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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2004.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 0-50398
TECHNOLOGY INVESTMENT CAPITAL CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 20-0188736
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8 SOUND SHORE DRIVE, SUITE 255
GREENWICH, CONNECTICUT 06830
(Address of principal executive office)
(203) 983-5275
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12 b-2 of the Exchange Act). Yes |_| No |X| .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of the
issuer's Common Stock, $0.001 par value, outstanding as of May 1, 2004 was
10,045,961.
TECHNOLOGY INVESTMENT CAPITAL CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 2004 and December 31, 2003
Schedule of Investments as of March 31, 2004
Statement of Operations for the three months ended March 31, 2004
Statement of Stockholders' Equity for the three months ended March 31, 2004
Statement of Cash Flows for the three months ended March 31, 2004
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Results of Operations
Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART I--FINANCIAL INFORMATION
TECHNOLOGY INVESTMENT CAPITAL CORPORATION
BALANCE SHEETS
AS OF MARCH 31, 2004 AND DECEMBER 31, 2003
ASSETS
MARCH 31, DECEMBER 31,
2004 2003
(Unaudited) (Audited)
ASSETS
Investments at fair value (cost: $33,167,869
@ 3/31/04;none @ 12/31/03)............. $ 33,167,869 $ 0
Cash and cash equivalents.................... 105,127,057 138,228,765
Interest receivable ......................... 12,938 23,667
Prepaid assets............................... 67,811 72,446
------------ ------------
TOTAL ASSETS................................... $138,375,675 $138,324,878
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividends payable ........................... $ 1,000,010 $ 0
Accrued expenses............................. 451,645 335,810
Accrued offering expenses.................... 0 19,441
--------- -------
Total Liabilities.......................... 1,451,655 355,251
--------- -------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value,
100,000,000 shares authorized, and
10,000,100 issued and outstanding, respectively 100,001 100,001
Capital in excess of par value................. 138,189,832 138,189,832
Overdistributed net investment income........... (1,365,813) (320,206)
------------ -----------
Total Stockholders' Equity................. 136,924,020 137,969,627
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $ 138,375,675 $138,324,878
============= ============
SEE ACCOMPANYING NOTES.
TECHNOLOGY INVESTMENT CAPITAL CORP.
SCHEDULE OF INVESTMENTS
MARCH 31, 2004
(UNAUDITED)
COMPANY(1) INDUSTRY INVESTMENT COST FAIR VALUE(2)
- ---------------------------------------------------------------------------------------------
Questia Media,Inc. digital media senior notes(3)(4) $ 8,167,869 $8,167,869
MortgageIT, Inc. financial services senior notes 15,000,000 15,000,000
Advanced Aesthetics medical services senior notes 10,000,000 10,000,000
Institute warrants to
purchase common - -
stock
-----------------------
Total investments $33,167,869 $33,167,869
=======================
- ----------------------------------
(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 "'40
Act"). In general, under the '40 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 has some payment-in-kind interest.
(4) Transaction also includes a commitment to purchase additional notes over
two years.
TECHNOLOGY INVESTMENT CAPITAL CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
INVESTMENT INCOME
Interest income....................................... $ 463,187
Other fees............................................ 450,000
---------
Total Investment Income............................. 913,187
---------
EXPENSES
Salaries and benefits................................. 46,338
Investment advisory fees.............................. 689,182
Professional fees..................................... 84,306
Insurance............................................. 20,020
Directors' fees....................................... 32,250
General and administrative............................ 86,688
---------
Total Expenses....................................... 958,784
---------
NET INVESTMENT LOSS..................................... $ (45,597)
=========
NET DECREASE IN STOCKHOLDERS' EQUITY RESULTING FROM
OPERATIONS............................................ $ (45,597)
=========
Net decrease in stockholders' equity resulting from O
perations per common share:
Basic and Diluted..................................... $ (0.005)
Weighted average shares of common stock outstanding:
Basic and Diluted..................................... 10,000,100
SEE ACCOMPANYING NOTES.
TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
Common Stock Capital Total
------------ ------- -----
in Excess of Undist. Stockholders
------------ -------- ------------
Shares Amount Par Value Earnings Equity
------ ------ ------------ -------- --------
Balance at December 31,
2003.................. 10,000,100 $100,001 $138,189,832 $(320,206) $137,969,627
Net Decrease in
Stockholders' Equity
Resulting from Operations -- -- -- (45,597) (45,597)
Dividends declared -- -- -- (1,000,010) (1,000,010)
---------------------------------------------------------
Balance at March 31, 2004 10,000,100 100,001 138,189,832 (1,365,813) 136,924,020
=========================================================
SEE ACCOMPANYING NOTES
TECHNOLOGY INVESTMENT CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in stockholders' equity resulting from
operations....................................... $ (45,597)
Adjustments to reconcile net decrease in stockholders'
equity resulting from operations to net cash provided/
used by operating activities:
Decrease in interest receivable................ 10,729
Decrease in prepaid assets..................... 4,635
Increase in investments due to PIK interest.... (167,869)
Increase in accrued expenses and
other liabilities............................ 96,394
-----------
Net Cash Used by Operating Activities.............. (101,708)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments............................ (33,000,000)
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS............ (33,101,708)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 138,228,765
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $105,127,057
============
NON-CASH FINANCING ACTIVITIES........................ none
SEE ACCOMPANYING NOTES
TECHNOLOGY INVESTMENT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim financial statements of Technology Investment Capital Corp. ("TICC" or
"Company") are prepared in accordance with generally accepted accounting
principles ("GAAP")for interim financial information and pursuant to the
requirements for reporting on Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain disclosures accompanying annual financial statements
prepared in accordance with GAAP are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals, necessary for the
fair presentation of financial statements for the interim periods have been
included. The current period's results of operations are not necessarily
indicative of results that may be achieved for the year. The interim financial
statements and notes thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 2003, as filed with the Securities and Exchange Commission.
NOTE 2. ORGANIZATION
TICC was incorporated under the General Corporation Laws of the State of
Maryland on July 21, 2003 as 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 (the "1940 Act"). 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. The Company also
reimbursed the Adviser for approximately $350,000 for organizational expenses
advanced by the Adviser on behalf of TICC.
NOTE 3. 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 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 other factors lead to a
determination of a lesser or greater 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 ready 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 ultimately realized on these investments to be
different than the valuation currently assigned.
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
period ended March 31, 2004:
Numerator for basic and diluted loss per share.............. $ (45,597)
Denominator for basic and diluted weighted average shares... 10,000,100
Basic and diluted net decrease in stockholders' equity
resulting from operations per common share.................. $ (0.005)
NOTE 5. RELATED PARTY TRANSACTIONS
The Company's investment activities are managed by its investment adviser,
Technology Investment Management, LLC ("TIM") pursuant to an investment advisory
agreement. TIM is owned by BDC Partners, LLC, its managing member, and Royce &
Associates, LLC. Jonathan Cohen, our chief executive officer, and Saul
Rosenthal, our chief operating officer, are the members of BDC Partners, and
Charles Royce, our non-executive chairman, is the president of Royce &
Associates. For the quarter ended March 31, 2004, TICC incurred investment
advisory fees of $689,182 of which $235,226 was payable to TIM at the end of the
quarter. Pursuant to the terms of its administration agreement with BDC
Partners, TICC incurred $46,338 in compensation expenses for employees allocated
to the administrative activities of TICC and $1,856 for reimbursement of
facility costs allocated to TICC, of which amounts $8,865 and $1,856,
respectively, remained payable to BDC Partners at the end of the quarter. In
addition, TICC reimbursed TIM and BDC Partners for offering expenses of $6,950
which had been paid on behalf of TICC.
NOTE 6. DIVIDENDS
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, among other requirements, to
distribute at least 90% of its investment company taxable income, as defined by
the Code. The amount to be paid out as a dividend is determined by the Board of
Directors each quarter and is based upon the annual earnings estimated by the
management of the Company.
On April 5, 2004, the Company paid a dividend of $0.10 per share to stockholders
of record as of March 15, 2004. On May 4, 2004, the Company announced a dividend
of $0.11 per share for the second quarter.
NOTE 7. NET ASSET VALUE PER SHARE
The Company's net asset value per share at March 31, 2004 was $13.69, and at
December 31, 2003 was $13.80.
NOTE 8. PAYMENT IN KIND INTEREST
The Company has loans in its portfolio, which contain a payment-in-kind ("PIK")
provision. The PIK interest is added to the principal balance of the loan and
recorded as income. To maintain the Company's status as a RIC (as discussed in
Note 6, above), this non-cash source of income must be paid out to stockholders
in the form of dividends, even though the Company has not yet collected the
cash. For the three months ended March 31, 2004, the Company recorded PIK income
of $167,869, and a corresponding increase in the cost of the investment. The
Company does not have any original issue discount income.
