position.




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


March 31,

2015

December 31,2014Operating Expenses

$
774,897


$
640,597Offering Costs


1,167,005



1,060,438Due to related party offset


(1,386,571
)


(1,105,341
)Reimbursements received from Adviser


(342,715
)


(342,715
)Total Reimbursement due from Adviser

$
212,616


$
252,979




Operating Expenses are the amounts reimbursed by the Adviser for our operating costs and Offering Costs are the cumulative amount of organizational and offering expenses reimbursed to us by the Adviser and subject to future reimbursement per the terms of our expense reimbursement agreement. The following chart summarizes these amounts:




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




The Company compensates the Adviser for investment services per an Investment Adviser Agreement (“Agreement”), approved by the Company’s directors, calculated as the sum of (1) base management fee, calculated quarterly at 0.5% of the Company’s average gross assets payable quarterly in arrears, and (2) an incentive fee upon capital gains determined and payable in arrears as of the end of each quarter or upon liquidation of the Company or upon termination of Agreement at 20% of Company’s realized capital gains, as defined. The Agreement expires July 2016 and may continue automatically for successive annual periods, as approved by the Company. All management fees earned by the Adviser prior to January 1, 2014 were waived by the Adviser.




The Company compensates TFA for administration services per an Administration Agreement for costs and expenses incurred with the administration and operation of the Company. Such agreement expires July 2016 and may continue automatically for successive annual periods, as approved by the Company. These fees have been reimbursed from the Adviser pursuant to the Expense Reimbursement Agreement discussed below.




The following table describes the fees and expenses accrued under the investment advisory and administration agreement and the dealer manager agreement during the three months ended March 31, 2015 and 2014:


Three months ended March 31,Related Party

Source Agreement

Description

2015


2014Triton Pacific Adviser, LLC

Investment Adviser Agreement

Base Management Fees

$
18,408


$
9,786Triton Pacific Adviser, LLC

Investment Adviser Agreement

Capital Gains Incentive Fees(1)

$
5,964


$
—TFA Associates, LLC

Administration Agreement

Administrative Services Expenses

$
63,074


$
36,670Triton Pacific Securities, LLC

Dealer Manager Agreement

Dealer Manager Fees(2)

$
4,240


$
—


(1)
During the three months ended March 31, 2015 and 2014, the Company earned capital gains incentive fees of $5,964 and $0, respectively, based on the performance of its portfolio, of which $5,256 and $0, respectively, was based on unrealized gains, and $708 and $0, respectively, was based on realized gains. No capital gains incentive fees are actually payable by the Company with respect to unrealized gains unless and until those gains are actually realized. See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees.(2)
During the three months ended March 31, 2015 and 2014, the Company paid the Dealer Manager $20,850 and $0, respectively, in sales commissions and dealer fees. $4,240 and $0 were retained by TPS, respectively, and the remainder re-allowed to third party participating broker dealers.




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Director’s
Fees


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


Net Asset Value

Annual Cash 
Retainer Fee


Board Meeting Fee

Annual Audit 
Committee 
Chairperson Fee


Annual Audit 
Committee 
Member Fee


Audit 
Committee 
Meeting Fee$0 to $25 million

—


—

—


—


—$25 million to $75 million

$20,000


$1,000

$10,000


$2,500


$500over $75 million

$30,000


$1,000

$12,500


$2,500


$500




No Director’s fees were accrued for the three months ended March 31, 2015, and $23,250 was recorded for the three months ended March 31, 2015, which were later waived in the agreement discussed above.




Expense Reimbursement Agreement




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




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


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Quarter Ended

Amount of Expense

Payment Obligation

Operating Expense

Ratio as of the

Date Expense

Payment Obligation

Incurred(2)

Annualized
Distribution

Rate as of the Date

Expense Payment

Obligation Incurred(3)

Eligible for

Reimbursement

ThroughDecember
31, 2013(1)

$294,357

238.40
%

—


December 31, 2016March 31, 2014

$68,293

148.96
%

—


March 31, 2017June 30, 2014

$70,027

23.17
%

—


June 30, 2017September 30, 2014

$92,143

20.39
%

—


September 30, 2017December 31, 2014

$115,777

11.15
%

—


December 31, 2017March 31, 2015

$134,301

13.75
%

2.01
%

March 31, 2018


(1)
Reflects the period from inception (April 29, 2011) through December 31, 2013(2)
“Operating Expense Ratio” includes all expenses borne by us, except for organizational and offering expenses, base management and incentive fees owed to our Adviser,financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not invest the proceeds from the offering and realize any income from investments prior to the end of its fiscal quarter.(3)
“Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by our Adviser. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders. The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not have an opportunity to invest the proceeds from the offering and realize any income from investments or pay any distributions to stockholders prior to the end of its fiscal quarter.




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




The Company or the Adviser may terminate the Expense Reimbursement Agreement at any time upon thirty days’ written notice; however, the Adviser has indicated that it expects to continue such reimbursements until it deems that the Company has achieved economies of scale sufficient to ensure that the Company bears a reasonable level of expenses in relation to its income. The Expense Reimbursement Agreement will automatically terminate upon termination of the Investment Advisory Agreement or upon the Company’s liquidation or dissolution.




The Expense Reimbursement Agreement is, by its terms, effective retroactively to the Company’s inception date of April 29, 2011 for Operating Expenses and from the break of escrow on June 25, 2014 for Offering Expenses. As of March 31, 2015, $1,941,552 has been recorded as Reimbursement due from the Adviser pursuant to the Expense Reimbursement Agreement. Of this, $1,386,571, representing an amount due to the Adviser, was netted against the Reimbursement due from Adviser and $342,715 was paid to the Company by the Adviser.




NOTE 5 – DISTRIBUTIONS




The following table reflects the cash distributions per share that the Company declared and paid on its common stock through March 31, 2015:


DistributionFor the Three Months Ended

Per Share

AmountFiscal 2015January 20, 2015

$
0.07545

$
17,314




Our distributions were previously paid quarterly in arrears. On April 2, 2015, the Company authorized and declared a first quarter cash distribution of $0.116 per share, to the shareholders of record as of April 13, 2015. Beginning April 2015, the Company commenced the declaration and payment of monthly distributions, payable in advance, in each case, subject to the discretion of the Company’s board of directors and applicable legal restrictions. On April 16, 2015, the Company authorized and declared a cash distribution of $0.04 per share for the month of April 2015, to the shareholders of record as of April 29, 2015. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.




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




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




The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the three months ended March 31, 2015 (no distributions were paid during the three months ended March 31, 2014):


Three
months ended March 31, 2015Source of Distribution

Distribution

Amount

PercentageOffering proceeds

$
—


—Borrowings


—


—Net investment income(1)


16,211


94
%Short-term capital gains proceeds from the sale of assets


1,103


6
%Long-term capital gains proceeds from the sale of assets


—


—Total

$
17,314


100
%


(1)
During the years ended December 31, 2014, 94.6% of the Company’s gross investment income was attributable to cash income earned, and 5.4% was attributable to non-cash accretion of discount.




The Company’s net investment income on a tax basis for the three months ended March 31, 2015 and 2014 was $33,786 and $0, respectively. As of March 31, 2015 and 2014, the Company had $32,844 and $0, respectively, of undistributed net investment income and realized gains on a tax basis.




