UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31,June 30, 2019
 OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-35906
 
HARVEST CAPITAL CREDIT CORPORATION
(Exact name of registrant as specified in its charter)  
 
Delaware
(State or other Jurisdiction of
 Incorporation or Organization)
46-1396995
(I.R.S. Employer
Identification Number)
  
767 Third Avenue, 29th Floor
New York, NY 10017
(Address of principal executive offices) (Zip Code)
 
(212) 906-3589
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value of $0.001 per shareHCAPNASDAQ Global Market
6.125% Notes due 2022HCAPZNASDAQ Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☐    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 
 Large accelerated filer¨Accelerated filer                    ¨
 Non-accelerated filer
þ

 
  Smaller reporting company    ¨
   Emerging growth company¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨ No þ.

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value of $0.001 per shareHCAPNASDAQ Global Market
6.125% Notes due 2022HCAPZNASDAQ Global Market

The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding as of May 13,August 8, 2019 was 6,172,358.6,070,033.
 

HARVEST CAPITAL CREDIT CORPORATION
 
 QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 31,JUNE 30, 2019
 
TABLE OF CONTENTS
 
 Page
 
 
 
Consolidated Statements of Assets and Liabilities as of March 31,June 30, 2019 and December 31, 2018
 
Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2019 and March 31,June 30, 2018
 
Consolidated Statements of Changes in Net Assets for the three and six months ended March 31,June 30, 2019 and March 31,June 30, 2018
 
Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2019 and March 31,June 30, 2018
 
 
 
Notes to Consolidated Financial Statements
 
 
 
 
 

i


PART I - FINANCIAL INFORMATION
Item 1.           Consolidated Financial Statements

Harvest Capital Credit Corporation 
Consolidated Statements of Assets and Liabilities (Unaudited)

March 31,
December 31,June 30,
December 31,

2019
20182019
2018
ASSETS:





Non-affiliated/non-control investments, at fair value (cost of $59,046,794 at 3/31/19 and $59,603,853 at 12/31/18)$60,190,825

$61,919,954
Affiliated investments, at fair value (cost of $33,940,471 at 3/31/19 and $25,848,928 at 12/31/18)33,109,024

24,645,597
Control investments, at fair value (cost of $13,419,123 at 3/31/19 and $13,430,013 at 12/31/18)8,400,921

8,348,311
Non-affiliated/non-control investments, at fair value (cost of $54,221,536 at 6/30/19 and $59,603,853 at 12/31/18)$55,414,945

$61,919,954
Affiliated investments, at fair value (cost of $48,210,903 at 6/30/19 and $25,848,928 at 12/31/18)47,447,273

24,645,597
Control investments, at fair value (cost of $13,719,123 at 6/30/19 and $13,430,013 at 12/31/18)7,802,027

8,348,311
Cash9,913,316

26,963,310
15,575,300

26,963,310
Restricted cash1,262,334

1,812,238
1,732,874

1,812,238
Interest receivable1,256,754

721,195
778,938

721,195
Accounts receivable – other312,273

178,883
142,082

178,883
Deferred financing costs568,432

623,442
522,086

623,442
Other assets305,054

106,771
233,249

106,771
Total assets$115,318,933

$125,319,701
$129,648,774

$125,319,701

LIABILITIES:





Revolving line of credit$5,000,000

$17,000,000
$27,000,000

$17,000,000
2022 Notes (net of deferred offering costs of $773,519 at 3/31/19 and $821,879 at 12/31/18)27,976,481

27,928,121
2022 Notes (net of deferred offering costs of $724,309 at 6/30/19 and $821,879 at 12/31/18)28,025,691

27,928,121
Payable for securities purchased5,285,658


200,000


Accrued interest payable115,864

115,919
142,422

115,919
Accounts payable - base management fees494,846

531,628
539,727

531,628
Accounts payable - incentive management fees

361,090


361,090
Accounts payable - administrative services expenses350,000

366,667
350,000

366,667
Accounts payable and accrued expenses1,170,546

620,312
522,174

620,312
Total liabilities40,393,395

46,923,737
56,780,014

46,923,737

Commitments and Contingencies (Note 8)












NET ASSETS:





Common stock, $0.001 par value, 100,000,000 shares authorized, 6,561,732 issued and 6,189,542 outstanding at 3/31/19 and 6,554,010 issued and 6,372,581 outstanding at 12/31/186,562

6,554
Common stock, $0.001 par value, 100,000,000 shares authorized, 6,569,661 issued and 6,126,724 outstanding at 6/30/19 and 6,554,010 issued and 6,372,581 outstanding at 12/31/186,570

6,554
Capital in excess of common stock92,347,663

92,270,273
92,426,143

92,270,273
Treasury shares, at cost, 372,190 and 181,429 shares at 3/31/19 and 12/31/18, respectively(3,959,962)
(1,956,055)
Treasury shares, at cost, 442,937 and 181,429 shares at 6/30/19 and 12/31/18, respectively(4,702,931)
(1,956,055)
Accumulated over distributed earnings(13,468,725)
(11,924,808)(14,861,022)
(11,924,808)
Total net assets74,925,538

78,395,964
72,868,760

78,395,964
Total liabilities and net assets$115,318,933

$125,319,701
$129,648,774

$125,319,701

Common stock outstanding6,189,542

6,372,581
6,126,724

6,372,581

Net asset value per common share$12.11

$12.30
$11.89

$12.30
  
See accompanying notes to unaudited financial statements.

Harvest Capital Credit Corporation 
Consolidated Statements of Operations (Unaudited) 

Three Months Ended 
 March 31,
Three Months Ended June 30,
Six Months Ended June 30,

2019
20182019
2018
2019
2018
Investment Income:









Interest:









Cash - non-affiliated/non-control investments$1,481,111

$2,325,116
$1,349,743

$2,390,700

$2,830,855

$4,715,816
Cash - affiliated investments960,946

706,571
1,100,708

811,059

2,061,654

1,517,630
Cash - control investments

83,388


47,546



130,934
PIK - non-affiliated/non-control investments12,119

196,042
18,647

141,785

30,766

337,827
PIK - affiliated investments194,515

167,877
187,598

182,426

382,112

350,303
Amortization of fees, discounts and premiums, net:















Non-affiliated/non-control investments226,862

191,033
200,200

440,680

427,062

631,713
Affiliated investments22,732

15,841
34,423

18,245

57,155

34,086
Total interest income2,898,285

3,685,868
2,891,319

4,032,441

5,789,604

7,718,309
Other income139,959

54,916
102,987

22,557

242,946

77,473
Total investment income
3,038,244

3,740,784
2,994,306

4,054,998

6,032,550

7,795,782

Expenses:











Interest expense - revolving line of credit10,486

138,839
92,295

150,335

102,781

289,174
Interest expense - unused line of credit101,749

81,655
92,135

82,481

193,884

164,136
Interest expense - deferred financing costs55,011

55,121
55,629

57,590

110,640

112,711
Interest expense - 2022 Notes440,235

440,235
440,235

440,235

880,470

880,470
Interest expense - deferred offering costs48,360

44,986
49,210

45,856

97,570

90,842
Total interest expense655,841

760,836
729,504

776,497

1,385,345

1,537,333

Professional fees520,334

1,032,288
297,546

209,382

817,880

1,241,669
General and administrative254,953

290,285
236,619

283,062

491,572

573,348
Base management fees494,846

580,643
539,727

605,237

1,034,573

1,185,880
Incentive management fees

187,293



187,293
Administrative services expense350,000

300,000
350,000

366,666

700,000

666,666
Total expenses, before reimbursement
2,275,974

2,964,052
2,153,396

2,428,137

4,429,370

5,392,189

Less: Professional fees reimbursed by HCAP Advisors, LLC (Note 7)

(438,556)

(11,279)


(449,835)

Total expenses, after reimbursement2,275,974

2,525,496
2,153,396

2,416,858

4,429,370

4,942,354

Net Investment Income762,270

1,215,288
Net Investment Income, before taxes840,910

1,638,140

1,603,180

2,853,428












Current income tax expense

32,833



32,833












Net Investment Income, after taxes840,910

1,605,307

1,603,180

2,820,595

Net realized gains (losses):















Non-affiliated / Non-control investments46,300


6,151



52,451


Affiliated investments

(885,642)20,750



20,750

(885,642)
Control investments(10,890)



156,347

(10,890)
156,347
Net realized gains (losses)35,410

(885,642)26,901

156,347

62,311

(729,295)
Net change in unrealized appreciation (depreciation) on investments:















Non-affiliated / Non-control investments(738,955)
54,343
49,377

68,338

(689,578)
122,681
Affiliated investments(61,230)
1,781,469
67,816

(297,157)
6,586

1,484,312
Control investments63,500

(95,463)(898,894)
(193,601)
(835,394)
(289,064)
Net change in unrealized appreciation (depreciation) on investments(736,685)
1,740,349
(781,701)
(422,420)
(1,518,386)
1,317,929
Total net unrealized and realized gains (losses) on investments(701,275)
854,707
(754,800)
(266,073)
(1,456,075)
588,634






Net increase in net assets resulting from operations$60,995

$2,069,995




Net investment income per share$0.12

$0.19
Net increase in net assets resulting from operations per share$0.01

$0.32
Weighted average shares outstanding (basic and diluted)6,302,724

6,437,478

Provision for taxes on unrealized gains on investments$

$(523,478)


(523,478)
Net increase in net assets resulting from operations$86,110

$815,756

$147,105

$2,885,751










Net investment income per share$0.14

$0.25

$0.26

$0.44
Net increase in net assets resulting from operations per share$0.01

$0.13

$0.02

$0.45
Weighted average shares outstanding (basic and diluted)6,161,052

6,390,521

6,231,496

6,413,869
  
 See accompanying notes to unaudited financial statements.

 Harvest Capital Credit Corporation 
Consolidated Statements of Changes in Net Assets (Unaudited)

Three Months Ended 
 March 31,

2019
2018
Increase in net assets from operations:


Net investment income$762,270

$1,215,288
Net realized gains (losses) on investments35,410

(885,642)
Net change in unrealized appreciation (depreciation) on investments(736,685)
1,740,349
Net increase in net assets resulting from operations60,995

2,069,995




Distributions to shareholders (1):


Distributions(1,604,912)
(1,947,088)
Decrease in net assets resulting from shareholder distributions(1,604,912)
(1,947,088)




Capital share transactions:


Reinvestment of dividends (2)77,398

89,508
Share repurchases(2,003,908)
(697,907)
Net decrease in net assets from capital share transactions(1,926,510)
(608,399)




Total decrease in net assets(3,470,427)
(485,492)
Net assets at beginning of period78,395,964

81,781,429




Net assets at end of period$74,925,538

$81,295,937




Capital share activity (common shares):


Shares issued from reinvestment of dividends7,722

8,484
Shares repurchased(190,761)
(64,897)
Net decrease in capital share activity(183,039)
(56,413)


Common Stock



Three Months Ended June 30, 2019
Shares
Par
Capital in Excess of Common Stock
Treasury Shares
Accumulated Over Distributed Earnings
Total Net Assets
Balance as of March 31, 2019
6,189,542
$6,562

$92,347,663

$(3,959,962)
$(13,468,725)
$74,925,538
Net increase in net assets resulting from operations:











Net investment income








840,910

840,910
Net realized gains








26,901

26,901
Net change in unrealized depreciation on investments








(781,701)
(781,701)
Distributions to shareholders (2):











Distributions








(1,478,407)
(1,478,407)
Capital share transactions











Reinvestment of dividends
7,929

8

78,480





78,488
Share repurchases
(70,747)




(742,969)


(742,969)
Total increase (decrease) for the three months ended June 30, 2019
(62,818)
8

78,480

(742,969)
(1,392,297)
(2,056,778)
Balance as of June 30, 2019
6,126,724
$6,570

$92,426,143

$(4,702,931)
$(14,861,022)
$72,868,760



Common Stock



Three Months Ended June 30, 2018
Shares
Par
Capital in Excess of Common Stock
Treasury Shares
Accumulated Over Distributed Earnings (1)
Total Net Assets
Balance as of March 31, 2018
6,401,175
$6,528

$93,132,713

$(1,421,951)
$(10,421,353)
$81,295,937
Net increase in net assets resulting from operations:











Net investment income








1,605,307

1,605,307
Net realized gains








156,347

156,347
Net change in unrealized depreciation on investments








(422,420)
(422,420)
Provision for taxes on unrealized gains on investments








(523,478)
(523,478)
Distributions to shareholders (2):











Distributions








(1,820,978)
(1,820,978)
Capital share transactions











Reinvestment of dividends
8,695

9

85,276





85,285
Share repurchases
(14,678)




(151,506)


(151,506)
Write-off of deferred offering costs




(146,446)




(146,446)
Total increase (decrease) for the three months ended June 30, 2018
(5,983)
9

(61,170)
(151,506)
(1,005,222)
(1,217,889)
Balance as of June 30, 2018
6,395,192
$6,537

$93,071,543

$(1,573,457)
$(11,426,575)
$80,078,048





Common Stock



Six Months Ended June 30, 2019
Shares
Par
Capital in Excess of Common Stock
Treasury Shares
Accumulated Over Distributed Earnings
Total Net Assets
Balance as of December 31, 2018
6,372,581
$6,554

$92,270,273

$(1,956,055)
$(11,924,808)
$78,395,964
Net increase in net assets resulting from operations:











Net investment income








1,603,180

1,603,180
Net realized gains








62,311

62,311
Net change in unrealized depreciation on investments








(1,518,386)
(1,518,386)
Distributions to shareholders (2):











Distributions








(3,083,319)
(3,083,319)
Capital share transactions











Reinvestment of dividends
15,651

16

155,870





155,886
Share repurchases
(261,508)




(2,746,876)


(2,746,876)
Total increase (decrease) for the six months ended June 30, 2019
(245,857)
16

155,870

(2,746,876)
(2,936,214)
(5,527,204)
Balance as of June 30, 2019
6,126,724
$6,570

$92,426,143

$(4,702,931)
$(14,861,022)
$72,868,760



Common Stock



Six Months Ended June 30, 2018
Shares
Par
Capital in Excess of Common Stock
Treasury Shares
Accumulated Over Distributed Earnings (1)
Total Net Assets
Balance as of December 31, 2017
6,457,588
$6,520

$93,043,208

$(724,039)
$(10,544,260)
$81,781,429
Net increase in net assets resulting from operations:











Net investment income








2,820,595

2,820,595
Net realized losses








(729,295)
(729,295)
Net change in unrealized appreciation on investments








1,317,929

1,317,929
Provision for taxes on unrealized gains on investments









(523,478)
(523,478)
Distributions to shareholders (2):











Distributions








(3,768,066)
(3,768,066)
Capital share transactions











Reinvestment of dividends
17,179

17

174,781





174,798
Share repurchases
(79,575)




(849,418)


(849,418)
Write-off of deferred offering costs




(146,446)




(146,446)
Total increase (decrease) for the six months ended June 30, 2018
(62,396)
17

28,335

(849,418)
(882,315)
(1,703,381)
Balance as of June 30, 2018
6,395,192
$6,537

$93,071,543

$(1,573,457)
$(11,426,575)
$80,078,048









(1)The following tables provide a reconciliation of the components of accumulated over distributed earnings to conform to the current period presentation:


Undistributed Net Investment income
Accumulated Realized Losses on Investments
Net Unrealized Depreciation on Investments
Accumulated Over Distributed Earnings
Balance as of March 31, 2018$1,187,914

$(9,809,603)
$(1,799,664)
$(10,421,353)
Net increase in net assets resulting from operations:






Net investment income1,605,307





1,605,307
Net realized gains on investments

156,347



156,347
Net change in unrealized appreciation on investments



(422,420)
(422,420)
Provision for taxes on unrealized gains on investments



(523,478)
(523,478)
Distributions to shareholders:






Distributions(1,820,978)




(1,820,978)
Balance as of June 30, 2018$972,243

$(9,653,256)
$(2,745,562)
$(11,426,575)


Undistributed Net Investment income
Accumulated Realized Losses on Investments
Net Unrealized Depreciation on Investments
Accumulated Over Distributed Earnings
Balance as of December 31, 2017$1,919,713

$(8,923,961)
$(3,540,012)
$(10,544,260)
Net increase in net assets resulting from operations:






Net investment income2,820,595





2,820,595
Net realized losses on investments

(729,295)


(729,295)
Net change in unrealized appreciation on investments



1,317,929

1,317,929
Provision for taxes on unrealized gains on investments



(523,479)
(523,479)
Distributions to shareholders:






Distributions(3,768,065)




(3,768,065)
Balance as of June 30, 2018$972,243

$(9,653,256)
$(2,745,562)
$(11,426,575)

(12)Distributions exceeded net investment income for the three months ended March 31,June 30, 2019 and 2018 in the amount of $842,642$637,497 and $731,800,$215,671, respectively. SeeDistributions exceeded net investment income for the six months ended June 30, 2019 and 2018 in the amount of $1,480,139 and $947,471, respectively.See Dividends and Distributions Policy in Note 2.
(2)Net of par value of shares issued of $8 and $7 and funds received for fractional shares of $9 and $10 for March 31, 2019 and 2018, respectively.
 See accompanying notes to unaudited financial statements.


Harvest Capital Credit Corporation
Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31,Six Months Ended June 30,

2019
20182019
2018
Cash flows from operating activities:





Net increase in net assets resulting from operations$60,995

$2,069,995
$147,105

$2,885,751
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:


Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:


Paid in kind income(206,634)
(363,919)(412,878)
(688,130)
Paid in kind income collected42,636


87,065

21,269
Net realized losses (gains) on investments(35,410)
885,642
(62,311)
729,295
Net change in unrealized appreciation (depreciation) of investments736,685

(1,740,349)1,518,386

(1,317,929)
Provision for taxes on unrealized gains on investments

523,478
Amortization of fees, discounts and premiums, net(249,594)
(206,874)(484,217)
(665,799)
Amortization of deferred financing costs55,011

55,121
110,640

112,711
Amortization of deferred offering costs48,360

44,986
97,570

90,842
Proceeds from sales of investments

4,878
6,078,795

331,710
Purchase of investments (net of loan origination and other fees)(12,227,539)
(8,350,000)(36,756,865)
(13,012,633)
Proceeds from principal payments10,236,031

7,082,781
14,190,434

9,616,874
Changes in operating assets and liabilities





Increase in interest receivable(535,559)
(77,002)
(Increase) decrease in interest receivable(57,743)
(153,144)
Increase in accounts receivable - other and other assets(131,754)
(443,948)1,529

(261,859)
Decrease in accrued interest payable(55)
(11,884)
Increase in accounts payable and other liabilities135,695

1,646,714
Increase (decrease) in accrued interest payable26,503

(3,192)
Increase (decrease)in accounts payable and other liabilities(267,796)
264,910

Net cash provided by (used in) operating activities(2,068,476)
596,141
Net cash used in operating activities(15,783,783)
(1,525,846)

Cash flows from financing activities:





Borrowings on revolving credit facility5,000,000

8,500,000
40,000,000

44,000,000
Repayment of borrowings on revolving credit facility(17,000,000)
(15,921,853)(30,000,000)
(37,721,853)
Financing costs(9,282)
(24,816)
Repurchased shares (held in Treasury Stock)(2,003,908)
(697,907)(2,746,876)
(849,418)
Distributions to equity holders (net of stock issued under dividend reinvestment plan of $77,398 and $89,508, respectively)(1,527,514)
(1,857,575)
Distributions to equity holders (net of stock issued under dividend reinvestment plan of $155,886 and $174,798, respectively)(2,927,433)
(3,593,268)

Net cash used in financing activities(15,531,422)
(9,977,335)
Net cash provided by financing activities4,316,409

1,810,645

Net decrease in cash during the period(17,599,898)
(9,381,194)
Net increase (decrease) in cash during the period(11,467,374)
284,799

Cash at beginning of period28,775,548

11,464,437
28,775,548

11,464,437

Cash at end of period (1)$11,175,650

$2,083,243
$17,308,174

$11,749,236

Non-cash operating activities:


Fair value of warrants received from Kleen-Tech Acquisition, LLC$186,970

$
Conversion of Northeast Metal Works, LLC Revolving Credit Facility to Junior Secured Term Loan$446,494

$
Conversion of Coastal Screen & Rail, LLC Revolving Credit Facility to Senior Secured Term Loan
$950,000

$




Non-cash financing activities:





Value of shares issued in connection with dividend reinvestment plan$77,398

$89,508
$155,886

$174,798




Supplemental disclosures of cash flow information:


Cash paid during the period for interest$552,525

$672,613
Cash paid during the period for taxes$12,772

$

Write-off of deferred offering costs$

$146,446




Supplemental disclosures of cash flow information:


Cash paid during the period for interest$1,150,631

$1,336,972
Cash paid during the period for taxes$36,431

$39,840
 
(1) Consists of cash and restricted cash of $9,913,316$15,575,300 and $1,262,334,$1,732,874, respectively, at March 31,June 30, 2019, and $187,301$8,375,062 and $1,895,942,$3,374,174, respectively at March 31,June 30, 2018.



See accompanying notes to unaudited financial statements.

Harvest Capital Credit Corporation
Consolidated Schedule of Investments (unaudited)(Unaudited)
(asAs of March 31, 2019)June 30, 2019
Portfolio CompanyDate**IndustryInvestment (1) (2) (9) (13)
 Principal Cost Fair Value
Non-Control / Non-Affiliate Investments





Bradford Soap
International, Inc. (5.1%) *
08/2015Consumer Goods - Non-DurableJunior Secured Term Loan, due 10/2019 (18.50%; 1M LIBOR + 13.00% + 3.00% default rate)(5) (11)$4,100,002
$4,082,484
$3,813,000





4,100,002
4,082,484
3,813,000








Brite Media LLC (0.2%) *04/2014Media: Advertising, Printing & PublishingClass A Interest (139 Units)

125,000
131,600







125,000
131,600








CP Holding Co., Inc.
(Choice Pet) (3.8%) *
05/2013RetailerJunior Secured Term Loan, due 06/2020 (12.00%; 7.00% current and 5.00% deferred)(12)2,899,852
3,098,300
2,842,000





2,899,852
3,098,300
2,842,000








Dell International L.L.C. (4.0%) *01/2019High Tech IndustriesSenior Secured Term Loan B, due 09/2023 (4.50%; LIBOR + 2.00% with a 0.75% LIBOR floor)
2,992,424
2,967,526
2,967,526





2,992,424
2,967,526
2,967,526










Deluxe Entertainment Services Group Inc.(5.9%) *01/2019Media: Diversified & ProductionSenior Secured Term Loan, due 02/2020 (8.24%; LIBOR + 5.50%)
4,749,955
4,249,227
4,249,227



Senior Secured Term Loan, due 02/2020 (8.74%; LIBOR + 6.00%)
212,344
187,661
187,661





4,962,299
4,436,888
4,436,888










Flavors Holdings, Inc. (5.1%) *10/2014Beverage, Food & TobaccoJunior Secured Term Loan, due 10/2021 (12.60%; 3M LIBOR +10.00% with a 1.00% LIBOR floor)
4,000,000
3,928,171
3,836,500





4,000,000
3,928,171
3,836,500








Fox Rent A Car, Inc. (1.3%) *10/2014AutomotiveCommon Equity Warrants (102 shares)


948,000








948,000








GK Holdings, Inc. (3.7%)*01/2015High Tech IndustriesJunior Secured Term Loan, due 01/2022 (12.85%; 3M LIBOR +10.25% with a 1.00% LIBOR floor)(5)3,000,000
2,958,883
2,776,000





3,000,000
2,958,883
2,776,000








General Nutrition Centers, Inc. (5.7%)*02/2019Beverage, Food, & TobaccoSenior Secured Term Loan, due 03/2021 (11.40%, LIBOR + 8.75%; ABR + 7.75%)
4,421,113
4,272,772
4,272,772





4,421,113
4,272,772
4,272,772








KC Engineering & Construction Services, LLC (2.4%) *10/2017Environmental IndustriesClass A Membership Interest (105,784 Units)(6)
664,392
1,816,877







664,392
1,816,877








Peerless Media, LLC (7.1%) *02/2019Media: Advertising, Printing & PublishingSenior Secured Term Loan, due 02/2024 (11.56%; 1M LIBOR + 8.50% with 2.40% LIBOR floor + 0.50% PIK)
4,847,832
4,802,662
4,802,662



Revolving Line of Credit, due 08/2020 (11.56%; 1M LIBOR + 8.50% with a 2.40% LIBOR floor + 0.50% PIK)
500,000
500,000
500,000





5,347,832
5,302,662
5,302,662









ProAir Holdings Corporation (8.5%) *09/2017Capital EquipmentJunior Secured Term Loan, due 12/2022 (12.75%)
6,500,000
6,423,912
6,386,000





6,500,000
6,423,912
6,386,000








Portfolio CompanyDate**IndustryInvestment (1) (2) (13) (14) (15)
 Principal Cost Fair Value
Non-Control / Non-Affiliate Investments





Bradford Soap
International, Inc. (5.3%)*
08/2015Consumer Goods - Non-DurableJunior Secured Term Loan, due 10/2019 (18.50%; 1M LIBOR + 13.00% + 3.00% default rate)(5) (10)$3,950,002
$3,939,992
$3,871,002





3,950,002
3,939,992
3,871,002








Brite Media LLC (0.3%)*04/2014Media: Advertising, Printing & PublishingClass A Interest (139 Units)

125,000
188,200







125,000
188,200








CP Holding Co., Inc.
(Choice Pet) (3.9%)*
05/2013RetailerJunior Secured Term Loan, due 06/2020 (12.00%; 7.00% current and 5.00% deferred)(11)2,899,852
3,098,300
2,842,000