NOTE 9. OTHER FEES
For the three months ended March 31, 2004, other fees totaled $450,000. These
fees include closing fees associated with investments in portfolio companies.
Such fees are normally paid at the closing of the Company's investments and are
generally non-recurring.
The 1940 Act requires that a business development company 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.
NOTE 10. FINANCIAL HIGHLIGHTS
Three Months ended
March 31, 2004
(UNAUDITED)
-----------
Per Share Data (1)
- ------------------
Net asset value at beginning of period $ 13.80
Net investment loss (2) (0.01)
Distributions from net investment income (0.10)
--------
Net asset value at end of period $ 13.69_
========
Per share market value at beginning of period $ 15.55
Per share market value at end of period 14.59
Total return (3)(4) (5.53)%
Shares outstanding at end of period 10,000,100
Ratios/Supplemental Data
- ------------------------
Net assets at end of period $ 136,924,020
Average net assets 137,691,189
Ratio of expenses to average net assets - annualized 2.74%
Ratio of net investment income to average net assets - annualized (0.13)%
- ------------------------------------------
(1) Basic per share data.
(2) Represents per share net investment loss for the period ($.005), rounded.
(3) Amount not annualized for the three months ended March 31, 2004.
(4) Total return equals the increase/decrease of the ending market value plus
dividends divided by the beginning market value.
NOTE 11. CASH AND CASH EQUIVALENTS
At March 31, 2004 and December 31, 2003, respectively, cash and cash
equivalents consisted of:
March 31, 2004 December 31, 2003
-------------- -----------------
UBS Select Money Market Fund.................. $ 4,548,106 $ 28,000,000
Eurodollar Time Deposit(due 1/13/04) ......... 0 10,000,000
U.S. Treasury Bill (due 4/1/04 and 1/22/04)... 50,000,000 49,976,083
U.S. Treasury Bill (due 4/22/04 and 3/18/04) 49,975,500 49,910,167
------------ -------------
Total Cash Equivalents............ 104,523,606 137,886,250
Cash ............................. 603,451 342,515
------------ -------------
Cash and Cash Equivalents ........ $105,127,057 $ 138,228,765
============ =============
NOTE 12. COMMITMENTS
As part of the Company's investment in the senior notes of Questia Media, Inc.,
a commitment for an additional purchase of $2 million in senior notes, over the
two year period ending January 28, 2006, was issued. The fulfillment of this
commitment is contingent on the achievement of certain agreed-upon financial
milestones by Questia Media.
NOTE 13. SUBSEQUENT EVENTS
On April 19, 2004, the Company filed a preliminary proxy statement with the
Securities & Exchange Commission. In addition to the election of one director
and ratification of the appointment of its auditors, the Company is also
recommending approval of an amendment to the investment advisory agreement,
which would change the calculation of the base management fee. The effect of the
change is to charge fees based upon gross assets rather than net assets which
would increase the fees payable to the advisor. This change will effectively
enable the advisor to recommend the use of leverage in the Company's portfolio
and receive a higher fee based on the extent to which leverage is used.
On May 4, 2004, the Company announced a cash dividend of $0.11 per share to
holders of record on June 10, 2004, payable on June 30, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The information contained in this section should be read in conjunction with the
Selected Financial Data and Other Data, and our Financial Statements and notes
thereto appearing elsewhere in this Quarterly Report. This Quarterly Report,
including the Management's Discussion and Analysis of Financial Condition and
Results of Operations, contains forward-looking statements that involve
substantial risks and uncertainties. These forward-looking statements are not
historical facts, but rather are based on current expectations, estimates and
projections about our industry, our beliefs, and our assumptions. Words such as
"anticipates", "expects", "intends", "plans", "believes", "seeks", and
"estimates" and variations of these words and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties, and other factors,
some of which are beyond our control and difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements including without limitation:
>> economic downturns or recessions may impair our portfolio companies'
performance;
>> a contraction of available credit and/or an inability to access the equity
markets could impair our lending and investment activities;
>> the risks associated with the possible disruption in the Company's
operations due to terrorism; and
>> the risks, uncertainties and other factors we identify from time to time in
our filings with the Securities and Exchange Commission, including our Form
10-Ks, Form 10-Qs and Form 8-Ks.