The difference between the Company’s GAAP-basis net investment income and its tax-basis net investment income is due to the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company for the three months ended March 31, 2015 and 2014.




The following table sets forth reconciliation between GAAP basis net investment income and tax basis net investment income for the three months ended March 31, 2015 and 2014:


Three months ended March 31,2015

2014GAAP basis net investment income
$
28,530

$
—Reversal of incentive fee accrual on unrealized gains

5,256


—Tax-basis net investment income
$
33,786

$
—




The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.




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As of March 31, 2015 and 2014, the components of accumulated earnings on a tax basis were as follows:


Three months ended March 31,2015


2014Distributable ordinary income (income and short-term capital gains)

$
39,187


$
—Distributable realized gains (long-term capital gains)


—



—Net unrealized appreciation (depreciation) on investments


26,280



—$
65,467


$
—


The aggregate cost of the Company’s investments for U.S. federal income tax purposes totaled $2,085,673 and $1,351,838 as of March 31, 2015 and December 31, 2014, respectively. The aggregate net unrealized appreciation (depreciation) on investments on a tax basis was $26,399 and $(698) as of March 31, 2015 and December 31, 2014, respectively.
  NOTE 6 – INVESTMENT PORTFOLIO




The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of March 31, 2015 and December 31, 2014:


March 31, 2015 (Unaudited)


December 31, 2014Investments at

Amortized

Cost(1)


Investments at

Fair Value


Fair Value

Percentage of

Total Portfolio


Investments at

Amortized

Cost(1)


Investments at

Fair Value


Fair Value

Percentage of

Total PortfolioSenior Secured Loans—First Lien

$
1,592,883


$
1,615,509



76
%

$
1,351,927


$
1,351,932



92
%Senior Secured Loans—Second Lien


242,909



246,563



12
%


120,167



119,375



8
%Equity/Other


250,000



250,000



12
%


—



—



0
%Total

$
2,085,792


$
2,112,072



100
%

$
1,472,094


$
1,471,307



100
%




(1)
Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.





The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of March 31, 2015 and December 31, 2014:


March 31, 2015

(Unaudited)


December 31, 2014Industry Classification

Fair

Value


Percentage of

Portfolio


Fair

Value


Percentage of

PortfolioAutomotive Repair, Services, and Parking

$
124,838



5.9
%

$
124,738



8.5
%Beverage, Food & Tobacco


239,621



11.3
%


237,566



16.1
%Business Services


250,312



12.0
%


—



0.0
%Construction Special Trade Contractors


250,460



12.0
%


246,258



16.7
%Financial Services


250,000



11.8
%


—



0.0
%Healthcare & Pharmaceuticals


251,420



11.9
%


124,063



8.4
%High Tech Industries


125,234



5.9
%


121,563



8.3
%Paper and Allied Products


124,935



5.9
%


124,221



8.4
%Transportation: Cargo


124,838



5.9
%


123,075



8.4
%Wholesale Trade-Durable Goods


125,518



5.9
%


124,219



8.4
%Wholesale Trade-Nondurable Goods


244,896



11.5
%


245,604



16.8
%Total

$
2,112,072



100.0
%

$
1,471,307



100.0
%




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NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS




Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.





The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:




Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.




Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.




Level 3: Inputs that are unobservable for an asset or liability.




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




As of March 31, 2015 and December 31, 2014, the Company’s investments were categorized as follows in the fair value hierarchy):


Valuation Inputs

March 31, 2015(Unaudited)


December 31, 2014Level 1—Price quotations in active markets

$
—


$
—Level 2—Significant other observable inputs


—



—Level 3—Significant unobservable inputs


2,112,072



1,471,307Total

$
2,112,072


$
1,471,307




The Company’s investments as of March 31, 2015 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. Except as described below for one equity investment, the Company valued its investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services.




The Company may periodically benchmark the bid and ask prices it receives from the third-party pricing services against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company’s board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation process.




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The following is a reconciliation for the year three months ended March 31, 2015 of investments for which significant unobservable inputs (Level 3) were used in determining fair value (there were no investments for the three months ended March 31, 2014):


For the Period Ended March 31, 2015Senior Secured

Loans - First Lien


Senior Secured

Loans - Second

Lien


Equity/Other


TotalFair value at beginning of period

$
1,351,932


$
119,375


$
—



1,471,307Accretion of discount (amortization of premium)


718



242



—



960Net realized gain (loss)


3,542



—



—



3,542Net change in unrealized appreciation (depreciation)


22,623



4,446



—



27,069Purchases


370,000



122,500



250,000



742,500Paid-in-kind interest


—



—



—



—Sales and redemptions


(133,306
)


—



—



(133,306
)Net transfers in or out of Level 3


—



—



—



—Fair value at end of period

$
1,615,509


$
246,563


$
250,000



2,112,072The amount of total gains or losses for the period included inchanges in net assets attributable to the change in unrealizedgains or losses relating to investments still held at the reportingdate

$
22,623


$
4,446


$
—



27,069





The composition of the Company’s investments as of March 31, 2015, at amortized cost and fair value, were as follows (there were no investments for the three months ended March 31, 2014):


March 31, 2015

December 31, 2014Investments at

Amortized Cost


Investments at

Fair Value


Fair Value

Percentage of

Total Portfolio

Investments at

Amortized Cost


Investments at

Fair Value


Fair Value

Percentage of

Total PortfolioSenior Secured First Lien Debt

$
1,592,883


$
1,615,509



76.5
%

$
1,351,927


$
1,351,932



91.9
%Senior Secured Second Lien Debt


242,909



246,563



11.7
%


120,167



119,375



8.1
%Equity/Other


250,000



250,000



11.8
%


—



—



0.0
%Total

$
2,085,792


$
2,112,072



100.0
%

$
1,472,094


$
1,471,307



100.0
%


The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of March 31, 2015 were as follows:
 Asset Category

Fair Value

Primary Valuation Technique

Unobservable Inputs


Range


Weighted

AverageSenior Secured First Lien Debt

$
1,615,509

Market quotes

Indicative dealer quotes


95.25 - 100.83


98.81Senior Secured Second Lien Debt


246,563

Market quotes

Indicative dealer quotes


94.50 - 96.50


95.5Equity/Other


250,000

Cost(1)

N/A


N/A


N/A$
2,112,072
 
 (1) This investment was made on March 20, 2015.  The offering in which the Company invested was still underway and selling at the price paid by the Company.