2,899,852
3,098,300
2,842,000








Deluxe Entertainment Services Group Inc.(6.2%)*01/2019Media: Diversified & ProductionSenior Secured Term Loan, due 02/2020 (8.08%; LIBOR + 5.50%)
4,716,026
4,343,907
4,343,907



Senior Secured Term Loan, due 02/2020 (8.58%; LIBOR + 6.00%)
210,938
192,549
192,549





4,926,964
4,536,456
4,536,456










Flavors Holdings, Inc. (5.3%)*10/2014Beverage, Food & TobaccoJunior Secured Term Loan, due 10/2021 (12.33%; 3M LIBOR +10.00% with a 1.00% LIBOR floor)
4,000,000
3,934,208
3,830,000





4,000,000
3,934,208
3,830,000








Fox Rent A Car, Inc. (1.3%)*10/2014AutomotiveCommon Equity Warrants (102 shares)


918,000








918,000








GK Holdings, Inc. (3.5%)*01/2015High Tech IndustriesJunior Secured Term Loan, due 01/2022 (12.58%; 3M LIBOR +10.25% with a 1.00% LIBOR floor)(5)3,000,000
2,962,162
2,536,500





3,000,000
2,962,162
2,536,500








General Nutrition Centers, Inc. (5.7%)*02/2019Beverage, Food, & TobaccoSenior Secured Term Loan, due 03/2021 (11.20%; LIBOR + 8.75%; ABR + 7.75%)
4,326,812
4,177,807
4,177,807





4,326,812
4,177,807
4,177,807








KC Engineering & Construction Services, LLC (2.6%)*10/2017Environmental IndustriesClass A Membership Interest (105,784 Units)(6)
664,392
1,859,822







664,392
1,859,822








Peerless Media, LLC (6.6%)*02/2019Media: Advertising, Printing & PublishingSenior Secured Term Loan, due 02/2024 (11.44%; 1M LIBOR + 8.50% with a 2.40% LIBOR floor + 0.50% PIK)
4,835,712
4,799,409
4,799,409



Revolving Line of Credit, due 08/2020 (1M LIBOR + 8.50% with a 2.40% LIBOR floor + 0.50% PIK)(4)







4,835,712
4,799,409
4,799,409









ProAir Holdings Corporation (8.8%)*09/2017Capital EquipmentJunior Secured Term Loan, due 12/2022 (12.75%)
6,500,000
6,427,907
6,387,000





6,500,000
6,427,907
6,387,000








Regional Engine
Leasing, LLC (3.6%)*
03/2015Aerospace & DefenseSenior Secured Term Loan, due 03/2020 (11.00%; the greater of 11.00% or LIBOR +4.50%)
2,655,215
2,635,130
2,655,000



Residual Value(3)
102,421






2,655,215
2,737,551
2,655,000











Portfolio CompanyDate**IndustryInvestment (1) (2) (9) (13)
 Principal Cost Fair Value
Regional Engine
Leasing, LLC (3.7%) *
03/2015Aerospace & DefenseSenior Secured Term Loan, due 03/2020 (11.00%; the greater of 11.00% or LIBOR +4.50%)
2,800,067
2,772,478
2,800,000



Residual Value(3)
102,421






2,800,067
2,874,899
2,800,000










Safety Services Acquisition Corp. (6.6%) *03/2017Services: BusinessSenior Secured Term Loan, due 12/2020 (11.38%; 3M LIBOR + 8.75% with a 1.00% LIBOR floor)(5)4,750,000
4,741,365
4,750,000

04/2012
Series A Preferred Stock (100,000 Shares)

100,000
173,000





4,750,000
4,841,365
4,923,000










Shannon Specialty Floors, LLC (4.6%) *04/2017Chemicals, Plastics & RubberJunior Secured Term Loan, due 04/2021 (13.30%; 3M LIBOR + 10.50% with a 1.00% LIBOR floor)(5)3,558,654
3,519,772
3,484,000





3,558,654
3,519,772
3,484,000








Surge Busy Bee Holdings, LLC (9.3%) *11/2017Services: BusinessSenior Secured Term Loan, due 11/2022 (12.51%; 1M LIBOR + 10.00%)
4,562,500
4,397,978
4,436,000



Senior Secured Term Loan, due 11/2022 (14.00%; 12.00% cash/2.00% PIK)
2,424,563
2,343,708
2,312,500



Revolving Line of Credit, due 11/2021 (1M LIBOR+8.00%)(4)





Class B Equity Warrants (210 Units)

152,950
243,000





6,987,063
6,894,636
6,991,500








Water-Land Manufacturing & Supply, LLC (3.3%) *08/2018Consumer Goods - DurableJunior Secured Term Loan, due 05/2023 (13.13%; 3M LIBOR + 10.50% with 2.25% LIBOR floor)
2,500,000
2,455,132
2,462,500





2,500,000
2,455,132
2,462,500








World Business Lenders, LLC (0.0%) *12/2013Banking, Finance, Insurance & Real EstateClass B Equity Interest (49,209 Units)


200,000








200,000

Subtotal Non-Control / Non-Affiliate Investments

$58,819,306
$59,046,794
$60,190,825








Affiliate Investments




Coastal Screen and Rail, LLC (10.0%)*01/2018Construction & BuildingSenior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)
$6,341,065
$6,224,185
$6,253,593

01/2018
Revolving Line of Credit, due 07/2022 (10.63%; 3M LIBOR + 8.00%)
950,000
950,000
950,000

01/2018
Preferred Equity Interest (6.21% fully diluted Common Equity)(6)

150,000
306,000





7,291,065
7,324,185
7,509,593









Flight Lease XII, LLC (0.8%) *03/2017Aerospace & DefenseCommon Equity Interest (1,000 Units)(6)
389,757
636,000







389,757
636,000








National Program Management & Project Controls, LLC (11.0%)*06/2018Construction & BuildingSenior Secured Term Loan, due 06/2023 (12.51%; 1M LIBOR + 10.00%)
6,893,772
6,800,926
6,891,818



Class A Membership Interest (163,296 Units)(6)

746,904
1,332,016





6,893,772
7,547,830
8,223,834










Northeast Metal
Works, LLC (15.8%) *
09/2014Metals & MiningSenior Secured Term Loan, due 12/2019 (17.00%; 10.50% Cash + 6.50% PIK)
10,607,206
10,592,705
10,314,500



Revolving Line of Credit, due 12/2019 (15.00%)(8)1,500,000
1,500,000
1,496,500

05/2017
Preferred Equity Interest (2,493 Class A Units; 12.0% cumulative preferred return)(6)
1,595,520






12,107,206
13,688,225
11,811,000








V-Tek, Inc. (6.6%) *03/2017Capital EquipmentSenior Secured Term Loan, due 03/2022 (13.75%; 3M LIBOR + 11.00%)
3,368,750
3,304,377
3,276,000
Portfolio CompanyDate**IndustryInvestment (1) (2) (13) (14) (15)
 Principal Cost Fair Value
Safety Services Acquisition Corp. (6.6%)*03/2017Services: BusinessSenior Secured Term Loan, due 12/2020 (10.38%; 3M LIBOR + 8.00% with a 1.00% LIBOR floor)(5)4,656,250
4,648,827
4,656,250

04/2012
Series A Preferred Stock (100,000 Shares)

100,000
173,000





4,656,250
4,748,827
4,829,250










Shannon Specialty Floors, LLC (3.5%)*04/2017Chemicals, Plastics & RubberJunior Secured Term Loan, due 04/2021 (13.10%; 3M LIBOR + 10.50% with a 1.00% LIBOR floor)(5)2,617,477
2,584,209
2,538,000





2,617,477
2,584,209
2,538,000








Surge Busy Bee Holdings, LLC (9.6%)*11/2017Services: BusinessSenior Secured Term Loan, due 11/2022 (12.41%; 1M LIBOR + 10.00%)
4,468,750
4,315,116
4,339,499



Senior Secured Term Loan, due 11/2022 (14.00%; 12.00% cash/2.00% PIK)
2,424,563
2,360,072
2,329,000



Revolving Line of Credit, due 11/2021 (1M LIBOR+8.00%)(4)





Class B Equity Warrants (210 Units)

152,950
316,000





6,893,313
6,828,138
6,984,499








Water-Land Manufacturing & Supply, LLC (3.4%)*08/2018Consumer Goods - DurableJunior Secured Term Loan, due 05/2023 (12.88%; 3M LIBOR + 10.50% with a 2.25% LIBOR floor)
2,500,000
2,457,178
2,462,000





2,500,000
2,457,178
2,462,000








World Business Lenders, LLC (0.0%)*12/2013Banking, Finance, Insurance & Real EstateClass B Equity Interest (49,209 Units)(8)

200,000








200,000

Subtotal Non-Control / Non-Affiliate Investments

$53,761,597
$54,221,536
$55,414,945








Affiliate Investments




Coastal Screen and Rail, LLC (10.4%)*01/2018Construction & BuildingSenior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)
$7,240,625
$7,115,026
$7,123,536



Revolving Line of Credit, due 07/2022 (10.32%; 3M LIBOR + 8.00%)(4)100,000
100,000
100,000



Preferred Equity Interest (6.21% fully diluted Common Equity)(6)

150,000
388,000





7,340,625
7,365,026
7,611,536









Flight Lease XII, LLC (0.9%)*03/2017Aerospace & DefenseCommon Equity Interest (1,000 Units)(6)
389,757
636,000







389,757
636,000








Kleen-Tech Acquisition, LLC (10.1%)*05/2019Services: BusinessSenior Secured Term Loan, due 05/2024 (15.00%; 13.00% Cash/2.00% PIK)
7,232,917
6,901,318
6,901,318



Revolving Line of Credit, due 05/2022 (15.00%; 13.00% Cash/2.00% PIK)(4)





Common Equity Units (13.51% fully diluted)(6)

250,000
250,000



Common Equity Warrants (8.50% Common Equity)(6)

186,970
186,970





7,232,917
7,338,288
7,338,288










National Program Management & Project Controls, LLC (15.1%)*06/2018Construction & BuildingSenior Secured Term Loan, due 06/2023 (12.41%; 1M LIBOR + 10.00%)
6,860,283
6,771,783
6,858,401



Class A Membership Interest (574,392 Units)(6)

2,791,241
4,147,000





6,860,283
9,563,024
11,005,401










Northeast Metal
Works, LLC (13.8%)*
09/2014Metals & MiningJunior Secured Term Loan, due 06/2020 (15.00%; 11.00% Cash/4.00% PIK)(12)11,201,886
11,190,987
10,057,000

05/2017
Preferred Equity Interest (2,368 Class A Units; 12.0% cumulative preferred return)(6) (12)
1,515,520






11,201,886
12,706,507
10,057,000

Portfolio CompanyDate**IndustryInvestment (1) (2) (9) (13)
 Principal Cost Fair ValueDate**IndustryInvestment (1) (2) (13) (14) (15)
 Principal Cost Fair Value






Slappey Communications, LLC (8.1%)05/2019TelecommunicationsSenior Secured Term Loan, due 05/2024 (13.00%; 3M LIBOR + 10.00% with a 2.50% LIBOR floor)
5,815,003
5,695,548
5,695,548



Revolving Line of Credit, due 05/2023 (13.00%; 3M LIBOR + 10.00% with a 2.50% LIBOR floor)(4)





Common Equity Units (7.74% fully diluted)(6)

200,000
200,000





5,815,003
5,895,548
5,895,548






V-Tek, Inc. (6.7%) *03/2017Capital EquipmentSenior Secured Term Loan, due 03/2022 (13.63%; 3M LIBOR + 11.00%)
3,325,000
3,266,656
3,239,000



Senior Secured Revolver, due 03/2021 (9.25%; 3M LIBOR + 6.50%)(4)1,536,097
1,536,097
1,536,097


Revolving Line of Credit, due 03/2021 (9.13%; 3M LIBOR + 6.50%)(4)1,536,097
1,536,097
1,535,500



Common Stock (90 Shares)(6)
150,000
116,500


Common Stock (90 Shares)(6)
150,000
129,000





4,904,847
4,990,474
4,928,597




4,861,097
4,952,753
4,903,500
Subtotal Affiliate InvestmentsSubtotal Affiliate Investments

$31,196,890
$33,940,471
$33,109,024
Subtotal Affiliate Investments

$43,311,811
$48,210,903
$47,447,273

Control InvestmentsControl Investments


Control Investments


Flight Lease VII, LLC (0.9%) *03/2016Aerospace & DefenseCommon Equity Interest (46.14% fully diluted interest)(10)
$673,421
$673,421
03/2016Aerospace & DefenseCommon Equity Interest (46.14% fully diluted interest)(9)
$673,421
$685,527







673,421
673,421






673,421
685,527

Infinite Care, LLC (10.3%) *02/2016Healthcare & PharmaceuticalsSenior Secured Term Loan, due 02/2019 (14.50%; 1M LIBOR+6.00% with a 0.42% LIBOR floor + 6.00% PIK)(7)4,710,955
3,377,702
4,015,000
Infinite Care, LLC (9.7%) *02/2016Healthcare & PharmaceuticalsSenior Secured Term Loan, due 02/2019 (14.40%; 1M LIBOR+6.00% with a 0.42% LIBOR floor + 6.00% PIK)(7)4,782,404
3,377,702
3,402,000



Revolving Line of Credit, due 02/2019 (14.50%, 1M LIBOR+12.00% with a 0.42% LIBOR floor)
3,719,000
3,719,000
3,712,500


Revolving Line of Credit, due 02/2019 (14.40%; 1M LIBOR+12.00% with a 0.42% LIBOR floor)
3,719,000
3,719,000
3,714,500



Membership Interest (100% membership interests)(6)
5,649,000



Membership Interest (100% membership interests)(6)
5,949,000






8,429,955
12,745,702
7,727,500




8,501,404
13,045,702
7,116,500
Subtotal Control InvestmentsSubtotal Control Investments

$8,429,955
$13,419,123
$8,400,921
Subtotal Control Investments

$8,501,404
$13,719,123
$7,802,027

Total Investments at 3/31/19 (135.7%) *


$98,446,151
$106,406,388
$101,700,770
Total Investments at 6/30/19 (151.9%) *Total Investments at 6/30/19 (151.9%) *


$105,574,812
$116,151,562
$110,664,245

* Fair value as a percentage of net assets
** Date refers to the origination date of the investment
(1)Debt investments are income producing investments unless an investment is on non accrual. Common equity, residual values and warrants are non-income producing.
(2)For each loan, the Company has provided the interest rate in effect on the date presented, as well as the contractual components of that interest rate. In the case of the Company's variable or floating rate loans, the interest rate in effect takes into account the applicable LIBOR rate in effect on March 31,June 30, 2019 or, if higher, the applicable LIBOR floor.
(3)"Residual value" represents the value of the Company's share in the collateral securing the loan.
(4)Credit facility has an unfunded commitment in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 8 in the Notes to Consolidated Financial Statements for further discussion on unfunded commitments.
(5)The coupon on the loan is subject to a pricing grid based on certain leverage ratios of the portfolio company.
(6)The investment is owned by HCAP Equity Holdings, LLC, the Company's taxable blocker subsidiary.
(7)
Infinite Care LLC ("ICC") is in default under the terms of its credit agreement and was on non-accrual status as of March 31,June 30, 2019. ICC was current on its interest payments to the Company through December 31, 2017; however, it failed to repay the Company’s protective loan advances at various dates in the fourth quarter of 2017 as well as throughout 2018 and 2019.  ICC was previously in breach of its minimum EBITDA, minimum fixed charge and total leverage covenants, but these breaches were waived by the Company through December 31, 2017 in connection with its entry into an agreement, dated as of January 13, 2017, with ICC relating thereto.  In October 2017, the Company exercised its rights under a stock pledge of ICC. The Company formed a wholly owned subsidiary, HCAP ICC, LLC, to exercise its proxy right under the pledge agreement and take control of ICC’s board of directors. In January 2018, the Company took control of ICC's equity after accelerating the debt and auctioning ICC’s equity in a public sale.  The Company bid a portion of its outstanding debt to gain control of ICC in connection with the public sale process. Upon the completion of the sale process in January 2018, the Company converted $2.0 million of its debt investment in ICC into shares of ICC’s membership interests. ICC failed to pay its scheduled amortization payment to the Company as of March 31,June 30, 2019.
Refer to Note 12 in the accompanying notes to the unaudited consolidated financial statements for summarized financial information for ICC for both the three and six months ended March 31,June 30, 2019 and March 31,June 30, 2018.


(8)The interest rate on the revolverInvestment is 11% prior to the interim advance term; 13.5% from the first amendment effective date to February 28, 2018; 14.25% from March 1, 2018 through May 31, 2018 and 15% from June 1, 2018 until expirationnot a qualifying asset as defined under Section 55(a) of the interim advance. The interest rate on1940 Act. Qualifying assets must represent at least 70% of total assets at the term loan is 11% prior to and following the interim advance term; 10.5% cash pay plus 6% PIK from the first amendment date trough February 28, 2018; 10.5% cash pay plus 6.25% PIK from March 1, 2018 to May 31, 2018; 10.5% cash pay plus 6.5% PIK from June 1, 2018 until expirationtime of the interim advance.
(9)acquisition of any additional non-qualifying assets The Company's non-qualifying assets, on a fair value basis, total approximately 5.0%1.3% of the Company's total assets.
(10)(9)This is an equity investment that receives a cash flow stream based on lease payments received by Flight Lease VII, LLC. Flight Lease VII, LLC owns an aircraft that was leased to one lessee. The lessee had been in arrears on its lease payments and in June of 2018, Flight Lease VII, LLC terminated the lease. As a result of the cessation of cash flows, future payments on this equity investment will resume only if Flight Lease VII, LLC is successful in obtaining a new lessee or sells the aircraft. For the threesix months ended March 31,June 30, 2019, the Company recognized an impairment charge of $10,890, which is presented in the net realized gains (losses) - control investments balance on the consolidatedConsolidated Statement of Operations.

(11)(10)This portfolio company is in covenant default as of March 31,June 30, 2019 and the Company enforced its rights to charge the portfolio company the default interest rate. The portfolio company made all contractual interest and principal payments during the threesix months ended March 31,June 30, 2019.
(12)(11)This portfolio company failed to make its contractual deferred interest payment on July 23, 2018 and partially paid its December 31, 2018 contractual current interest payment. As such, the Company has placed this loan is on non-accrual status as of MarchJune 30, 2019. In addition, management determined as of June 30, 2019, that the contractual interest payments, including the deferred interest, was no longer collectible and, as a result, reversed the interest payment that had previously been viewed as collectible under the circumstances and accrued.
(12)
On May 22, 2019, Northeast Metal Works, LLC entered into a new financing agreement with a senior lender. In conjunction with this, Northeast Metal Works, LLC and the Company entered into a subordination and inter-creditor agreement where the Company thereby agreed to subordinate its indebtedness to the senior lender throughout the earlier of the due date of the new financing agreement, which expires on May 31, 2019.2020, or the date in which Northeast Metal Works, LLC has fully satisfied the indebtedness to the new senior lender. In addition, the new senior lender obtained a first priority interest in certain assets of the entity. As a result, the Company has reclassified its term loan investment in Northeast Metal Works, LLC from senior secured to junior secured. In connection with the new financing agreement, Northeast Metal Works, LLC paid down the existing $1.5 million revolving line of credit by approximately $1.1 million. The remaining $0.4 million commitment under the revolving line of credit was transferred to the junior secured term loan as an increase in the outstanding principal amount. Finally, as part of the refinancing transaction, the Company sold 125 units of its preferred equity interest in Northeast Metal Works, LLC to a third party and recognized a realized gain of $20,750.

(13)The Company's Credit Facility is secured by all of the Company's assets. Refer to Note 3 in the accompanying notes to the unaudited consolidated financial statements for more information.
(14)All of the Company's portfolio investments are generally subject to restrictions on sale as "restricted securities", unless otherwise noted.
(15)Unless otherwise indicated, all portfolio company investments are Level 3 assets whose values were determined using significant unobservable inputs.

As of March 31,June 30, 2019, investments consisted of the following:

TypeAmortized Cost
Fair Value
% of Fair Value
% of Net AssetsAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
Senior Secured Debt$69,240,369

$69,724,357

68.5%
93.0%$65,955,947

$66,063,224

59.7%
90.7%
Junior Secured Debt26,466,654

25,600,000

25.2%
34.2%36,594,943

34,523,502

31.2%
47.4%
Equity10,699,365

6,376,413

6.3%
8.5%13,600,672

10,077,519

9.1%
13.8%
Total$106,406,388

$101,700,770

100.0%
135.7%$116,151,562

$110,664,245

100.0%
151.9%

The rate type of debt investments at fair value as of March 31,June 30, 2019 was as follows:

Rate TypeAmortized Cost Fair Value % of Fair Value % of Net AssetsAmortized Cost Fair Value % of Fair Value % of Net Assets
Fixed Rate$32,955,287
 $32,405,093
 34.0% 43.2%$39,728,740
 $38,294,854
 38.1% 52.6%
Floating Rate62,751,736
 62,919,264
 66.0% 84.0%62,822,150
 62,291,872
 61.9% 85.4%
Total$95,707,023
 $95,324,357
 100.0% 127.2%$102,550,890
 $100,586,726
 100.0% 138.0%













The industry composition of investments at fair value as of March 31,June 30, 2019 was as follows:

IndustryAmortized Cost
Fair Value
% of Fair Value
% of Net AssetsAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
Aerospace & Defense$3,938,076

$4,109,421

4.0%
5.5%$3,800,729

$3,976,527

3.6%
5.5%
Automotive

948,000

0.9%
1.3%

918,000

0.8%
1.3%
Banking, Finance, Insurance & Real Estate200,000



%
%200,000



%
%
Beverage, Food & Tobacco8,200,943

8,109,272

8.0%
10.8%8,112,015

8,007,807

7.2%
11.0%
Capital Equipment11,414,387

11,314,597

11.1%
15.1%11,380,660

11,290,500

10.2%
15.5%
Chemicals, Plastics and Rubber3,519,772

3,484,000

3.4%
4.6%2,584,209

2,538,000

2.3%
3.5%
Construction & Building14,872,015

15,733,427

15.5%
21.0%16,928,051

18,616,937

16.8%
25.5%
Consumer Goods - Non-Durable4,082,484

3,813,000

3.8%
5.1%3,939,992

3,871,002

3.5%
5.3%
Consumer Goods - Durable2,455,133

2,462,500

2.4%
3.3%2,457,178

2,462,000

2.2%
3.4%
Environmental Industries664,392

1,816,877

1.8%
2.4%664,392

1,859,822

1.7%
2.6%
Healthcare & Pharmaceuticals12,745,702

7,727,500

7.6%
10.3%13,045,702

7,116,500

6.4%
9.8%
High Tech Industries5,926,408

5,743,526

5.7%
7.6%2,962,162

2,536,500

2.3%
3.5%
Media: Advertising, Printing & Publishing5,427,662

5,434,262

5.3%
7.3%4,924,409

4,987,609

4.5%
6.8%
Media: Diversified & Production4,436,888

4,436,888

4.4%
5.9%4,536,456

4,536,456

4.1%
6.2%
Metals & Mining13,688,225

11,811,000

11.6%
15.8%12,706,507

10,057,000

9.1%
13.8%
Retailer3,098,300

2,842,000

2.8%
3.8%3,098,300

2,842,000

2.6%
3.9%
Services: Business11,736,001

11,914,500

11.7%
15.9%18,915,252

19,152,037

17.4%
26.2%
Telecommunications5,895,548

5,895,548

5.3%
8.1%
Total$106,406,388

$101,700,770

100.0%
135.7%$116,151,562

$110,664,245

100.0%
151.9%

The geographic concentrations at fair value as of March 31,June 30, 2019 was as follows:


United States RegionAmortized Cost
Fair Value
% of Fair Value
% of Net AssetsAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
West$34,687,260

$31,319,420

30.8%
41.8%$44,310,050

$40,835,595

36.9%
56.0%
Northeast44,987,022

42,353,435

41.6%
56.5%42,268,570

39,099,718

35.3%
53.7%
South20,308,194

21,641,915

21.3%
28.8%23,145,035

24,341,932

22.0%
33.4%
Midwest6,423,912

6,386,000

6.3%
8.6%6,427,907

6,387,000

5.8%
8.8%

$106,406,388

$101,700,770

100.0%
135.7%$116,151,562

$110,664,245

100.0%
151.9%

See accompanying notes to unaudited financial statements.