Although we believe that the assumptions on which these forward-looking
statements are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be incorrect. In light of these and other uncertainties,
the inclusion of a projection or forward-looking statement in this Quarterly
Report should not be regarded as a representation by us that our plans and
objectives will be achieved. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Quarterly
Report. We undertake no obligation to update such statements to reflect
subsequent events.
The following analysis of our financial condition and results of operations
should be read in conjunction with our financial statements and the notes
thereto contained elsewhere in this report.
OVERVIEW
We were incorporated under the General Corporation Laws of the State of Maryland
on July 21, 2003. Our investment objective is to maximize our portfolio's total
return, principally by investing in the debt and/or equity securities of
technology-related companies. Our primary focus is seeking current income
through investment in non-public debt and long-term capital appreciation by
acquiring accompanying warrants or other equity securities. We may also invest
in the publicly traded debt and/or equity securities of other technology-related
companies. We operate as a closed-end, non-diversified management investment
company, and have elected to be treated as a business development company under
the 1940 Act. We intend to elect to be treated for tax purposes as a regulated
investment company, or RIC, under the Internal Revenue Code of 1986, as amended,
beginning with our 2003 taxable year.
Our investment activities are managed by Technology Investment Management, LLC
("TIM"), a registered investment adviser under the Investment Advisers Act of
1940. TIM is owned by BDC Partners, LLC, its managing member, and Royce &
Associates, LLC ("Royce"). Jonathan H. Cohen, our chief executive officer, and
Saul B. Rosenthal, our chief operating officer, are the members of BDC Partners,
and Charles M. Royce, our non-executive chairman, is the president of Royce.
Under the investment advisory agreement, we have agreed to pay TIM an annual
base fee and an incentive fee based upon our performance. Under an
administration agreement, we have agreed to pay or reimburse BDC Partners, as
administrator, for certain expenses incurred in operating the Company.
We intend to concentrate our investments in companies having annual revenues of
less than $100 million and/or a market capitalization of less than $200 million.
We focus on companies that create products or provide services requiring
advanced technology and companies that compete in industries characterized by
such products or services, including companies in the following businesses:
computer hardware and software, networking systems, semiconductors,
semiconductor capital equipment, diversified technology, medical device
technology, information technology infrastructure or services, Internet,
telecommunications and telecommunications equipment and media.
While the structure of our investments will vary, we expect to invest primarily
in the debt of established target technology-related companies. We will seek to
invest in entities that, as a general matter, have been operating for at least
one year prior to the date of our investment and that such entities will, at the
time of our investment, have employees and revenues. We expect that most of
these companies will have financial backing provided by private equity or
venture capital funds or other financial or strategic sponsors at the time we
make an investment. Our investments typically range from $5 million to $15
million, mature in no more than seven years and accrue interest at fixed or
variable rates. Our loans may carry a provision for deferral of some or all of
the interest payments , which will be added to the principal amount of the loan.
This form of deferred interest is referred to as "payment-in-kind" or "PIK"
interest and, when earned, is recorded as interest income and an increase in the
principal amount of the loan. We had PIK interest of approximately $168,000 for
the quarter ended March 31, 2004.
To the extent possible, our loans will be collateralized by a security interest
in the borrower's assets or guaranteed by a principal to the transaction.
Interest payments, if not deferred, are normally payable monthly with
amortization of principal being deferred for several years. When we receive a
warrant to purchase stock in a portfolio company, the warrant will typically
have a nominal strike price, and will entitle us to purchase a modest percentage
of the borrower's stock.
In addition, as a business development company under the 1940 Act, we are
required to make available significant managerial assistance, for which we may
receive fees, to our portfolio companies. These fees are generally
non-recurring, however in some instances they may have a recurring component.
Prior to making an investment, we will enter into a non-binding term sheet with
the potential portfolio company. These term sheets are generally subject to a
number of conditions, including but not limited to the satisfactory completion
of our due diligence investigations of the company's business and legal
documentation for the loan.
