In addition, we recorded original issue discount income of approximately $89,000 for the year ended December 31, 2004, representing the amortization of the discounted cost attributed to certain debt securities purchased by us in connection with the issuance of warrants.
The 1940 Act requires that a business development company to offer to make available managerial assistance to its portfolio companies. We offer to provide managerial assistance to our portfolio companies in connection with our investments and may receive fees for our services. We have not received any fees for such services since inception.
We intend to operate so as to qualify to be taxed as a RIC under the Code and, as such, will not be subject to federal income tax on the portion of our taxable income and gains distributed to stockholders. To qualify as a RIC, we are required to distribute at least 90% of our investment company taxable income, as defined by the Code.
Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statement to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
For tax purposes, the cost basis of the portfolio investments at December 31, 2004 is approximately $82,124,730.
Set forth below is a comparison of our results of operations for the year ended December 31, 2004 and the period from July 21, 2003 (inception) to December 31, 2003. We were incorporated on July 21, 2003 and commenced operations in November 2003. Therefore, there is no prior period with which to compare the results of operations for the period from July 21, 2003 (inception) to December 31, 2003.
As of December 31, 2004, our debt investments had stated interest rates of between 7.5% and 15.0% and maturity dates of between 4 and 69 months. In addition, our total portfolio had a weighted average yield on debt investments of approximately 10.8% as of December 31, 2004. In addition to cash interest, our loans may carry a provision for deferral of some or all of the interest payments, which is added to the principal amount of the loan.
Investment income for the year ended December 31, 2004 was approximately $7,388,000 compared to approximately $114,000 for the period ended December 31, 2003. The increase resulted primarily from our portfolio investing activities throughout 2004, which represented our first full year of operations. For the year ended December 31, 2004 investment income consisted of approximately $3,146,000 in cash interest from portfolio investments, approximately $1,092,000 from cash and cash equivalents, approximately $1,316,000 in PIK interest from two of our debt investments, and amortization of original issue discount of approximately $89,000. Fee income of approximately $1,745,000 was also recorded in 2004, consisting primarily of non-recurring origination fees earned in connection with the initiation of new investments.
Effective October 1, 2004, the interest rate payable on the senior secured notes issued by MortgageIT, Inc was reduced from 10.0% to 7.5%, while the interest rate payable on the senior secured notes issued by Avue Technologies Corp. increased from 10.0% and to 15.0%. These changes resulted in a reduction of approximately 0.35% in the weighted average interest rate of our portfolio as of December 31, 2004.
For the period ended December 31, 2003, investment income consisted entirely of interest income from cash and cash equivalents, which reflected the investment of the net proceeds from our initial public offering pending our investment of such proceeds in accordance with our investment objective and policies.
Operating Expenses
Operating expenses for the year ended December 31, 2004 were approximately $4,025,000. This amount consisted primarily of investment advisory fees, salaries and benefits, professional fees, directors' fees and general and administrative expenses. This was an increase from the period ended December 31, 2003 of approximately $3,333,000, reflecting our first full year of operations. Our operating expenses for the period ended December 31, 2003 were approximately $692,000.
The investment advisory fee for the year was approximately $2,774,000, representing the base fee as provided for in the investment advisory agreement. On June 17, 2004, our shareholders approved an amendment to our investment advisory agreement that changed our base fee from 2.0% of net assets to 2.0% of gross assets. The portion of the investment advisory fee payable subsequent to that date was calculated in accordance with the terms of that amendment. The investment advisory fee in 2003 was approximately $259,000, which reflected a shorter period of operations and the use of net assets when calculating the advisory fee. At December 31, 2004 and 2003, respectively, approximately $697,022 and $226,193 of investment advisory fees remained payable to TIM.
For the period from inception through December 31, 2003, and for the year ended December 31, 2004, there were no incentive fees paid pursuant to the investment advisory agreement.
Salaries and benefits were approximately $208,000 for the year ended December 31, 2004, compared to approximately $27,000 for the period ending December 31, 2004, reflecting the allocation of compensation expenses for the services of our Chief Financial Officer, the Vice President of Investor Relations, and our office manager. The increase from 2003 reflects the impact of a full year of operations. At December 31, 2004 and 2003, respectively, approximately $12,893 and $27,199 of compensation expenses remained payable to BDC Partners.
Professional fees, consisting of legal, valuation, audit and consulting fees, were approximately $587,000 for the year ended December 31, 2004, compared to $30,000 for the period ended December 31, 2003. The increase is directly related to a full year of legal services and audit services, as well as four independent valuation reviews by Houlihan Lokey in 2004 compared to none in 2003.
Directors' fees were approximately $141,000 for the year ended December 31, 2004, compared to none in 2003. The directors agreed to waive any fees for 2003.
General and administrative expenses, consisting primarily of office supplies, facilities costs and other expenses, were approximately $145,000 in 2004 compared to approximately $9,000 in 2003. Office supplies, facilities costs and other expenses are allocated to the Company under the terms of the administration agreement with TIM and BDC Partners. The increase is primarily related to a full year of activity in 2004.
Net Increase in Stockholders' Equity from Operations
We had a net increase in stockholders' equity resulting from operations of approximately $3,364,000 for the year ended December 31, 2004 compared to a net decrease of approximately $578,000 in 2003. Based on a weighted-average of 10,093,660 shares outstanding (basic and diluted), our net increase in stockholders' equity from operations per common share for the year ended December 31, 2004 was approximately $0.33 for basic and diluted earnings.