Harvest Capital Credit Corporation
Consolidated Schedule of Investments
(asAs of December 31, 2018)2018
Portfolio CompanyDate**IndustryInvestment (1) (2) (9) (13)
 Principal Cost Fair Value
Non-Control / Non-Affiliate Investments




Bradford Soap
International, Inc. (5.0%) *
08/2015Consumer Goods - Non-DurableJunior Secured Term Loan, due 10/2019 (18.38%; 1M LIBOR + 13.00% + 3.00% default rate)(5) (11)$4,250,001
$4,224,975
$3,952,501





4,250,001
4,224,975
3,952,501








Brite Media LLC (0.2%) *04/2014Media: Advertising, Printing & PublishingClass A Interest (139 Units)

125,000
131,679







125,000
131,679








CP Holding Co., Inc.
(Choice Pet) (3.6%) *
05/2013RetailerJunior Secured Term Loan, due 06/2020 (12.00%; 7.00% current and 5.00% deferred)(12)2,899,852
3,098,300
2,842,000





2,899,852
3,098,300
2,842,000








Douglas Machines Corp. (4.3%) *05/2014Capital EquipmentJunior Secured Term Loan, due 1/2021 (12.50%)
3,377,633
3,351,798
3,377,633





3,377,633
3,351,798
3,377,633








Flavors Holdings, Inc. (4.9%) *10/2014Beverage, Food & TobaccoJunior Secured Term Loan, due 10/2021 (12.80%; 3M LIBOR +10.00% with a 1.00% LIBOR floor)
4,000,000
3,922,308
3,842,000





4,000,000
3,922,308
3,842,000








Flight Lease XIII, LLC (0.4%) *03/2017Aerospace & DefenseCommon Equity Interest (600 Units)(6)
253,796
295,800







253,796
295,800








Fox Rent A Car, Inc. (1.7%) *10/2014AutomotiveCommon Equity Warrants (102 shares)


1,352,000








1,352,000








GK Holdings, Inc. (3.5%)*01/2015High Tech IndustriesJunior Secured Term Loan, due 01/2022 (13.05%; 3M LIBOR +10.25% with a 1.00% LIBOR floor)(5)3,000,000
2,955,675
2,771,500





3,000,000
2,955,675
2,771,500








KC Engineering & Construction Services, LLC (2.5%) *10/2017Environmental IndustriesClass A Membership Interest (103,414 Units)(6)
641,711
1,939,500







641,711
1,939,500








National Program Management & Project Controls, LLC (10.1%)*06/2018Construction & BuildingSenior Secured Term Loan, due 06/2023 (12.53%; 1M LIBOR + 10.00%)
6,937,681
6,840,054
6,911,000



Class A Membership Interest (136,034 Units)(6)

611,333
973,500





6,937,681
7,451,387
7,884,500










ProAir Holdings Corporation (8.1%) *09/2017Capital EquipmentJunior Secured Term Loan, due 12/2022 (12.75%)
6,500,000
6,420,046
6,382,000





6,500,000
6,420,046
6,382,000








Regional Engine
Leasing, LLC (3.8%) *
03/2015Aerospace & DefenseSenior Secured Term Loan, due 03/2020 (11.00%; the greater of 11.00% or LIBOR + 4.50%)
2,942,435
2,907,053
2,941,500



Residual Value(3)
102,421






2,942,435
3,009,474
2,941,500








Safety Services Acquisition Corp. (8.9%) *03/2017Services: BusinessSenior Secured Term Loan, due 03/2019 (13.88%; 3M LIBOR + 11.00% with a 1.00% floor)(5)6,843,750
6,833,634
6,842,500
Portfolio CompanyDate**IndustryInvestment (1) (2) (13) (14) (15)
 Principal Cost Fair Value
Non-Control / Non-Affiliate Investments




Bradford Soap
International, Inc. (5.0%)*
08/2015Consumer Goods - Non-DurableJunior Secured Term Loan, due 10/2019 (18.38%; 1M LIBOR + 13.00% + 3.00% default rate)(5) (11)$4,250,001
$4,224,975
$3,952,501





4,250,001
4,224,975
3,952,501








Brite Media LLC (0.2%)*04/2014Media: Advertising, Printing & PublishingClass A Interest (139 Units)

125,000
131,679







125,000
131,679








CP Holding Co., Inc.
(Choice Pet) (3.6%)*
05/2013RetailerJunior Secured Term Loan, due 06/2020 (12.00%; 7.00% current and 5.00% deferred)(12)2,899,852
3,098,300
2,842,000





2,899,852
3,098,300
2,842,000








Douglas Machines Corp. (4.3%)*05/2014Capital EquipmentJunior Secured Term Loan, due 1/2021 (12.50%)
3,377,633
3,351,798
3,377,633





3,377,633
3,351,798
3,377,633








Flavors Holdings, Inc. (4.9%)*10/2014Beverage, Food & TobaccoJunior Secured Term Loan, due 10/2021 (12.80%; 3M LIBOR +10.00% with a 1.00% LIBOR floor)
4,000,000
3,922,308
3,842,000





4,000,000
3,922,308
3,842,000








Flight Lease XIII, LLC (0.4%)*03/2017Aerospace & DefenseCommon Equity Interest (600 Units)(6)
253,796
295,800







253,796
295,800








Fox Rent A Car, Inc. (1.7%)*10/2014AutomotiveCommon Equity Warrants (102 shares)


1,352,000








1,352,000








GK Holdings, Inc. (3.5%)*01/2015High Tech IndustriesJunior Secured Term Loan, due 01/2022 (13.05%; 3M LIBOR +10.25% with a 1.00% LIBOR floor)(5)3,000,000
2,955,675
2,771,500





3,000,000
2,955,675
2,771,500








KC Engineering & Construction Services, LLC (2.5%)*10/2017Environmental IndustriesClass A Membership Interest (103,414 Units)(6)
641,711
1,939,500







641,711
1,939,500








National Program Management & Project Controls, LLC (10.1%)*06/2018Construction & BuildingSenior Secured Term Loan, due 06/2023 (12.53%; 1M LIBOR + 10.00%)
6,937,681
6,840,054
6,911,000



Class A Membership Interest (136,034 Units)(6)

611,333
973,500





6,937,681
7,451,387
7,884,500










ProAir Holdings Corporation (8.1%)*09/2017Capital EquipmentJunior Secured Term Loan, due 12/2022 (12.75%)
6,500,000
6,420,046
6,382,000





6,500,000
6,420,046
6,382,000








Regional Engine
Leasing, LLC (3.8%)*
03/2015Aerospace & DefenseSenior Secured Term Loan, due 03/2020 (11.00%; the greater of 11.00% or LIBOR + 4.50%)
2,942,435
2,907,053
2,941,500



Residual Value(3)
102,421






2,942,435
3,009,474
2,941,500








Safety Services Acquisition Corp. (8.9%)*03/2017Services: BusinessSenior Secured Term Loan, due 03/2019 (13.88%; 3M LIBOR + 11.00% with a 1.00% floor)(5)6,843,750
6,833,634
6,842,500

Portfolio CompanyDate**IndustryInvestment (1) (2) (9) (13)
 Principal Cost Fair Value

04/2012
Series A Preferred Stock (100,000 Shares)

100,000
173,000





6,843,750
6,933,634
7,015,500








Shannon Specialty Floors, LLC (4.6%) *04/2017Chemicals, Plastics & RubberJunior Secured Term Loan, due 04/2021 (12.93%; 3M LIBOR + 10.50% with a 1.00% LIBOR floor)(5)3,642,477
3,599,001
3,568,000





3,642,477
3,599,001
3,568,000








Surge Busy Bee Holdings, LLC (9.0%) *11/2017Services: BusinessSenior Secured Term Loan, due 11/2022 (12.53%; 1M LIBOR + 10.00%)
4,656,250
4,480,856
4,524,500



Senior Secured Term Loan, due 11/2022 (14.00%; 12.00% cash/2.00% PIK)
2,412,501
2,327,683
2,299,500



Revolving Line of Credit, due 11/2021 (1M LIBOR+8.00%)(4)





Class B Equity Warrants (210 Units)

152,950
243,500





7,068,751
6,961,489
7,067,500








Water-Land Manufacturing & Supply, LLC (3.1%) *08/2018Consumer Goods - DurableJunior Secured Term Loan, due 05/2023 (13.38%; 3M LIBOR + 10.50% with a 2.25% LIBOR floor)
2,500,000
2,453,154
2,453,154





2,500,000
2,453,154
2,453,154









Wetmore Tool and Engineering Company (5.2%) *03/2017Capital EquipmentJunior Secured Term Loan, due 09/2021 (12.50%; 12.00% Cash/0.50% PIK)(5)4,042,636
4,002,105
4,042,636





4,042,636
4,002,105
4,042,636








World Business Lenders, LLC (0.1%) *12/2013Banking, Finance, Insurance & Real EstateClass B Equity Interest (49,209 Units)


200,000
60,551







200,000
60,551
Subtotal Non-Control / Non-Affiliate Investments

$58,005,216
$59,603,853
$61,919,954








Affiliate Investments




Coastal Screen and Rail, LLC (9.6%)*01/2018Construction & BuildingSenior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)
$6,392,068
$6,267,795
$6,328,000

01/2018
Revolving Line of Credit, due 07/2022 (10.74%; 3M LIBOR + 8.00%)(4)700,000
700,000
700,000

01/2018
Preferred Equity Interest (6.21% fully diluted Common Equity)(6)

150,000
395,000





7,092,068
7,117,795
7,423,000









Flight Lease XII, LLC (0.8%) *03/2017Aerospace & DefenseCommon Equity Interest (1,000 Units)(6)
389,757
636,000







389,757
636,000








Northeast Metal
Works, LLC (15.0%) *
09/2014Metals & MiningSenior Secured Term Loan, due 12/2019 (17.00%; 10.50% Cash + 6.50% PIK)
10,436,690
10,417,612
10,223,500



Revolving Line of Credit, due 12/2019 (15.00%)(8)1,500,000
1,500,000
1,497,500

05/2017
Preferred Equity Interest (2,493 Class A Units; 12.0% cumulative preferred return)(6)
1,595,520






11,936,690
13,513,132
11,721,000








V-Tek, Inc. (6.2%) *03/2017Capital EquipmentSenior Secured Term Loan, due 03/2022 (13.75%; 3M LIBOR + 11.00%)
3,412,500
3,342,147
3,341,000



Senior Secured Revolver, due 03/2021 (9.25%; 3M LIBOR + 6.50%)(4)1,336,097
1,336,097
1,336,097



Common Stock (90 Shares)(6)
150,000
188,500





4,748,597
4,828,244
4,865,597
Subtotal Affiliate Investments

$23,777,355
$25,848,928
$24,645,597








Control Investments




Flight Lease VII, LLC (0.8%) *03/2016Aerospace & DefenseCommon Equity Interest (46.14% fully diluted interest)(10)
$684,311
$684,311







684,311
684,311
Portfolio CompanyDate**IndustryInvestment (1) (2) (13) (14) (15)
 Principal Cost Fair Value

04/2012
Series A Preferred Stock (100,000 Shares)

100,000
173,000





6,843,750
6,933,634
7,015,500








Shannon Specialty Floors, LLC (4.6%)*04/2017Chemicals, Plastics & RubberJunior Secured Term Loan, due 04/2021 (12.93%; 3M LIBOR + 10.50% with a 1.00% LIBOR floor)(5)3,642,477
3,599,001
3,568,000





3,642,477
3,599,001
3,568,000








Surge Busy Bee Holdings, LLC (9.0%)*11/2017Services: BusinessSenior Secured Term Loan, due 11/2022 (12.53%; 1M LIBOR + 10.00%)
4,656,250
4,480,856
4,524,500



Senior Secured Term Loan, due 11/2022 (14.00%; 12.00% cash/2.00% PIK)
2,412,501
2,327,683
2,299,500



Revolving Line of Credit, due 11/2021 (1M LIBOR+8.00%)(4)





Class B Equity Warrants (210 Units)

152,950
243,500





7,068,751
6,961,489
7,067,500








Water-Land Manufacturing & Supply, LLC (3.1%)*08/2018Consumer Goods - DurableJunior Secured Term Loan, due 05/2023 (13.38%; 3M LIBOR + 10.50% with a 2.25% LIBOR floor)
2,500,000
2,453,154
2,453,154





2,500,000
2,453,154
2,453,154









Wetmore Tool and Engineering Company (5.2%)*03/2017Capital EquipmentJunior Secured Term Loan, due 09/2021 (12.50%; 12.00% Cash/0.50% PIK)(5)4,042,636
4,002,105
4,042,636





4,042,636
4,002,105
4,042,636








World Business Lenders, LLC (0.1%)*12/2013Banking, Finance, Insurance & Real EstateClass B Equity Interest (49,209 Units)(9)

200,000
60,551







200,000
60,551
Subtotal Non-Control / Non-Affiliate Investments

$58,005,216
$59,603,853
$61,919,954








Affiliate Investments




Coastal Screen and Rail, LLC (9.6%)*01/2018Construction & BuildingSenior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)
$6,392,068
$6,267,795
$6,328,000

01/2018
Revolving Line of Credit, due 07/2022 (10.74%; 3M LIBOR + 8.00%)(4)700,000
700,000
700,000

01/2018
Preferred Equity Interest (6.21% fully diluted Common Equity)(6)

150,000
395,000





7,092,068
7,117,795
7,423,000









Flight Lease XII, LLC (0.8%)*03/2017Aerospace & DefenseCommon Equity Interest (1,000 Units)(6)
389,757
636,000







389,757
636,000








Northeast Metal
Works, LLC (15.0%)*
09/2014Metals & MiningSenior Secured Term Loan, due 12/2019 (17.00%; 10.50% Cash + 6.50% PIK)(8)10,436,690
10,417,612
10,223,500



Revolving Line of Credit, due 12/2019 (15.00%)(8)1,500,000
1,500,000
1,497,500

05/2017
Preferred Equity Interest (2,493 Class A Units; 12.0% cumulative preferred return)(6)
1,595,520






11,936,690
13,513,132
11,721,000








V-Tek, Inc. (6.2%)*03/2017Capital EquipmentSenior Secured Term Loan, due 03/2022 (13.75%; 3M LIBOR + 11.00%)
3,412,500
3,342,147
3,341,000



Senior Secured Revolver, due 03/2021 (9.25%; 3M LIBOR + 6.50%)(4)1,336,097
1,336,097
1,336,097



Common Stock (90 Shares)(6)
150,000
188,500





4,748,597
4,828,244
4,865,597
Subtotal Affiliate Investments

$23,777,355
$25,848,928
$24,645,597








Control Investments




Flight Lease VII, LLC (0.8%)*03/2016Aerospace & DefenseCommon Equity Interest (46.14% fully diluted interest)(10)
$684,311
$684,311







684,311
684,311

Portfolio CompanyDate**IndustryInvestment (1) (2) (9) (13)
 Principal Cost Fair ValueDate**IndustryInvestment (1) (2) (13) (14) (15)
 Principal Cost Fair Value

Infinite Care, LLC (9.7%) *02/2016Healthcare & PharmaceuticalsSenior Secured Term Loan, due 02/2019 (14.51%; 1M LIBOR+6.00% with a 0.42% LIBOR floor + 6.00% PIK)(7)4,641,335
3,377,702
3,948,000
Infinite Care, LLC (9.7%)*02/2016Healthcare & PharmaceuticalsSenior Secured Term Loan, due 02/2019 (14.51%; 1M LIBOR+6.00% with a 0.42% LIBOR floor + 6.00% PIK)(7)4,641,335
3,377,702
3,948,000



Revolving Line of Credit, due 02/2019 (14.51%, 1M LIBOR+12.00% with a 0.42% LIBOR floor)
3,719,000
3,719,000
3,716,000


Revolving Line of Credit, due 02/2019 (14.51%, 1M LIBOR+12.00% with a 0.42% LIBOR floor)
3,719,000
3,719,000
3,716,000



Membership Interest (100% membership interests)(6)
5,649,000



Membership Interest (100% membership interests)(6)
5,649,000






8,360,335
12,745,702
7,664,000




8,360,335
12,745,702
7,664,000
Subtotal Control InvestmentsSubtotal Control Investments

$8,360,335
$13,430,013
$8,348,311
Subtotal Control Investments

$8,360,335
$13,430,013
$8,348,311

Total Investments at 12/31/18 (121.1%) *Total Investments at 12/31/18 (121.1%) *


$90,142,906
$98,882,794
$94,913,862
Total Investments at 12/31/18 (121.1%) *


$90,142,906
$98,882,794
$94,913,862
* Fair value as a percentage of net assets
** Date refers to the origination date of the investment

(1)Debt investments are income producing investments unless an investment is on non accrual. Common equity, residual values and warrants are non-income producing.
(2)For each loan, the Company has provided the interest rate in effect on the date presented, as well as the contractual components of that interest rate. In the case of the Company's variable or floating rate loans, the interest rate in effect takes into account the applicable LIBOR rate in effect on December 31, 2018 or, if higher, the applicable LIBOR floor.
(3)"Residual value" represents the value of the Company's share in the collateral securing the loan.
(4)Credit facility has an unfunded commitment in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 8 in the Notes to Consolidated Financial Statements for further discussion on unfunded commitments.
(5)The coupon on the loan is subject to a pricing grid based on certain leverage ratios of the portfolio company.
(6)The investment is owned by HCAP Equity Holdings, LLC, the Company's taxable blocker subsidiary.
(7)
Infinite Care LLC ("ICC") is in default under the terms of its credit agreement and was on non-accrual status as of December 31, 2018. ICC was current on its interest payments to the Company through December 31, 2017; however, it failed to repay the Company’s protective loan advances at various dates in the fourth quarter of 2017 as well as throughout 2018.  ICC was previously in breach of its minimum EBITDA, minimum fixed charge and total leverage covenants, but these breaches were waived by the Company through December 31, 2017 in connection with its entry into an agreement, dated as of January 13, 2017, with ICC relating thereto.  In October 2017, the Company exercised its rights under a stock pledge of ICC. The Company formed a wholly owned subsidiary, HCAP ICC, LLC, to exercise its proxy right under the pledge agreement and take control of ICC’s board of directors. In January 2018, the Company took control of ICC's equity after accelerating the debt and auctioning ICC’s equity in a public sale.  The Company bid a portion of its outstanding debt to gain control of ICC in connection with the public sale process. Upon the completion of the sale process in January 2018, the Company converted $2.0 million of its debt investment in ICC into shares of ICC’s membership interests. ICC failed to pay its scheduled amortization payment to the Company as of December 31, 2018. In addition, for the year ended December 31, 2018, the Company funded $1.7 million in revolver advances to ICC and made a $0.6 million equity contribution to ICC to fund their liquidity needs.

Refer to Note 12 in the accompanying notes to the unaudited consolidated financial statements for summarized financial information for ICC for the three months ended March 31, 2019 and March 31, 2018.

(8)The interest rate on the revolver is 11% prior to the interim advance term; 13.5% from the first amendment effective date to February 28, 2018; 14.25% from March 1, 2018 through May 31, 2018 and 15% from June 1, 2018 until expiration of the interim advance. The interest rate on the term loan is 11% prior to and following the interim advance term; 10.5% cash pay plus 6% PIK from the first amendment date trough February 28, 2018; 10.5% cash pay plus 6.25% PIK from March 1, 2018 to May 31, 2018; 10.5% cash pay plus 6.5% PIK from June 1, 2018 until expiration of the interim advance.
(9)
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets The Company's non-qualifying assets, on a fair value basis, total approximately 2.0% of the Company's total assets.


(10)This is an equity investment that receives a cash flow stream based on lease payments received by Flight Lease VII, LLC. Flight Lease VII, LLC owns an aircraft that was leased to one lessee. The lessee had been in arrears on its lease payments and in June of 2018, Flight Lease VII, LLC terminated the lease. As a result of the cessation of cash flows, future payments on this equity investment will resume only if Flight Lease VII, LLC is successful in obtaining a new lessee or sells the aircraft. For the year ended December 31, 2018, the Company recognized an impairment charge of $0.2 million, which is presented in the net realized gains (losses) - control investments balance on the consolidated Statement of Operations.
(11)This portfolio company is in covenant default as of December 31, 2018 and the Company enforced its rights to charge the portfolio company the default interest rate. The portfolio company made all contractual interest and principal payments during the year ended December 31, 2018.
(12)This portfolio company failed to make its contractual deferred interest payment on July 23, 2018 and partially paid its December 31, 2018 contractual current interest payment.
(13)
The Company's Credit Facility is secured by all of the Company's assets. Refer to Note 3 in the accompanying notes to the unaudited consolidated financial statements for more information.

(14)
All of the Company's portfolio investments are generally subject to restrictions on sale as "restricted securities", unless otherwise noted.


(15)
Unless otherwise indicated, all portfolio company investments are Level 3 assets whose values were determined using significant unobservable inputs.


As of December 31, 2018, investments consisted of the following:

TypeAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
Senior Secured Debt$54,049,633

$54,609,097

57.5%
69.7%
Junior Secured Debt34,027,362

33,231,424

35.0%
42.4%
Equity10,805,799

7,073,341

7.5%
9.0%
Total$98,882,794

$94,913,862

100.0%
121.1%

The rate type of debt investments at fair value as of December 31, 2018 was as follows:

Rate TypeAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
Fixed Rate$40,292,392

$39,934,269

45.5%
50.9%
Floating Rate47,784,603

47,906,252

54.5%
61.1%
Total$88,076,995

$87,840,521

100.0%
112.0%



The industry composition of investments at fair value as of December 31, 2018 was as follows:

IndustryAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
Aerospace & Defense$4,337,337

$4,557,611

4.8%
5.8%
Automotive

1,352,000

1.4%
1.7%
Banking, Finance, Insurance & Real Estate200,000

60,551

0.1%
0.1%
Beverage, Food & Tobacco3,922,308

3,842,000

4.1%
4.9%
Capital Equipment18,602,194

18,667,866

19.7%
23.8%
Chemicals, Plastics and Rubber3,599,001

3,568,000

3.8%
4.6%
Construction & Building14,569,182

15,307,500

16.1%
19.5%
Consumer Goods - Non-Durable4,224,975

3,952,501

4.2%
5.0%
Consumer Goods - Durable2,453,154

2,453,154

2.6%
3.1%
Environmental Industries641,711

1,939,500

2.0%
2.5%
Healthcare & Pharmaceuticals12,745,702

7,664,000

8.1%
9.8%
High Tech Industries2,955,675

2,771,500

2.9%
3.5%
Media: Advertising, Printing & Publishing125,000

131,679

0.1%
0.2%
Metals & Mining13,513,132

11,721,000

12.3%
15.0%
Retailer3,098,300

2,842,000

3.0%
3.6%
Services: Business13,895,123

14,083,000

14.8%
18.0%
Total$98,882,794

$94,913,862

100.0%
121.1%









The geographic concentrations at fair value as of December 31, 2018 was as follows:


United States RegionAmortized Cost
Fair Value
% of Fair Value
% of Net Assets
West$36,086,071

$32,955,912

34.7%
42.1%
Northeast35,519,206

33,053,552

34.8%
42.2%
South20,857,471

22,522,398

23.7%
28.7%
Midwest6,420,046

6,382,000

6.8%
8.1%

$98,882,794

$94,913,862

100.0%
121.1%

See accompanying notes to unaudited financial statements.


Harvest Capital Credit Corporation
Notes to Unaudited Consolidated Financial Statements
 
Note 1. Organization 
 
Harvest Capital Credit Corporation ("HCAP" or the "Company") was incorporated as a Delaware corporation on November 14, 2012, for the purpose of, among other things, acquiring Harvest Capital Credit LLC (“HCC LLC”). HCAP acquired HCC LLC on May 2, 2013, in connection with HCAP's initial public offering. HCAP is an externally managed, closed-end, non-diversified management investment company that has filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, HCAP has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As an investment company, the Company follows accounting and reporting guidance as set forth in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946, Financial Services- Investment Companies.

On July 1, 2016, the Company formed HCAP Equity Holdings, LLC, a Delaware limited liability company, as a wholly-owned subsidiary of the Company to hold certain equity investments made by the Company in limited liability companies or other forms of pass-through entities. By investing through HCAP Equity Holdings, LLC, the Company is able to benefit from the tax treatment of this entity and create a tax structure that is advantageous with respect to the Company's status as a RIC. This taxable subsidiary is consolidated for U.S. GAAP financial reporting purposes, and the portfolio investments held by the taxable subsidiary are included in the Company's consolidated financial statements and recorded at fair value in conjunction with the Company's valuation policy. The Company also formed a wholly-owned subsidiary, HCAP ICC, LLC, a Delaware limited liability company, to exercise certain rights in connection with its investment in Infinite Care, LLC.

Note 2. Summary of Significant Accounting Policies 
 
Basis of Financial Statement Presentation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the SEC and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair statement of the Company's consolidated financial statements have been made. Certain prior period amounts have been reclassified to reflect current period classification.
 
In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Operations for the period. Actual results could differ from those estimates.
 
Principles of Consolidation
 
The consolidated financial statements of the Company include the accounts of Harvest Capital Credit Corporation and its wholly-owned subsidiaries, HCAP Equity Holdings, LLC and HCAP ICC, LLC. The effects of all intercompany transactions between the Company and its subsidiaries have been eliminated in consolidation. Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and ASC 946, Financial Services - Investment Companies, the Company is precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. ASU 2018-13 is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15,

2019. The Company has reviewed the requirements and concluded that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In August 2018, the SEC issued Final Rule Release No. 33-10532 - “DisclosureDisclosure Update and Simplification. This rule amends various SEC disclosure requirements that have been determined to be redundant, duplicative, overlapping, outdated, or superseded. The changes are generally expected to reduce or eliminate certain disclosures; however, the amendments did expand interim period disclosure requirements related to changes in stockholders' equity. This final rule became effective on November 5, 2018. The Company has adopted these amendments as currently required and these are reflected in its consolidated financial statements and related disclosures. Certain prior year information has been adjusted to conform with these amendments.

In March 2019, the SEC issued Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amends certain SEC disclosure requirements. The amendments are intended to simplify certain disclosure requirements, improve readability and navigability of disclosure documents, and discourage repetition and disclosure of immaterial information. The amendments are effective for all filings submitted on or after May 2, 2019. The Company adopted the requisite amendments effective May 2, 2019. As it pertains to the Company for this Form 10-Q, there were no significant changes to the Company's consolidated financial position or disclosures. The Company is still evaluating the impact this amendment will have on its other future periodic filings and registration statements.

Cash
 
Cash as presented in the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Cash Flows includes bank clearing accounts with financial institutions and cash held in these accounts may exceed the Federal Deposit Insurance Corporation ("FDIC") insured limit.

Restricted Cash

Restricted cash of $1.3$1.7 million and $1.8 million as of March 31,June 30, 2019 and December 31, 2018 respectively, was held at U.S. Bank, National Association in conjunction with the Company's Credit Facilitysenior secured revolving credit facility (the "Credit Facility") (see Note 3. Borrowings). The Company is restricted from accessing this cash until the monthly settlement date when, after delivering a covenant compliance certificate, the net restricted cash is released to the Company after paying interest, fees and expenses owed under its Credit Facility.         
 