Since our initial public offering in November 2003 through the end of the first
quarter of 2004, we have made three loans to target companies in the total
amount of $33 million, with a commitment of an additional $2 million to one of
our portfolio companies. At the time of our initial public offering, we had
entered into four non-binding commitments to lend up to $35 million to
prospective portfolio companies. We have made investments in two of these
companies, Questia Media and MortgageIT. Of the remaining two prospective
portfolio companies, one is in the process of being sold (prior to the
opportunity for us to complete our proposed transaction) and we have
discontinued negotiations with the other. In March 2004, we made an investment
in Advanced Aesthetics. We continue to work diligently toward the consummation
of additional investments. Our management is actively involved in identifying
and evaluating potential opportunities.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity
with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported
consolidated amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and revenues and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have identified our investment valuation process as our
most critical accounting policy.
Investment Valuation
- --------------------
The most significant estimate inherent in the preparation of our consolidated
financial statements is the valuation of investments and the related amounts of
unrealized appreciation and depreciation of investments recorded.
We value our investment portfolio each quarter. Members of our portfolio
management team provide information to the Board of Directors on each portfolio
company including the most recent financial statements and forecasts. In
addition, we have engaged the firm of
Houlihan Lokey Howard & Zukin ("HLHZ") to evaluate our portfolio investments,
although the Board of Directors retains ultimate authority as to the appropriate
valuation of each investment. At March 31, 2004, the Board used the information
provided by the portfolio management team and HLHZ's report in its determination
of the final fair value of investments, as noted in the Schedule of Investments.
The Board's final determination of fair value is based on some or all of the
following factors, as applicable, and any other factors considered to be
relevant:
o the nature of any restrictions on disposition of the securities;
o assessment of the general liquidity/illiquidity of the securities;
o the issuer's financial condition, including its ability to make payments
and its earnings and discounted cash flow;
o the markets in which the issuer does business;
o the cost of the investment;
o the size of the holding and the capitalization of issuer;
o the nature and value of any collateral;
o the prices of any recent transactions or bids/offers for the securities or
similar securities or any comparable securities that are publicly traded;
and
o any available analyst, media or other reports or information deemed
reliable by the independent valuation firm regarding the issuer or the
markets or industry in which it operates.
Fair value securities may include, but are not limited to, the following:
o private placements and restricted securities that do not have an active
trading market;
o securities whose trading has been suspended or for which market quotes are
no longer available;
o debt securities that have recently gone into default and for which there is
no current market;
o securities whose prices are stale; and
o securities affected by significant events.
RESULTS OF OPERATIONS
We were incorporated on July 21, 2003 and commenced operations in November 2003.
Therefore, there is no period for which to compare the results for the first
quarter of 2004.
INVESTMENT INCOME
Investment income for the three months ended March 31, 2004 was approximately
$913,000. This amount primarily consisted of interest income of approximately
$287,000 from cash and cash equivalents and $168,000 in PIK from one of our debt
investments. Non-recurring other fee income of $450,000, representing closing
fees associated with investments in portfolio companies, was also recorded.
Interest income from invested cash and cash equivalents reflects the investment
of the net proceeds from our initial public offering. Income from investments in
debt securities was relatively modest since we did not close our first
investment until January 28, 2004 and the other two investments were closed
during the last week of the quarter. As we continue to make investments in debt
securities of private companies we expect that we will generate additional
income at rates significantly greater than the rates we are currently receiving
on cash and cash equivalents.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2004 were approximately
$959,000. This amount consisted of investment advisory fees, salaries and
benefits, professional fees, and general and administrative expenses.
The investment advisory fee for the quarter was approximately $689,000,
representing the base fee as provided for in the advisory agreement. Salaries
and benefits were approximately $46,000, reflecting the allocation of
compensation expenses for the services of our chief financial officer, office
manager, and the vice president of business development.
Professional fees, consisting of legal and audit fees, were approximately
$84,000, and insurance costs were $20,020. Directors' fees were approximately
$32,000 for the quarter.
General and administrative expenses, consisting primarily of office supplies,
facilities costs and other expenses, were approximately $87,000. General and
administrative expenses are allocated to us under the terms of the
administration agreement with TIM and BDC Partners.
NET DECREASE IN STOCKHOLDERS' EQUITY FROM OPERATIONS
We had a net decrease in stockholders' equity resulting from operations of
$45,597 for the three months ended March 31, 2004. Based on a weighted-average
of 10,000,100 (basic and fully diluted) shares outstanding, our net change in
stockholders' equity from operations per common share for the three months ended
March 31, 2004 was $0.005 for basic and fully diluted earnings.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, we had investments in debt securities of, or loans to, three
private companies, totaling approximately $33.2 million of total investment
assets. This amount includes approximately $168,000 in accrued PIK interest
which, as described in "Overview," is added to the carrying value of our
investments.