During the year ended December 31, 2003, we reclassified approximately $257,619 from net investment loss to capital in excess of par value, representing the portion of net investment loss that will not be utilizable for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On November 26, 2003, we closed our initial public offering and sold 8,695,653 shares of common stock at a price to the public of $15.00 per share, less an underwriting discount of $1.05 per share and
33
offering expenses of approximately $954,048. Certain of our directors and officers, and certain employees of BDC Partners, purchased shares at the public offering price net of the sales concession. On December 10, 2003, we issued an additional 1,304,347 shares of our common stock at the same price pursuant to the underwriters' overallotment. The total net proceeds to us from the initial public offering, including the exercise of the overallotment, were approximately $138,545,952.
At December 31, 2004, we had investments in debt securities of, or loans to, nine private companies, totaling approximately $78.4 million, and equity investments of approximately $3.7 million. The debt investments include approximately $1.3 million in accrued PIK interest which, as described in "—Overview" above, is added to the carrying value of our investments, reduced by repayments of principal.
Cash provided by operating activities for the year ended December 31, 2004, consisting primarily of the items described in "—Results of Operations," was approximately $1.9 million, reflecting net investment income and the increases in investment advisory fees payable, accrued expenses and accrued offering expenses, offset to some degree by non-cash income related to PIK interest and original issue discount, as well as the increases in accrued interest receivable, prepaid expenses and other assets.
During the year ended December 31, 2004, cash and cash equivalents decreased from approximately $138.2 million at the beginning of the period to approximately $57.3 million at the end of the period due primarily to our investing activities. As a business development company, we expect to have an ongoing need to raise additional capital for investment purposes. As a result, we expect from time to time to access the debt and/or equity markets when we believe it is necessary and appropriate to do so.
In order to qualify as a regulated investment company and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. In accordance with these requirements, we declared a dividend of $0.10 per common share the first quarter which was paid on April 5, 2004, a dividend of $0.11 per share in the second quarter which was paid on June 30, 2004, a dividend of $0.11 per share in the third quarter which was paid on September 30, 2004, and a dividend of $0.11 per share in the fourth quarter, which was paid on December 31, 2004.
Management determined that a tax return of capital would occur with respect to the fiscal year ended December 31, 2004. Specifically, management determined that the dividend we distributed on December 31, 2004 would result in a tax return of capital to our shareholders. A written statement identifying the source of the dividend (i.e., net income from operations, accumulated undistributed net profits from the sale of securities, and/or paid-in-capital surplus) accompanied our fourth quarter dividend payment to our shareholders.
RECENT DEVELOPMENTS
On January 18, 2005, the Company completed a $15 million investment in a senior secured note issued by WinZip Computing, Inc., a leading Windows utility software company specializing in file compression software.
In addition, on February 8, 2005, the Company announced the completion of a $15 million investment in senior secured notes with warrants issued by Segovia, Inc., a leading provider of secure global voice, data and video broadband satellite services.
On January 25, 2005, the Company completed a rights offering pursuant to which it raised approximately $42 million, after payment of dealer manager fees and before payment of other offering-related expenses.
Also, on February 14, 2005, the Company announced a cash dividend of $0.14 per share payable March 31, 2005 to holders of record on March 10, 2005.
34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. As of December 31, 2004, four debt investments in our portfolio were at fixed rates, and the remaining five investments were at variable rates, representing approximately $32 million and $47 million in principal debt respectively. The variable rates are based upon the five-year Treasury note. We expect that our future debt investments will generally be made at variable rates.
To illustrate the potential impact of a change in the underlying interest rate on our net increase in stockholders' equity resulting from operations, we have assumed a 1% increase in the underlying five-year Treasury note, and no other change in our portfolio as of December 31, 2004. Under this analysis, the impact would be approximately $470,000.
We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
|
| | |
| Management's Report on Internal Control Over Financial Reporting |
| Report of Independent Registered Public Accounting Firm |
| Balance Sheets as of December 31, 2004 and December 31, 2003 |
Schedule of Investments as of December 31, 2004
Statements of Operations for the year ended December 31, 2004 and for the period July 21, 2003 (inception) through December 31, 2003 |
| Statement of Stockholders' Equity for the period July 21, 2003 (inception) through December 31, 2004 |
| Statements of Cash Flows for the year ended December 31, 2004 and for the period July 21, 2003 (inception) through December 31, 2003 |
| Notes to Financial Statements |
|
35
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2004. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004 based upon criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, management determined that the Company's internal control over financial reporting was effective as of December 31, 2004 based on the criteria in Internal Control—Integrated Framework issued by COSO.
Our management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
36
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Technology Investment Capital Corp.:
We have completed an integrated audit of Technology Investment Capital Corp.'s 2004 financial statements and of its internal control over financial reporting as of December 31, 2004 and an audit of its 2003 financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Financial statements
In our opinion, the accompanying balance sheets, including the schedule of investments, and the related statements of operations, of stockholders' equity and of cash flows and the financial highlights present fairly, in all material respects, the financial position of Technology Investment Capital Corp. (the "Company") at December 31, 2004 and 2003, and the results of its operations, and its cash flows and the financial highlights for the year ended December 31, 2004 and for the period from July 21, 2003 (inception) through December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management's assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
37
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New York New York
March 16, 2005
38
TECHNOLOGY INVESTMENT CAPITAL CORP.