Investments and Related Investment Revenue and Expense
 
All investment related revenue and expenses are reflected on the Consolidated Statement of Operations, generally commencing on the trade date unless otherwise specified by the transaction documents.
 
The Company accrues interest income if it expects that ultimately it will be able to collect it. Generally, when an interest payment default occurs on a loan in the portfolio, when interest has not been paid for greater than 90 days, or when management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, the Company will place the loan on non-accrual status and will cease accruing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed collectible. However, the Company remains contractually entitled to this interest, and any collections actually received on these non-accrual loans may be recognized as interest income on a cash basis or applied to the principal depending upon management's judgment regarding collectability. The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection and the amount of collectible interest can be reasonably estimated. As of March 31,June 30, 2019, the Company had two portfolio companies with a combined fair value of $10.6$10.0 million on non-accrual status. As of December 31, 2018, the Company had one portfolio company with a fair value of $7.7 million on non-accrual status.
 
For loans with contractual PIK (payment-in-kind) interest income, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, the Company will not accrue PIK interest if the Company believes that the PIK interest is no longer collectible, including if the portfolio company valuation indicates that such PIK interest is not collectible. Loan origination fees - net of direct loan origination costs, original issue discounts that initially represent the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and market discounts or premiums - are accreted or amortized using the effective interest method as interest income over the contractual life of the loan. Upon the prepayment of a loan or debt security, any unamortized net loan origination fee will be recorded as interest income. Loan exit fees that are contractually required to be paid at the termination or maturity of the loan will be accreted to interest income over the contractual term of the loan. The Company suspends the accretion of interest income for any loans or debt securities placed on

non-accrual status. The Company may also collect other prepayment premiums on loans. These prepayment premiums are recorded as other income as earned. Dividend income, if any, will be recognized on the ex-dividend date.

Certain expenses related to legal and tax consultation, due diligence, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. To the extent that such costs are not classified as direct loan origination costs, these expenses are recognized in the Consolidated Statements of Operations as they are incurred.


For equity investments with contractual dividend income,dividends, the Company accrues the dividend income based on the contractual obligation. The Company will not accrue the dividend income if the Company believes that the dividend income is no longer collectible, including if the portfolio company valuation indicates that such dividend income is not collectible. For equity investments without contractual dividends, dividend income will be recognized on the ex-dividend date.

Income from certain of the Company's equity investments is recorded based upon an estimation of an effective yield to expected maturity utilizing projected cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash flows from these equity investments and the effective yield is determined and updated at each reporting date.
 
Investment Date
 
The Company records investment purchases and sales based on the trade date. For instances when the trade date and funding date differ, the Company captures the open trades in the receivable for securities sold or payable for securities purchased on the Consolidated Statements of Assets and Liabilities. The Company's portfolio turnover rate for the threesix months ended March 31,June 30, 2019 was 14.42%21.47%.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
 
Realized gains and losses on investments are calculated using the specific identification method. The Company measures realized gains or losses on equity investments as the difference between the net proceeds from the sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. The Company measures realized gains or losses on debt investments as the difference between the net proceeds from the repayment or sale and the contractual amount owed to the Company on the investment, without regard to unrealized appreciation or depreciation previously recognized or unamortized deferred fees. The acceleration of unamortized deferred fees is recognized as interest income and the collection of prepayment and other fees is recognized as other income. The Company recognized $35,410$26,901 in net realized gains on its investments during the three months ended March 31,June 30, 2019 and $0.9$0.2 million of realized lossesgains on its investments during the three months ended March 31,June 30, 2018. The Company recognized $0.1 million in net realized gains on its investments during the six months ended June 30, 2019 and $0.7 million of net realized losses on its investments during the six months ended June 30, 2018.

Net changes in unrealized appreciation or depreciation measure changes in the fair value of the Company's investments relative to changes in their amortized cost. The Company recognized $0.7$0.8 million in net change in unrealized depreciation during the three months ended March 31,June 30, 2019 and $1.7$0.4 million in net change in unrealized depreciation during the three months ended June 30, 2018. The Company recognized $1.5 million in net change in unrealized depreciation during the six months ended June 30, 2019 and $1.3 million in net change in unrealized appreciation during the threesix months ended March 31,June 30, 2018.

 Classification of InvestmentsPortfolio Companies
 
The Company classifies its investmentsportfolio companies by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual owns beneficially more than 25% of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through beneficial ownership of at least 5% but not more than 25% of the outstanding voting securities of another person. See table below for a breakdown of the Company's investmentsportfolio companies by classification at March 31,June 30, 2019 and December 31, 2018, respectively.



Number of portfolio company investments by classificationNumber of portfolio company investments by classification

March 31, 2019
December 31, 2018
June 30, 2019
December 31, 2018
Non-Control/Non-Affiliated18
18
17
18
Affiliated5
4
7
4
Control2
2
2
2
Total25
24
26
24

Valuation of Investments
 
Valuation analyses of the Company’s investments are performed on a quarterly basis pursuant to ASC 820, Fair Value Measurement. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with applicable accounting guidance and expands disclosure of fair value measurements.

 
Pursuant to ASC 820, the valuation standard used to measure the value of each investment is fair value defined as, “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Investments are recorded at their fair value at each quarter end (the measurement date).
 
Fair Value Investment Hierarchy
 
Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1 
Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.
Level 2 
Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 
Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.
  
Valuation Process
 
Investments are measured at fair value as determined in good faith by the Company's board of directors based on, among other factors, consistently applied valuation procedures and the following multi-step valuation process on each measurement date:

The valuation process generally begins with each investment initially being valued by the Company's management or the investment professionals of its investment adviser, and/or, if applicable, by an independent valuation firm.

Preliminary valuation conclusions are documented and discussed with senior management.

The audit committee of the board of directors reviews and discusses the preliminary valuations.

The board of directors discusses valuations and determines the fair value of each investment in the portfolio in good faith, based upon the input of senior management, the independent valuation firm report (if reviewed in such quarter), and the audit committee.

The nature of the materials and input that the Company’s board of directors receives in the valuation process varies depending on the nature of the investment and the other facts and circumstances. For example, in the case of investments that are Level 1 or 2 assets, a formal report by the Company’s management or the investment professionals of its investment adviser, called a portfolio monitoring report, or “PMR,” is not generally prepared, and no independent external valuation firm is engaged due to the availability of quotes in markets for such investments or similar assets.


In the case of investments that are Level 3 assets, however, the Company’s board of directors generally receives a report on material Level 3 investments on a quarterly basis (i) from the Company’s management or the investment professionals of its investment adviser in the form of a PMR, (ii) from a third-party valuation firm, or (iii) in some cases, both. In the case of investments that are Level 3 assets and have an investment rating of 1 (performing above expectations), the Company generally engages an independent external valuation firm to review all such material investments at least annually. In quarters where an external valuation is not prepared for such investments, the Company’s management or the investment professionals of its investment adviser generally prepare a PMR. In the case of investments that are Level 3 assets and have an investment rating of 2 through 5 (with performance ranging from within expectations to substantially below expectations), the Company generally engages an independent external valuation firm to review such material investments quarterly (and may receive a PMR in addition to the review of the independent external valuation firm where the Level 3 assets have an investment rating of 3 through 5). However, in certain cases for Level 3 assets, the Company may determine that it is more appropriate for the Company to prepare a PMR instead of engaging an independent external valuation firm on a quarterly basis, because a third-party valuation is not cost effective or the nature of the investment does not warrant a quarterly third-party valuation. In addition, under certain unique circumstances, the Company may determine that a formal valuation report is not likely to be informative, and neither a third-party valuation report nor a report from the Company’s management or the investment professionals of its investment adviser is prepared. Such circumstances might include,

for example, an instance in which the investment has paid off after the period end date but before the board of directors meets to discuss the valuations.

Further, Level 3 debt investments that have closed within six months of the measurement date are valued at amortized cost unless a material adverse change in portfolio company operations has occurred since the closing of the investment.

 Valuation Methodology
 
The following section describes the valuation methods and techniques used to measure the fair value of the investments.
 
Fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the Company's management, are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which management has deemed there to be enough breadth (number of quotes) and depth to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arms-length transaction, (iii) the market approach (enterprise value), (iv) the income approach (discounted cash flow analysis) or (v) the bond yield approach.
 
The valuation methods selected for a particular investment are based on the circumstances and on the level of sufficient data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value given the circumstances.
 
The determination of fair value using the selected methodologies takes into consideration a range of factors including, but not limited to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower.
 
In most cases the Company uses the bond yield approach for valuing its Level 3 debt investments, as long as the Company deems this method appropriate. This approach entails analyzing the interest rate spreads for recently completed financing transactions which are similar in nature to the Company's, in order to assess what the range of effective market interest rates would be for the investment if it were being made on or near the valuation date. Then all of the remaining expected cash flows of the investment are discounted using this range of interest rates to determine a range of fair values for the debt investment. If, in the Company's judgment, the bond yield approach is not appropriate, the Company may use the market approach, or, in certain cases, an alternative methodology potentially including an asset liquidation or expected recovery model.
 
The fair value of equity securities, including warrants, in portfolio companies oftentimes considers the market approach, which applies market valuation multiples of publicly-traded firms or recently acquired private firms engaged in businesses similar to those of the portfolio companies. This approach to determining the fair value of a portfolio company’s equity security will typically involve: (1) applying to the portfolio company’s trailing twelve month EBITDA (earnings before interest, taxes, depreciation and amortization) a range of enterprise value to EBITDA multiples that are derived from an analysis of comparable companies, in order to arrive at a range of enterprise values for the portfolio company; then (2) subtracting from the range of

enterprise values balances of any debt or equity securities that rank senior to the Company's equity securities; and (3) multiplying the range of equity values by the Company’s ownership share of such equity to determine a range of fair values for the Company’s equity investment.
    
The Company also uses the income approach, which discounts a portfolio company’s expected future cash flows to determine its net present enterprise value. The discount rate used is based upon the company’s weighted average cost of capital, which is determined by blending the cost of the portfolio company’s various debt instruments and its estimated cost of equity capital. The cost of equity capital is estimated based upon the Company's market knowledge and discussions with private equity sponsors.
 
These valuation methodologies involve a significant degree of judgment. As it relates to investments that do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. In some cases, fair value of such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined.

 
Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of management, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.
 
Capital Gains Incentive Fee
 
Under GAAP, the Company calculates the capital gains incentive fee as if the Company had realized all investments at their fair values as of the reporting date. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional incentive fee is subject to the performance of investments until there is a realization event, the amount of provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive fee that is ultimately paid and the differences could be material.
 
Deferred Offering Costs
 
Deferred offering costs consist of expenses related to the Company's $28.8 million in aggregate principal amount of its 6.125% Notes due 2022 Notes,("2022 Notes"), including underwriting fees, legal fees, and other direct costs incurred. The deferred offering costs are recognized as a reduction to the 2022 Notes on the Company's consolidated statement of assets and liabilities and are amortized as interest expense through the maturity of the 2022 Notes. The balance of deferred offering costs as of March 31,June 30, 2019 and December 31, 2018 was $0.8$0.7 million and $0.8 million, respectively. Amortization expense of the deferred offering costs was $48,360$49,210 and $44,986$45,856 for the three months ended March 31,June 30, 2019 and March 31,June 30, 2018, respectively. Amortization expense of the deferred offering costs was $0.1 million and $0.1 million for the six months ended June 30, 2019 and June 30, 2018, respectively

Deferred Financing Costs
 
Deferred financing costs consist of debt issuance costs associated with the Company's revolving line of credit. The deferred financing costs consist of fees and other direct costs incurred by the Company in obtaining debt financing from its lenders and are recognized as assets and are amortized as interest expense over the term of the applicable credit facility. The balance of deferred financing costs as of March 31,June 30, 2019 and December 31, 2018 was $0.6$0.5 million and $0.6 million, respectively. The amortizationAmortization expense relating to deferred debt financing costs during the three months ended March 31,June 30, 2019 and March 31,June 30, 2018 was $55,011$55,629 and $55,121,$57,590, respectively. Amortization expense relating to the deferred debt financing costs during the six months ended June 30, 2019 and June 30, 2018 was $0.1 million and $0.1 million, respectively.
 
Dividends and Distributions 
 
Dividends and distributions to common stockholders are recorded on the ex-dividend date.  Distributions to shareholders which exceed tax distributable income (tax net investment income and realized gains, if any) are reported as distributions of paid-in capital (i.e., return of capital). The determination of the tax attributes of the Company's distributions is made at the end of the year based upon the Company's taxable income for the full year and the distributions paid during the full year. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. The

Company adopted a dividend reinvestment plan that provides for reinvestment of its dividends and other distributions on behalf of the Company's stockholders, unless a stockholder elects to receive cash. As a result, if the board of directors authorizes, and the Company declares, a cash dividend or other distribution, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of the Company's common stock, rather than receiving the cash distribution.

During the three month periodsmonths ended March 31,June 30, 2019 and March 31,June 30, 2018, the Company paid distributions totaling $0.2550$0.24 and $0.3025$0.29 per share, respectively. During the six months ended June 30, 2019 and June 30, 2018, the Company paid distributions totaling $0.50 and $0.59, respectively.

 Income Taxes
 
Beginning with its first taxable year ending December 31, 2013, the Company elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. To qualify for tax treatment as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing at least 90% of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. As a RIC, the Company will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of its

capital gain net income for the 1-year period ending October 31 in that calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which the Company paid no U.S. federal income tax. To the extent the Company receives taxable income information from portfolio companies subsequent to the filing of the Form 10-K which alters taxable income estimates and book/tax differences as reported in the filing, the Company’s tax return will be trued-up.

The company'sCompany's wholly-owned taxable subsidiary, HCAP Equity Holdings LLC, holds certain portfolio investments that are listed on the Consolidated Schedule of Investments. HCAP Equity Holdings LLC is consolidated for financial reporting purposes, such that the company’s consolidated financial statements reflect the Company’s investments in the portfolio companies owned by it. The purpose of the HCAP Equity Holdings LLC is to permit the Company to hold certain portfolio companies that are organized as limited liability companies (“LLCs”) (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of the RIC’s gross revenue for income tax purposes must consist of qualifying investment income. Absent such a taxable subsidiary, a proportionate amount of any gross income of an LLC (or other pass-through entity) portfolio investment would flow through directly to the RIC. To the extent that such income did not consist of qualifying investment income, it could jeopardize the Company’s ability to qualify as a RIC and therefore cause the Company to incur significant amounts of federal income taxes. When LLCs (or other pass-through entities) are owned by a taxable subsidiary, their income is taxed to the taxable subsidiary and does not flow through to the RIC, thereby helping the Company preserve its RIC status and resultant tax advantages. HCAP Equity Holdings LLC is not consolidated for income tax purposes and may generate income tax expense as a result of its ownership of the portfolio companies. This income tax expense is reflected in the Company’s Consolidated Statements of Operations.

HCAP Equity Holdings, LLC is subject to U.S. federal and state income taxes. HCAP Equity Holdings, LLC is not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes at HCAP Equity Holdings, LLC. During both the three and six months ended March 31,June 30, 2019, and March 31, 2018, the Company did not incur any deferred tax expense for such temporary differences. During the three and six months ended June 30, 2018, the Company incurred a $0.5 million deferred tax expense for such temporary differences. The Company did not recognize a current income tax expense during both the three and months ended year ended March 31, 2019June 30, 2019. During the three and March 31, 2018.six months ended June 30, 2018, the Company recognized a $32,833 current income tax expense.

The Company’s tax returns are subject to examination by federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date by the respective taxing authorities. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Penalties or interest that may be assessed related to any income taxes would be classified as other operating expenses in the financial statements. Based on an analysis of the Company's tax position, there are no uncertain tax positions that met the recognition or measurement criteria and the Company has no amounts accrued for interest or penalties as of March 31,June 30, 2019. Neither HCC LLC nor the Company is currently undergoing any tax examinations. The Company does not anticipate any significant increase or

decrease in unrecognized tax benefits for the next twelve months. The federal tax years 2015-2018 for HCC LLC and the Company remain subject to examination by the IRS. The state tax years 2013-2018 for HCC LLC and the Company remain subject to examination by the state taxing authorities.

Excise Tax

The Company estimates excise tax based on timely information available. The Company does not estimate that it will incur an excise tax for the fiscal year ended December 31, 2019. The Company incurred an excise tax expense for the year ended December 31, 2018 of $8,825, relating to an under accrual for its 2017 excise tax paid in 2018.

Note 3. Borrowings 

The Company's principal balance of its debt obligations consist of the following:



As ofAs of

March 31, 2019
December 31, 2018June 30, 2019
December 31, 2018
Revolving line of credit$5,000,000

$17,000,000
$27,000,000

$17,000,000
2022 Notes28,750,000

28,750,000
28,750,000

28,750,000
Total debt obligations$33,750,000

$45,750,000
$55,750,000

$45,750,000

The weighted average stated interest rate and weighted average maturity on all of the Company's debt obligations outstanding as of March 31,June 30, 2019 were 6.1%5.9% and 3.32.8 years, respectively. The weighted average stated interest rate and weighted average maturity on all of the Company's debt obligations outstanding as of December 31, 2018 was 5.9% and 3.4 years, respectively.

Revolving Line of Credit

On October 29, 2013, the Company entered into a Loan and Security Agreement with CapitalSource Bank (now Pacific Western Bank), as agent and a lender, and each of the lenders from time to time party thereto, including City National Bank, to provide the Company with a $55.0 million senior secured revolving credit facility (the “Credit Facility”).Credit Facility. The Credit Facility is secured by all of the Company’s assets, including the Company's equity interest in HCAP Equity Holdings, LLC and HCAP ICC, LLC, and has an accordion feature that allows the size of the facility to increase up to $85.0 million. The Credit Facility has a revolving period that following a recent amendment, expires on April 30, 2020. The maturity date under the Credit Facility is following a recent amendment, the earlier of (x) October 30, 2021, or (y) the date that is six (6) months prior to the maturity of any of the Company's outstanding unsecured long-term indebtedness, which, based on the Company's outstanding 2022 Notes that mature on September 15, 2022, the maturity date under the Credit Facility would be October 30, 2021. HCAP Equity Holdings, LLC became a co-borrower under the Credit Facility in August 2016, and HCAP ICC, LLC, became a borrower under the Credit Facility in November 2017.

Advances under the Credit Facility bear interest at a rate per annum equal to the lesser of (i) the applicable LIBOR rate plus 3.25% (with a 0.50% LIBOR floor) and (ii) the maximum rate permitted under applicable law.
In addition, the Credit Facility requires payment of a fee for unused amounts during the revolving period, which fee varies depending on the obligations outstanding as follows: (i) 0.75% per annum, if the average daily principal balance of the obligations outstanding for the prior month are less than fifty percent of the maximum loan amount; and (ii) 0.50% per annum, if such obligations outstanding are equal to or greater than fifty percent of the maximum loan amount. In each case, the fee is calculated based on the difference between (i) the maximum loan amount under the Credit Facility and (ii) the average daily principal balance of the obligations outstanding during the prior calendar month.
The Credit Facility also contains customary terms and conditions, including, without limitation, affirmative and negative covenants, including, without limitation, information reporting requirements, a minimum tangible net worth, a minimum debt service coverage ratio, a minimum liquidity of 4% of the maximum loan amount, a maximum senior leverage ratio of 1.00 to 1.00, a maximum total leverage ratio of 1.40 to 1.00, and maintenance of RIC and BDC status. In addition, the Credit Facility contains a covenant that limits the amount of the Company's unsecured longer-term indebtedness (as defined in the Credit Facility), which includes the 2022 Notes, to 50% of the maximum borrowing amount under the Credit Facility. The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change of control, and the occurrence of a

material adverse effect. In addition, the Credit Facility provides that, upon the occurrence and during the continuation of such an event of default, the Company’s administration agreement could be terminated and a backup administrator could be substituted by the agent.
Availability under the Credit Facility is determined by advance rates against eligible loans in the borrowing base up to a maximum aggregate availability of $55.0 million. Advance rates against individual investments range from 40% to 65% depending on the seniority of the investment in the borrowing base.
 
As of March 31,June 30, 2019 and December 31, 2018 the outstanding balance on the Credit Facility was $5.0$27.0 million and $17.0 million, respectively. As of March 31,June 30, 2019 and December 31, 2018, the Company was in compliance with its debt covenants.



2022 Notes
On August 24, 2017, the Company closed the public offering of $25.0 million in aggregate principal amount of its 6.125% Notes due 2022 (the "2022 Notes").Notes. On September 1, 2017, the Company closed on an additional $3.75 million in aggregate principal amount of 2022 Notes to cover the over-allotment option exercised by the underwriters. In total, the Company issued 1,150,000 of the 2022 Notes at a price of $25.00 per Note. The total net proceeds to the Company from the 2022 Notes, after deducting underwriting discounts of $0.9 million and offering costs of $0.2 million, were $27.7 million. As of March 31,June 30, 2019, the outstanding principal balance of the 2022 Notes was $28.8 million and the debt issuance costs balance was $0.8$0.7 million. As of December 31, 2018, the outstanding principal balance of the 2022 Notes was $28.8 million and the debt issuance costs balance was $0.8 million. The Company used the proceeds of the 2022 Notes to redeem its 7.00% Notes due 2020 in full on September 23, 2017.

The 2022 Notes mature on September 15, 2022 and bear interest at a rate of 6.125%. They are redeemable in whole or in part at anytime at the Company's option after September 15, 2019 at a price equal to 100% of the outstanding principal amount of the 2022 Notes plus accrued and unpaid interest. The 2022 Notes are unsecured obligations of the Company and rank pari passu with any future unsecured unsubordinated indebtedness; senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2022 Notes; effectively subordinated to all of the existing and future secured indebtedness of the Company, to the extent of the value of the assets securing such indebtedness, including borrowings under the Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any subsidiaries, financing vehicles, or similar facilities the Company may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities. Interest on the 2022 Notes is payable quarterly on March 15, June 15, September 15, and December 15 of each year. The 2022 Notes are listed on the NASDAQ Global Market under the trading symbol “HCAPZ.” The Company may from time to time repurchase 2022 Notes in accordance with the 1940 Act and the rules promulgated thereunder.

The indenture governing the 2022 Notes (the "2022 Notes Indenture”) contains certain covenants, including covenants (i) requiring the Company’s compliance with the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, whether or not the Company continues to be subject to such provisions of the 1940 Act; (ii) requiring the Company’s compliance, under certain circumstances, with a modified version of the requirements set forth in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act, whether or not the Company continues to be subject to such provisions of the 1940 Act, prohibiting the declaration of any cash dividend or distribution upon any class of the Company’s capital stock (except to the extent necessary for the Company to maintain its status as a RIC under Subchapter M of the Code), or purchasing any such capital stock, if the Company’s asset coverage, as defined in the 1940 Act, were below 200% (or 150% on and after May 4, 2019) at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution, or purchase; and (iii) requiring the Company to provide financial information to the holders of the 2022 Notes and the custodian if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the 2022 Notes Indenture. As of March 31,June 30, 2019 and December 31, 2018 , the Company was in compliance with its debt covenants.

Regulatory Requirements
As a BDC, the Company is generally required, upon issuing any senior securities, to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of the Company's borrowings, of at least 200%. However, the Small Business Credit Availability Act, which was signed into law on March 23, 2018, has modified this requirement to permit a BDC to reduce the required minimum asset coverage ratio applicable to a BDC from 200% to 150%, if certain requirements are met. On May 4, 2018, the Company's board of directors unanimously approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the Investment Company Act of 1940, as

amended by the Small Business Credit Availability Act. As a result, the asset coverage ratio applicable to the Company was changed from 200% to 150% effective May 4, 2019.
As of March 31,June 30, 2019 and December 31, 2018, the Company's aggregate indebtedness, including outstanding borrowings under the Credit Facility and the aggregate principal amount outstanding on the 2022 Notes, was $33.8$55.8 million and $45.8 million, respectively, and as of March 31,June 30, 2019, and December 31, 2018, the Company's asset coverage, as defined in the 1940 Act, was 322%231% and 271%, respectively.




Note 4. Concentrations of Credit Risk 
 
The Company’s investment portfolio consists primarily of loans to privately-held small to mid-size companies. Many of these companies may experience variation in operating results. Many of these companies do business in regulated industries and could be affected by changes in government regulations.
 
The largest debt investments may vary from year to year as new debt investments are recorded and repaid. The Company’s five largest debt investments represented approximately 42.4%39.0% and 41.2% of total principal balance outstanding as of March 31,June 30, 2019 and December 31, 2018, respectively. Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of large loans. Interest income and fee income from the five largest debt investments accounted for approximately 39.8%34.6% and 38.4%35.8% of total loan interest and feeinvestment income for the three months ended March 31,June 30, 2019 and March 31,June 30, 2018, respectively. Interest and fee income from the five largest debt investments accounted for approximately 33.6% and 36.8% of total investment income for the six months ended June 30, 2019 and June 30, 2018, respectively.
 
Note 5. Shareholders’ Equity
 
The following table summarizes the total shares issued and proceeds received for shares of the Company’s common stock net of any underwriting discounts and offering costs for the quarters ended March 31,June 30, 2019 and March 31,June 30, 2018.

Three months ended March 31,Three Months Ended June 30,
Six Months Ended June 30,

2019
20182019
2018
2019
2018

SharesAmount
SharesAmountSharesAmount
SharesAmount
SharesAmount
SharesAmount
Shares repurchased(190,761)$(2,003,908)
(64,897)$(697,907)(70,747)$(742,969)
(14,678)$(151,506)
(261,508)$(2,746,876)
(79,575)$(849,418)
Dividends reinvested7,722
77,398

8,484
89,508
7,929
78,488

8,695
85,285

15,651
155,886

17,179
174,798
Total(183,039)$(1,926,510)
(56,413)$(608,399)(62,818)$(664,481)
(5,983)$(66,221)
(245,857)$(2,590,990)
(62,396)$(674,620)

As of March 31,June 30, 2019 and 2018, the Company had no dilutive securities outstanding.