The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of December 31, 2014 were as follows:


Asset Category

Fair Value

Primary Valuation Technique

Unobservable Inputs

Range


Weighted

AverageSenior Secured First Lien Debt

$
1,351,932

Market quotes

Indicative dealer quotes

95.25 - 100.83


98.81Senior Secured Second Lien Debt


119,375

Market quotes

Indicative dealer quotes

94.50 - 96.50


95.5$
1,471,307




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NOTE 8 – FINANCIAL HIGHLIGHTS





The following is a schedule of financial highlights of the Company for the three months ended March 31, 2015 and the year ended December 31, 2014:


Three Months EndedMarch 31, 2015

(Unaudited)


Year Ended

December 31, 2014Per Share Data:Net asset value, beginning of period

$
13.50


$
13.50Results of operations(1)Net investment income (loss)


0.12



0.14Net realized and unrealized appreciation (depreciation) on investments


0.13



0.01Net increase (decrease) in net assets resulting from operations


0.25



0.15Stockholder distributions(2)Distributions from net investment income


(0.07
)


—Distributions from net realized gain on investments


(0.00
)


—Net decrease in net assets resulting from stockholder distributions


(0.07
)


—Capital share transactionsIssuance of common stock(3)


—



—Offering costs(1)


(0.18
)


(0.15
)Net increase (decrease) in net assets resulting from capital share transactions


(0.18
)


(0.15
)Net asset value, end of period

$
13.50


$
13.50Shares outstanding, end of period


244,260



229,474Total return(4)


0.5
%


0.0
%Ratio/Supplemental Data:Net assets, end of period

$
2,116,467


$
1,916,867Ratio of net investment income to average net assets(5)


1.4
%


1.5
%Ratio of total operating expenses to average net assets(5)


6.7
%


23.6
%Ratio of expenses reimbursed by sponsor to average net assets(5)


6.7
%


23.6
%Ratio of expense recoupment payable to sponsor to average net assets(6)


0.0
%


0.0
%Ratio of capital gain incentive fee to average net assets(5)


0.30
%


0.02
%Ratio of net operating expenses to average net assets(5)


0.0
%


0.0
%Portfolio turnover(6)


6.2
%


23.6
%


(1)
The per share data was derived by using the weighted average shares outstanding for the three months ended March 31, 2015 and the year ended December 31, 2014.


(2)
The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.


(3)
The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous public offeringand pursuant to the Company’s distribution reinvestment plan. The issuance of common stock at an offering price, net of sales commissions and dealer manager fees, that is greater than the net asset value per share results in an increase in net asset value per share.(4)
The total return for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions per share which were declared during the applicable calendar year and dividing the total by the net asset value per share at the beginning of the applicable year. The total return does not consider the effect of the sales load from the sale of the Company’s common stock. The total return includes the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return in the table should not be considered a representation of the Company’s future total return, which may be greater or less than the return shown in the table due to a number of factors, including the Company’s ability or inability to make investments in companies that meet its investment criteria, the interest rate payable on the debt securities the Company acquires, the level of the Company’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return on the Company’s investment portfolio during the applicable period and are calculated in accordance with GAAP. These return figures do not represent an actual return to stockholders.(5)
Average net assets in these calculations are exclusive of amounts classified as temporary equity.(6)
Portfolio turnover for the three months ended March 31, 2015 is not annualized.




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NOTE 9 – COMMITMENTS AND CONTINGENCIES





Pursuant to Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”), the Company is required to annually update the prospectus used in the Offering so that the financial statements and other information contained or incorporated by reference in the prospectus is not more than sixteen months old. In order to comply with Section 10(a)(3) of the Securities Act, the Company is required to file a post-effective amendment to its registration statement containing an updated prospectus prior to April 30th of each year. If the Securities and Exchange Commission (“SEC”) has not declared such post-effective amendment effective by April 30th of each year, the Company is required to halt its public offering until such time as the SEC declares the post-effective amendment effective. The Company failed to file the post-effective amendment required to be filed by April 30, 2014 and continued to offer and sell its shares in the Offering during the period from May 1, 2014 to August 14, 2014, the date the Company suspended the Offering.





As a result of the Company’s failure to timely update its registration statement as required by Section 10(a)(3) of the Securities Act, from May 1, 2014 to August 14, 2014, the offer and sale of securities in the Offering during such period may trigger a right of rescission under the Securities Act for investors that purchased shares of common stock during this period.  Such stockholders may have the right to rescind their purchase of shares of common stock and require the Company to reacquire their shares at a price equal to the price originally paid for such shares, plus interest, less the amount of any income (i.e., dividends) received by the investor on such shares. As of March 31, 2015, the total amount of equity subscribed during the period from May 1, 2014 to August 14, 2014 amounted to $1,276,152. To better ensure that the Company’s stockholders are not harmed by any claims for rescission, the Company has entered into an indemnification agreement with the Adviser whereby the Adviser has agreed to provide funds necessary for stockholder claims for rescission if the Company is unable to do so and to indemnify the Company for certain losses arising from rescission claims. The amount recorded as contingent is net of the amount indemnified by the Adviser.





The Company enters into contracts that contain a variety of indemnification provisions.  The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts.  Management has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.





NOTE 10 – SUBSEQUENT EVENTS





Management has evaluated all known subsequent events through the date the accompanying financial statements were available to be issued on May 15, 2015, and notes the following:





For the period beginning April 1, 2015 and ending May 15, 2015, the Company sold 38,229.96 shares of its common stock for total gross proceeds of $554,792, including amounts issued pursuant to its distribution reinvestment plan in the amount of $19,792.





On April 10, 2015, the Company made an additional investment of $500,000 in the Series C-2 Preferred Units of Javlin Capital, for a total investment of $750,000.




On April 30, 2015, the Company made a private equity investment of $500,000 into a rapidly growing institutional pharmacy, Injured Workers Pharmacy (www.iwpharmacy.com). Injured Workers Pharmacy (“IWP”), founded in 2001, is a leading specialty pharmacy serving patients in the $8 billion Workers’ Compensation and Personal Injury claim markets in the United States. These are highly specialized and complicated claims being paid largely by indemnity insurers as opposed to traditional healthcare plans or Medicare. IWP has developed expertise and systems that enable it to navigate the complicated, state-by-state, plan-by-plan billing process.  The complex nature of managing through all these regulations creates a natural barrier to entry and has allowed IWP to benefit from a rapidly growing segment of institutional pharmacy.




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Item 2: Management’sDiscussion and Analysis of Financial Condition and Results of Operations.




The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this annual report on Form 10-K.




Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to Triton Pacific Investment Corporation, Inc.




Forward-Looking Statements




Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including, but not limited to, statements as to:





our future operating results;



our business prospects and the prospects of our portfolio companies;



changes in the economy;



risk associated with possible disruptions in our operations or the economy generally;



the effect of investments that we expect to make;



our contractual arrangements and relationships with third parties;



actual and potential conflicts of interest with Triton Pacific Adviser, LLC and its affiliates;



the dependence of our future success on the general economy and its effect on the industries in which we invest;



the ability of our portfolio companies to achieve their objectives;


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



the adequacy of our financing sources and working capital;


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



the ability of Triton Pacific Adviser, LLC and its Sub-Adviser to locate suitable investments for us and to monitor and administer our investments;



the ability of Triton Pacific Adviser, LLC, its Sub-Adviser and its affiliates to attract and retain highly talented professionals;



our ability to qualify and maintain our qualification as a RIC and as a BDC; and



the effect of changes in laws or regulations affecting our operations or to tax legislation and our tax position.




Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this annual report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in this annual report on Form 10-K and in our last post-effective, amended registration statement filed on form N-2 dated April 30, 2015, filed with the Securities and Exchange Commission (the “SEC”) on April 30, 2015.




We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.




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Overview





We are a specialty finance company operating as an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the 1940 Act. Triton Pacific Adviser, LLC (“Triton Pacific Adviser”), which is a registered investment adviser under the Investment Advisers Act of 1940, as amended, (the “Advisers Act”) serves as our investment adviser and TFA Associates, LLC serves as our administrator. Each of these companies is affiliated with Triton Pacific Group, Inc., a private equity investment management firm, and its subsidiary, Triton Pacific Capital Partners, LLC (“TPCP”), a private equity investment fund management company, each focused on debt and equity investments in small to mid-sized private companies.