BALANCE SHEETS
ASSETS
| | | | | | | | | | |
| | | December 31,
2004 | | December 31,
2003 |
| ASSETS | | | | | | | | |
Investments, at fair value (cost: $82,124,730 @ 12/31/04; none
@ 12/31/03) | | $ | 82,124,730 | | | $ | — | |
| Cash and cash equivalents | | | 57,317,398 | | | | 138,228,765 | |
| Interest receivable – debt investments | | | 489,431 | | | | — | |
| Interest receivable – cash and cash equivalents | | | 7,538 | | | | 23,667 | |
| Prepaid expenses | | | 102,696 | | | | 72,446 | |
| Other assets | | | 460,666 | | | | — | |
| TOTAL ASSETS | | $ | 140,502,459 | | | $ | 138,324,878 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Investment advisory fee payable to affiliate | | $ | 697,022 | | | $ | 226,193 | |
| Accrued expenses | | | 243,900 | | | | 109,617 | |
| Accrued offering expenses | | | 300,000 | | | | 19,441 | |
| Total Liabilities | | | 1,240,922 | | | | 355,251 | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | |
| Common stock, $0.01 par value, 100,000,000 shares authorized, and 10,157,848 and 10,000,100 issued and outstanding, respectively | | | 101,578 | | | | 100,001 | |
| Capital in excess of par value | | | 139,410,302 | | | | 138,189,832 | |
| Accumulated net investment loss | | | (250,343 | ) | | | (320,206 | ) |
| Total Stockholders' Equity | | | 139,261,537 | | | | 137,969,627 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 140,502,459 | | | $ | 138,324,878 | |
|
SEE ACCOMPANYING NOTES.
39
TECHNOLOGY INVESTMENT CAPITAL CORP.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
| | | | | | | | | | | | | | | | | | | | | | |
| COMPANY (1) | | INDUSTRY | | INVESTMENT | | PRINCIPAL
AMOUNT | | COST | | FAIR
VALUE(2) |
| Questia Media, Inc. | | digital media | | senior secured notes(3)(4)
(12%, due Jan. 28, 2009) | | $ | 8,926,671 | | | $ | 8,926,671 | | | $ | 8,926,671 | |
| MortgageIT, Inc. | | financial services | | senior secured notes
(7.5%, due March 29, 2007) | | $ | 15,000,000 | | | | 15,000,000 | | | | 15,000,000 | |
| Advanced Aesthetics Institute | | medical services | | senior secured notes (5)
(12%, due March 31, 2009) | | $ | 10,000,000 | | | | 10,000,000 | | | | 10,000,000 | |
| | | | | warrants to purchase
common stock (9) | | | | | | | — | | | | — | |
| The Endurance | | webhosting | | senior secured notes (4)(5)(6) | | $ | 7,000,000 | | | | 6,863,039 | | | | 6,863,039 | |
| International Group, Inc. | | | | (10.0%, due July 23, 2009)
warrants to purchase
convertible preferred stock (9) | | | | | | | 150,000 | | | | 150,000 | |
| DirectRevenue, LLC | | internet advertising | | senior secured notes (6)(7)
(12%, due Aug. 19, 2007) | | $ | 5,720,000 | | | | 5,538,755 | | | | 5,538,755 | |
| | | | | warrants to purchase
common units (9) | | | | | | | 240,000 | | | | 240,000 | |
| Avue Technologies Corp. | | software | | senior secured notes (4)(6)(7)(10)
(15%, due Aug. 24, 2009) | | $ | 2,000,000 | | | | 1,993,890 | | | | 1,993,890 | |
| | | | | warrants to purchase
common stock (9) | | | | | | | 13,000 | | | | 13,000 | |
| TrenStar Inc. | | logistics technology | | senior secured notes (3)(5)
(10.5%, due Sept. 1, 2009) | | $ | 15,389,375 | | | | 15,389,375 | | | | 15,389,375 | |
| | | | | warrants to purchase
convertible preferred stock (9) | | | | | | | — | | | | — | |
| 3001, Inc. | | geospatial imaging | | senior unsecured notes (5)
(10.0%, due Oct. 1, 2010) | | $ | 10,000,000 | | | | 10,000,000 | | | | 10,000,000 | |
| | | | | preferred stock (8)(9) | | | | | | | 2,000,000 | | | | 2,000,000 | |
| | | | | common stock (8)(9) | | | | | | | 1,000,000 | | | | 1,000,000 | |
| eXact Advertising, LLC | | internet advertising | | senior secured notes (4)(5)(6) | | $ | 5,000,000 | | | | 4,671,000 | | | | 4,671,000 | | | | | |
| | | | | (10.1%, due Nov. 24, 2009)
warrants to purchase
common units (9) | | | | | | | 339,000 | | | | 339,000 | |
| Total investments | | | | | | | | | | $ | 82,124,730 | | | | 82,124,730 | |
|
| |
| (1) | We do not "control" and are not an "affiliate" of any of our portfolio companies, each as defined in the Investment Company Act of 1940 (the "1940 Act"). In general, under the 1940 Act, we would "control" a portfolio company if we owned 25% or more of its voting securities and would be an "affiliate" of a portfolio company if we owned 5% or more of its voting securities. |
| |
| (2) | Fair value is determined by the Board of Directors of the Company. |
| |
| (3) | Investment includes payment-in-kind interest. |
| |
| (4) | Transaction also includes a commitment for additional notes and/or warrants upon satisfaction of certain specified conditions. |
| |
| (5) | Notes bear interest at variable rates. |
| |
| (6) | Cost and fair value reflect accretion of original issue discount. |
| |
| (7) | Cost and fair value reflect repayment of principal. |
| |
| (8) | Preferred stock and common stock indirectly held through limited liability company interests. |
| |
| (9) | Non-income producing at the relevant period end. |
| |
| (10) | Effective February 15, 2005, maturity date was changed to April 30, 2005, consistent with the elimination of $5 million in additional capital commitments. |
| |
| (11) | As a percentage of net assets at December 31, 2004, investments at fair value are categorized as follows: senior notes (56.3%), preferred stock (1.4%), common stock (0.7%) and warrants to purchase equity securities (0.5%). |
SEE ACCOMPANYING NOTES.