On June 13, 2017, the Company's board of directors authorized a $3.0 million open market stock repurchase program. Pursuant to the program, the Company was authorized to repurchase up to $3.0 million in the aggregate of its outstanding stock in the open market. The repurchase program expired on June 30, 2018. Prior to the expiration of the share repurchase program on June 30, 2018,In total, the Company repurchased 116,189 shares of its common stock for a total cost of $1.3 million.million under this stock repurchase program.

On November 1, 2018, the board of directors authorized another open market stock repurchase program. Pursuant to the program, the Company was authorized to repurchase up to 250,000 shares in the aggregate of the Company's outstanding common stock in the open market. The repurchase program expired on April 4, 2019. The Company repurchased all 250,000 shares authorized by its board of directors under this stock repurchase program for a total cost of $2.6 million.

On May 2, 2019, the board of directors authorized another open market stock repurchase program. Pursuant to the program, the Company is authorized to repurchase up to 250,000 shares in the aggregate of the Company's outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by the Company's management at its discretion, and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless amended by the Company's board of directors, the repurchase program will expire on the earlier of June 30, 2019 or the repurchase of 250,000 shares of its outstanding common stock. Since the start of the repurchase program through March 31, 2019, the Company repurchased 230,225 shares of its common stock for a total cost of $2.4 million and as of March 31, 2019 the Company had 19,775 shares remaining to be repurchased under the current open market stock repurchase program.

See footnote 13 to the unaudited consolidated financial statements, as the Company purchased 19,775 shares of its common stock subsequent to March 31, 2019 and reached the 250,000 share limit. Also, subsequent to March 31, 2019, the Company's board of directors authorized another open market stock repurchase program in which the Company is authorized to repurchase up to 250,000 shares in the aggregate of the Company's outstanding common stock in the open market. This repurchase program will expire on the earlier of December 31, 2019 or the repurchase of 250,000 shares of the Company's outstanding common stock. Through June 30, 2019, the Company has purchased 50,972 shares of its common stock under this stock repurchase program and has a total of 199,028 shares remaining to purchase.

During the three months ended March 31,June 30, 2019 the Company repurchased 190,76170,747 shares of its common stock at an average price of $10.50 and a total cost of $0.7 million. During the three months ended June 30, 2018, the Company repurchased 14,678

shares of its common stock at an average price of $10.32, and a total cost of $0.2 million. During the six months ended June 30, 2019, the Company repurchased 261,508 shares of its common stock at an average price of $10.50 per share, and a total cost of $2.0$2.7 million. During the threesix months ended March 31,June 30, 2018, the Company repurchased 64,89779,575 shares of its common stock at an average price of $10.75$10.67 per share and a total cost of $0.7$0.8 million.

The Company has adopted an “opt out” dividend reinvestment plan, or “DRIP,” for its common stockholders. As a result, if the Company makes cash distributions, then stockholders’ cash distributions will be automatically reinvested in additional shares of the Company's common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.



Note 6. Fair Value Measurements 
 
As described in Note 2, the Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below. The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a portion of the Company’s assets and liabilities.

2022 notes: The 2022 Notes are a Level 2 financial instrument with readily observable market inputs from other comparable unsecured notes in the marketplace. The unsecured notes trade under the ticker HCAPZ."HCAPZ". As of March 31,June 30, 2019 and December 31, 2018, the fair value of the 2022 Notes was $29.1$29.6 million and $28.8 million, respectively, which was based on the closing price of the 2022 Notes on that day.

Revolving line of credit: Borrowings under the Credit Facility are carried at cost. The fair value of the Credit Facility as of March 31,June 30, 2019 and December 31, 2018 was $5.0$27.0 million and $17.0 million, which approximates cost.

Off-balance sheet financial instruments: The fair value of unfunded commitments is estimated based on the fair value of the funded portion of the corresponding debt investment.
 
As of March 31,June 30, 2019 and December 31, 2018, unfunded commitments totaled $0.9$3.2 million and $1.4 million, respectively, and if funded, their estimated fair values on such dates were $0.9$3.1 million and $1.3 million, respectively.
 
There were no assets or liabilities measured at fair value on a nonrecurring basis as of March 31,June 30, 2019 or December 31, 2018.
 
The following table details the financial instruments that are carried at fair value and measured at fair value on a recurring basis as of March 31,June 30, 2019 and December 31, 2018, respectively:
 

Fair Values as of March 31, 2019Fair Values as of June 30, 2019

Level 1
Level 2
Level 3
TotalLevel 1
Level 2
Level 3
Total

Financial assets:













Senior Secured$

$2,967,526

$66,756,831

$69,724,357
$

$

$66,063,224

$66,063,224
Junior Secured



25,600,000

25,600,000




34,523,502

34,523,502
Equity and Equity Related Securities



6,376,413

6,376,413




10,077,519

10,077,519

$

$2,967,526

$98,733,244

$101,700,770
$

$

$110,664,245

$110,664,245



Fair Values as of December 31, 2018

Level 1
Level 2
Level 3
Total








Financial assets:






     Senior Secured$

$

$54,609,097

$54,609,097
     Junior Secured



33,231,424

33,231,424
     Equity and Equity Related Securities



7,073,341

7,073,341

$

$

$94,913,862

$94,913,862

The following table provides quantitative information related to the significant unobservable inputs used to fair value the Company's Level 3 investments as of March 31,June 30, 2019 and December 31, 2018, respectively, and indicates the valuation techniques utilized by the Company to determine the fair value:

Type of Investment
Fair Value at March 31, 2019
Valuation Technique (1)
Significant Unobservable Input
Range
Weighted Average
Fair Value at June 30, 2019
Valuation Technique (1)
Significant Unobservable Input
Range
Weighted Average

Senior Secured
$66,756,831

Bond Yield
Risk adjusted discount factor
8.0% - 32.5%
14.6%
$66,063,224

Bond Yield
Risk adjusted discount factor
8.0% - 32.5%
14.5%





Market
EBITDA multiple
3.0x - 6.1x
4.0x


Market
EBITDA multiple
3.1x - 7.0x
4.9x





Income
Weighted average cost of capital
8.0% - 31.3%
14.9%


Income
Weighted average cost of capital
3.3% - 32.5%
13.5%

Junior Secured
$25,600,000

Bond Yield
Risk adjusted discount factor
13.4% - 25.0%
16.4%
$34,523,502

Bond Yield
Risk adjusted discount factor
12.8% - 25.0%
19.6%





Market
EBITDA multiple
4.5x - 9.1x
6.8x


Market
EBITDA multiple
4.7x - 9.1x
6.5x





Market
Revenue multiple
0.7x - 0.7x
0.7%


Market
Revenue multiple
0.6x - 0.6x
0.6%





Income
Weighted average cost of capital
13.4% - 25.0%
17.0%


Income
Weighted average cost of capital
12.8% - 30.0%
20.0%

Equity and Equity Related Securities
$6,376,413

Market
EBITDA multiple
4.6x - 7.5x
6.4x
$10,077,519

Market
EBITDA multiple
4.6x - 7.5x
6.9x





Income
Weighted average cost of capital
12.3% - 12.3%
12.3%


Income
Weighted average cost of capital
12.3% - 12-3%
12.3%


Type of Investment
Fair Value at December 31, 2018
Valuation Technique (1)
Significant Unobservable Input
Range
Weighted Average











Senior Secured
$54,609,097

Bond Yield
Risk adjusted discount factor
9.2% - 32.5%
15.2%















Market
EBITDA multiple
3.0x - 5.8x
4.9x















Income
Weighted average cost of capital
9.4% - 31.3%
15.6%











Junior Secured
$33,231,424

Bond Yield
Risk adjusted discount factor
13.4% - 20.0%
15.8%















Market
EBITDA multiple
5.2x - 8.9x
6.9x















Market
Revenue multiple
0.7x - 0.7x
0.7x















Income
Weighted average cost of capital
13.4% - 21.0%
15.6%











Equity and Equity Related Securities
$7,073,341

Market
EBITDA multiple
4.6x - 6.9x
5.9x















Market
Book value multiple
1.0x - 1.0x
1.0x















Income
Weighted average cost of capital
12.3% - 12.3%
12.3%


(1)
When estimating the fair value of its debt investments, the Company typically utilizes the bond yield technique. The significant unobservable inputs used in the fair value measurement under this technique are risk adjusted discount factors. However, the Company also takes into consideration the market technique and income technique in order to determine whether the fair value of the debt investment is within the estimated enterprise value of the portfolio company. The significant unobservable inputs used under these techniques are EBITDA multiples and weighted average cost of capital. Under the bond yield technique, significant increases (decreases) in the risk adjusted discount factors would result in a significantly lower (higher) fair value measurement.
 
When estimating the fair value of its equity investments, the Company utilizes the (i) market technique and (ii) income technique. The significant unobservable inputs used in the fair value measurement of the Company’s equity investments are EBITDA multiples and weighted average cost of capital (“WACC”). Significant increases (decreases) in EBITDA multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in WACC inputs in isolation would result in a significantly lower (higher) fair value measurement.


  The following table shows a reconciliation of the beginning and ending balances for Level 3 assets for the threesix months ended March 31,June 30, 2019 and March 31,June 30, 2018. Transfers between investment type and level, if any, are recognized at fair value at the beginning of the period in which the transfers occur :

Three Months Ended March 31, 2019

Senior Secured
Junior Secured
Equity and Equity Related Securities
Total Investments as of March 31, 2019








Fair value of portfolio, beginning of period$54,609,097

$33,231,424

$7,073,341

$94,913,862
New/Add-on investments15,795,463



158,251

15,953,714
Principal payments received(3,106,750)
(7,654,148)
(230,116)
(10,991,014)
Sales of investments






Loan origination fees received(826,940)




(826,940)
Payment-in-kind interest earned206,577

56



206,633
Accretion of deferred loan origination fees/discounts154,860

93,384



248,244
Transfers to (from) level 3






Transfer (to) from investment type






Net realized losses on investments



(34,570)
(34,570)
Change in unrealized depreciation on investments(75,476)
(70,716)
(590,493)
(736,685)
Fair value of portfolio, end of period$66,756,831

$25,600,000

$6,376,413

$98,733,244
Net unrealized depreciation relating to Level 3 assets still held at March 31, 2019$(75,476)
$(4,349)
$(548,489)
$(628,314)


Three Months Ended March 31, 2018Six Months Ended June 30, 2019

Senior Secured
Junior Secured
Equity and Equity Related Securities
Revenue - Linked Security
Total Investments as of March 31, 2018Senior Secured
Junior Secured
Equity and Equity Related Securities
Total Investments as of June 30, 2019

Fair value of portfolio, beginning of period$59,010,761

$44,379,140

$7,958,168

$533,000

$111,881,069
$54,609,097

$33,231,424

$7,073,341

$94,913,862
New/Add-on investments8,350,000



150,000



8,500,000
Principal payments received(4,759,404)
(37,500)
(130,271)
(172,057)
(5,099,232)
New/Add-on investments/principal increases29,907,965

446,494

3,139,559

33,494,018
Principal payments received/principal reductions(6,712,528)
(8,745,324)
(230,115)
(15,687,967)
Sales of investments



(4,878)


(4,878)



(100,750)
(100,750)
Loan origination fees received(150,000)






(150,000)(1,318,410)




(1,318,410)
Payment-in-kind interest earned180,378

183,542





363,920
264,635

148,243



412,878
Accretion of deferred loan origination fees/discounts134,453

53,634





188,087
357,357

125,463



482,820
Transfers to (from) level 3















Transfer (to) from investment type(2,000,000)


2,000,000




(10,314,500)
10,314,500




Net realized losses on investments(636,050)


(249,592)


(885,642)



(13,820)
(13,820)
Change in unrealized appreciation (depreciation) on investments2,461,088

61,622

(772,611)
(35,943)
1,714,156
Change in unrealized depreciation on investments(730,392)
(997,298)
209,304

(1,518,386)
Fair value of portfolio, end of period$62,591,226

$44,640,438

$8,950,816

$325,000

$116,507,480
$66,063,224

$34,523,502

$10,077,519

$110,664,245
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at March 31, 2018$(36,362)
$(71,106)
$(1,835,733)
$103,542

$(1,839,659)
Net change in unrealized appreciation (depreciation) relating to Level 3 assets still held at June 30, 2019$(648,800)
$(1,015,025)
$251,309

$(1,412,516)

Six Months Ended June 30, 2018

Senior Secured
Junior Secured
Equity and Equity Related Securities
Revenue - Linked Security
Total Investments as of June 30, 2018










Fair value of portfolio, beginning of period$59,010,761

$44,379,140

$7,958,168

$533,000

$111,881,069
New/Add-on investments/principal increases12,812,500



434,766



13,247,266
Principal payments received/principal reductions(6,643,744)
(635,242)
(187,086)
(172,057)
(7,638,129)
Sales of investments



(313,878)


(313,878)
Loan origination fees received(219,633)
(26,250)




(245,883)
Payment-in-kind interest earned362,803

325,326





688,129
Accretion of deferred loan origination fees/discounts390,275

255,634





645,909
Transfers to (from) level 3








Transfer (to) from investment type(2,000,000)


2,000,000




Net realized losses on investments(636,050)


(93,245)


(729,295)
Change in unrealized appreciation (depreciation) on investments2,263,937

15,101

(927,666)
(43,943)
1,307,429
Fair value of portfolio, end of period$65,340,849

$44,313,709

$8,871,059

$317,000

$118,842,617
Net change in unrealized appreciation (depreciation) relating to Level 3 assets still held at June 30, 2018$(233,512)
$(117,627)
$(1,990,789)
$95,542

$(2,246,386)


There were no transfers between levels of the fair value hierarchy during the threesix months ended March 31,June 30, 2019 and March 31,June 30, 2018.
 
Note 7. Related Party Transactions 
 
The Company was founded in September 2011 by certain members of its investment adviser and JMP Group Inc. (now JMP Group LLC) ("JMP Group"), a full-service investment banking and asset management firm. JMP Group currently holds an equity interest in the Company and the Company's investment adviser. JMP Group conducts its primary business activities through two wholly-owned subsidiaries: (i) Harvest Capital Strategies, LLC ("HCS"), an SEC registered investment adviser that focuses on long-short equity hedge funds, middle-market lending and private equity, and (ii) JMP Securities LLC, a full-service investment bank that provides equity research, institutional brokerage and investment banking services to growth companies and their investors.

Management and Incentive Fees
 
In conjunction with the Company's initial public offering in May 2013, HCAP entered into an investment advisory and management agreement with HCAP Advisors LLC ("HCAP Advisors"), which is a majority owned subsidiary of JMP Group. Under the investment advisory and management agreement, the base management fee is calculated based on the Company's gross assets (which includes assets acquired with the use of leverage and excludes cash and cash equivalents) at an annual rate of 2.0% on gross assets up to and including $350 million, 1.75% on gross assets above $350 million and up to and including $1 billion, and 1.5% on gross assets above $1 billion.

Management fee expense for the three months ended March 31,June 30, 2019 and March 31,June 30, 2018 totaled $0.5 million and $0.6 million, respectively. Management fee expense for the six months ended June 30, 2019 and June 30, 2018 totaled $1.0 million and $1.2 million, respectively.

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately preceding calendar quarter and is 20% of the amount, if any, by which the pre-incentive fee net investment income for the immediately preceding calendar quarter exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, the investment adviser receives no incentive fee until the net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up”, 100% of the pre-incentive fee net investment income with respect to that portion of such pre-incentive

fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, the investment adviser, HCAP Advisors (as defined above), will receive 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply. Since the hurdle rate is fixed, as interest rates rise, it is easier for the investment adviser to surpass the hurdle rate and receive an incentive fee based on net investment income.The second part is calculated and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and management agreement, as of the termination date) and equals 20% of the realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

The incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the pre-incentive fee net investment income is payable except to the extent 20% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative income and capital gains incentive fees accrued and/or paid for the 11 preceding quarters. As a result, even in the event that the pre-incentive fee net investment income exceeds the hurdle rate, no incentive fee will be payable to the extent that the Company has generated cumulative net decreases in assets resulting from operations over the trailing 12 quarters due to unrealized or realized net losses on its investments.

The Company did not incur a pre-incentive fee net investment income incentive fee expense for both the three and six months ended June 30, 2019. During the three months ended March 31, 2019 or March 31, 2018.June 30, 2018, the Company incurred a pre-incentive fee net investment income incentive fee expense of $0.2 million. During the six months ended June 30, 2018, the Company incurred a pre-incentive fee net investment income incentive fee expense of $0.2 million.
  
The capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such cumulative realized capital gains exceed cumulative realized and unrealized capital losses through the end of such fiscal year (less the aggregate amount of any previously paid capital gain incentive fee). The Company also records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser when (i) the cumulative realized and unrealized gains on its investments exceed all cumulative realized and unrealized capital losses on its investments and (ii) the capital gains incentive fee that would be payable exceeds the aggregate amount of any previously paid capital gain incentive fee given the fact that a capital gains incentive fee would be owed to the investment

adviser if the Company were to liquidate its investment portfolio at such time. Any decrease in unrealized appreciation in subsequent periods will result in the reversal of some or all of such previously recorded expense accrual. The actual incentive fee payable to the Company's investment adviser related to capital gains is determined and payable in arrears at the end of each fiscal year and is only based on cumulative realized capital gains, including realized capital gains for such period, but not unrealized capital gains. The Company recorded a net change in unrealized depreciation of $0.7$0.8 million for the three months ended March 31,June 30, 2019 and a net change in unrealized depreciation of $0.4 million for the three months ended June 30, 2018. The Company recorded a net change in unrealized depreciation of $1.5 million for the six months ended June 30, 2019 and a net change in unrealized appreciation of $1.7$1.3 million for the six months ended six months ended. The Company recorded realized gains of $26,901 for the three months ended June 30, 2019 and realized gains of $0.2 million for the three months ended March 31,June 30, 2018. The Company recorded a net realized gain of $35,410 for$0.1 million during the threesix months ended March 31,June 30, 2019 and a net realized loss of $0.9$0.7 million forduring the threesix months ended March 31,June 30, 2018. The Company did not incur a capital gains incentive fee expense for either the three or six months ended March 31,June 30, 2019 or March 31,June 30, 2018.

Total base management fees and incentive management fees expense was $0.5 million and $0.6$0.8 million for the three months ended March 31,June 30, 2019 and March 31,June 30, 2018, respectively. Total base management and incentive fees expense was $1.0 million and $1.4 million for the six months ended June 30, 2019 and June 30, 2018, respectively. Accrued base management fees and incentive management fees were $0.5 million and $0.9 million as of March 31,June 30, 2019 and December 31, 2018, respectively.
   
Administrative Services Expense

In conjunction with the Company's initial public offering in May 2013, the Company entered into an administration agreement with JMP Credit Advisors LLC (now Medalist Partners Corporate Finance LLC) ("JMP Credit Advisors"), an affiliate of JMP Group, pursuant to which JMP Credit Advisors provided administrative services to the Company and furnished the Company with office facilities, equipment, and clerical, bookkeeping, and record keeping services. Payments under the administration agreement were equal to an amount based upon the Company's allocable portion of the administrator's overhead in performing its obligations under the administration agreement, including rent and the Company's allocable portion of the cost of its chief financial officer and chief compliance officer and their respective staffs and administrative services provided to the Company by its chief executive officer and other officers.

On April 17, 2018, in connection with the Company moving its administrative function from its Alpharetta, Georgia office to its New York, New York office, the board of directors approved entry into an administration agreement with HCAP Advisors, which was entered into and took effect as of April 29, 2018. Under the new agreement, HCAP Advisors will provideprovides administrative services to HCAP and furnishfurnishes the Company with office facilities, equipment, and clerical, bookkeeping, and record keeping services. Payments under the administration agreement are equal to an amount based upon the Company's allocable portion of the administrator's overhead in performing its obligations under the administration agreement, including rent and the Company's

allocable portion of the cost of its executive officers and their respective staffs and administrative services provided to the Company by its executive officers. The Company negotiated a cap with HCAP Advisors to cap the amounts payable during the 2018 and 2019 fiscal years to $1.4 million, respectively.

Total administrative services expense was $0.4 million and $0.3$0.4 million for the three months ended March 31,June 30, 2019 and March 31,June 30, 2018, respectively. Total administrative services expense was $0.7 million and $0.7 million for the six months ended June 30, 2019 and June 30, 2018, respectively. Accrued administrative services fees were $0.4 million and $0.4 million as of March 31,June 30, 2019 and December 31, 2018, respectively.

Expenses Reimbursed by HCAP Advisors

From time to time, HCAP Advisors may voluntarily waive and/or reimburse expenses incurred by the Company. During the three monthsyear ended MarchDecember 31, 2018 the Company incurred approximately $0.7 million in non-recurring professional fees for additional work provided by its legal counsel and external auditors in connection with the material weakness identified by management as disclosed in Item 9A of the Company's annual report on Form 10-K for the year ended December 31, 2018.2017. HCAP Advisors has agreed to reimburse the Company approximately $0.4 million of those expenses. The Company is under no legal obligation to repay HCAP Advisors for any amount of the expenses HCAP Advisors is reimbursing the Company. HCAP Advisors did not voluntarily waive and/or reimburse any expenses incurred by the Company during the three or six months months ended March 31,June 30, 2019.




Co-investment Transactions With Affiliates

On September 14, 2018, in accordance with the exemptive order issued by the Securities and Exchange Commission to the Company, the Company executed a co-investment transaction whereby the Company invested alongside affiliate funds of JMP Group in an add-on investment in National Program Management & Project Controls, LLC. The Company's share of the co-investment transaction consisted of $3.5 million of senior secured term loan and $0.3 million of Class A membership interests. As of March 31,June 30, 2019, the Company's total investment, at fair value, in National Program Management & Project Controls, LLC, after subsequent add-on investments, consisted of a $6.9 million senior secured term loan and $1.3$4.1 million of class A membership interests.

On February 15, 2019, in accordance with the exemptive order issued by the Securities and Exchange Commission to the Company, the Company executed a co-investment transaction whereby the Company invested alongside affiliate funds of JMP Group in a $4.8 million senior secured term loan and $0.5 million revolving line of credit of Peerless Media, LLC. As of March 31,June 30, 2019, the Company total investment, at fair value, in Peerless Media, LLC consisted of a $4.8 million senior secured term loan and a $0.5 million fully-fundedan undrawn revolving line of credit.credit facility.

Note 8. Commitments and Contingencies 
 
At March 31,June 30, 2019, the Company had a total of $0.9$3.2 million in unfunded commitments comprised entirely of unfunded revolving line of credit commitments on twosix of the Company’s debt investments. AtAs of December 31, 2018, the Company had a total of $1.4 million in unfunded commitments comprised entirely of unfunded revolving line of credit commitments on three of the Company’s debt investments.  The following table summarizes the Company's unfunded commitments and extended fair value if the unfunded commitments were fully funded as of March 31,June 30, 2019 and December 31, 2018:

As of March 31, 2019
As of December 31, 2018As of June 30, 2019
As of December 31, 2018

Unfunded commitment
Extended fair value of unfunded commitment if fully funded
Unfunded commitment
Extended fair value of unfunded commitment if fully fundedUnfunded commitment
Extended fair value of unfunded commitment if fully funded
Unfunded commitment
Extended fair value of unfunded commitment if fully funded
Coastal Screen and Rail, LLC$

$

$250,000

$250,000
$850,000

$850,000

$250,000

$250,000
Kleen-Tech Acquisition, LLC400,000

381,662




Peerless Media, LLC500,000

496,246




Slappey Communications, LLC500,000

489,729




Surge Busy Bee Holdings, LLC450,000

434,635

450,000

434,419
450,000

435,324

450,000

434,419
V-Tek, Inc.463,903

463,903

663,903

663,903
463,903

463,722

663,903

663,903

$913,903

$898,538

$1,363,903

$1,348,322
$3,163,903

$3,116,683

$1,363,903

$1,348,322

Legal Proceedings

The Company is party to certain legal proceedings incidental to the normal course of business, including where third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, the Company does not expect that these proceedings will have a material effect on the Company's financial condition or results of operations.

 
Note 9. Net Increase in Net Assets Resulting from Operations per Common Share
 
In accordance with the provision of ASC 260, “Earnings per Share,” basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. There were no potentially dilutive common shares issued as of March 31,June 30, 2019 or March 31,June 30, 2018 because there were no dilutive securities outstanding.
 
The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for each period:


Three Months Ended March 31,Three Months Ended June 30,
Six Months Ended June 30,

2019
20182019
2018
2019
2018
Net increase in net assets resulting from operations$60,995

$2,069,995
$86,110

$815,756

$147,105

$2,885,751
Weighted average shares outstanding (basic and diluted)6,302,724

6,437,478
6,161,052

6,390,521

6,231,496

6,413,869
Net increase in net assets resulting from operations per share$0.01

$0.32
$0.01

$0.13

$0.02

$0.45

Note 10. Income Tax

To receive RIC tax treatment, the Company must, among other things, distribute annually at least 90% of its net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income. The Company may, in the future, make actual distributions to its stockholders of its net capital gains. The Company can offer no assurance that it will achieve results that will permit the payment of any cash distributions and, if the Company issues senior securities, the Company may be prohibited from making distributions if doing so causes the Company to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of the Company's borrowings. The Company did not incur an excise tax for calendar year 2018.

The Company's wholly-owned subsidiaries, HCAP Equity Holdings, LLC and HCAP ICC, LLC, have each elected to be taxed as a C-Corporation. As such, income taxes are accrued for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are limited to amounts considered to be realizable in future periods. The Company accounts for any interest and penalties related to unrecognized tax benefits as part of the income tax provision.