We intend to primarily make debt investments likely to generate current income and equity investments in small to mid-sized private U.S. companies either alone or together with other private equity sponsors. Our investment objective is to generate current income and long term capital appreciation.




Triton Pacific Adviser is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. In addition, we have elected  and intend to annually qualify to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”), under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).




We are offering for sale a maximum of 20,000,000 shares of common stock at an initial price of $15 per share, on a “best efforts” basis pursuant to a registration statement on Form N-2 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Offering”).  On September 4, 2012 our registration statement was declared effective by the SEC.   On April 30, 2015 we filed our most recent post-effective amendment to our registration statement which was declared effective by the SEC on April 30, 2015. As of May 15, 2015, we have sold 282,489.60 shares of common stock for gross proceeds of approximately $4,119,936, including shares issued pursuant to its distribution reinvestment plan in the amount of $28,726, and 14,315 shares of common stock sold to Triton Pacific Adviser in exchange for gross proceeds of $200,003.





Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments and long term capital appreciation from our equity investments. We will seek to meet our investment objectives by:




-Focusing primarily on debt and equity investments in small and mid-sized private U.S. companies, which we define as companies with annual revenue of from $10 million to $ 250 million at the time of investment;





-Leveraging the experience and expertise of our Adviser, its Sub-Adviser and its affiliates in sourcing, evaluating and structuring transactions;





-Employing disciplined underwriting policies and rigorous portfolio management;





-Developing our equity portfolio through our Adviser’s Value Enhancement Program, more fully discussed below in “Investment Objectives and Policies – Investment Process”; and





-Maintaining a well balanced portfolio.





We intend to be active in both debt and equity investing. We will seek to provide current income to our investors through our debt investments while seeking to enhance our investors’ overall returns through long term capital appreciation of our equity investments. We intend to be opportunistic in our investment approach, allocating our investments between debt and equity, depending on:




-Investment opportunities




-Market conditions




-Perceived Risk






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Depending on the amount of capital we raise in the Offering and subject to subsequent changes in our capital base, we expect that our investments will generally range between $250,000 and $25 million per portfolio company, although this range may change in the discretion of our Adviser, subject to oversight by our board of directors. Prior to raising sufficient capital to finance investments in this range and as a strategy to manage excess cash, we may make smaller and differing types of investments in, for example, high quality debt securities, and other public and private yield-oriented debt and equity securities, directly and through our Sub-Adviser.




Our Adviser has engaged ZAIS Group, LLC to act as our investment sub-adviser. ZAIS will assist our Adviser with identifying, evaluating, negotiating and structuring syndicated debt investments and will make investment recommendations for approval by our Adviser.  ZAIS is a registered investment adviser under the Advisers Act and had approximately $4.1 billion in assets under management as of December 31, 2014.  ZAIS is not an affiliate of us or our Adviser and does not own any of our shares.




We will generally source our private equity investments through third party intermediaries and our debt investments primarily through our Sub-Adviser. We will invest only after we conduct a thorough evaluation of the risks and strategic opportunity of an investment and a price (or interest rate in the case of debt investments) has been established that reflects the intrinsic value of the opportunity.  We will endeavor to identify the best exit strategy for each private equity investment, including methodology (for example, a sale, company redemption or public offering) and an appropriate time horizon.  We will then attempt to build each portfolio company accordingly to maximize our potential return on investment using such exit strategy or another strategy that may become preferable due to changing market conditions.  We anticipate that the holding period for most of our private equity investments will range from four to six years, but we will be flexible in order to take advantage of market opportunities or to wait out unfavorable market conditions.




We intend to generate the majority of our current income by investing in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies. We may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from our target companies as primary market investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. The senior secured and second lien secured loans in which we invest generally will have stated terms of three to seven years and any subordinated investments that we make generally will have stated terms of up to ten years. However, there is no limit on the maturity or duration of any security we may hold in our portfolio. The loans in which we intend to invest are often rated by a nationally recognized ratings organization, and generally carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investors Service or lower than “BBB-” by Standard & Poor’s Corporation- also known as “junk bonds”). However, we may also invest in non-rated debt securities.




As a BDC, we will be subject to certain regulatory restrictions in making our investments. For example, we generally will not be permitted to co-invest alongside our Adviser and its affiliatesunless we obtain an exemptive order from the SEC or the transaction is otherwise permitted under existing regulatory guidance, such as syndicated transactions where price is the only negotiated term, and approval from our independent directors. We are seeking exemptive orders for investments, though there is no assurance that such exemptions will be granted, and in either instance, conflicts of interests with affiliates of our Adviser might exist. Should such conflicts of interest arise, we and the Adviser have developed policies and procedures for dealing with such conflicts which require the Adviser to (i) execute such transactions for all of the participating investment accounts, including the Company’s, on a fair and equitable basis, taking into account such factors as the relative amounts of capital available for new investments and the investment programs and portfolio positions of the Company, the clients for which participation is appropriate and any other factors deemed appropriate and (ii) endeavor to obtain the advice of Adviser personnel not directly involved with the investment giving rise to the conflict as to such appropriateness and other factors as well as the fairness to all parties of the investment and its terms. We intend to make all of our investments in compliance with the 1940 Act and in a manner that will not jeopardize our status as a BDC or RIC.




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As a BDC, we are permitted under the Company Act to borrow funds to finance portfolio investments. To enhance our opportunity for gain, we intend to employ leverage as market conditions permit, but, as required under the Company Act, in no event will our leverage exceed 50% of the value of our assets.  While we have not yet determined the amount of leverage we will use, we do not currently anticipate that we would approach the 50% maximum level frequently or at all. The use of leverage, although it may increase returns, may also increase the risk of loss to our investors, particularly if the level of our leverage is high and the value of our investments declines.





Revenues




We plan to generate revenue in the form of dividends, interest and capital gains. In addition, we may generate revenue from our portfolio companies in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be recognized as earned.




Expenses




Our primary operating expenses will be the payment of advisory fees and other expenses under the proposed investment adviser agreement. The advisory fees will compensate our Adviser for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.




We will bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:




-corporate and organizational expenses relating to offerings of our common stock, subject to limitations included in the investment advisory and management services agreement;




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




-the cost of effecting sales and repurchase of shares of our common stock and other securities;




-investment advisory fees;




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




-transfer agent and custodial fees;




-fees and expenses associated with marketing efforts;




-federal and state registration fees;




-federal, state and local taxes;




-independent directors’ fees and expenses;




-costs of proxy statements, stockholders’ reports and notices;




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




-direct costs such as printing, mailing, long distance telephone, and staff;




-fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act;




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




-brokerage commissions for our investments;




-legal, accounting and other costs associated with structuring, negotiating, documenting and completing our investment transactions;




-all other expenses incurred by our Adviser, in performing its obligations, subject to the limitations included in the investment adviser agreement; and




-all other expenses incurred by either our Administrator or us in connection with administering our business, including payments to our Administrator under the administration agreement that will be based upon our allocable portion of its overhead and other expenses incurred in performing its obligations under the administration agreement, including rent and our allocable portion of the costs of compensation and related expenses of our chief executive officer, chief compliance officer and chief financial officer and their respective staffs.




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Reimbursement of TFA Associates, LLC for Administrative Services




We will reimburse TFA Associates for the administrative expenses necessary for its performance of services to us. Such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse TFA Associates for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of TFA Associates.