40
TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENTS OF OPERATIONS
| | | | | | | | | | |
| | | YEAR ENDED
DECEMBER 31, 2004 | | FOR THE PERIOD
JULY 21, 2003
(INCEPTION)
THROUGH
DECEMBER 31, 2003 |
| INVESTMENT INCOME | | | | | | | | |
| Interest income – debt investments | | $ | 4,550,566 | | | | — | |
| Interest income – cash and cash equivalents | | | 1,092,274 | | | | 114,282 | |
| Other income | | | 1,745,318 | | | | — | |
| Total Investment Income | | | 7,388,158 | | | | 114,282 | |
| | |
| EXPENSES | | | | | | | | |
| Salaries and benefits | | | 207,698 | | | | 27,119 | |
| Investment advisory fees | | | 2,773,849 | | | | 259,138 | |
| Professional fees | | | 587,216 | | | | 30,110 | |
| Insurance | | | 83,450 | | | | 7,920 | |
| Directors' fees | | | 141,000 | | | | — | |
| Transfer agent and custodian fees | | | 86,087 | | | | 9,180 | |
| Organizational expenses | | | — | | | | 349,316 | |
| General and administrative | | | 145,341 | | | | 9,324 | |
| Total Expenses | | | 4,024,641 | | | | 692,107 | |
| | | | | | | | | |
| NET INVESTMENT INCOME (LOSS) | | $ | 3,363,517 | | | | (577,825 | ) |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN STOCKHOLDERS' EQUITY RESULTING FROM OPERATIONS | | $ | 3,363,517 | | | | (577,825 | ) |
| | | | | | | | | |
| Net increase (decrease) in stockholders' equity resulting from operations per common share: | | | | | | | | |
| Basic and Diluted | | $ | 0.33 | | | | (0.25 | ) |
| Weighted average shares of common stock outstanding: | | | | | | | | |
| Basic and Diluted | | | 10,093,660 | | | | 2,348,987 | |
|
SEE ACCOMPANYING NOTES.
41
TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 2004
| | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Capital
in Excess of
Par Value | | Accumulated
Net Investment Loss | | Total
Stockholders
Equity |
| | | Shares | | Amount | |
| Balance at July 21, 2003 (Inception) | | | 100 | | | $ | 1 | | | $ | 1,499 | | | | — | | | $ | 1,500 | |
| Issuance of Common Stock In Public Offering (net of underwriting costs and offering costs of $11,454,048) | | | 10,000,000 | | | $ | 100,000 | | | | 138,445,952 | | | | — | | | | 138,545,952 | |
Net Decrease in
Stockholders' Equity
Resulting from
Operations | | | — | | | | — | | | | — | | | $ | (577,825 | ) | | $ | (577,825 | ) |
Reclassification for permanent
Book-tax differences (1) | | | — | | | | — | | | | (257,619 | ) | | | 257,619 | | | | — | |
| Balance at December 31, 2003 | | | 10,000,100 | | | $ | 100,001 | | | $ | 138,189,832 | | | $ | (320,206 | ) | | $ | 137,969,627 | |
| Net increase in stockholders' equity resulting from operations | | | — | | | | — | | | | — | | | | 3,363,517 | | | | 3,363,517 | |
| Shares issued in connection with dividend reinvestment.. | | | 157,748 | | | | 1,577 | | | | 2,255,875 | | | | — | | | | 2,257,452 | |
| Distributions from net investment income | | | — | | | | — | | | | — | | | | (3,293,654 | ) | | | (3,293,654 | ) |
| Tax return of capital distribution | | | — | | | | — | | | | (1,035,405 | ) | | | — | | | | (1,035,405 | ) |
| Balance at December 31, 2004 | | | 10,157,848 | | | $ | 101,578 | | | | 139,410,302 | | | | (250,343 | ) | | $ | 139,261,537 | |
|
| |
| (1) | See Federal Income Tax note. |
SEE ACCOMPANYING NOTES
42
TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENTS OF CASH FLOWS
| | | | | | | | | | |
| | | YEAR ENDED
DECEMBER 31, 2004 | | FOR THE PERIOD
JULY 21, 2003 (INCEPTION)
THROUGH DECEMBER 31, 2003 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | |
| Net increase (decrease) in stockholders' equity resulting from operations | | $ | 3,363,517 | | | | (577,825 | ) |
| Adjustments to reconcile net increase (decrease) in stockholders' equity resulting from operations to net cash provided by (used in) operating activities: | | | | | | | | |
| Increase in investments due to PIK | | | (1,316,046 | ) | | | — | |
| Increase in interest receivable | | | (473,302 | ) | | | (23,667 | ) |
| Increase in prepaid expenses | | | (30,250 | ) | | | (72,446 | ) |
| Increase in other assets | | | (460,666 | ) | | | — | |
| Amortization of discounts | | | (88,684 | ) | | | — | |
| Increase in investment advisory fee payable | | | 470,829 | | | | 226,193 | |
| Increase in accrued expenses and accrued offering expenses | | | 414,842 | | | | 129,058 | |
| Net Cash Provided By (Used In) Operating Activities | | | 1,880,240 | | | | (318,687 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Purchases of investments | | | (82,200,000 | ) | | | — | |
| Repayments of principal | | | 1,480,000 | | | | — | |
| Net Cash Used in Investing Activities | | | (80,720,000 | ) | | | — | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Net proceeds from the issuance of common stock | | | — | | | | 139,500,000 | |
| Offering costs from the issuance of common stock | | | — | | | | (954,048 | ) |
| Dividends paid | | | (2,071,607 | ) | | | — | |
| Net Cash (Used In) Provided By Financing Activities.. | | | (2,071,607 | ) | | | 138,545,952 | |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | | (80,911,367 | ) | | | 138,227,265 | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 138,228,765 | | | | 1,500 | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 57,317,398 | | | | 138,228,765 | |
| NON-CASH FINANCING ACTIVITIES | | | | | | | | |
| Shares issued in connection with dividend reinvestment plan | | $ | 2,257,452 | | | | none | |
|
SEE ACCOMPANYING NOTES
43
TECHNOLOGY INVESTMENT CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1. ORGANIZATION
Technology Investment Capital Corp. ("TICC" or "Company") was incorporated under the General Corporation Laws of the State of Maryland on July 21, 2003 and is a closed-end investment company. The Company has elected to be treated as a business development company under the Investment Company Act of 1940, as amended. In addition, the Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended. The Company's investment objective is to maximize its total return, principally by investing in the debt and/or equity securities of technology-related companies.