HCAP Equity Holdings, LLC has a net operating loss carryforward for federal and state income taxes of approximately $0.5 million and $0.5 million as of MarchJune 30, 2019 and December 31, 2019 of approximately $0.6 million.2018, respectively. As HCAP Equity Holdings, LLC has historically generated taxable losses, the Company cannot assume as of March 31,June 30, 2019 that it will be able to utilize this net operating loss to offset future taxable income. As a result, any deferred income tax assets, which are estimated to be approximate $0.9$0.6 million as of March 31,June 30, 2019, resulting from net operating loss carry forwards and deferred taxes on net unrealized losses, include certain future tax benefits that management believes will not be utilized, and as such, the Company has recorded a full valuation allowance. The loss carryforward does not expire.

Note 11. Financial Highlights
 
The following is a schedule of financial highlights for the threesix months ended March 31,June 30, 2019, and March 31,June 30, 2018, respectively:



Three Months Ended March 31,Six Months Ended June 30,

2019
20182019
2018
Per share data:






Net asset value at beginning of period$12.30

$12.66
$12.30

$12.66

Net investment income (1)0.12

0.19
0.26

0.44

Realized gains (losses) on investments (1)0.01

(0.14)
(5)(0.11)
Net change in unrealized appreciation (depreciation) on investments (1)(0.12)
0.27
(0.24)
0.21

Provision for taxes on unrealized gains on investments (1)

(0.09)
Net increase in net assets from operations (1)0.01

0.32
0.02

0.45

Distributions (2)(0.26)
(0.30)(0.50)
(0.59)
Total distributions(0.26)
(0.30)(0.50)
(0.59)
Effect of shares repurchased0.06

0.02
0.07


(5)
Net asset value at end of period$12.11

$12.70
$11.89

$12.52

Net assets at end of period74,925,538

81,295,937
72,868,760

80,078,048

Shares outstanding at end of period6,189,542

6,401,175
6,126,724

6,395,192

Weighted average shares outstanding (basic and diluted)6,302,724

6,437,478
6,231,496

6,413,869

Per share closing price at end of period$10.44

$10.26
$10.56

$10.56

Ratios and Supplemental data:






Total return based on change in NAV (not annualized) (3)0.98%
3.22 %
Total return based on change in NAV (not annualized), gross of incentive fees (3)1.57%
4.99%
Total return based on change in NAV (not annualized), net of incentive fees (3)1.57%
4.74%
Total investment return (not annualized) (4)6.55%
(3.68)%10.41%
2.05%
Average Net Assets$76,660,751

$81,538,683
$75,396,754

$81,051,805

Ratio of expenses to average net assets, excluding expenses reimbursed by HCAP Advisors (annualized)11.88%
14.54 %
Ratio of expenses to average net assets, including expenses reimbursed by HCAP Advisors (annualized)11.88%
12.39 %
Ratio of expenses to average net assets, excluding expenses reimbursed by HCAP Advisors, before incentive fees (annualized)11.75%
12.92%
Ratio of expenses to average net assets, excluding expenses reimbursed by HCAP Advisors, after incentive fees (annualized)11.75%
13.39%
Ratio of expenses to average net assets, including expenses reimbursed by HCAP Advisors, before incentive fees (annualized)11.75%
11.81%
Ratio of expenses to average net assets, including expenses reimbursed by HCAP Advisors, after incentive fees (annualized)11.75%
12.28%
Ratio of net investment income to average net assets (annualized)3.98%
5.96 %4.25%
6.96%
(1)Based on weighted average number of common shares outstanding for the period.
(2)Distributions for the threesix months ended March 31,June 30, 2019 exceeded net investment income in the amount of $842,642$1,479,982 and distributions for the threesix months ended March 31,June 30, 2018 exceeded net investment income in the amount of $731,800.$947,473. See Dividends and Distributions Policy in Note 2.
(3)
This measure of total investment return measures the changes in net asset value over the period indicated, taking into account dividends as reinvested. The return is calculated by taking the difference between the net asset value per share at the end of the period (plus assumed reinvestment of dividends and distributions at prices obtained under the Company's dividend reinvestment plan) and the net asset value per share at the beginning of the period, and dividing that difference by the net asset value per share at the beginning of the period. This return primarily differs from the total investment return in that it does not take into account changes in the market price of the Company's stock.

(4)
This measure of total investment return measures the changes in market value over the period indicated, taking into account dividends as reinvested. The return is calculated based on an assumed purchase of stock at the market price on the first day of the period (plus assumed reinvestment of dividends and distributions at prices obtained under the Company’s dividend reinvestment plan) and an assumed sale at the market price on the last day of the period. The difference between the sale and purchases is then divided by the purchase prices. The total investment return does not reflect any sales load that may be paid by investors.

(5)Rounds to less than $0.01 per share.
 
Note 12. Significant Subsidiaries

The Company has determined that Infinite Care, LLC, an unconsolidated portfolio company of the Company, has met the conditions of a significant subsidiary under Regulation S-X Rule 10-01(b)(1) for the threesix months ended ended March 31, 2019.ended. The financial information

presented below includes a summarized income statement for Infinite Care, LLC, LLC for the three and six months ended March 31,June 30, 2019 and March 31,June 30, 2018.


Income Statement - Infinite Care, LLC For the three months ended March 31, 2019 For the three months ended March 31, 2018 For the three months ended June 30, 2019 For the three months ended June 30, 2018 For the six months ended June 30, 2019 For the six months ended June 30, 2018
Net sales $4,222,044
 $3,783,801
 $4,272,958
 $3,735,922
 $8,495,002
 $7,519,723
Cost of goods sold 3,069,129
 2,676,737
 3,146,302
 2,680,184
 6,215,432
 5,356,921
Gross profit 1,152,915
 1,107,064
 1,126,656
 1,055,738
 2,279,570
 2,162,802
Operating expenses 1,101,435
 1,095,252
 1,162,170
 1,068,720
 2,263,606
 2,163,971
Income from operations 51,480
 11,812
 (35,514) (12,982) 15,964
 (1,169)
Other expenses, net (137,960) (305,277) (169,551) (300,319) (313,754) (605,597)
Net loss $(86,480) $(293,465) $(205,065) $(313,301) $(297,790) $(606,766)


Note 13. Subsequent Events 

The Company's management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the threesix months ended March 31,June 30, 2019, except as discussed below.

Since March 31, 2019, and through May 13,June 30, 2019, the Company repurchased 19,77559,426 shares of its common stock at an average price of $10.59$10.38 per share. With thoseThe Company has a total of 139,602 shares repurchased inremaining to purchase under the second quartercurrent stock repurchase program.

On July 1, 2019, Peerless Media, LLC terminated its $0.5 million revolving line of credit with the Company. The revolving line of credit was unfunded at June 30, 2019.

On August 1, 2019, the Company reached the 250,000 share limit under the stock repurchase program authorized by the Company's board of directors in November 2018.

On April 4, 2019, the Company sold itsoriginated a $5.5 million last out senior secured term loan to Surge Hippodrome Holdings LLC ("Hippodrome") and purchased 10.1% of common equity for $0.4 million. The Company also received warrants to purchase an additional 9.50% of common equity in Dell International L.L.C. and received approximately $3.0 million in sale proceeds.Hippodrome. The last out senior secured term loan carries an interest rate of three month LIBOR + 11.50%.

On April 9, 2019, the Company made a $0.3 million equity contribution to Infinite Care, LLC.

On April 15, 2019, the Company increased its equity investment in National Program Management & Project Controls, LLC, with a $0.3 million pro-rata increase through an add-on funding to purchase Class A Units.

On May 2, 2019, the board of directors authorized an open market stock repurchase program. Pursuant to the program, the Company is authorized to repurchase up to 250,000 shares in the aggregate of the Company's outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by the Company's management at its discretion, and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless amended by the Company's board of directors, the repurchase program will expire on the earlier of December 31, 2019 or the repurchase of 250,000 shares of the Company's outstanding common stock.

On May 3,August 1, 2019, the Company declared monthly distributions of $0.08 per share payable on each May 30,August 29, 2019, June 27,September 26, 2019, and July 25,October 24, 2019.

Effective May 4, 2019, the asset coverage ratio applicable to the Company decreased from 200% to 150% as a result of the board of directors' approval in May 2018 of the application of the modified asset coverage requirement set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act.

On May 10, 2019, the Company entered into an Eighth Amendment to Loan and Security Agreement (the “Amendment”), by and among the Company, HCAP Equity Holdings, LLC, HCAP ICC, LLC, Pacific Western Bank (successor-by-merger to CapitalSource Bank), as agent and a lender, and each of the other lenders from to time to time party thereto, including City National Bank. The Amendment amends the Credit Facility to, among other things, (i) provide for a senior leverage ratio (the ratio of total borrowed money other than subordinated debt and unsecured longer-term indebtedness to equity) of 1 to 1; (ii) provide for a total leverage ratio (the ratio of total debt to equity) of 1.4 to 1, which replaces the prior 1-to-1 leverage ratio; and (iii) provide for a minimum utilization fee of 2.50% that will be payable on unused commitments below $16.5 million at any time that Company’s unsecured longer-term indebtedness (which is currently $28.8 million) exceeds $30 million.




Schedule 12-14

Harvest Capital Credit Corporation
Consolidated Schedule of Investments in and Advances to Affiliates (Unaudited)
ThreeSix Months Ended March 31,June 30, 2019
Portfolio CompanyType of Investment (4) (5) (12) (18) (19)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2018 ValueGross Additions (2)Gross Reductions (3)March 31, 2019 ValueType of Investment (4) (5) (11) (19) (20)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2018 ValueGross Additions (2)Gross Reductions (3)June 30, 2019 Value
More than 25% Owned





Flight Lease VII, LLCCommon Equity Interest (46.14% fully diluted interest)(10) (13)$(10,890)$
$
$684,311
$
$(10,890)$673,421
Common Equity Interest (46.14% fully diluted interest)(9) (12)$(10,890)$12,106
$
$684,311
$12,106
$(10,890)$685,527

Infinite Care, LLCSenior Secured Term Loan, due 02/2019 (14.50%; 1M LIBOR+6.00% with a 0.42% LIBOR floor + 6.00% PIK)(8) (15)
67,000

3,948,000
67,000

4,015,000
Senior Secured Term Loan, due 02/2019 (14.40%; 1M LIBOR+6.00% with a 0.42% LIBOR floor + 6.00% PIK)(8) (14)
(546,000)
3,948,000

(546,000)3,402,000


Revolving Line of Credit, due 02/2019 (14.50%, 1M LIBOR+12.00% with a 0.42% LIBOR floor)

(3,500)
3,716,000

(3,500)3,712,500
Revolving Line of Credit, due 02/2019 (14.40%; 1M LIBOR+12.00% with a 0.42% LIBOR floor)(8)
(1,500)
3,716,000

(1,500)3,714,500


Membership Interest (100% membership interests)(7)






Membership Interest (100% membership interests)(7) (8)
(300,000)

300,000
(300,000)

Total More Than 25% Owned Portfolio Companies

$(10,890)$63,500
$
$8,348,311
$67,000
$(14,390)$8,400,921


$(10,890)$(835,394)$
$8,348,311
$312,106
$(858,390)$7,802,027

5% and Greater Owned, But Not Greater Than 25%





Coastal Screen and Rail, LLCSenior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)(17)$
$(30,797)$199,386
$6,328,000
$31,392
$(105,799)$6,253,593
Senior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)(16)$
$(51,695)$408,264
$6,328,000
$997,447
$(201,911)$7,123,536


Revolving Line of Credit, due 07/2022 (10.63%; 3M LIBOR + 8.00%)


21,229
700,000
250,000

950,000
Revolving Line of Credit, due 07/2022 (10.32%; 3M LIBOR + 8.00%)


42,111
700,000
350,000
(950,000)100,000


Preferred Equity Interest (6.21% fully diluted Common Equity)(7)
(89,000)
395,000

(89,000)306,000
Preferred Equity Interest (6.21% fully diluted Common Equity)(7)
(7,000)
395,000

(7,000)388,000

Flight Lease XII, LLCCommon Equity Interest (1,000 Units)(7) (13)

70,985
636,000


636,000
Common Equity Interest (1,000 Units)(7) (12)

140,028
636,000


636,000



Portfolio CompanyType of Investment (4) (5) (12) (18) (19)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2018 ValueGross Additions (2)Gross Reductions (3)March 31, 2019 ValueType of Investment (4) (5) (11) (19) (20)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2018 ValueGross Additions (2)Gross Reductions (3)June 30, 2019 Value
Kleen-Tech Acquisition, LLCSenior Secured Term Loan, due 05/2024 (15.00%; 13.00% Cash/2.00% PIK)(17)

98,996

6,930,484
(29,166)6,901,318





Revolving Line of Credit, due 05/2022 (15.00%; 13.00% Cash/2.00% PIK)


167









Common Equity Units (13.51% fully diluted)




250,000

250,000





Common Equity Warrants (8.50% Common Equity)




186,970

186,970




National Program Management & Project Controls, LLCSenior Secured Term Loan, due 06/2023 (12.51%; 1M LIBOR + 10.00%)(17)
19,946
221,764
6,911,000
24,727
(43,909)6,891,818
Senior Secured Term Loan, due 06/2023 (12.41%; 1M LIBOR + 10.00%)(16)
15,671
443,587
6,911,000
24,799
(77,398)6,858,401


Class A Membership Interest (163,296 Units)(7) (11)
222,945

973,500
358,516

1,332,016
Class A Membership Interest (574,392 Units)(7) (10)
993,592

973,500
3,173,500

4,147,000

Northeast Metal Works LLCSenior Secured Term Loan, due 12/2019 (17.00%; 10.50% Cash + 6.50% PIK)(16)
(84,093)455,541
10,223,500
175,093
(84,093)10,314,500
Junior Secured Term Loan, due 06/2020 (15.00%; 11.00% Cash/4.00% PIK)(15) (22)
(939,875)874,482
10,223,500
773,375
(939,875)10,057,000


Revolving Line of Credit, due 12/2019 (15.00%)(9)
(1,000)56,250
1,497,500

(1,000)1,496,500
Revolving Line of Credit, due 12/2019 (15.00%)(21) (22)
2,500
88,750
1,497,500
2,500
(1,500,000)


Preferred Equity Interest (2,493 Class A Units; 12.0% cumulative preferred return)(7)






Preferred Equity Interest (2,368 Class A Units; 12.0% cumulative preferred return)(7) (22)20,750
80,000


100,750
(100,750)

V-Tek, Inc.Senior Secured Term Loan, due 03/2022 (13.75%; 3M LIBOR + 11.00%)(14)
(27,231)123,653
3,341,000
5,981
(70,981)3,276,000
Slappey Communications, LLC
Senior Secured Term Loan, due 05/2024 (13.00%; 3M LIBOR + 10.00% with a 2.50% LIBOR floor)(18)

67,489

5,695,548

5,695,548


Senior Secured Revolver, due 03/2021 (9.25%; 3M LIBOR + 6.50%)(6)

34,386
1,336,097
200,000

1,536,097
Revolving Line of Credit, due 05/2023 (13.00%; 3M LIBOR + 10.00% with a 2.50% LIBOR floor)


215






Common Stock (90 Shares)(7)
(72,000)
188,500

(72,000)116,500
Common Equity Units (7.74% fully diluted)




200,000

200,000

Total 5% And Greater Owned, But Not Greater Than 25% Owned Portfolio Companies

$
$(61,230)$1,183,194
$32,530,097
$1,045,709
$(466,782)$33,109,024


Portfolio CompanyType of Investment (4) (5) (11) (19) (20)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2018 ValueGross Additions (2)Gross Reductions (3)June 30, 2019 Value
V-Tek, Inc.Senior Secured Term Loan, due 03/2022 (13.63%; 3M LIBOR + 11.00%)(13)
(26,509)245,716
3,341,000
12,009
(114,009)3,239,000











Revolving Line of Credit, due 03/2021 (9.13%; 3M LIBOR + 6.50%)(6)
(597)69,823
1,336,097
200,000
(597)1,535,500











Common Stock (90 Shares)(7)
(59,500)
188,500

(59,500)129,000










Total 5% And Greater Owned, But Not Greater Than 25% Owned Portfolio Companies

$20,750
$6,587
$2,479,628
$32,530,097
$18,897,382
$(3,980,206)$47,447,273

(1)Represents the total amount of interest and fees credited to income for the portion of the year an investment was included in Affiliate categories.
(2)Gross additions include increase in the cost basis of investments resulting from new portfolio investment and accrued PIK interest.
(3)Gross reductions include decreases in the total cost basis of investments resulting from principal or PIK repayments or sales.
(4)Debt investments are income producing investments unless an investment is on non-accrual. Common equity, residual values and warrants are non-income producing.
(5)For each loan, the Company has provided the interest rate in effect on the date presented, as well as the contractual components of that interest rate. In the case of the Company's variable or floating rate loans, the interest rate in effect takes into account the applicable LIBOR rate in effect on the date presented or, if higher, the applicable LIBOR floor.
(6)Credit facility has an unfunded commitments in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 8 in the Notes to Consolidated Financial Statements for further discussion on portion of commitment unfunded at March 31,June 30, 2019.
(7)The investment is held by HCAP Equity Holdings, LLC, the Company's taxable blocker subsidiary.
(8)Infinite Care LLC ("ICC") is in default under the terms of its credit agreement. In October 2017, the Company exercised its rights under a stock pledge of the borrower. The Company formed a wholly owned subsidiary, HCAP ICC, LLC, to exercise its proxy right under the pledge agreement and take control of the board of ICC. The loan was placed on non-accrual status in Q4 2017. In January 2018, HCAP took control of the borrower's equity after accelerating the debt and auctioning the borrower’s equity in a public sale. The Company bid a portion of its outstanding debt to gain control of the company. Upon completion of this process the Company converted $2.0 million of its debt investment in the borrower to membership interests.
(9)
The interest rate on the revolver is 11% prior to and following the interim advance term; 13.5% from the first amendment effective date to February 28, 2018; 14.25% from March 1, 2018 through May 31, 2018 and 15% from June 1, 2018 until expiration of the interim advance. The interest rate on the term loan is 11% prior to and following the interim advance term; 10.5% cash pay plus 6% PIK from the first amendment date trough February 28, 2018; 10.5% cash pay plus 6.25% PIK from March 1, 2018 to May 31, 2018; 10.5% cash pay plus 6.5% PIK from 6/1/18 until expiration of the interim advance.

(10)
This is an equity investment that receives a cash flow stream based on lease payments received by Flight Lease VII, LLC. Flight Lease VII, LLC owns an aircraft that was leased to one lessee. The lessee had been in arrears on its lease payments and in June of 2018, Flight Lease VII, LLC terminated the lease. As a result of the cessation of cash flows, future payments on this equity investment will resume only if Flight Lease VII, LLC is successful in obtaining a new lessee or sells the aircraft.

(11)(10)During the threesix months ended March 31,June 30, 2019, the Company's voting rights ownership interest increased to over the 5.0% affiliate investment classification threshold. Previously, this portfolio company was classified as a non-control/non-affiliated portfolio company.
(12)(11)The Company's non-qualifying assets, on a fair value basis, comprise approximately 5%1.3% of the Company's total assets
(13)(12)Industry: Aerospace & Defense
(14)(13)Industry: Capital Equipment
(15)(14)Industry: Healthcare & Pharmaceuticals
(16)(15)Industry: Metals & Mining
(17)(16)Industry: Construction & Building
(17)Industry: Services: Business
(18)Industry: Telecommunications
(19)All of the Company's portfolio investments are generally subject to restrictions on resale as "restricted securities," unless otherwise noted.
(19)(20)
The Company's Credit Facility is secured by all of the Company's assets. Refer to Note 3 in the accompanying notes to the unaudited consolidated financial statements for more information.

(21)The Company exited this investment in 2019.
(22)
On May 22, 2019, Northeast Metal Works, LLC entered into a new financing agreement with a senior lender. In conjunction with this, Northeast Metal Works, LLC and the Company entered into a subordination and inter-creditor agreement where the Company thereby agreed to subordinate its indebtedness to the senior lender throughout the earlier of the due date of the new financing agreement, which expires on May 31, 2020, or the date in which Northeast Metal Works, LLC has fully satisfied the indebtedness to the new senior lender. In addition, the new senior lender obtained a first priority interest in certain assets of the entity. As a result, the Company has reclassified its term loan investment in Northeast Metal Works, LLC from senior secured to junior secured. In connection with the new financing agreement, Northeast Metal Works, LLC paid down the existing $1.5 million revolving line of credit by approximately $1.1 million. The remaining $0.4 million commitment under the revolving line of credit was transferred to the junior secured term loan as an increase in the outstanding principal amount. Finally, as part of the refinancing transaction, the Company sold 125 units of its preferred equity interest in Northeast Metal Works, LLC to a third party and recognized a realized gain of $20,750.


As of March 31,June 30, 2019, affiliate investments consisted of the following:

Type Amortized Cost Fair Value % of Fair Value % of Net Assets
Amortized Cost
Fair Value
% of Fair Value
% of Net Assets
Senior Secured Debt $38,004,992
 $38,446,008
 37.8% 51.3%
$38,483,130

$38,569,803

34.8%
52.9%
Junior Secured Debt
11,190,987

10,057,000

9.1%
13.8%
Equity 9,354,602
 3,063,937
 3.0% 4.1%
12,255,909

6,622,497

6.0%
9.1%
Total $47,359,594
 $41,509,945
 40.8% 55.4%
$61,930,026

$55,249,300

49.9%
75.8%


The rate type of affiliate debt investments at fair value as of March 31,June 30, 2019 consisted of the following:

Type Amortized Cost Fair Value % of Fair Value % of Net Assets Amortized Cost Fair Value % of Fair Value % of Net Assets
Fixed Rate $18,316,890
 $18,064,593
 17.8% 24.1% $25,207,331
 $24,081,854
 21.7% 33.0%
Floating Rate 19,688,102
 20,381,415
 20.0% 27.2% 24,466,786
 24,544,949
 22.2% 33.7%
Total $38,004,992
 $38,446,008
 37.8% 51.3% $49,674,117
 $48,626,803
 43.9% 66.7%

The industry composition of affiliate investments at fair value as of March 31,June 30, 2019 consisted of the following:

Industry Amortized Cost Fair Value % of Fair Value % of Net Assets
Amortized Cost
Fair Value
% of Fair Value
% of Net Assets
Aerospace & Defense $1,063,178
 $1,309,421
 1.3% 1.7%
$1,063,178

$1,321,527

1.2%
1.8%
Capital Equipment 4,990,474
 4,928,597
 4.8% 6.6%
4,952,753

4,903,500

4.4%
6.7%
Construction & Building 14,872,015
 15,733,427
 15.5% 21.0%
16,928,050

18,616,937

16.9%
25.5%
Healthcare & Pharmaceuticals 12,745,702
 7,727,500
 7.6% 10.3%
13,045,702

7,116,500

6.4%
9.8%
Metals & Mining 13,688,225
 11,811,000
 11.6% 15.8%
12,706,507

10,057,000

9.1%
13.8%
Services: Business
7,338,288

7,338,288

6.6%
10.1%
Telecommunications
5,895,548

5,895,548

5.3%
8.1%
Total $47,359,594
 $41,509,945
 40.8% 55.4%
$61,930,026

$55,249,300

49.9%
75.8%

The geographic concentrations of affiliate investments at fair value as of March 31,June 30, 2019 consisted of the following:

United States Region
Amortized Cost
Fair Value
% of Fair Value
% of Net Assets
Amortized Cost
Fair Value
% of Fair Value
% of Net Assets
West
$25,284,006

$20,879,931

20.5%
27.8%
$34,899,767

$30,363,689

27.4%
41.7%
South
14,323,752

14,828,611

13.4%
20.3%
Northeast
13,688,225

11,811,000

11.6%
15.8%
12,706,507

10,057,000

9.1%
13.8%
South
8,387,363

8,819,014

8.7%
11.8%
Total
$47,359,594

$41,509,945

40.8%
55.4%
$61,930,026

$55,249,300

49.9%
75.8%


Harvest Capital Credit Corporation 
Consolidated Schedule of Investments in and Advances to Affiliates  
Year Ended December 31, 2018
 
Portfolio CompanyType of Investment (4) (5) (10) (17) (20)
Net Realized LossNet Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2017 ValueGross Additions (2)Gross Reductions (3)December 31, 2018 ValueType of Investment (4) (5) (10) (17) (20)
Net Realized LossNet Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2017 ValueGross Additions (2)Gross Reductions (3)December 31, 2018 Value
More than 25% Owned





Flight Lease XI, LLCCommon Equity Interest (400 Units)(7) (11) (18)$156,347
$(127,421)$92,791
$327,421
$
$(327,421)$
Common Equity Interest (400 Units)(7) (11) (18)$156,347
$(127,421)$92,791
$327,421
$
$(327,421)$

Flight Lease VII, LLCCommon Equity Interest (46.14% fully diluted interest)(11) (19)(241,963)27,424
38,144
829,849
96,424
(241,962)684,311
Common Equity Interest (46.14% fully diluted interest)(11) (19)(241,963)27,424
38,144
829,849
96,424
(241,962)684,311

Infinite Care, LLCSenior Secured Term Loan, due 2/2019 (14.51%; 1M LIBOR + 6.00% with a 0.42% LIBOR floor plus 6.00% PIK)(8) (13)
2,940,646

3,492,000
3,221,067
(2,765,067)3,948,000
Senior Secured Term Loan, due 2/2019 (14.51%; 1M LIBOR + 6.00% with a 0.42% LIBOR floor plus 6.00% PIK)(8) (13)
2,940,646

3,492,000
3,221,067
(2,765,067)3,948,000


Revolving Line of Credit, due 2/2019 (14.51%; 1M LIBOR + 12.00% with a 0.42% LIBOR floor

