SBA Debentures -The Corporation had $11,000,000 and $8,750,000 in outstanding SBA debentures at September 30, 2019 and December 31, 2018, respectively, with a weighted average interest rate, including the SBA annual fee, of 3.45% at September 30, 2019. The debentures are presented net of deferred debenture costs (See Note 6 “SBA Debentures”). The $11,000,000 in outstanding SBA leverage matures from 2022 through 2029.
In the event of a future default of such SBA obligations, the Corporation has consented to the exercise, by the SBA, of all rights of the SBA under 13 C.F.R. 107.1810(i) “SBA remedies for automatic events of default” and has agreed to take all actions that the SBA may so require. These actions may include the Corporation’s automatic consent to the appointment of the SBA, or its designee, as receiver under Section 311(c) of the Small Business Investment Act of 1958.
Net Assets per Share - Net assets per share are based on the number of shares of common stock outstanding. The Corporation does not have any common stock equivalents outstanding.
Supplemental Cash Flow Information - Income taxes refunded during the nine months ended September 30, 2019 and 2018 were $644,821 and $17,006, respectively. Interest paid during each of the nine months ended September 30, 2019 and 2018 was $339,605 and $282,875, respectively. The Corporation converted $344,222 and $279,319 of interest receivable into investments during the nine months ended September 30, 2019 and 2018, respectively. In addition, a debt modification fee of $142,346 was capitalized during the nine months ended September 30, 2018.
Accounting Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stockholders’ Equity (Net Assets) -At September 30, 2019 and December 31, 2018, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued.
On October 24, 2019, the Board of Directors extended the repurchase authorization for up to an aggregate of 1,541,056 shares of the Corporation’s outstanding common stock on the open market through October 25, 2020 at prices no greater than the then current net asset value. No shares were repurchased during the nine months ended September 30, 2019. At September 30, 2019 and 2018, respectively, the total treasury shares held was 541,046 shares with a total cost of $1,469,105.
Profit Sharing and Stock Option Plan -In 2001, the shareholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the “Option Plan”), that provides for the award of stock options to purchase up to 200,000 common shares to eligible employees. In 2002, the Corporation placed the Option Plan on inactive status as it developed a new profit sharing plan for the Corporation’s employees in connection with the formation of its SBIC subsidiary. As of September 30, 2019, no stock options had been awarded under the Option Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for the officers and employees of a BDC where any option, warrant or right is outstanding under an executive compensation plan, no stock options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation.
In 2002, the Corporation established a Profit Sharing Plan (the “Plan”) for its executive officers in accordance with Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay its executive officers aggregate profit sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of all realized capital losses and unrealized depreciation of the SBIC subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporation’s interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of the Corporation’s net income, as defined in the Plan. For purposes of the 20% profit sharing test, the Corporation interprets net income to be the total of the Corporation’s net investment gain (loss) and its net realized gain (loss) on investments, prior to inclusion of the estimated profit sharing obligation. The profit sharing payments are split equally between the Corporation’s two executive officers, each of whom is fully vested in the Plan.
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