Portfolio and Investment Activity




During the three months ended March 31, 2015, we made investments in portfolio companies totaling $742,500. During the same period, we sold investments for proceeds of $124,516 and received principal repayments of $8,790. As of March 31, 2015, our investment portfolio, with a total fair value of $2,112,072, consisted of interests in 12 portfolio companies (76% in first lien senior secured loans, 12% in second lien senior secured loans and 12% in equity).  The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $69.5 million.  As of March 31, 2015, the investments in our debt portfolio were purchased at a weighted average price of 98.2% of par or stated value, and the weighted average credit rating of the investments in our portfolio that were rated (constituting 88% of our portfolio based on the fair value of our investments) was B2 based upon the Moody’s scale.  (BS refers to investments that are below investment grade, also known as “junk bonds.”  Our estimated gross annual portfolio yield was 5.6% based upon the amortized cost of our investments and was 6.4% on the debt portfolio alone. Our gross annual portfolio yield represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of March 31, 2015. The portfolio yield does not represent an actual investment return to stockholders.




Total Portfolio Activity





The following tables present certain selected information regarding our portfolio investment activity for the three months ended March 31, 2015 and December 31, 2014:


Net Investment Activity

Three months ended 
March 31, 2015

Year ended 
December 31, 2014Purchases

$
742,500

$
1,725,001Sales and Redemptions


(133,306
)

(249,375
)Net Portfolio Activity

$
609,194

$
1,475,626




The following table presents the composition of the total purchases for the three months ended March 31, 2015 and December 31, 2014:


Three months ended March 31, 2015

Year ended December 31, 2014Purchases

Percentage 
of Portfolio

Purchases

Percentage 
of PortfolioSenior Secured Loans—First Lien

$
370,000


50
%
$
1,605,001


93
%Senior Secured Loans—Second Lien


122,500


16
%

120,000


7
%Equity/Other


250,000


34
%

—


0
%Total

$
742,500


100
%
$
1,725,001


100
%




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The following tables summarize the composition of our investment portfolio at cost and fair value as of March 31, 2015 and December 31, 2014:


March
31, 2015

(Unaudited)

December
31, 2014Investments at

Amortized

Cost(1)

Investments at

Fair Value

Fair Value

Percentage of

Total Portfolio

Investments at

Amortized

Cost(1)

Investments at

Fair Value

Fair Value

Percentage of

Total PortfolioSenior Secured Loans—First Lien

$
1,592,883

$
1,615,509


76
%
$
1,351,927

$
1,351,932


92
%Senior Secured Loans—Second Lien


242,909


246,563


12
%

120,167


119,375


8
%Equity/Other


250,000


250,000


12
%

—


—


0
%Total

$
2,085,792

$
2,112,072


100
%
$
1,472,094

$
1,471,307


100
%




(1)
Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.




March 31, 2015

December 31, 2014Number of Portfolio Companies

12

10% Variable Rate (based on fair value)

88.0%

100.0%% Fixed Rate (based on fair value)

0.0%

0.0%% Non-Income Producing Equity or Other Investments (based on fair value)

12.0%

0.0%Average Annual EBITDA of Portfolio Companies

69.5 MM

96.0 MMWeighted Average Credit Rating of Investments that were Rated

B2

B2% of Investments on Non-Accrual

—

—Gross Portfolio Yield Prior to Leverage (based on amortized cost)

6.4%

6.0%




The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of March 31, 2015 and December 31, 2014:


March 31, 2015

(Unaudited)

December 31, 2014Industry Classification

Fair

Value

Percentage of

Portfolio

Fair

Value

Percentage of

PortfolioAutomotive Repair, Services, and Parking

$
124,838


5.9
%
$
124,738


8.5
%Beverage, Food & Tobacco


239,621


11.3
%

237,566


16.1
%Business Services


250,312


12.0
%

—


0.0
%Construction Special Trade Contractors


250,460


12.0
%

246,258


16.7
%Financial Services


250,000


11.8
%

—


0.0
%Healthcare & Pharmaceuticals


251,420


11.9
%

124,063


8.4
%High Tech Industries


125,234


5.9
%

121,563


8.3
%Paper and Allied Products


124,935


5.9
%

124,221


8.4
%Transportation: Cargo


124,838


5.9
%

123,075


8.4
%Wholesale Trade-Durable Goods


125,518


5.9
%

124,219


8.4
%Wholesale Trade-Nondurable Goods


244,896


11.5
%

245,604


16.8
%Total

$
2,112,072


100.0
%
$
1,471,307


100.0
%




We do not “control” any of our portfolio companies, each as defined in the 1940 Act. We are an affiliate of one portfolio company, Javlin Capital, LLC.  In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.




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Portfolio Asset Quality





In addition to various risk management and monitoring tools, our Subadviser uses an investment rating system to characterize and monitor the expected level of returns on each investment in our debt portfolio. All of the investments included in our Subadviser’s rating systems refer to non-rated debt securities or rated debt securities that carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investors Service or lower than “BBB-” by Standard & Poor’s Corporation also known as “junk bonds”).These ratings are on a scale of 1 to 8 as follows:




1
Strongest – highest quality obligors, minimal medium term default risk; possibly moving towards investment grade status.


2
Strong – high quality obligors, but not likely to move towards investment grade in the medium term; performing at or in excess of expected levels; solid liquidity; conservative credit statistics.


3
Solid – credits of with a history of performing with leverage (repeat issuers); moderate credit statistics currently performing at or in excess of expected levels; solid liquidity; no expectation of covenant defaults or third party ratings downgrades.


4
Above Average – credits new to the leveraged loan universe; currently performing within a range of expected performance; moderate to aggressive credit statistics.


5
Below Average – credits new to the leveraged loan universe; currently performing within a range of expected performance; aggressive credit statistics or weak industry characteristics.


6
Watching Closely– Credits placed in this category are experiencing potential liquidity problems but the issues are not imminent (more than 12 months).


7
Distressed– Credits placed in this category are experiencing nearer-term liquidity problems (within 12 months).


8
Defaulted– Credits placed in this category have experienced either a technical or actual payment default which may require a write-down within our respective portfolios.




The following table shows the distribution of our debt investments on the 1 to 8 scale at fair value as of March 31, 2015 and December 31, 2014:


March 31, 2015

December 31, 2014Investment Rating

Fair Value

Percentage

Fair Value

Percentage1

$
—


0.0
%
$
—


0.0
%2


250,460


13.5
%

124,063


6.7
%3


500,290


26.9
%

608,043


32.7
%4


861,250


46.3
%

614,463


33.0
%5


250,072


13.4
%

124,738


6.7
%6


—


0.0
%

—


0.0
%7


—


0.0
%

—


0.0
%8


—


0.0
%

—


0.0
%$
1,862,072


100.0
%
$
1,471,307


79.0
%




Results of Operations




We commenced operations on June 25, 2014, when we raised in excess of $2,500,000 in accordance with our minimum offering requirement.  Prior to satisfying the minimum offering requirement, we had no operations except for matters relating to our organization and registration as a non-diversified, closed-end management investment company. Additionally, investment in portfolio companies did not commence until October 1, 2014.  As a result, no comparisons with the comparable period for have been included for some items.