TICC's investment activities are managed by Technology Investment Management, LLC, ("Adviser"), a registered investment adviser under the Investment Advisers Act of 1940, as amended. BDC Partners, LLC ("BDC") is the managing member of the Adviser and serves as the administrator of TICC.
On November 26, 2003, the Company closed its initial public offering and sold 8,695,653 shares of its common stock at a price to the public of $15.00 per share, less an underwriting discount of $1.05 per share and offering expenses of $954,048. Certain of TICC's directors and officers and employees of BDC Partners purchased shares at the public offering price net of the sales concession. On December 10, 2003, the Company issued an additional 1,304,347 shares of its common stock at the same price pursuant to the underwriters' overallotment. The total net proceeds to the Company from the initial public offering, including the exercise of the overallotment, were $138,545,952.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company. There are no related companies and no intercompany accounts to be eliminated.
USE OF ESTIMATES
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America that require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
In the normal course of business, the Company may enter into contracts that contain a variety of representations and provide indemnifications. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based upon experience, the Company expects the risk of loss to be remote.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at cost or amortized cost which approximates fair value.
INVESTMENT VALUATION
The Company carries its investments at fair value, as determined in good faith by the Board of Directors. Securities that are publicly traded are valued at the closing price on the valuation date. Debt and equity securities that are not publicly traded are valued at fair value as determined in good
44
faith by the Board of Directors. Beginning in March 2004, the Company engaged an independent valuation firm to perform independent valuations of its investments. The Board of Directors uses the recommended valuations as prepared by the independent valuation firm as a component of the foundation for the final fair value determination. In making such determination, the Board of Directors values non-convertible debt securities at cost plus amortized original issue discount plus payment-in-kind ("PIK") interest, if any, unless adverse factors lead to a determination of a lesser valuation. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have resulted had a readily available market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuation currently assigned.
OTHER ASSETS
Other assets include deferred charges associated with the Company's rights offering which was completed in January 2005, as well as amounts receivable from its administrator for deal cost reimbursements of approximately $15,835, and accrued commitment fees of approximately $13,233.
INTEREST INCOME RECOGNITION
Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected.
PAYMENT-IN-KIND INTEREST
The Company has investments in its portfolio which contain a payment-in-kind ("PIK") provision. The PIK interest is added to the principal balance of the investment and is recorded as interest income. To maintain its status as a RIC, this income must be paid out to stockholders in the form of dividends, even though the Company has not collected any cash. For the year ended December 31, 2004 the Company had $1,316,000 in PIK interest; there was no PIK interest for the period ended December 31, 2003.
In addition, the Company recorded original issue discount income of approximately $89,000 for the year ended December 31, 2004, representing the amortization of the discounted cost attributed to certain debt securities purchased by the Company in connection with the issuance of warrants.
OTHER INCOME
Other income includes closing fees, or origination fees, associated with investments in portfolio companies. Such fees are normally paid at closing of the Company's investments, are fully earned and non-refundable, and are generally non-recurring.
MANAGERIAL ASSISTANCE FEES
The 1940 Act requires that a business development company offer to make available managerial assistance to its portfolio companies. We offer to provide managerial assistance to our portfolio companies in connection with our investments and may receive fees for our services. The Company has not received any fees for such services since inception.
FEDERAL INCOME TAXES
The Company intends to operate so as to qualify to be taxed as a RIC under the Internal Revenue Code and, as such, would not be subject to federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify as a RIC, the Company is required to distribute at least 90% of its investment company taxable income, as defined by the Code.
Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ from net investment income
45
and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statement to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended December 31, 2003, the Company reclassified $257,619 from net investment loss to capital in excess of par value, representing the portion of net investment loss that will not be utilizable for tax purposes.
For tax purposes, the cost basis of the portfolio investments at December 31, 2004 is $82,124,730.
CONCENTRATION OF CREDIT RISK
The Company places its cash and cash equivalents with financial institutions and, at times, cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit.