(3,000)
2,065,000
1,654,000
(3,000)3,716,000
Revolving Line of Credit, due 2/2019 (14.51%; 1M LIBOR + 12.00% with a 0.42% LIBOR floor-8
(3,000)
2,065,000
1,654,000
(3,000)3,716,000


Membership Interest (100% membership interests)(7) (8)
(2,649,000)

2,649,000
(2,649,000)
Membership Interest (100% membership interests)(7) (8)
(2,649,000)

2,649,000
(2,649,000)

Total More Than 25% Owned Portfolio Companies

$(85,616)$188,649
$130,935
$6,714,270
$7,620,491
$(5,986,450)$8,348,311


$(85,616)$188,649
$130,935
$6,714,270
$7,620,491
$(5,986,450)$8,348,311

5% and Greater Owned, But Not Greater Than 25%





Coastal Screen and Rail, LLCSenior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)(16)$
$60,205
$758,954
$
$6,503,278
$(175,278)$6,328,000
Senior Secured Term Loan, due 01/2023 (12.00%; 10.50% Cash/1.50% PIK)(16)$
$60,205
$758,954
$
$6,503,278
$(175,278)$6,328,000


Revolving Line of Credit, due 07/2022 (10.74%; 3M LIBOR + 8.00%)(6)

56,288

835,000
(135,000)700,000
Revolving Line of Credit, due 07/2022 (10.74%; 3M LIBOR + 8.00%)(6)

56,288

835,000
(135,000)700,000


Preferred Equity Interest (6.21% fully diluted Common Equity)

245,000


395,000

395,000
Preferred Equity Interest (6.21% fully diluted Common Equity)

245,000


395,000

395,000

Flight Lease XII, LLCCommon Equity Interest (1,000 Units)(7) (11)
129,741
222,925
616,502
129,741
(110,243)636,000
Common Equity Interest (1,000 Units)(7) (11)
129,741
222,925
616,502
129,741
(110,243)636,000

24/7 Software, Inc. (formerly Instant Sales Solutions, Inc.)Senior Secured Term Loan(6) (14) (18)

279,923
2,859,272

(2,859,272)
Senior Secured Term Loan(6) (14) (18)

279,923
2,859,272

(2,859,272)


Portfolio CompanyType of Investment (4) (5) (10) (17) (20)
Net Realized LossNet Change in Unrealized Appreciation (Depreciation)Amount of Dividends or Interest Credited to Income (1)December 31, 2017 ValueGross Additions (2)Gross Reductions (3)December 31, 2018 Value

Revolving Line of Credit(18)

















Common Stock (950 Shares)(7) (18)259,506
(350,000)
1,300,000

(1,300,000)










Northeast Metal Works, LLCSenior Secured Term Loan, due 12/2019 (17.00%; 10.50% Cash plus 6.50% PIK)(15)
(93,583)1,734,426
9,652,000
647,967
(76,467)10,223,500











Revolving Line of Credit, due 12/2019 (15.00%)(9)
15,500
231,500
1,482,000
165,500
(150,000)1,497,500











Preferred Equity Interest (2,493 Class A Units; 12.0% cumulative preferred return)(7)398
(1,476,520)
1,481,000

(1,481,000)










V-Tek, Inc.Senior Secured Term Loan, due 03/2022 (13.75%; 3M LIBOR + 11.00%)(12)
(94,673)489,831
3,500,000

(159,000)3,341,000











Senior Secured Revolver, due 03/2021 (9.25%; 3M LIBOR + 6.50%)(6)

111,697
886,097
450,000

1,336,097











Common Stock (90 Shares)(7)
(162,500)
351,000

(162,500)188,500










WorkWell, LLCSenior Secured Term Loan(13) (18)(636,050)654,993

3,856,000
654,993
(4,510,993)











Preferred Stock (250,000 Shares)(18)(249,990)250,000


250,000
(250,000)











Common Stock (250,000 Shares)(18)
















Total 5% and Greater Owned, But Not Greater Than 25% Owned Portfolio Companies

$(626,136)$(821,837)$3,885,544
$25,983,871
$10,031,479
$(11,369,753)$24,645,597


(1)Represents the total amount of interest and fees credited to income for the portion of the year an investment was included in Affiliate categories.
(2)Gross additions include increase in the cost basis of investments resulting from new portfolio investment and accrued PIK interest.
(3)Gross reductions include decreases in the total cost basis of investments resulting from principal or PIK repayments or sales.
(4)Debt investments are income producing investments unless an investment is on non-accrual. Common equity, residual values and warrants are non-income producing.
(5)For each loan, the Company has provided the interest rate in effect on the date presented, as well as the contractual components of that interest rate. In the case of the Company's variable or floating rate loans, the interest rate in effect takes into account the applicable LIBOR rate in effect on the date presented or, if higher, the applicable LIBOR floor.
(6)Credit facility has an unfunded commitments in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 8 in the Notes to Consolidated Financial Statements for further discussion on portion of commitment unfunded at December 31, 2018.
(7)The investment is held by HCAP Equity Holdings, LLC, the Company's taxable blocker subsidiary.
(8)Infinite Care LLC ("ICC") is in default under the terms of its credit agreement. In October 2017, the Company exercised its rights under a stock pledge of the borrower. The Company formed a wholly owned subsidiary, HCAP ICC, LLC, to exercise its proxy right under the pledge agreement and take control of the board of ICC. The loan was placed on non-accrual status in Q4 2017. In January 2018, HCAP took control of the borrower's equity after accelerating the debt and auctioning the borrower’s equity in a public sale. The Company bid a portion of its outstanding debt to gain control of the company. Upon completion of this process the Company converted $2.0 million of its debt investment in the borrower to membership interests.
(9)The interest rate on the revolver is 11% prior to following the interim advance term; 13.5% from the first amendment effective date to February 28, 2018; 14.25% from March 1, 2018 through May 31, 2018 and 15% from June 1, 2018 until expiration of the interim advance. The interest rate on the term loan is 11% prior to and following the interim advance term; 10.5% cash pay plus 6% PIK from the first amendment date trough February 28, 2018; 10.5% cash pay plus 6.25% PIK from March 1, 2018 to May 31, 2018; 10.5% cash pay plus 6.5% PIK from 6/1/18 until expiration of the interim advance.
(10)The Company's non-qualifying assets, on a fair value basis, total approximately 2.0% of the Company's total assets.
(11)Industry: Aerospace & Defense
(12)Industry: Capital Equipment
(13)Industry: Healthcare & Pharmaceuticals
(14)Industry: High Tech Industries
(15)Industry: Metals & Mining
(16)Industry: Construction & Building
(17)All of the Company's portfolio investments are generally subject to restrictions on resale as "restricted securities," unless otherwise noted.
(18)The Company exited itsthis investment in this portfolio company 2018.
(19)
This is an equity investment that receives a cash flow stream based on lease payments received by Flight Lease VII, LLC. Flight Lease VII, LLC owns an aircraft that was leased to one lessee. The lessee had been in arrears on its lease payments and in June of 2018, Flight Lease VII, LLC terminated the lease. As a result of the cessation of cash flows, future payments on this equity investment will resume only if Flight Lease VII, LLC is successful in obtaining a new lessee or sells the aircraft. For the year ended December 31, 2018, the Company recognized an impairment charge of $0.2 million, which is presented in the net realized gains (losses) - control investments balance on the consolidated Statement of Operations.

(20)
The Company's Credit Facility is secured by all of the Company's assets. Refer to Note 3 in the accompanying notes to the unaudited consolidated financial statements for more information.


As of December 31, 2018, affiliate investments consisted of the following:
Type Amortized Cost Fair Value % of Fair Value % of Net Assets
Senior Secured Debt $30,660,353
 $31,090,097
 32.8% 39.7%
Equity 8,618,588
 1,903,811
 2.0% 2.4%
Total $39,728,941
 $32,993,908
 34.8% 42.1%

The rate type of affiliate debt investments at fair value as of December 31, 2018 was as follows:
Type
Amortized Cost
Fair Value
% of Fair Value
% of Net Assets
Fixed Rate
$18,185,407

$18,049,000

19.1%
23.1%
Floating Rate
12,474,946

13,041,097

13.7%
16.6%
Total
$30,660,353

$31,090,097

32.8%
39.7%



The industry composition of affiliate investments at fair value as of December 31, 2018 consisted of the following:

Industry Amortized Cost Fair Value % of Fair Value % of Net Assets
Aerospace & Defense $1,074,068
 $1,320,311
 1.4% 1.7%
Capital Equipment 4,828,244
 4,865,597
 5.1% 6.2%
Construction & Building 7,117,795
 7,423,000
 7.8% 9.4%
Healthcare & Pharmaceuticals 12,745,702
 7,664,000
 8.1% 9.8%
Metals & Mining 13,513,132
 11,721,000
 12.4% 15.0%
Total $39,278,941
 $32,993,908
 34.8% 42.1%

The geographic concentrations of affiliate investments at fair value as of December 31, 2018 consisted of the following:

United States Region
Amortized Cost
Fair Value
% of Fair Value
% of Net Assets
West
$17,573,946

$12,529,597

13.2%
16.0%
Northeast
13,513,132

11,721,000

12.4%
15.0%
South
8,191,863

8,743,311

9.2%
11.1%
Total
$39,278,941

$32,993,908

34.8%
42.1%







































Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 
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 future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

our future operating results, including the performance of our existing investments;
the introduction, withdrawal, success and timing of business initiatives and strategies;
changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;
the relative and absolute investment performance and operations of our investment adviser;
the impact of increased competition;
the impact of investments we intend to make and future acquisitions and divestitures;
our ability to turn potential investment opportunities into transactions and thereafter into completed and successful investments;
the unfavorable resolution of any future legal proceedings;
our business prospects and the prospects of our portfolio companies;
our regulatory structure and tax status;
the adequacy of our cash resources and working capital;
the timing of cash flows, if any, from the operations of our portfolio companies;
the impact of interest rate volatility on our results, particularly because we use leverage as part of our investment strategy;
the ability of our portfolio companies to achieve their objective;
the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our investment adviser;
our contractual arrangements and relationships with third parties;
our ability to access capital and any future financings by us;
the ability of our investment adviser to attract and retain highly talented professionals; and
the impact of changes to tax legislation and, generally, our tax position.
 
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.
 
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q, 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. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
 
The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this quarterly report on Form 10-Q.
 

Overview
 
We were formed as a Delaware corporation on November 14, 2012. We completed our initial public offering on May 7, 2013, raising $51.0 million in gross proceeds. On May 17, 2013, we raised another $6.5 million in gross proceeds from the closing of the initial public offering underwriters’ overallotment option. Immediately prior to the initial public offering, we acquired Harvest Capital Credit LLC in a merger whereby the outstanding limited liability company membership interests were converted into shares of our common stock and we assumed and succeeded to all of Harvest Capital Credit LLC’s assets and liabilities, including its entire portfolio of investments. We issued 2,246,699 shares of our common stock for all of Harvest Capital Credit LLC’s 2,266,974 outstanding membership interests in connection with the merger. Harvest Capital Credit LLC is considered to be our predecessor for accounting purposes and, as such, its financial statements are our historical financial statements.
  
Our investment objective is to generate both current income and capital appreciation primarily by making direct investments in the form of subordinated debt, senior debt and, to a lesser extent, minority equity investments. We plan to accomplish our investment objective by targeting investments in small and mid-sized U.S. private companies with annual revenues of less than $100 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of less than $15 million. We believe that transactions involving companies of this size offer higher yielding investment opportunities, lower leverage levels and other terms more favorable than transactions involving larger companies.
 
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private operating companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States.
 
We have also elected to be treated for U.S. federal income tax purposes as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code (the "Code"), and we intend to receive RIC tax treatment annually. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income we distribute to our stockholders, provided we distribute at least 90% of our ordinary income and short term capital gains.
 
Portfolio
 
Portfolio Composition
 
As of March 31,June 30, 2019, we had $101.7$110.7 million (at fair value) invested in 2526 portfolio companies. As of March 31,June 30, 2019, our portfolio was comprised of approximately 68.5%59.7% senior secured debt, 25.2%31.2% junior secured debt and 6.3%9.1% equity and equity-like investments.

As of December 31, 2018, we had $94.9 million (at fair value) invested in 24 portfolio companies. As of December 31, 2018, our portfolio was comprised of approximately 57.5% senior secured debt, 35.0% junior secured debt and 7.5% equity and equity-like investments.
  
We originate and invest primarily in privately held small and mid-sized companies (typically those with less than $15.0 million of EBITDA) through first lien and second lien debt, sometimes with a corresponding equity investment component. The composition of our investments as of March 31,June 30, 2019 and December 31, 2018 was as follows:
 

March 31, 2019
December 31, 2018June 30, 2019
December 31, 2018

Cost
Fair Value
Cost
Fair ValueCost
Fair Value
Cost
Fair Value
Senior Secured Debt$69,240,369

$69,724,357

$54,049,633

$54,609,097
$65,955,947

$66,063,224

$54,049,633

$54,609,097
Junior Secured Debt26,466,654

25,600,000

34,027,362

33,231,424
36,594,943

34,523,502

34,027,362

33,231,424
Equity10,699,365

6,376,413

10,805,799

7,073,341
13,600,672

10,077,519

10,805,799

7,073,341
Total Investments$106,406,388

$101,700,770

$98,882,794

$94,913,862
$116,151,562

$110,664,245

$98,882,794

$94,913,862

At March 31,June 30, 2019, our average portfolio company debt investment at amortized cost and fair value was approximately $3.7$4.1 million and $3.7$4.0 million, respectively, and our largest portfolio company debt investment by amortized cost and fair value was approximately $12.1$11.2 million and $11.8$10.1 million, respectively. At December 31, 2018, our average portfolio company debt investment at amortized cost and fair value was approximately $4.0 million and $4.0 million, respectively, and our largest portfolio company debt investment by amortized cost and fair value was approximately $11.9 million and $11.7 million, respectively.
 
At March 31,June 30, 2019, 66.0%61.9% of our debt investments bore interest based on floating rates (some of which were subject to interest rate floors), such as LIBOR, and 34.0%38.1% of our debt investments bore interest at fixed rates. At December 31, 2018, 54.5% of our debt investments bore interest based on floating rates (some of which were subject to interest rate floors), such as LIBOR, and 45.5% bore interest at fixed rates.

The weighted average effective yield of our debt and other income-producing investments, as of March 31,June 30, 2019 and December 31, 2018, was approximately 14.5% and 14.8%, respectively. The weighted average effective yield on the entire portfolio, as of March 31,June 30, 2019 and December 31, 2018, was 12.2%12.0% and 12.7%, respectively.

The weighted average annualized effective yield on debt and other income-producing investments is computed using the effective interest rates for our debt and other income producing investments, including cash and PIK interest as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective fair values of the investments (as of the date presented) in calculating the weighted average effective yield as a percentage of our debt and other income-producing investments. Infinite Care, LLC and CP Holding Co., Inc. (Choice Pet) were excluded from the calculation as of March 31,June 30, 2019 because they were on non-accrual status as of that date. Infinite Care, LLC was excluded from the calculation as of December 31, 2018 because it was on non-accrual status on that date. Equity components of the investment portfolio were also excluded from these calculations either because they do not have stated interest rates or are non-income producing. The weighted average annualized yield on total investments takes the same yields but weights them to determine the weighted average effective yield as a percentage of the Company's total investments. The dollar-weighted average annualized yield on the Company’s investments for a given period will generally be higher than what investors in our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company’s expenses or any sales load that may be paid by investors.

For investments that have a PIK interest component, PIK interest is accrued each period but generally not collected until the debt investment is sold or paid off. A roll forward of PIK interest for the three months ended March 31,June 30, 2019 and March 31,June 30, 2018 is summarized in the table below.

Three Months Ended March 31,Three Months Ended June 30,
Six Months Ended June 30,

2019
20182019
2018
2019
2018
PIK, beginning of period$3,123,501

$3,852,636
$3,287,499

$4,099,981

$3,123,501

$3,852,636
Accrual206,634

363,919
206,245

324,211

412,878

688,130
Payments(42,636)

(44,430)
(21,269)
(87,065)
(21,269)
Write-off

(116,574)





(116,574)
PIK, end of period$3,287,499

$4,099,981
$3,449,314

$4,402,923

$3,449,314

$4,402,923

Investment Activity
 
During the three months ended March 31,June 30, 2019, we closed $21.0$14.9 million of debt investment commitments and $3.0 million of equity investments in two new and three existing portfolio companies. During the three months ended June 30, 2018, we closed $4.7 million of debt investment commitments and $0.3 million of equity investments in one new and three existing portfolio companies. During the six months ended June 30, 2019, we closed $36.3 million of debt investment commitments and $3.1 million of equity investments in seven new and four existing portfolio companies. During the six months ended June 30, 2018, we closed $12.5 million of debt investment commitments and $0.4 million of equity investments in two new and four existing portfolio companies.

During the three months ended June 30, 2019, we exited $4.0 million of debt investment commitments in two portfolio companies. During the three months ended June 30, 2018, we exited $0.1 million of debt investment commitments and $0.2 million of equity investments in five new and two existing portfolio companies. During the threesix months ended March 31, 2018,June 30, 2019, we closed $7.8exited $14.5 million of debt

investment commitments and $0.1$0.2 million of equity investments in one new and four existing portfolio companies

investments. During the threesix months ended March 31, 2019,June 30, 2018, we exited $10.4$6.9 million of debt investment commitments and $0.2 million of equity investments in four portfolio companies. During the three months ended March 31, 2018, we exited $6.8 million of debt investment commitments in two portfolio companies.
 
Our level of investment activity can vary substantially from period to period depending on many factors, including the level of merger and acquisition activity in our target market, the general economic environment and the competitive environment for the types of investments we make.

 
Asset Quality
 
In addition to various risk management and monitoring tools, we use an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric scale. The following is a description of the conditions associated with each investment rating:
 
Investment Rating 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.
Investment Rating 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2.
Investment Rating 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.
Investment Rating 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in workout. Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected.
Investment Rating 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in workout. Investments with a rating of 5 are those for which some loss of return and principal is expected.

      The following table shows the investment rankings of our debt investments at fair value (in millions):


As of March 31, 2019
As of December 31, 2018
As of June 30, 2019
As of December 31, 2018
Investment Rating
Fair Value (in millions)
% of Debt
Portfolio

Number of
Portfolio Companies

Fair Value (in millions)
% of Debt
Portfolio

Number of
Portfolio Companies

Fair Value (in millions)
% of Debt
Portfolio

Number of
Portfolio Companies

Fair Value (in millions)
% of Debt
Portfolio

Number of
Portfolio Companies
1
$18.9

19.8%
3

$28.2

32.1%
5

$18.7

18.6%
3

$28.2

32.1%
5
2
47.5

49.8%
11

30.7

35.0%
7

50.9

50.6%
11

30.7

35.0%
7
3
18.4

19.3%
3

18.4

21.0%
3

11.0

10.9%
3

18.4

21.0%
3
4
2.8

3.0%
1

2.8

3.2%
1

12.9

12.8%
2

2.8

3.2%
1
5
7.7

8.1%
1

7.7

8.7%
1

7.1

7.1%
1

7.7

8.7%
1


$95.3

100.0%
19

$87.8

100.0%
17

$100.6

100.0%
20

$87.8

100.0%
17
     

Loans and Debt Securities on Non-Accrual Status
 
We do not accrue interest income on loans and debt securities if we doubt our ability to collect such interest. Generally, when an interest payment default occurs on a loan in the portfolio, when interest has not been paid for greater than 90 days, or when management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we will place the loan on non-accrual status and will cease accruing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed collectible. However, collections actually received on non-accrual loans may be recognized as interest income on a cash basis or applied to principal depending on management's judgment regarding collectability. As of March 31,June 30, 2019, we had two loans on non-accrual status (our senior secured debt investment in Infinite Care, LLC and our junior secured debt investment in CP Holding Co., Inc. (Choice Pet)) which comprised 10.7%9.9% of our debt investments at cost. As of December 31, 2018, we had one loan on non-accrual status (our senior secured debt

investment in Infinite Care, LLC), which comprised 8.1% of our debt investments at cost. The failure by a borrower or borrowers to pay interest and repay principal could have a material adverse effect on our financial condition and results of operation.

Results of Operations
 
An important measure of our financial performance is the net increase or decrease in net assets resulting from operations, which includes net investment income, net realized gain or loss and net change in unrealized appreciation or depreciation. Net

investment income is the difference between our income from interest, distributions, fees and other investment income and our operating expenses, including interest on borrowed funds. Net realized gain or loss on investments is generally the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net change in unrealized appreciation or depreciation on investments is the net unrealized change in the fair value of our investment portfolio.
 
Comparison of the Three and Six Months Ended March 31,June 30, 2019 and March 31,June 30, 2018
 
Revenues
 
We generate revenue primarily in the form of interest income on debt investments and, to a lesser extent, capital gains on equity investments we make in portfolio companies. Our debt investments typically have terms of five to seven years and bear interest at a fixed or floating rate. Interest on our debt investments is payable at least quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in kind, or PIK. Any outstanding principal amount of our debt investments and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment, commitment, loan origination, structuring or due diligence fees and consulting fees, which may be non-recurring in nature.

Investment income for the three months ended March 31,June 30, 2019 totaled $3.0 million, compared to investment income of $3.7$4.1 million for the three months ended March 31,June 30, 2018. Investment income for the three months ended March 31,June 30, 2019 was comprised of $2.4$2.5 million in cash interest $0.2(which is net of $0.3 million of previously accrued interest income written-off during the period),$0.2 million in PIK interest, $0.3$0.2 million in fees earned on the investment portfolio, and $0.1 million in other income. Investment income for the three months ended March 31,June 30, 2018 was comprised of $3.1$3.2 million in cash interest, $0.4$0.3 million in PIK interest, $0.2$0.5 million in fees earned on the investment portfolio, and $0.1 million$22,557 of other income. The decrease in investment income in the three months ended March 31,June 30, 2019 is primarily attributable to a smaller investment portfolio, on average during the period, coupled with a lower weighted average effective yield, as compared to the three months ended March 31,June 30, 2018.

Investment income for the six months ended June 30, 2019 totaled $6.0 million, compared to investment income of $7.8 million for the six months ended June 30, 2018. Investment income for the six months ended June 30, 2019 was comprised of $4.9 million in cash interest (which is net of $0.3 million of previously accrued interest income written-off during the period), $0.4 million in PIK interest, $0.5 million in fees earned on the investment portfolio, and $0.2 million in other income. Investment income for the three months ended June 30, 2018 was comprised of $6.4 million in cash interest, $0.7 million in PIK interest, $0.7 million in fees earned on the investment portfolio, and $0.1 million of other income. The decrease in investment income in the six months ended June 30, 2019 is primarily attributable to a smaller investment portfolio, on average during the period, coupled with a lower weighted average effective yield, as compared to the six months ended June 30, 2018.
 
Expenses
 
Our primary operating expenses include the payment of fees to HCAP Advisors LLC under the investment advisory and management agreement, our allocable portion of overhead expenses and other administrative expenses under the administration agreement with JMP Credit Advisors (which expired on April 29, 2018) and the administration agreement with HCAP Advisors (which commenced on April 29, 2018) and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, which include:

Interest expense and unused line fees;
the cost of calculating our net asset value, including the cost of any third-party valuation services;
the cost of effecting sales and repurchases of shares of our common stock and other securities;

fees payable to third parties relating to making investments, including out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments;
transfer agent and custodial fees;
out-of-pocket fees and expenses associated with marketing efforts;
federal and state registration fees and any stock exchange listing fees;
U.S. federal, state and local taxes;
independent directors’ fees and expenses;
brokerage commissions;
fidelity bond, directors’ and officers’ 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, and
costs associated with our reporting and compliance obligations under the 1940 Act and other applicable U.S. federal and state securities laws.

Operating expenses totaled $2.3$2.2 million for the three months ended March 31,June 30, 2019, compared to $2.5$2.4 million for the three months ended March 31,June 30, 2018. Operating expenses in both periods consisted of interest expense, base and incentive management fees, administrator expenses, interest and related fees, professional fees, valuation fees, insurance expenses, directors’ fees, taxes, and other general and administrative expenses. The decrease in operating expenses was primarily due to lower interest expense (due to a lower outstanding balance on our Credit Facility) in the three months ended June 30, 2019 compared to the three months ended June 30, 2018 as well as the absence of an incentive management fee in the three months ended June 30, 2019 compared to a $0.2 million incentive management fee incurred during the three months ended June 30, 2018.

Operating expenses totaled $4.4 million for the six months ended June 30, 2019, compared to $5.0 million for the six months ended June 30, 2018. Operating expenses in both periods consisted of interest expense, base and incentive management fees, administrator expenses, interest and related fees, professional fees, valuation fees, insurance expenses, directors’ fees, taxes, and other general and administrative expenses. The decrease in operating expenses was primarily due to higher professional fees and general and administrative costs incurred during the threesix months ended March 31,June 30, 2018 relating to the material weakness identified by management at December 31, 2017, coupled with a decrease in interest expense (due to a decrease in borrowings throughout the the threesix months ended March 31,June 30, 2019 due to a lower portfolio balance) and a decrease in management fees expense (due to the aforementioned lower portfolio balance). and the absence of an incentive management fee.

From time to time HCAP Advisors may voluntarily waive and/or reimburse expenses incurred by us. During the threesix months ended March 31,June 30, 2018, we incurred approximately $0.7 million in non-recurring professional fees for additional work provided by itsour legal counsel and external auditors in connection with the material weakness identified by management as disclosed in Item 9A of our annual report on Form 10-K for the year ended December 31, 2017. HCAP Advisors agreed to reimburse us approximately $0.4 million of those expenses. We are under no legal obligation to repay HCAP Advisors for any amount of the expenses HCAP Advisors is reimbursing us. Net of expenses reimbursed by HCAP Advisors, we incurred approximately $0.3 million in one-time expenses related to additional professional fees incurred relating to the material weakness that we do not expect to recur in the future. HCAP Advisors did not voluntarily waive and/or reimburse expenses incurred by us during the three or six months ended March 31,June 30, 2019.

Interest expense decreased due to a lower average outstanding debt balance during the three and six months ended March 31,June 30, 2019, compared to March 31,June 30, 2018.

Administrative services expense was $0.4 million for the three months ended March 31,June 30, 2019, compared to $0.3$0.4 million for the three months ended March 31,June 30, 2018. Administrative services expense was $0.7 million for the six months ended June 30, 2019, compared to $0.7 million for the six months ended June 30, 2018.

Base management fees for the three months ended March 31,June 30, 2019 was $0.5 million, compared to $0.6 million for the three months ended March 31,June 30, 2018. Base management fees for the six months ended June 30, 2019 was $1.0 million, compared to $1.2 million for the six months ended June 30, 2018. The slight decrease in base management fees is attributable to a smaller average

amount of gross investments outstanding during the three and six months ended March 31,June 30, 2019, as compared to the three and six months ended March 31,June 30, 2018.

We did not incur any incentive management fees for the three or six months ended March 31, 2019 orJune 30, 2019. We incurred an incentive management fee of approximately $0.2 million and $0.2 million for the three six months ended March 31, 2018.June 30, 2018, respectively. This is primarily a result of the pre-incentive fee net investment income not exceeding the hurdle rate for both periods.periods in fiscal year 2019. We only incur an incentive management fee if our pre-incentive fee net investment income return exceeds a 2.0% (8.0% annualized) hurdle rate. The Company's pre-incentive fee net investment income return failed to meet this hurdle rate for both the three and six months ended March 31, 2019 and March 31, 2018.June 30, 2019. In addition, the incentive fees paid or owed to HCAP Advisors are subject to a three year total return requirement, such that no incentive fee, in respect of pre-incentive fee net investment income, will be payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the calendar quarter for which such fees are being calculated and the 11 preceding quarters exceeds the cumulative incentive fees paid or accrued over the 11 preceding quarters.

Net Investment Income
 
For the three months ended March 31,June 30, 2019, net investment income was $0.8 million, compared to $1.2$1.6 million for the three months ended March 31,June 30, 2018. For the six months ended June 30, 2019, net investment income was $1.6 million, compared to $2.8 million for the six months ended June 30, 2018.

For the three months ended March 31,June 30, 2019, net investment income per share was $0.12$0.14 compared to $0.19$0.25 for the three months ended March 31,June 30, 2018. For the six months ended June 30, 2019, net investment income per share was $0.26 compared to $0.44 for the six months ended June 30, 2018.
 
Net Realized Gains and Losses
 
Realized gains and losses on investments are calculated using the specific identification method. We measure realized gains or losses on equity investments as the difference between the net proceeds from the sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. We measure realized gains or losses on debt investments as the difference between the net proceeds from the repayment or sale and the contractual amount owed to us on the investment, without regard to unrealized appreciation or depreciation previously recognized or unamortized deferred

fees. Upon prepayment of debt investments, we recognize the acceleration of unamortized deferred fees as interest income and we recognize the collection of prepayment and other fees as other income.
 
We recognized $35,410$26,901 in net realized gains on our investments for the three months ended March 31,June 30, 2019, compared to $0.9$0.2 million of realized lossesgains on our investments in the three months ended March 31,June 30, 2018. We recognized $0.1 million in net realized gains on our investments for the six months ended June 30, 2019, compared to $0.7 million of net realized losses on our investments for the six months ended June 30, 2018.

A summary of realized gains and losses for the three months ended March 31,June 30, 2019 and 2018 is as follows:


Three Months Ended March 31,

2019
2018
Flight Lease VII, LLC (Common Equity Interest)$(10,890)
$
Flight Lease XIII, LLC (Common Equity Interest)(23,680)

Mercury Network, LLC (Common Equity Units)69,980


Northeast Metal Works LLC (Preferred Equity Interest)

398
WorkWell, LLC (Senior Secured Term Loan)

(636,050)
WorkWell, LLC (Preferred Equity Interest)

(249,990)
Net realized gains (losses)$35,410

$(885,642)

Three Months Ended June 30,

2019
2018
Dell International L.L.C.$6,151

$
Flight Lease XI, LLC (Common Equity Interest)

156,347
Northeast Metal Works LLC (Preferred Equity Interest)20,750


Realized gains$26,901

$156,347

A summary of realized gains and losses for the six months ended June 30, 2019 and 2018 is as follows:


Six Months Ended June 30,

2019
2018
Dell International L.L.C.$6,151

$
Flight Lease VII, LLC (Common Equity Interest)(10,890)

Flight Lease XI, LLC (Common Equity Interest)

156,347
Flight Lease XIII, LLC (Common Equity Interest)(23,680)

Mercury Network, LLC (Common Equity Units)69,980


Northeast Metal Works LLC (Preferred Equity Interest)20,750

398
WorkWell, LLC (Senior Secured Term Loan)

(636,050)
WorkWell, LLC (Preferred Equity Interest)

(249,990)
Net realized gains (losses)$62,311

$(729,295)


Net Change in Unrealized Appreciation (Depreciation) of Investments
 
Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

Net change in unrealized appreciation (depreciation) on investments totaled $(0.7)$(0.8) million for the three months ended March 31,June 30, 2019 and $1.7$(0.4) million for the three months ended March 31,June 30, 2018.

Net change in unrealized appreciation (depreciation) on investments totaled $(1.5) million for the six months ended June 30, 2019 and $1.3 million for the six months ended June 30, 2018.

In addition, we recognized a provision for deferred tax liabilities relating to investments owned by our taxable blocker of $0.5 million for the three months ended June 30, 2018. We recognized a provision for deferred tax liabilities relating to investments owned by our taxable blocker of $0.5 million for the six months ended June 30, 2018. We did not recognize any provision for deferred tax liabilities relating to investments owned by our taxable blocker for both the three and six months ended June 30, 2019.
  
Net Increase in Net Assets Resulting from Operations
 
The net increase in net assets resulting from operations was $0.1 million for the three months ended March 31,June 30, 2019, compared to $2.1$0.8 million for the three months ended March 31,June 30, 2018. The $2.0$0.7 million net decrease in net assets resulting from operations for the three months ended March 31,June 30, 2019, compared to the three months ended March 31,June 30, 2018, was primarily attributable to a decrease in investment income (attributed to a lower income-earning portfolio and a lower effective yield) and an increase in unrealized depreciation, offset by lower operating expenses (including lower interest expense due to lower borrowings outstanding) and an increase in realized gains.

The net increase in net assets resulting from operations was $0.1 million for the six months ended June 30, 2019, compared to $2.9 million for the six months ended ended June 30, 2018. The $2.8 million net decrease in net assets resulting from operations for the six months ended ended June 30, 2019, compared to the six months ended June 30, 2018, was primarily attributable to a decrease in investment income (attributed to a lower income-earning portfolio and a lower effective yield) and an increase in unrealized depreciation, offset by lower operating expenses (including lower interest expense due to lower borrowings outstanding) and an increase in realized gains.

Financial Condition, Liquidity and Capital Resources
 
Cash Flows from Operating and Financing Activities
 
Our operating activities used cash of $2.1$15.8 million for the threesix months ended March 31,June 30, 2019 and providedused cash of $0.6$1.5 million for the threesix months ended March 31,June 30, 2018, primarily in connection with investment exits and fundings of new investments.


Our financing activities usedprovided cash of $15.5$4.3 million for the threesix months ended March 31,June 30, 2019 and usedprovided cash of $10.0$1.8 million for the threesix months ended March 31,June 30, 2018. Our financing activity proceeds and uses for both periods were primarily in connection with distributions paid to shareholders and net borrowings on our Credit Facility.
   
Our liquidity and capital resources are derived from our Credit Facility and cash flows from operations, including investment sales and repayments. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of distributions to the holders of our common stock. We used, and expect to continue to use, these capital resources as well as proceeds from public and private offerings of securities to finance our investment activities.
 
Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, if our common stock trades at a price below our then-current net asset value per share, we may be limited in our ability to raise equity capital given that we cannot sell our common stock at a price below net asset value per share unless our stockholders approve such a sale and our board of directors makes certain determinations in connection therewith. For

all of 2019 to date and all of 2018, our common stock traded at a discount to our then-current net asset value. If our common stock continues to trade at a discount to net asset value, we may be limited in our ability to raise equity capital unless we obtain the approval described above, which we have not obtained.
 
In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
 
Also, as a BDC, we are generally required, upon issuing any senior securities, to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. However, the Small Business Credit Availability Act, which was signed into law, on March 23, 2018, has modified this requirement to permit a BDC to reduce the required minimum asset coverage ratio applicable to a BDC from 200% to 150%, if certain requirements are met. On May 4, 2018, our board of directors unanimously approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the Investment Company Act of 1940, as amended by the Small Business Credit Availability Act. As a result, the asset coverage ratio applicable to the Company was changed from 200% to 150% effective May 4, 2019. This requirement limits the amount that we may borrow. As of March 31,June 30, 2019, our aggregate indebtedness, including outstanding borrowings under our Credit Facility and the aggregate principal amount outstanding on our 2022 Notes, was $33.8$55.8 million, and our asset coverage, as defined in the 1940 Act, was 322%231%. As of December 31, 2018, our aggregate indebtedness, including outstanding borrowings under our Credit Facility and the aggregate principal amount outstanding on our 2022 Notes, was $45.8 million, and our asset coverage, as defined in the 1940 Act, was 271%. The amount of leverage that we employ as a BDC will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing.
 
As of March 31,June 30, 2019 and December 31, 2018, we had cash and restricted cash of $11.2$17.3 million and $28.8 million, respectively.
 
Credit Facility
 
On October 29, 2013, we entered into a Loan and Security Agreement with CapitalSource Bank (now Pacific Western Bank), as agent and a lender, and each of the lenders from time to time party thereto, including City National Bank, to provide the us with a $55.0 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is secured by all of the our assets, including the Company's equity interest in HCAP Equity Holdings, LLC and HCAP ICC, LLC, and has an accordion feature that allows the size of the facility to increase up to $85.0 million. The Credit Facility has a revolving period that, following a recent amendment, expires on April 30, 2020. The maturity date under the Credit Facility is, following a recent amendment, the earlier of (x) October 30, 2021, or (y) the date that is six (6) months prior to the maturity of any of the Company's outstanding unsecured longer-term indebtedness, which, based on our outstanding unsecured notes that mature on September 15, 2022, the maturity date under the facility would be October 30, 2021. HCAP Equity Holdings, LLC became a co-borrower under the Credit Facility in August 2016, and HCAP ICC, LLC, became a borrower under the Credit Facility in November 2017.

Advances under the Credit Facility bear interest at a rate per annum equal to the lesser of (i) the applicable LIBOR rate plus 3.25% (with a 0.50% LIBOR floor) and (ii) the maximum rate permitted under applicable law.
In addition, the Credit Facility requires payment of a fee for unused amounts during the revolving period, which fee varies depending on the obligations outstanding as follows: (i) 0.75% per annum, if the average daily principal balance of the obligations outstanding for the prior month are less than fifty percent of the maximum loan amount; and (ii) 0.50% per annum, if such obligations outstanding are equal to or greater than fifty percent of the maximum loan amount. In each case, the fee is calculated based on the difference between (i) the maximum loan amount under the Credit Facility and (ii) the average daily principal balance of the obligations outstanding during the prior calendar month.
The Credit Facility also contains customary terms and conditions, including, without limitation, affirmative and negative covenants, including, without limitation, information reporting requirements, a minimum tangible net worth, a minimum debt

service coverage ratio, a minimum liquidity of 4% of the maximum loan amount, a maximum senior leverage ratio of 1.00 to 1.00, a maximum total leverage ratio of 1.40 to 1.00, and maintenance of RIC and BDC status. In addition, the Credit Facility contains a covenant that limits the amount of our unsecured longer-term indebtedness (as defined in the Credit Facility), which includes our 2022 Notes, to 50% of the maximum borrowing amount under the Credit Facility. The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change of control, and the occurrence of a material adverse effect. In addition, the Credit Facility provides that, upon the occurrence and during the continuation of such an event of default, the Company’s administration agreement could be terminated and a backup administrator could be substituted by the agent. 
As of March 31,June 30, 2019 and December 31, 2018, the outstanding balance on the $55.0 million Credit Facility was $5.0$27.0 million and $17.0 million, respectively.

Notes Offering

On August 24, 2017, the Company closed the public offering of $25.0 million in aggregate principal amount of its 6.125% Notes due 2022 (the "2022 Notes"). On September 1, 2017, the Company closed on an additional $3.75 million in aggregate principal amount of 2022 Notes to cover the over-allotment option exercised by the underwriters. In total, the Company issued 1,150,000 of the 2022 Notes at a price of $25.00 per Note. The total net proceeds to the Company from the 2022 Notes, after deducting underwriting discounts of $0.9 million and offering expenses of $0.2 million, were $27.7 million. As of March 31,June 30, 2019, the outstanding principal balance of the 2022 Notes was $28.8 million and the debt issuance costs balance was $0.8$0.7 million. As of December 31, 2018, the outstanding principal balance of the 2022 Notes was $28.8 million and the debt issuance costs balance was $0.8 million. The Company used the proceeds of the 2022 Notes to redeem the 2020 Notes in full on September 23, 2017.

The 2022 Notes mature on September 15, 2022 and bear interest at a rate of 6.125%. They are redeemable in whole or in part at anytime at our option after September 15, 2019 at a price equal to 100% of the outstanding principal amount of the 2022 Notes plus accrued and unpaid interest. The 2022 Notes are unsecured obligations and rank pari passu with any future unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the 2022 Notes; effectively subordinated to all of the existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under the Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any subsidiaries, financing vehicles, or similar facilities we may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities. Interest on the 2022 Notes is payable quarterly on March 15, June 15, September 15, and December 15 of each year. The 2022 Notes are listed on the NASDAQ Global Market under the trading symbol “HCAPZ.” The Company may from time to time repurchase 2022 Notes in accordance with the 1940 Act and the rules promulgated thereunder.

The indenture governing the 2022 Notes (the "2022 Notes Indenture”) contains certain covenants, including covenants (i) requiring the Company’s compliance with the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, whether or not the Company continues to be subject to such provisions of the 1940 Act; (ii) requiring the Company’s compliance, under certain circumstances, with a modified version of the requirements set forth in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act, whether or not the Company continues to be subject to such provisions of the 1940 Act, prohibiting the declaration of any cash dividend or distribution upon any class of the Company’s capital stock (except to the extent necessary for the Company to maintain its treatment as a RIC under Subchapter M of the Code), or purchasing any such capital stock, if the Company’s asset coverage, as defined in the 1940 Act, were below 200% (or 150% on and after May

4, 2019) at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution, or purchase; and (iii) requiring the Company to provide financial information to the holders of the 2022 Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the 2022 Notes Indenture.

Off-Balance Sheet Arrangements
 
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of March 31,June 30, 2019, our only off-balance sheet arrangements consisted of $0.9$3.2 million of unfunded revolving line of credit commitments to twosix of our portfolio companies. As of December 31, 2018, our only off-balance sheet arrangements consisted of $1.4 million of unfunded revolving line of credit commitments to three of our portfolio companies.


 
Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our consolidated financial statements are based are reasonable at the time made and based upon information available to use at that time. We rely upon a thorough valuation process, which includes, for certain portfolio investments, the input of an an independent external valuation firm to arrive at what we believe to be reasonable estimates of fair market value, whenever available. For more information on our fair value measurements, see Note 6 of the Notes to Consolidated Financial Statements. For a review of our significant accounting policies and the recent accounting pronouncements that may impact our results of operations, see Note 2 of the Notes to Consolidated Financial Statements.

Regulated Investment Company Status and Distributions
 
We have elected to be treated as a RIC under Subchapter M of the Code. If we receive RIC tax treatment, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.
 
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Distributions declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.
 
To receive RIC tax treatment, the Company is required to meet certain income and asset diversification tests in addition to distributing at least 90% of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of its capital gain net income for the 1-year period ending October 31 in that calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which the Company paid no U.S. federal income tax.
 
We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). However, the covenants contained in the Credit Facility may prohibit us from making distributions to our stockholders, and, as a result, could hinder our ability to satisfy the distribution requirement. In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders.
  
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a BDC under the 1940 Act and due to provisions in the Credit Facility. We cannot assure stockholders that they will receive any dividends or distributions at a particular level.
 
In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to
receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash available for distribution must be allocated among each stockholder electing to receive cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than the lesser of (a) the portion of the distribution such shareholder has elected to receive in cash, or (b) an amount equal to his or her entire distribution times the percentage limitation on cash available for distribution. If these and certain other requirements are met, for U.S federal

income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying distributions in shares of our stock in accordance with these Treasury regulations or private letter rulings. 
 
Recent Developments

Since March 31, 2019, and through May 13,June 30, 2019, we repurchased 19,77559,426 shares of ourits common stock at an average price of $10.59$10.38 per share. With thoseWe have a total of 139,602 shares repurchased in the second quarter of 2019, the Company reached the 250,000 total share limitremaining to purchase under the current stock repurchase program authorized by our board of directors in November 2018.program.

On April 4,July 1, 2019, Peerless Media, LLC terminated its $0.5 million revolving line of credit with us. The revolving line of credit was unfunded at June 30, 2019.

On August 1, 2019, we sold ouroriginated a $5.5 million last out senior secured term loan to Surge Hippodrome Holdings LLC ("Hippodrome") and purchased 10.1% of common equity for $0.4 million. We also received warrants to purchase an additional 9.50% of common equity in Dell International L.L.C. and received approximately $3.0 million in sale proceeds.Hippodrome. The last out senior secured term loan carries an interest rate of three month LIBOR + 11.50%.

On April 9,August 1, 2019, we made a $0.3 million equity contribution to Infinite Care, LLC.

On April 15, 2019, we increased our equity investment in National Program Management & Project Controls, LLC, with a $0.3 million pro-rata increase through an add-on funding to purchase Class A units.

On May 2, 2019, our board of directors authorized an open market stock repurchase program. Pursuant to the program, we are authorized to repurchase up to 250,000 shares in the aggregate of our outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by our management at its discretion, and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless amended by our board of directors, the repurchase program will expire on the earlier of December 31, 2019 or the repurchase of 250,000 shares of our outstanding common stock.

On May 3, 2019, we declared monthly distributions of $0.08 per share payable on each May 30,August 29, 2019, June 27,September 26, 2019, and July 25,October 24, 2019.

Effective May 4, 2019, the asset coverage ratio applicable to us decreased from 200% to 150%as a result of the board of directors' approval in May 2018 of the application of the modified asset coverage requirement set forth in Section 61(a)(2) of the 1940 Act, as modified by the Small Business Credit Availability Act.

On May 10, 2019, we entered into an Eighth Amendment to Loan and Security Agreement (the “Amendment”), by and among the Company, HCAP Equity Holdings, LLC, HCAP ICC, LLC, Pacific Western Bank (successor-by-merger to CapitalSource Bank), as agent and a lender, and each of the other lenders from to time to time party thereto, including City National Bank. The Amendment amends the Credit Facility to, among other things, (i) provide for a senior leverage ratio (the ratio of total borrowed money other than subordinated debt and unsecured longer-term indebtedness to equity) of 1 to 1; (ii) provide for a total leverage ratio (the ratio of total debt to equity) of 1.4 to 1, which replaces the prior 1-to-1 leverage ratio; and (iii) provide for a minimum utilization fee of 2.50% that will be payable on unused commitments below $16.5 million at any time that our unsecured longer-term indebtedness (which is currently $28.8 million) exceeds $30 million.

Item 3.          Quantitative and Qualitative Disclosures About Market Risk
 
We are subject to financial market risks, including changes in interest rates. For the three months ended March 31,As of June 30, 2019, nineteeneighteen of our debt investments, or 66.0%61.9%, of the fair value of our portfolio bore interest at floating rates. For the three months ended March 31, 2018, seventeen loans, or 50.1%, of the fair value of the portfolio bore interest at floating rates. Assuming that the Consolidated Statement of Assets and Liabilities as of March 31,June 30, 2019 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical one percent100 basis points increase in LIBOR would increase our net investment income by approximately $0.7$0.5 million. Alternatively, a hypothetical one percent100 basis points decrease in LIBOR would decrease our net investment income by approximately $0.6$0.4 million. Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates,

they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. We have not engaged in any hedging activities to date.
  
Item 4.          Controls and Procedures.
 
(a) Evaluation of Disclosure Controls and Procedures
 
As of March 31,June 30, 2019 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control

objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Control Over Financial Reporting
 
Management did not identify any change in the Company's internal control over financial reporting that occurred during the three months ended March 31,June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
Item  1. ��        Legal Proceedings

We are a party to certain legal proceedings incidental to the normal course of our business, including where third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect these these proceedings will have a material effect on our financial condition or results of operations.

Item 1A.Risk Factors

There has been no material change inIn addition to the information provided under the heading "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2018.2018, the Company identified the following risk and uncertainty that could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, financial condition and/or resultsoperating results.

Changes relating to the LIBOR calculation process may adversely affect the value of operations.the LIBOR-indexed, floating rate debt securities in our portfolio.

On July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is unclear if at that time whether LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by Treasury securities called the Secured Overnight Financing Rate (“SOFR”). The first publication of SOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBOR replacement remains a question and the future of LIBOR at this time is uncertain.

We typically use LIBOR as a reference rate in loans we extend to portfolio companies such that the interest due to us pursuant to a loan extended to a portfolio company is calculated using LIBOR. As of June 30, 2019, we had a total of $30.9 million principal balance, or 29.3% of the principal balance of our debt investment portfolio, in such LIBOR-linked debt investments whose maturity dates extend past December 31, 2021. If LIBOR ceases to exist, we may need to renegotiate these debt investments extending beyond 2021 to replace LIBOR with the new standard that is established in its place or another pricing method, which could have an adverse effect on our ability to receive attractive returns. In addition, borrowings under our Credit Facility, which is currently set to mature on October 30, 2021, bear interest at LIBOR plus a margin rate. As a result, if we are able to extend our Credit Facility beyond 2021 and if LIBOR ceases to exist at that time, we may need to renegotiate the interest-rate provisions in the Credit Facility to replace LIBOR with the new standard that is established in its place or another pricing method.

Given the current uncertainties over LIBOR’s discontinuation and the replacement alternatives, it is not possible at this time to predict the effect of any such changes, any establishment of alternative reference rates, or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere, including any impact on our LIBOR-linked debt investments that mature after December 31, 2021.

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

During the three months ended March 31,June 30, 2019, we issued a total of 7,7227,929 shares of our common stock under our dividend reinvestment plan (“DRIP”). This issuance was not subject to the registration requirements of the Securities Act of 1933. The aggregate value of the shares of our common stock issued under the DRIP was approximately $0.1 million for the three months ended March 31,June 30, 2019 and $0.2 million for the six months ended June 30, 2019.

On November 1, 2018, our board of directors authorized an open market stock repurchase program. Pursuant to our program, we were authorized to repurchase up to 250,000 shares in the aggregate of our outstanding common stock in the open market. The repurchase program expired on April 4, 2019. We repurchased all 250,000 shares authorized by our board of directors under this stock repurchase program for a total cost of $2.6 million.

On May 2, 2019, our board of directors authorized another open market stock repurchase program. Pursuant to the program, we are authorized to repurchase up to 250,000 shares in the aggregate of our outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by our management at its discretion, and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless amended by our board of directors, the repurchase program will expire on the earlier of June 30,December 31, 2019 or the repurchase of 250,000 shares of ourthe Company's outstanding common stock.

During the three months ended March 31,June 30, 2019, the Company made the following repurchases pursuant to the repurchase plan:

Month (1)
Total Number of Shares Purchased
Average Purchase Price
Total Number of Shares Purchased as part of Publicly Announced Plan
Maximum Remaining Shares That May Yet Be Purchased Under Plan (1)
January 1 - January 31
47,537

$10.74

47,537

162,999
February 1 - February 28
26,336

10.28

26,336

136,663
March 1 - March 31
116,888

10.46

116,888

19,775


190,761

$10.50

190,761


Month
Total Number of Shares Purchased
Average Purchase Price
Total Number of Shares Purchased as part of Publicly Announced Plan
Maximum Remaining Shares That May Yet Be Purchased Under Plans
April 1 - April 30
19,775

$10.59

19,775


May 1 - May 31
15,935

10.47

15,935

234,065
June 1 - June 30
35,037

10.47

35,037

199,028


70,747

$10.50

70,747



(1)Subsequent to March 31, 2019, the Company repurchased an additional 19,775 shares of its common stock pursuant to the stock repurchase program at an average price of $10.59 per share. As of May 12, 2019, the 250,000 share limit under the share repurchase program authorized by our board of directors in November 2018 has been met, but on May 2, 2019, our board of directors renewed our share repurchase program as described under "Recent Developments" in Item 2 above.


Item 3.         Defaults Upon Senior Securities
 
Not applicable.

Item 4.         Mine Safety Disclosures
 
Not applicable.

Item 5.         Other Information
     
None.

Item 6.         Exhibits


EXHIBIT INDEX

Exhibit
Number
 

Description
 
   
 
   
 
   
 
   
 
   
 
   
 
  
* Filed herewith.

 

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 HARVEST CAPITAL CREDIT CORPORATION
  
Date: May 14,August 8, 2019/s/ Joseph A. Jolson
 
Joseph A. Jolson
Chairman and Chief Executive Officer
  
Date: May 14,August 8, 2019/s/ William E. Alvarez, Jr.
 
William E. Alvarez, Jr.
Chief Financial Officer, Chief Compliance Officer and Secretary
(Principal Financial and Accounting Officer)

 


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