Investment Income




For the three months ended March 31, 2015 and 2014, we generated $28,530 and $0 in investment income in the form of interest and fees earned on senior secured loans.  Such revenues represent $27,569 of cash income and $961 in non-cash portions related to the accretion of discounts for the three months ended March 31, 2015.  We expect the dollar amount of interest that we earn to increase as the size of our investment portfolio increases.




Operating Expenses




Total operating expenses before reimbursement from the sponsor and management fee waiver totaled $134,301 for the three months ended March 31, 2015, and consisted of base management fees, adviser and administrator reimbursements, professional fees, insurance expense, directors’ fees and other general and administrative fees. The base management fees for the quarter were $18,408 and the incentive fees for the quarter were $5,964.   Pursuant to the Expense Reimbursement Agreement (discussed below), the sponsor reimbursed the Company $134,301 for the three months ended March 31, 2015.




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Total operating expenses before reimbursement from the sponsor and management fee waiver totaled $84,269 for the three months ended March 31, 2014, and consisted of base management fees, adviser and administrator reimbursements, professional fees, insurance expense, directors’ fees and other general and administrative fees. The base management fees for the year were $9,786 and no incentive fee was incurred for the quarter.  Pursuant to the Expense Reimbursement Agreement (discussed below), the sponsor reimbursed the Company $84,269 for the three months ended March 31, 2014.




Our other general and administrative expenses totaled $2,350 and $1,713 for the three months ended March 31, 2015 and 2014, respectively, and consisted of the following:


Three months ended 
March 31, 2015

Three months ended 
March 31, 2014Printing fees

$
1,178

$
—Licenses and permits


1,039


939Other


133


774Total

$
2,350

$
1,713




Net Investment Income




Our net investment income totaled $28,530 ($0.12 per share based on weighted average shares outstanding) for the three months ended March 31, 2015.




Net Realized Gains/Losses from Investments




We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized.




For the three months ended March 31, 2015, we sold investments and received principal payments of $133,306, from which we realized a net gain of $3,542.





Net Unrealized Appreciation/Depreciation on Investments




Net change in unrealized appreciation on investments reflects the net change in the fair value of our investment portfolio.For the three months ended March 31, 2015, net unrealized appreciation totaled $27,069.




Changes in Net Assets from Operations




For the three months ended March 31, 2015, we recorded a net income of $59,141 versus net income of $0 for the three months ended March 31, 2014.




Based on 235,886 weighted average common shares outstanding for the three months ended March 31, 2015, basic and diluted, our per share net increase in net assets resulting from operations was $0.25




Based on 14,815 and 47,376 weighted average common shares outstanding for the three months ended March 31, 2014, basic and diluted, respectively, our per share net increase in net assets resulting from operations was $0 and $0, respectively.




Financial Condition, Liquidity and Capital Resources




We will generate cash primarily from the net proceeds of our offering, and from cash flows from fees (such as management fees), interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments. Our primary use of funds will be investments in companies, and payments of our expenses and distributions to holders of our common stock.




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The offering of our common stock represents a continuous offering of our shares. We have filed post-effective amendments to the registration statement to allow us to continue our offering for three years. The Dealer Manager is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell the shares offered. The minimum investment in shares of our common stock is $5,000. Effective June 25, 2014, we received subscriptions aggregating at least $2.5 million worth of shares of our common stock.  As a result, the proceeds held in escrow, plus interest, were released to us.




We will sell our shares on a continuous basis at a price of $15.00 per share; however, to the extent our net asset value increases, we will sell at a price necessary to ensure that shares are not sold at a price per share, after deduction of selling commissions and dealer manager fees, that is below our net asset value per share. Promptly following any such adjustment to the offering price per share, we will file a prospectus supplement with the SEC disclosing the adjusted offering price, and we appropriately publish the updated information. The Dealer Manager for this offering is an affiliate of our Adviser.




During the three months ended March 31, 2015, we sold 14,785.41 shares of our common stock for gross proceeds of $220,923 at an average price per share of $13.53.  The gross proceeds received during the three months ended March 31, 2015 include reinvested stockholder distributions of $8,934 for which we issued 626.95 shares of common stock.  During the three months ended March 31, 2015, we also incurred offering costs of $42,300 in connection with the sale of our common stock, which consisted primarily of legal, due diligence and printing fees. The offering costs were offset against capital in excess of par value on our financial statements. The sales commissions and dealer manager fees related to the sale of our common stock were $20,850 for the three months ended March 31, 2015. These sales commissions and fees include $4,240 retained by the dealer manager, Triton Pacific Securities, LLC, which is an affiliate of ours.




We may borrow funds to make investments at any time, including before we have fully invested the proceeds of our offering, to the extent we determine that additional capital would allow us to take advantage of investment opportunities, or if our board of directors determines that leveraging our portfolio would be in our best interests and the best interests of our stockholders.  We have not yet decided, however, whether, and to what extent, we will finance portfolio investments using debt. We do not currently anticipate issuing any preferred stock.




Contractual Obligations




We have entered into certain contracts under which we have material future commitments. On July 27, 2012, we entered into the investment advisory agreement with Triton Pacific Adviser, LLC in accordance with the 1940 Act. The investment advisory agreement became effective on June 25, 2014, the date that we met the minimum offering requirement. Triton Pacific Adviser serves as our investment advisor in accordance with the terms of our investment advisory agreement. Payments under our investment advisory agreement in each reporting period will consist of (i) a management fee equal to a percentage of the value of our gross assets and (ii) a capital gains incentive fee based on our performance.





On July 27, 2012, we entered into the administration agreement with TFA Associates, LLC pursuant to which TFA Associates furnishes us with administrative services necessary to conduct our day-to-day operations. TFA Associates is reimbursed for administrative expenses it incurs on our behalf in performing its obligations. Such costs are reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We do not reimburse TFA Associates for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of TFA Associates.   At the time of our offering, our Administrator has contracted with Bank of New York Mellon and affiliated entities to provide additional administrative services, while we have directly engaged Bank of New York Mellon and affiliated entities to act as our custodian.  We have also contracted with Gemini Fund Services to act as our transfer agent, plan administrator, distribution paying agent and registrar.




If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under the investment advisory agreement and administration agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.




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Off-Balance Sheet Arrangements




Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.




Distributions




We elected to be treated, beginning with our fiscal year ending December 31, 2012, and intend to qualify annually, as a RIC under the Code. To obtain and maintain RIC tax treatment, we must, among others things, distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year) and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no federal income tax.




While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.





Commencing in the second quarter of 2015, and subject to our board of directors’ discretion and applicable legal restrictions, our board of directors intends to authorize and declare a monthly distribution amount per share of our common stock. We will then calculate each stockholder’s specific distribution amount for the month using record and declaration dates, and your distributions will begin to accrue on the date we accept your subscription for shares of our common stock. From time to time, we may also pay interim distributions at the discretion of our board. Each year a statement on Internal Revenue Service Form 1099-DIV (or any successor form) identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gain on the sale of securities, and/or a return of paid-in capital surplus which is a nontaxable distribution) will be mailed to our stockholders. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our offering. As a result, a portion of the distributions we make may represent a return of capital for tax purposes.




We have adopted an “opt in” distribution reinvestment plan for our common stockholders. As a result, if we make a distribution, then stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. Any distributions reinvested under the plan will nevertheless remain taxable to U.S. stockholders.