NOTE 3. CASH AND CASH EQUIVALENTS
At December 31, 2004 and December 31, 2003, respectively, cash and cash equivalents consisted of:
| | | | | | | | | | |
| | | December 31, 2004 | | December 31, 2003 |
| UBS Select Money Market Fund | | $ | 2,026,577 | | | $ | 28,000,000 | |
| Eurodollar Time Deposit (due 1/4/05 and 1/13/04) | | | 24,000,000 | | | | 10,000,000 | |
| Eurodollar Time Deposit (due 1/3/05) | | | 1,200,000 | | | | — | |
| U.S. Treasury Bill (due 1/22/04) | | | — | | | | 49,976,083 | |
| U.S. Treasury Bill (due 3/18/04) | | | — | | | | 49,910,167 | |
| U.S. Treasury Bill (due 1/13/05) | | | 29,984,300 | | | | — | |
| | | | | | | | | |
| Total Cash Equivalents | | | 57,210,877 | | | | 137,886,250 | |
| Cash | | | 106,521 | | | | 342,515 | |
| | | | | | | | | |
| Cash and Cash Equivalents | | $ | 57,317,398 | | | $ | 138,228,765 | |
|
NOTE 4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net increase (decrease) in stockholders' equity resulting from operations per share for the year ended December 31, 2004 and for the period from inception through December 31, 2003:
| | | | | | | | | | |
| | | Year ended
December 31, 2004 | | Inception to
December 31, 2003 |
| Numerator for basic and diluted gain (loss) per share | | $ | 3,363,517 | | | $ | (577,825 | ) |
| Denominator for basic and diluted weighted average shares | | | 10,093,660 | | | | 2,348,987 | |
| | | | | | | | | |
| Basic and diluted net increase (decrease) in stockholders' equity resulting from operations per common share | | $ | 0.33 | | | | (0.25 | ) |
|
NOTE 5. RELATED PARTY TRANSACTIONS
TICC has entered into an investment advisory agreement with the Adviser under which the Adviser, subject to the overall supervision of TICC's Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, TICC. For providing these services the Adviser receives a fee from TICC, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00%. For services rendered under the investment advisory agreement during the period commencing from the closing of the Company's initial public share offering through and including March 31, 2004, the base management fee was
46
payable monthly in arrears, and was calculated based on the initial value of TICC's net assets upon closing of the stock offering. For services rendered under the investment advisory agreement after March 31, 2004, the base management fee is payable quarterly in arrears, and is calculated based on the average value of TICC's gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances, repurchases or redemptions during the current calendar quarter.
The incentive fee has two parts, as follows: One part is calculated and payable quarterly in arrears based on TICC's pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income earned during the calendar quarter, minus TICC's operating expenses for the quarter (including the base management fee and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes any consulting or other fees that TICC receives from portfolio companies but does not include any net realized capital gains. Pre-incentive fee net investment income, expressed as a rate of return on the value of TICC's net assets at the end of the immediately preceding calendar quarter, will be compared to one-fourth of the applicable annual "hurdle rate." The Adviser is entitled to 20.0% of the excess (if any) of TICC's pre-incentive fee net investment income for the quarter over one-fourth of the applicable annual hurdle rate. For the period from inception through December 31, 2004 the annual hurdle rate was 8.27%, which was equal to the interest rate payable, at the closing of the offering, on the most recently issued five-year U.S. Treasury Notes plus 5.0%. For each calendar year commencing on or after January 1, 2005, the annual hurdle rate will be determined as of the immediately preceding December 31st by adding 5.0% to the interest rate then payable on the most recently issued five-year U.S. Treasury Notes, up to a maximum annual hurdle rate of 10.0%. The calculations will be appropriately pro rated for any period of less than three months and adjusted for any share issuances, redemptions or repurchases during the current quarter. The current hurdle rate, calculated as of December 31, 2004, is 8.63%
The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement, as of the termination date), commencing on December 31, 2004, and equals 20.0% of our net realized capital gains for the calendar year less any net unrealized capital losses at the end of such year; provided that the incentive fee determined as of December 31, 2004 was calculated for a period of longer than twelve calendar months to take into account any net realized capital gains and net unrealized capital losses for the period ending December 31, 2003.
For the period from inception through December 31, 2003 and for the year ended December 31, 2004 there were no incentive fees earned by the Adviser.
TICC has also entered into an Administration Agreement with BDC Partners, LLC ("BDC") under which BDC provides administrative services for TICC. For providing these services, facilities and personnel, TICC reimburses BDC for TICC's allocable portion of overhead and other expenses incurred by BDC in performing its obligations under the Administration Agreement, including rent.
The Company's investment activities are managed by its investment adviser, TIM, pursuant to the investment advisory agreement described above. TIM is owned by BDC Partners, its managing member, and Royce & Associates, LLC. Jonathan Cohen, our Chief Executive Officer, and Saul Rosenthal, our President and Chief Operating Officer, are the members of BDC Partners, and Charles Royce, our non-executive chairman, is the President of Royce & Associates, LLC. For the periods ended December 31, 2004 and December 31, 2003, respectively, TICC incurred investment advisory fees of $2,773,849 and $259,138 in accordance with the terms of the investment advisory agreement, and incurred $207,698 and $27,119 in compensation expenses for the services of employees allocated to the administrative activities of TICC, pursuant to the Administration Agreement with BDC Partners. In addition, TICC incurred $28,879 for facility costs allocated under the agreement for the period ended December 31, 2004. (There were no such costs for the period ended December 31, 2003.) At December 31, 2004 and 2003, respectively, $697,022 and $226,193 of investment advisory fees remained payable to TIM, and $12,894 and $27,119 of compensation expenses remained payable to BDC Partners.
47
NOTE 6. OTHER INCOME
Other income includes primarily closing fees, or origination fees, associated with investments in portfolio companies. Such fees are normally paid at closing of the Company's investments, are fully earned and non-refundable, and are generally non-recurring. Other income also includes excess deal cost reimbursements, which are receivable from the administrator, of approximately $15,835.
The 1940 Act requires that a business development company to offer to make available managerial assistance to its portfolio companies. The Company may receive fee income for managerial assistance it renders to portfolio companies in connection with its investments. For the year ended December 31, 2004 and the period ended December 31, 2003, the Company received no fee income for managerial assistance.
NOTE 7. COMMITMENTS
As of December 31, 2004, the Company had issued commitments to purchase additional debt investments and/or warrants from certain portfolio companies, contingent upon their meeting agreed-upon financial milestones. Total commitments of $20 million were issued to Questia ($2 million), Avue Technologies ($5 million), Endurance International Group ($3 million) and eXact Advertising ($10 milion). However, the outstanding capital commitment of $5 million to Avue Technologies was cancelled effective February 15, 2005.