Cash used by operating activities for the three months ended March 31, 2004,
consisting primarily of the items described in "Results of Operations," was
approximately $102,000 reflecting the loss resulting from operations, and the
non-cash income related to PIK interest, offset to some degree by an increase in
accrued expenses. Net cash used by investing activities was $33.0 million, due
to the new investments.
During the three months ended March 31, 2004, cash and cash equivalents
decreased from approximately $138.2 million at the beginning of the period to
approximately $105.1 million at the end of the period.
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, on April 5, 2004, we paid a dividend of
$0.10 per share to stockholders of record as of March 15, 2004. On May 4, 2004,
we announced a dividend of $0.11 per share for the second quarter to
stockholders of record as of June 10, 2004, payable on June 30, 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to financial market risks,
including changes in interest rates. We expect that initially many of the loans
in our portfolio will be made at fixed rates. Over time some of our investments
may be at variable rates. Currently the three loans in our portfolio are at
fixed rates. We may hedge against interest rate fluctuations by using standard
hedging instruments such as futures, options and forward contracts 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 did not engage in any hedging activities during the
first quarter of 2004.
ITEM 4. CONTROLS AND PROCEDURES.
As of March 31, 2004, we, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures. Based on that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective in timely
alerting management, including the Chief Executive Officer and Chief Financial
Officer, of material information about us required to be included in periodic
Securities and Exchange Commission filings. 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.
There have been no changes in our internal control over financial reporting that
occurred during the quarter ended March 31, 2004, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not currently subject to any material legal proceedings, nor, to our
knowledge, is any material legal proceeding threatened against us. From time to
time, we may be a party to certain legal proceedings incidental to the normal
course of our business including the enforcement of our rights under contracts
with our portfolio companies. While the outcome of these legal proceedings
cannot be predicted with certainty, we do not expect that these proceedings will
have a material effect upon our financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 Amended and Restated Investment Advisory Agreement between
Registrant and Technology Investment Management, 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).
10.2 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 section 302
of The Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to section 302
of The Sarbanes-Oxley Act of 2002.
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.
(b) REPORTS ON FORM 8-K
On January 26, 2004, the Company filed a Current Report on Form 8-K announcing
that its Chief Executive Officer, Jonathan Cohen, would be opening the NASDAQ
National Market on January 27, 2004.
On January 28, 2004, the Company filed a Current Report on Form 8-K announcing
that it had completed a transaction with Questia Media, Inc. On February 2,
2004, the Company filed a Current Report on Form 8-K to indicate it had issued a
press release announcing the declaration of the fiscal year 2004 first quarter
dividend.
On February 4, 2004, the Company filed a Current Report on Form 8-K to indicate
it had issued a press release announcing the hiring of a managing director and
senior credit analyst.
On February 10, 2004, the Company filed a Current Report on Form 8-K to indicate
it had issued a press release announcing that the chief transaction officer had
joined the Company on a full-time basis.
On February 11, 2004, the Company filed a Current Report on Form 8-K to indicate
it had issued a press release announcing that earnings for the quarter and the
year would be announced on February 17, 2004.
On February 17, 2004, the Company filed a Current Report on Form 8-K announcing
its financial results for the fiscal year and quarter ended December 31, 2003.
On March 1, 2004, the Company filed a Current Report on Form 8-K announcing the
engagement of Houlihan Lokey Howard & Zukin, an independent valuation firm, and
the termination of the sub-advisory agreement with Hill Street Advisors, LLC.
On March 30, 2004, the Company filed a Current Report on Form 8-K announcing
that it had completed a transaction with MortgageIT, Inc.
On March 31, 2004, the Company filed a Current Report on Form 8-K announcing
that it had completed a transaction with Advanced Aesthetics Institute.
On May 4, 2004, the Company filed a Current Report on Form 8-K announcing its
financial results for the quarter ended March 31, 2004.
On May 6, 2004, the Company filed a Current Report on Form 8-K announcing the
declaration of the dividend for the second quarter of 2004.
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: May 13, 2004 By: /s/ Jonathan H. Cohen
-------------------------------
Jonathan H. Cohen
Chief Executive Officer
Date: May 13, 2004 By: /s/ Patrick F. Conroy
-------------------------------
Patrick F. Conroy
Chief Financial Officer
(Principal Accounting and Financial Officer)