The following table reflects the cash distributions per share that we have declared and paid on our common stock during through March 31, 2015:


DistributionFor the Three Months Ended

Per Share

AmountFiscal 2015January 20, 2015

$
0.07545

$
17,314





Our distributions previously were paid quarterly in arrears.  On January 15, 2015, our Board declared a quarterly cash distribution for the fourth quarter of 2014 of $0.07545 per share payable on January 30, 2015, to shareholders of record as of January 20, 2015. In addition, on April 2, 2015, our Board declared a cash distribution for the first quarter of 2015 of $0.116 per share payable on April 13, 2015, to shareholders of record as of April 6, 2015.Commencing in April 2015, and subject to our board of directors’ discretion and applicable legal restrictions, our board of directors intends to authorize and declare a monthly distribution amount per share of our common stock, payable in advance.  We will then calculate each stockholder’s specific distribution amount for the month using record and declaration dates, and your distributions will begin to accrue on the date we accept your subscription for shares of our common stock.  Our first monthly distribution for the month of April 2015 of $0.04 per share wasdeclared by our Board on April 16, 2015 and is payable on May 8, 2015, to shareholders of record as of April 29, 2015.No distributions were declared for the years ended December 31, 2013 and 2012.




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





The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the three months ended March 31, 2015 (no distributions were paid during the three months ended March 31, 2014):


Three months ended March 31,

2015Source of Distribution

DistributionAmount

PercentageOffering proceeds

$
—


—Borrowings


—


—Net investment income(1)


16,211


94
%Short-term capital gains proceeds from the sale of assets


1,103


6
%Long-term capital gains proceeds from the sale of assets


—


—Total

$
17,314


100
%





(1)
During the years ended December 31, 2014, 94.6% of the Company’s gross investment income was attributable to cash income earned, and 5.4% was attributable to non-cash accretion of discount.




Related Party Transactions




We have entered into an investment and advisory agreement with Triton Pacific Adviser in which our senior management holds equity interest. Members of our senior management also serve as principals of other investment managers affiliated with Triton Pacific Adviser that do and may in the future manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.




We have entered into an administration agreement with TFA Associates in which our senior management holds equity interest and act as principals.




We have entered into a dealer manager agreement with Triton Pacific Securities, LLC and will pay them a fee of up to 10% of gross proceeds raised in the offering, some of which will be re-allowed to other participating broker-dealers. Triton Pacific Securities, LLC is an affiliated entity of Triton Pacific Adviser.




We have entered into a license agreement with Triton Pacific Group, Inc. under which Triton Pacific Group, Inc. has agreed to grant us a non-exclusive, royalty-free license to use the name “Triton Pacific” for specified purposes in our business. Under this agreement, we will have a right to use the “Triton Pacific” name, subject to certain conditions, for so long as Triton Pacific Adviser or one of its affiliates remains our investment advisor. Other than with respect to this limited license, we will have no legal right to the “Triton Pacific” name.




We have entered into an expense support and conditional reimbursement agreement with Triton Pacific Adviser pursuant to which theAdviser will pay up to 100% of the Company’s operating expenses, subject to repayment by us to the Adviser, in order for the Company to achieve a reasonable level of expenses relative to its investment income, as determined by the Company and the Adviser our Adviser has agreed to make advances to us to cover certain of our operating expenses. (See “Expense Reimbursement Agreement”, below)




Management Fee




Pursuant to the investment adviser agreement, we will pay our Adviser a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee.




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The base management fee will be calculated at a quarterly rate of 0.5% of our average gross assets (including amounts borrowed for investment purposes) and payable quarterly in arrears.  For the first quarter of our operations, the base management fee will be calculated based on the initial value of our gross assets.  Subsequently, the base management fee for any calendar quarter will be calculated based on the average value of our gross assets at the end of that and the immediately preceding quarters, appropriately adjusted for any share issuances or repurchases during that quarter.  The base management fee may or may not be taken in whole or in part at the discretion of our Adviser. All or any part of the base management fee not taken as to any quarter shall be accrued without interest and may be taken in such other quarter as our Adviser shall determine.  The base management fee for any partial quarter will be appropriately pro-rated.




Though, in accordance with the Advisers Act, the Adviser could have received an incentive fee on both current income earned and income from capital gains, the Adviser has agreed to waive any incentive fees from current income. As such, the Adviser will be paid an incentive fee only upon the realization of a capital gain from the sale of an investment. The incentive fee will be calculated and payable quarterly in arrears or as of the date of our liquidation or the termination of the investment adviser agreement, and will equal 20% of our realized capital gains on a cumulative basis from inception through the end of each quarter, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.




For purposes of the foregoing: (1) the calculation of the incentive fee shall include any capital gains that result from cash distributions that are treated as a return of capital, (2) any such return of capital will be treated as a decrease in our cost basis for the relevant investment and (3) all fiscal year-end valuations will be determined by us in accordance with GAAP, applicable provisions of the Company Act and our pricing procedures.  In determining the incentive fee payable to our Adviser, we will calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each of the investments in our portfolio.  For this purpose, aggregate realized capital gains, if any, will equal the sum of the positive differences between the net sales prices of our investments, when sold, and the cost of such investments since inception.  Aggregate realized capital losses will equal the sum of the amounts by which the net sales prices of our investments, when sold, is less than the original cost of such investments since inception. Aggregate unrealized capital depreciation will equal the sum of the difference, if negative, between the valuation of each investment as of the applicable date and the original cost of such investment.  At the end of the applicable period, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee will equal the aggregate realized capital gains less aggregate realized capital losses and less aggregate unrealized capital depreciation with respect to our portfolio investments. If this number is positive at the end of such period, then the incentive fee for such period will be equal to 20% of such amount, less the aggregate amount of any incentive fees paid in all prior periods.




The organizational and offering expense and other expense reimbursements may include a portion of costs incurred by our Adviser or its members or affiliates on our behalf for legal, accounting, printing and other offering expenses, including for marketing, salaries and direct expenses of its employees, employees of its affiliates and others while engaged in registering and marketing the shares of our common stock, which shall include development of marketing and marketing presentations and training and educational meetings and generally coordinating the marketing process for us and may also include amounts reimbursed by us to our Dealer Manager for actual bona fide due diligence expenses incurred by our Dealer Manager or participating broker-dealers in an aggregate amount that is reasonable in relation to the gross proceeds raised in our offering and which are supported by detailed, itemized invoices. None of the reimbursements referred to above will exceed actual expenses incurred by our Adviser, its members or affiliates. Our Adviser will reimburse to us, without recourse or reimbursement by us, any organizational and offering expenses to the extent those expenses, when aggregated with sales load, exceed 15.0%.




Expense Reimbursement Agreement




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




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




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




Under the Expense Reimbursement Agreement, any unreimbursed expense support payments may be reimbursed by us within a period not to exceed three years from the date each respective expense support payment is made.




We or our Adviser may terminate the expense reimbursement agreement at any time upon thirty days’ written notice, however our Adviser has indicated that it expects to continue such reimbursements until it deems that we have achieved economies of scale sufficient to ensure that we bear a reasonable level of expenses in relation to our income.  The expense reimbursement agreement will automatically terminate upon termination of the Investment Advisory Agreement or upon our liquidation or dissolution.
  The Expense Reimbursement Agreement is, by its terms, effective retroactively to our inception date of April 29, 2011. As a result, our Adviser has agreed to reimburse a total of $1,941,552 as of March 31, 2015,which amounts have consisted of offsets against amounts owed by us to our Adviser since our inception.


33
 
 Table of Contents  Below is a table that provides information regarding expense support payments incurred by our Adviser pursuant to the Expense Support Agreement as well as other information relating to our ability to reimburse our Adviser for such payments.


Quarter Ended

Amount of Expense

Payment Obligation

Operating Expense

Ratio as of the

Date Expense

Payment Obligation

Incurred(2)

Annualized
Distribution

Rate as of the Date

Expense Payment

Obligation Incurred(3)

Eligible for

Reimbursement

ThroughDecember
31, 2013(1)

$294,357

238.40
%

—


December 31, 2016March 31, 2014

$68,293

148.96
%

—


March 31, 2017June 30, 2014

$70,027

23.17
%

—


June 30, 2017September 30, 2014

$92,143

20.39
%

—


September 30, 2017December 31, 2014

$115,777

11.15
%

—


December 31, 2017March 31, 2015

$134,301

13.75
%

2.01
%

March 31, 2018


(1)
Reflects the period from inception (April 29, 2011) through December 31, 2013(2)
“Operating Expense Ratio” includes all expenses borne by us, except for organizational and offering expenses, base management and incentive fees owed to our Adviser,financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not invest the proceeds from the offering and realize any income from investments prior to the end of its fiscal quarter.(3)
“Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by our Adviser. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders. The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not have an opportunity to invest the proceeds from the offering and realize any income from investments or pay any distributions to stockholders prior to the end of its fiscal quarter.





The chart below, on a cumulative basis, discloses the components of the Reimbursement due from Sponsor reflected on the chart above:


March 31,

2015

December 31,

2014Operating Expenses

$
774,897

$
640,597Offering Costs


1,167,005


1,060,438Due to related party offset


(1,386,571
)

(1,105,341
)Reimbursements received from Adviser


(342,715
)

(342,715
)Total Reimbursement due from Adviser

$
212,616

$
252,979





Operating Expensesare the amounts reimbursed by the Adviser for our operating costs and Offering Costs are the cumulative amount of organizational and offering expenses reimbursed to us by the Adviser and subject to future reimbursement per the terms of our expense reimbursement agreement.  The following chart summarizes these amounts:





Due to related party offsetrepresents the cash the Adviser paid directly for our operating and offering expenses and Reimbursements received from sponsorare the amounts the Adviser paid in cash to us for reimbursement of our operating and offering costs.




Either we or our Adviser may terminate the Expense Support Agreement at any time, except that if our Adviser terminates the agreement, it may not terminate its obligations to provide expense support payments after the commencement of any monthly period. If we terminate the Investment Advisory Agreement, we will be required to repay our Adviser all expense support payments made by our Adviser within three years of the date of termination.





Critical Accounting Policies




This discussion of our expected operating plans is based upon our expected financial statements, which will be prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements will require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future financial statements.


34
 
 Table of Contents




Valuation of Investments




Our board of directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.




Investments for which market quotations are readily available will be valued at such market quotations. For most of our investments, market quotations will not be available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process each quarter, as described below:




1.
Each portfolio company or investment will be valued by our Adviser, potentially with assistance from one or more independent valuation firms engaged by our board of directors;




2.
the independent valuation firm, if involved, will conduct independent appraisals and make an independent assessment of the value of each investment;




3.
the audit committee of our board of directors will review and discuss the preliminary valuation prepared by our Adviser and that of the independent valuation firm, if any; and




4.
the board of directors will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based on the input of our Adviser, the independent valuation firm, if any, and the audit committee.




Investments will be valued utilizing a cost approach, a market approach, an income approach, or a combination of approaches, as appropriate. The cost approach is most likely only to be used early in the life of an investment or if we determine that there has been no material change in the investment since purchase. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount, calculated using an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the Company’s ability to make payments, its earnings and discounted cash flows, the markets in which the Company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, the principal market and enterprise values, among other factors.




We have adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.




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ASC Topic 820 provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. It defines fair value as the price an entity would receive when an asset is sold or when a liability is transferred in an orderly transaction between market participants at the measurement date. In addition, ASC Topic 820 provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels of valuation hierarchy established by ASC Topic 820 are defined as follows:




Level 1:  Quoted prices in active markets for identical assets or liabilities, accessible by the company at the measurement date.




Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.




Level 3:  Unobservable inputs for the asset or liability.




In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.




In accordance with ASC Topic 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.




Revenue Recognition




We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities for accounting purposes if we have reason to doubt our ability to collect such interest. Original issue discounts, market discounts or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.




Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation




We will measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.




Payment-in-Kind Interest




We may have investments in our portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of distributions, even if we have not collected any cash.




Organization and Offering Expenses




The Company has incurred certain expenses in connection with the registration of shares of its common stock for sale as discussed in Note 1 of our financial statements– Description of Business and Summary of Significant Accounting Policies. These costs principally relate to professional fees, fees paid to the SEC and fees paid to the Financial Industry Regulatory Authority. These costs were included in deferred offering costs in the accompanying balance sheets. Simultaneous with the sale of common shares, the deferred offering costs will be reclassified to stockholders’ equity upon the issuance of shares.




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Federal Income Taxes




We elected to be treated, beginning with our fiscal year ending December 31, 2012, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code.  As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders from our tax earnings and profits. To maintain our RIC tax treatment, we must, among other things, meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.





Item 3: Quantitative and Qualitative Disclosures About Market Risk.





We are subject to financial market risks, including changes in interest rates. As of March 31, 2015, all of our debt investments paid variable interest rates. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to certain variable rate investments we hold and to declines in the value of any fixed rate investments we may hold in the future.




The following table shows the effect over a twelve month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in our investment portfolio and borrowing arrangements in effect as of March 31, 2015:


PercentageChange
in NetLIBOR
Basis Point Change

Interest
IncomeDown 25 basis points


0.00
%Current LIBOR


0.00
%Up 100 basis points


4.31
%Up 200 basis points


20.26
%Up 300 basis points


36.21
%





Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.





We may also face risk due to the lack of liquidity in the marketplace which could prevent us from raising sufficient funds to adequately invest in a broad pool of assets. We are subject to other financial market risks, including changes in interest rates.   However, at this time, with no portfolio investments, this risk is immaterial.





In addition, we may have risk regarding portfolio valuation. See “Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of Portfolio Investments.”





Item 4: Controls and Procedures.




Disclosure Controls




In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures are effective.





Change in Internal Control Over Financial Reporting




No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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Part II—Other Information


Item 1: Legal Proceedings.


The Company is not currently subject to any legal proceedings, nor, to our knowledge, are any legal proceedings threatened against us or our subsidiaries.





Item 1A: Risk Factors.




There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2014.


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




None.


Item 3: Defaults Upon Senior Securities.




None.


Item 4: Mine Safety Disclosures.




None.


Item 5: Other Information.





None.




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Item 6: Exhibits.




EXHIBIT INDEX


Number

Description31.1

Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




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SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated: May 15, 2015

Triton Pacific Investment Corporation, Inc.By

/s/   Craig J. FaggenCraig J. Faggen

Chief Executive Officer

(Principal Executive Officer)Dated: May 15, 2015

By

/s/   Michael L. CarrollMichael L. Carroll

Chief Financial Officer

(Principal Accounting and Financial Officer)




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