NOTE 8. SUBSEQUENT EVENTS
On January 18, 2005, the Company completed a $15 million investment in a senior secured note issued by WinZip Computing, Inc., a leading Windows utility software company specializing in file compression software.
On January 25, 2005, the Company completed a rights offering pursuant to which it raised approximately $42 million, after payment of dealer manager fees and before payment of other offering-related expenses.
On February 8, 2005, the Company announced the completion of a $15 million investment in senior secured notes with warrants issued by Segovia, Inc., a leading provider of secure global voice, data and video broadband satellite services.
On February 14, 2005, the Company announced a cash dividend of $0.14 per share payable March 31, 2005 to holders of record on March 10, 2005.
48
NOTE 9. FINANCIAL HIGHLIGHTS
| | | | | | | | | | |
| | | YEAR ENDED
DECEMBER 31, 2004 | | PERIOD JULY 21, 2003
(INCEPTION) THROUGH
DECEMBER 31, 2003 |
| Per Share Data | | | | | | | | |
| Net asset value at beginning of period | | $ | 13.80 | | | $ | 15.00 | |
| Offering costs and underwriters discount | | | 0.00 | | | | (1.14 | ) |
| Net investment income (loss) | | | 0.33 | (1) | | | (0.06 | )(2) |
| Net realized and unrealized gains (3) | | | 0.01 | | | | 0.00 | |
| Distributions from net investment income | | | (0.33 | ) | | | 0.00 | |
| Tax return of capital distribution | | | (0.10 | ) | | | 0.00 | |
| Net asset value at end of period | | $ | 13.71 | | | $ | 13.80 | |
| | | | | | | | | |
| Per share market value at beginning of period | | $ | 15.55 | | | $ | 15.00 | (4) |
| Per share market value at end of period | | | 15.01 | | | | 15.55 | |
| Total return (5) | | | (0.71 | )% | | | 3.67 | % |
| Shares outstanding at end of period | | | 10,157,848 | | | | 10,000,100 | |
| | | | | | | | | |
| | | | | | | | | |
| Ratios/Supplemental Data | | | | | | | | |
| Net assets at end of period ('000s) | | $ | 139,262 | | | $ | 137,970 | |
| Average net assets ('000s) | | | 137,568 | | | | 28,703 | |
| Ratio of expenses to average net assets | | | 2.9 | % | | | 2.4 | % * |
| Ratio of net investment income (loss) to average net assets | | | 2.4 | % | | | (2.0) | %* |
|
| |
| * Not annualized. |
| |
| (1) | Represents per share net investment income for the period. |
| |
| (2) | Calculated in accordance with Securities and Exchange Commission Form N-2, Part A, item 4.1.9. |
| |
| (3) | Represents rounding adjustment to reconcile change in net asset value per share; there were no actual realized or unrealized gains or losses for the periods presented. |
| |
| (4) | Represents initial public offering price. |
| |
| (5) | Total return equals the increase or decrease of the ending market value over the beginning market value, plus distributions, divided by the beginning market value. The return for 2003 has not been annualized. |
NOTE 10. DIVIDENDS
The following table represents the 2004 fiscal year quarterly dividends per share:
| | | | | | | | | | |
| Record Date | | Payment Date | | Dividend per Share |
| March 15, 2004 | | April 5, 2004 | | $ | 0.10 | |
| June 10, 2004 | | June 30, 2004 | | | 0.11 | |
| September 10, 2004 | | September 30, 2004 | | | 0.11 | |
| December 10, 2004 | | December 31, 2004 | | | 0.11 | |
|
The tax character of distributions declared and paid in 2004 represented approximately $3,293,654 from ordinary income, approximately $0 from long-term capital gains, and approximately $1,035,405 in a tax return of capital.
There were no distributions in 2003.
49
NOTE 11. SELECTED QUARTERLY DATA (UNAUDITED)
| | | | | | | | | | | | | | | | | | |
| | | YEAR ENDED DECEMBER 31, 2004 |
| | | Quarter Ended
December 31, | | Quarter Ended
September 30, | | Quarter Ended
June 30, | | Quarter Ended
March 31, |
| Total Investment Income | | $ | 2,886,977 | | | | 2,344,537 | | | | 1,243,458 | | | | 913,186 | |
| Net Investment Income (Loss) | | | 1,786,901 | | | | 1,347,156 | | | | 275,059 | | | | (45,599 | ) |
| Net Increase(Decrease) in Stockholders' Equity Resulting from Operations | | | 1,786,901 | | | | 1,347,156 | | | | 275,059 | | | | (45,599 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted earnings per common share (1) | | $ | 0.18 | | | | 0.13 | | | | 0.03 | | | | 0.00 | |
|
| |
| (1) | Aggregation of quarterly earnings per share differs from calculation of annual earnings per share for the year ended December 31, 2004 due to rounding. |
| | | | | | |
| | | PERIOD ENDED
DECEMBER 31, 2003 |
| | | | | |
| Total Investment Income | | $ | 114,282 | |
| Net Investment Loss | | | (577,825 | ) |
| Net Decrease in Stockholders' Equity Resulting from Operations | | | (577,825 | ) |
| Basic and diluted loss per common share | | | (0.25 | ) |
|
50
Item 9. Changes in and Disagreements with Independent Registered Public Accounting Firm on
Accounting and Financial Disclosure
There were no changes in or disagreements on accounting or financial disclosure with PricewaterhouseCoopers, LLP, the Company's independent registered public accounting firm, during the fiscal year ended December 31, 2004.
Item 9A. Controls and Procedures.
| |
| (a) | Evaluation of Disclosure Controls and Procedures |
| |
| | As of December 31, 2004 (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 the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. |
| |
| (b) | Management's Report on Internal Control Over Financial Reporting
Management's Report on Internal Control Over Financial Reporting, which appears on page 36 of this Form 10-K, is incorporated by reference herein. |
| |
| | PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, has issued a report on management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, which appears on page 37 of this Form 10-K. |
| |
| (c) | Changes in Internal Control Over Financial Reporting |
| |
| | Management has not identified any change in the Company's internal control over financial reporting that occurred during the fourth quarter of 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. |
Item 9B. Other Information
On February 9, 2005, the Board of Directors established an annual base salary of $250,000, exclusive of any discretionary bonuses or such other compensation as the Board of Directors may declare, from time-to-time, in its sole discretion, for Patrick F. Conroy, who serves as the Company's Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary. However, pursuant to the Company's administration agreement with BDC Partners, only a percentage of Mr. Conroy's base salary is allocated to the Company.
51
PART III
We will file a definitive Proxy Statement for our 2005 Annual Meeting of Stockholders (the "2004 Proxy Statement") with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2005 Proxy Statement that specifically address the items set forth herein are incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is hereby incorporated by reference from our 2005 Proxy Statement under the captions "Proposal I: Election of Directors," "—Committees of the Board of Directors" and "—Section 16(a) Beneficial Ownership Reporting Compliance." We have adopted a code of ethics that applies to directors, officers and employees. The code of ethics is available on our website at http://www.ticc.com. We will report any amendments to or waivers of a required provision of the code of ethics in a Form 8-K.
Item 11. Executive Compensation
The information required by Item 11 is hereby incorporated by reference from our 2005 Proxy Statement under the caption "Compensation of Directors and Executive Officers."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is hereby incorporated by reference from our 2005 Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is hereby incorporated by reference from our 2005 Proxy Statement under the caption "Certain Relationships and Transactions."
Item 14. Principal Accountant Fees and Services.
The information required by Item 14 is hereby incorporated by reference from our 2005 Proxy Statement under the captions "Proposal II: Ratification of Selection of Independent Auditors" and "Report of the Audit Committee."
52
PART IV
Item 15. Exhibits, Financial Statement Schedules
a. Documents Filed as Part of this Report
The following financial statements are set forth in Item 8:
| | | | | | |
| | | Page |
| Management's Report on Internal Control Over Financial Reporting | | | 36 | |
| Report of Independent Registered Public Accounting Firm | | | 37 | |
| Balance Sheets as of December 31, 2004 and December 31, 2003 | | | 39 | |
| Schedule of Investments as of December 31, 2004 | | | 40 | |
Statements of Operations for the year ended December 31, 2004 and for the period
July 21, 2003 (inception) through December 31, 2003 | | | 41 | |
Statement of Stockholders' Equity for the period July 21, 2003 (inception) through
December 31, 2004 | | | 42 | |
Statements of Cash Flows for the year ended December 31, 2004 and for the period
July 21, 2003 (inception) through December 31, 2003 | | | 43 | |
| Notes to Financial Statements | | | 44 | |
|
b. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
| | | | | | |
| 3.1 | | Articles of Incorporation (Incorporated by reference to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on September 23, 2003). |
| 3.2 | | Amended and Restated Bylaws (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003). |
| 4.1 | | Form of Share Certificate (Incorporated by reference to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on September 23, 2003). |
| 10.1 | | Form of Amended and Restated Investment Advisory Agreement between Registrant and Technology Investment Management, LLC (Incorporated by reference to Appendix B to the Registrant's Definitive Proxy Materials on Schedule 14A (File No. 000-50398) filed on May 18, 2004). |
| 10.2 | | Custodian Agreement between Registrant and State Street Bank and Trust Company (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003). |
| 10.3 | | Administration Agreement between Registrant and BDC Partners, LLC (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003). |
| 10.4 | | Transfer Agency and Service Agreement among Registrant, EquiServe Trust Company, N.A. and EquiServe, Inc (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003). |
| 10.5 | | Dividend Reinvestment Plan (Incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 6, 2003). |
| 11 | | Computation of Per Share Earnings (included in the notes to the audited financial statements contained in this report). |
| 31.1* | | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended. |
| 31.2* | | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended. |
| 32.1* | | Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. |
| 32.2* | | Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. |
|
| |
| * Filed herewith. |
53
c. Financial statement schedules
No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned financial statements.
54
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.
Technology Investment Capital Corp.
| | | | | | | | | | |
| | | | |
| Date: March 16, 2005 | | /s/ Jonathan H. Cohen | |
| | | Jonathan H. Cohen | |
| | | Chief Executive Officer | |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
| | | | | | |
| Date: March 16, 2005 | | /s/ Charles M. Royce |
| | | Charles M. Royce |
| | | Chairman of the Board of Directors
|
| | | |
| Date: March 16, 2005 | | /s/ Jonathan H. Cohen |
| | | Jonathan H. Cohen |
| | | Chief Executive Officer and Director
(Principal Executive Officer) |
| | | |
| Date: March 16, 2005 | | /s/ Patrick F. Conroy |
| | | Patrick F. Conroy |
| | | Chief Financial Officer, Chief Compliance Officer,
Treasurer and Secretary
(Principal Accounting and Financial Officer) |
| | | |
| Date: March 16, 2005 | | /s/ Steven P. Novak |
| | | Steven P. Novak |
| | | Director |
| | | |
| Date: March 16, 2005 | | /s/ G. Peter O'Brien |
| | | G. Peter O'Brien |
| | | Director |
| | | |
| Date: March 16, 2005 | | /s/ Tonia L. Pankopf |
| | | Tonia L. Pankopf |
| | | Director |
|
55
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT