Full Circle Capital Corp - FORM 10-Q

Attached files

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EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Full Circle Capital Corp	v334526_ex31-1.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Full Circle Capital Corp	v334526_ex32-2.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Full Circle Capital Corp	v334526_ex31-2.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Full Circle Capital Corp	v334526_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED December 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 814-00809

FULL CIRCLE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

MARYLAND

27-2411476

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

800 Westchester Ave., Suite S-620

Rye Brook, NY 10573

(Address of principal executive office)

(914) 220-6300

(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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x (do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of February 11, 2013 was 7,569,382.

FULL CIRCLE CAPITAL CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Statements of Assets and Liabilities as of December 31, 2012 and June 30, 2012 (audited)	1
	Consolidated Statements of Operations for the three and six months ended December 31, 2012 and December 31, 2011	2
	Consolidated Statements of Changes in Net Assets for the six months ended December 31, 2012 and December 31, 2011	3
	Consolidated Statements of Cash Flows for the six months ended December 31, 2012 and December 31, 2011	4
	Consolidated Schedule of Investments as of December 31, 2012	5
	Consolidated Schedule of Investments as of June 30, 2012 (audited)	9
	Notes to Consolidated Financial Statements as of December 31, 2012	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Forward-Looking Statements	27
	Overview	28
	Critical Accounting Policies	28
	Current Market Conditions and Market Opportunity	31
	Waiver and Expense Reimbursement	31
	Portfolio Composition and Investment Activity	31
	Results of Operations	35
	Liquidity and Capital Resources	38
	Recent Developments	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
SIGNATURES		45

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

		December 31, 2012			June 30, 2012
		(Unaudited)			(Audited)
Assets
Control Investments at Fair Value (Cost of $18,137,713 and $6,639,648, respectively)	(NOTE 2, 9)	$	18,570,697		$	6,777,511
Affiliate Investments at Fair Value (Cost of $11,296,481 and $6,802,017, respectively)	(NOTE 2, 9)		9,282,442			5,112,142
Non-Control/Non-Affiliate Investments at Fair Value (Cost of $72,151,382 and $85,181,617, respectively)	(NOTE 2, 9)		71,765,827			82,957,117
Total Investments at Fair Value (Cost of $101,585,576 and $98,623,282, respectively)			99,618,966			94,846,770

Cash			304,077			639,149
Deposit with Broker			2,250,000			2,350,000
Interest Receivable	(NOTE 2)		848,630			902,711
Principal Receivable			251,751			513,372
Dividends Receivable			72,493			-
Due from Portfolio Investment			364,535			11,140
Receivable for Investments Sold			1,126,196			-
Prepaid Expenses			107,717			43,053
Other Assets			10,550			25,499
Deferred Offering Expenses			-			67,685
Deferred Credit Facility Fees			100,000			50,000

Total Assets			105,054,915			99,449,379

Liabilities
Due to Affiliate	(NOTE 5)		710,556			580,353
Accounts Payable			19,337			115,741
Accrued Liabilities			47,455			79,651
Due to Broker			22,000,733			22,500,041
Dividends Payable			582,842			478,892
Interest Payable			100,479			142,518
Other Liabilities			759,692			140,458
Accrued Offering Expenses			-			19,697
Line of Credit			16,622,598			18,544,660
Distribution Notes	(NOTE 8)		3,404,583			3,404,583

Total Liabilities			44,248,275			46,006,594

Net Assets		$	60,806,640		$	53,442,785

Components of Net Assets
Common Stock, par value $0.01 per share (100,000,000 authorized; 7,569,382 and 6,219,382 issued and outstanding, respectively)		$	75,694		$	62,194
Paid-in Capital in Excess of Par			67,420,152			57,455,232
Distributions in Excess of Net Investment Income			(500,122	)		(122,763	)
Accumulated Net Realized Losses			(4,222,474	)		(175,366	)
Accumulated Net Unrealized Losses			(1,966,610	)		(3,776,512	)
Net Assets		$	60,806,640		$	53,442,785

Net Asset Value Per Share		$	8.03		$	8.59

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

		Three Months Ended December 31,						Six Months Ended December 31,
		2012			2011			2012			2011
Investment Income
Interest Income from Non-Control/Non-Affiliate Investments		$	1,974,071		$	2,104,779		$	3,994,055		$	3,930,042
Interest Income from Affiliate Investments			280,567			-			560,508			234,864
Interest Income from Control Investments			319,411			227,071			598,584			254,644
Dividend Income from Control Investments			72,493			1,823			106,590			1,823
Other Income from Non-Control/Non-Affiliate Investments	(NOTE 2)		384,553			64,992			528,580			376,449
Other Income from Affiliate Investments	(NOTE 2)		56,004			-			59,585			54,086
Other Income from Control Investments	(NOTE 2)		12,500			-			25,000			105,000
Total Investment Income			3,099,599			2,398,665			5,872,902			4,956,908

Operating Expenses
Management Fee	(NOTE 5)		345,126			300,690			679,162			586,650
Incentive Fee	(NOTE 5)		365,430			274,674			673,362			646,276
Total Advisory Fees			710,556			575,364			1,352,524			1,232,926

Allocation of Overhead Expenses	(NOTE 5)		84,552			89,207			141,308			174,892
Sub-Administration Fees	(NOTE 5)		50,000			78,115			123,429			156,229
Officers’ Compensation	(NOTE 5)		75,160			71,629			150,354			117,553
Total Costs Incurred Under Administration Agreement			209,712			238,951			415,091			448,674

Directors’ Fees			33,125			26,125			61,750			54,250
Interest Expense	(NOTE 8)		438,587			244,405			835,082			366,965
Professional Services Expense			109,902			93,806			275,063			314,679
Bank Fees			5,230			3,285			8,320			6,966
Other			126,837			118,089			221,177			203,258
Total Gross Operating Expenses			1,633,949			1,300,025			3,169,007			2,627,718

Management Fee Waiver and Expense Reimbursement	(NOTE 5)		-			-			-			(313,792	)
Total Net Operating Expenses			1,633,949			1,300,025			3,169,007			2,313,926

Net Investment Income			1,465,650			1,098,640			2,703,895			2,642,982
Net Change in Unrealized Gain (Loss) on Investments			1,292,589			(846,865	)		1,809,902			(917,680	)
Net Realized Gain (Loss) on Investments			(3,186,441	)		766			(4,047,108	)		126,572
Net Increase (Decrease) in Net Assets Resulting from Operations		$	(428,202	)	$	252,541		$	466,689		$	1,851,874

Earnings (Loss) per Common Share Basic and Diluted	(NOTE 4)	$	(0.06	)	$	0.04		$	0.07		$	0.30
Net Investment Income per Common Share Basic and Diluted		$	0.22		$	0.18		$	0.42		$	0.43
Weighted Average Shares of Common Share Outstanding Basic and Diluted			6,732,969			6,219,382			6,476,175			6,219,382

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)

	Six months ended December 31, 2012			Six months ended December 31, 2011
Increase (Decrease) in Net Assets Resulting from Operations:
Net Investment Income	$	2,703,895		$	2,642,982
Net Change in Unrealized Gain (Loss) on Investments		1,809,902			(917,680	)
Realized Gain (Loss) on Investments		(4,047,108	)		126,572

Net Increase in Net Assets Resulting from Operations		466,689			1,851,874

Dividends to Shareholders		(3,081,254	)		(2,836,038	)

Capital Share Transactions:
Issuance of Common Stock		10,665,000			-
Less Offering Costs and Underwriting Fees		(686,580	)		-

Net Increase in Net Assets Resulting from Capital Share Transactions		9,978,420			-

Total Increase (Decrease) in Net Assets		7,363,855			(984,164	)
Net Assets at Beginning of Period		53,442,785			56,474,006

Net Assets at End of Period	$	60,806,640		$	55,489,842

Capital Share Activity:
Shares Issued		1,350,000			-
Shares Outstanding at Beginning of Period		6,219,382			6,219,382

Shares Outstanding at End of Period		7,569,382			6,219,382

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six months ended December 31, 2012			Six months ended December 31, 2011
Cash Flows from Operating Activities:
Net Increase in Net Assets Resulting from Operations	$	466,689		$	1,851,874
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Used in Operating Activities
Purchases of Investments		(87,577,200	)		(101,127,615	)
Proceeds from Sale or Refinancing of Investments		80,727,443			86,287,467
Realized (Gain) Loss on Investments		4,047,108			(126,572	)
Net change in Unrealized (Gain) Loss on Investments		(1,809,902	)		917,680
Amortization of Discount		(159,645	)		(291,351	)
Change in Operating Assets and Liabilities
Deposit with Broker		100,000			(642,141	)
Interest Receivable		54,081			(243,793	)
Principal Receivable		261,621			(709,008	)
Dividend Receivable		(72,493	)		-
Due from Portfolio Investment		(353,395	)		-
Receivable for Investments Sold		(1,126,196	)		-
Prepaid Expenses		(64,664	)		(71,782	)
Other Assets		14,949			200,797
Due to Affiliate		130,203			(17,055	)
Accounts Payable		(96,404	)		(110,057	)
Accrued Liabilities		(32,196	)		40,692
Due to Broker		(499,308	)		6,500,531
Interest Payable		(42,039	)		84,504
Other Liabilities		619,234			(255,512	)

Net Cash Used in Operating Activities		(5,412,114	)		(7,711,341	)

Cash Flows from Financing Activities:
Borrowings Under Credit Facility		31,479,326			43,940,969
Payments Under Credit Facility		(33,451,388	)		(33,243,367	)
Dividends Paid to Shareholders		(2,977,304	)		(3,756,507	)
Payment of Offering Costs and Underwriting Fees		(638,592	)		-
Proceeds from Issuance of Common Stock		10,665,000			-

Net Cash Provided by Financing Activities		5,077,042			6,941,095

Total Decrease in Cash		(335,072	)		(770,246	)
Cash Balance at Beginning of Period		639,149			2,065,943
Cash Balance at End of Period	$	304,077		$	1,295,697

Supplemental Disclosure of Non-Cash Financing Activity:
Dividends Declared, Not Yet Paid	$	582,842		$	478,892

Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for Interest	$	877,121		$	282,461

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2012 (Unaudited)

Description ^1,2	Industry	Par Amount/ Quantity		Cost		Fair Value		% of Net Asset Value

Attention Transit Advertising Systems, LLC	Outdoor
Senior Secured Loan, 14.50%, 05/01/2013	Advertising Services	$	2,321,626	$	2,321,626	$	2,097,124		3.45	%

Background Images, Inc.	Equipment
Senior Secured Loan – Term A, 14.71%, 6/28/2014	Rental Services	$	1,667,500		1,650,799		1,714,246		2.82	%
Senior Secured Loan – Term B, 16.46%, 6/28/2014		$	942,500		932,909		971,749		1.60	%
Total					2,583,708		2,685,995		4.42	%

Blackstrap Broadcasting, LLC	Radio
Senior Secured Loan, 5.00%, 6/25/2013	Broadcasting	$	3,000,000		3,000,000		2,764,100		4.54	%
Subordinated Secured Loan, 16.00%, 6/25/2013		$	3,500,000		3,500,000		3,358,950		5.52	%
Total					6,500,000		6,123,050		10.06	%

Coast Plating, Inc.	Aerospace
Senior Secured Loan – Term A, 11.71%, 9/13/2014	Parts Plating and Finishing	$	1,450,000		1,453,858		1,441,590		2.37	%
Senior Secured Loan – Term B, 13.21%, 9/13/2014		$	3,550,000		3,546,938		3,537,220		5.82	%
Total					5,000,796		4,978,810		8.19	%

CSL Operating, LLC	Industrial
Senior Secured Loan – Term A, 11.71%, 5/11/2014	Metal Treatings	$	1,966,680		1,961,767		1,940,130		3.19	%
Senior Secured Loan – Term B, 11.71%, 5/11/2014		$	1,966,680		1,961,767		1,930,100		3.17	%
Total					3,923,534		3,870,230		6.36	%

Employment Plus, Inc.	Staffing
Senior Secured Loan, 12.00%, 10/24/2013	Services	$	5,000,000		5,000,000		5,000,000		8.22	%

European Evaluators, LLC ³	Art
Senior Secured Loan, 12.00%, 2/28/2013	Dealers	$	615,000		615,000		615,000		1.01	%

Global Energy Efficiency Holdings, Inc.	Energy
Senior Secured Revolving Loan, 12.46%, 9/7/2015	Efficiency Services	$	3,177,356		3,154,067		3,177,356		5.22	%
Senior Secured Loan, 12.46%, 9/7/2015		$	1,000,000		987,637		1,003,900		1.65	%
Total					4,141,704		4,181,256		6.87	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

December 31, 2012 (Unaudited)

Description ^1,2	Industry	Par Amount/ Quantity			Cost		Fair Value		% of Net Asset Value

iMedX, Inc.	Medical
Senior Secured Revolving Loan, 10.06%, 09/19/2014	Transcription Services	$	1,282,230		$	1,282,211	$	1,282,230		2.11	%
Senior Secured Loan – Term A, 15.96%, 09/19/2014		$	2,513,720			2,493,351		2,618,123		4.31	%
Senior Secured Loan – Term B, 15.96%, 09/19/2014		$	591,000			591,000		615,546		1.01	%
Total						4,366,562		4,515,899		7.43	%

Matt Martin Real Estate Management, LLC	Real Estate
Senior Secured Loan, 12.99%, 4/30/2015	Management Services	$	3,473,000			3,446,962		3,531,346		5.81	%

MDU Communications (USA) Inc.	Cable TV
Senior Secured Loan - Tranche A, 11.85%, 6/30/2013	Broadband Services	$	5,000,000			5,000,000		4,972,000		8.18	%
Senior Secured Loan - Tranche C, 9.75%, 6/30/2013		$	250,000			250,000		245,575		0.40	%
Senior Secured Loan - Tranche D, 8.75%, 6/30/2013		$	1,480,000			1,480,000		1,439,892		2.37	%
Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013^{^}			37,500			298		-		-	%
Total						6,730,298		6,657,467		10.95	%

New Media West, LLC⁴	Cable TV
Senior Secured Term Loan, 9.00%, 12/31/2017	Broadband Services	$	5,800,000			5,800,000		5,771,387		9.49	%
Limited Liability Company Interests^{^,7}			720			3,600,000		3,600,000		5.92	%
Total						9,400,000		9,371,387		15.41	%

ProGrade Ammo Group, LLC⁶	Munitions
Senior Secured Revolving Loan, 9.21%, 8/1/2014		$	994,489			994,489		994,489		1.64	%
Senior Secured Term Loan, 15.21%, 8/1/2014		$	5,718,750			5,597,692		3,973,959		6.54	%
Warrants for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018^{^}			181,240			176,770		-		-	%
Total						6,768,951		4,968,448		8.18	%

SOLEX Fine Foods, LLC; Catsmo, LLC⁶	Food
Senior Secured Term Loan , 12.46%,	Distributors &	$	3,900,000			3,788,975		3,788,975		6.23	%
12/28/2016	Wholesalers
Limited Liability Company Interests^{^,8}			6.89	%		250,000		250,000		0.41	%
Warrants for 1.6% of the outstanding LLC interests (strike price 0.01), expire 12/28/2022^{^,8}			1			58,055		58,055		0.10	%
Total						4,097,030		4,097,030		6.74	%

Texas Westchester Financial, LLC⁴	Consumer
Limited Liability Company Interests^{^}	Financing		9,278			905,819		555,325		0.91	%

See notes to consolidated financial statements

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

December 31, 2012 (Unaudited)

Description ^1,2	Industry	Par Amount/ Quantity		Cost		Fair Value		% of Net Asset Value

The Finance Company, LLC⁴	Consumer
Senior Secured Loan, 15.00%, 9/30/2015	Financing	$	5,724,261	$	5,607,118	$	5,684,001		9.35	%
Limited Liability Company Interests			50		140,414		1,359,859		2.24	%
Total					5,747,532		7,043,860		11.59	%

The Selling Source, LLC	Information and
Senior Secured Loan, 12.00%, 1/31/2013	Data Services	$	2,017,700		2,017,700		2,017,700		3.32	%

TransAmerican Asset Servicing Group, LLC⁵	Asset Recovery
Senior Secured Loan, 14.25%, 7/25/2016	Services	$	2,125,000		2,084,362		1,600,125		2.63	%
Limited Liability Company Interests^{^,4}			75		-		-		-	%
Total					2,084,362		1,600,125		2.63	%

US Path Labs, LLC	Healthcare
Senior Secured Loan , 13.00%, 3/30/2014	Services	$	3,500,000		3,446,856		3,491,950		5.74	%

VaultLogix, LLC	Information
Warrants for Variable % Ownership, (at a $307.855 strike price), expire 9/4/2013^{^}	Retrieval Services		3,439		56,147		-		-	%

West World Media, LLC ^6,9	Information and
Limited Liability Company Interests^{^}	Data Services		146,400		430,500		216,964		0.36	%

United States Treasury
United States Treasury Bill** (0.40)%, 1/3/2013		$	22,000,000		22,000,489		22,000,000		36.18	%

Total Investments				$	101,585,576	$	99,618,966		163.83	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

December 31, 2012 (Unaudited)

The following table shows the fair value of our portfolio of investments by industry, as of December 31, 2012, excluding United States Treasury Bills of approximately $22.0 million.

	December 31, 2012
	Investment at Fair Value (dollars in millions)		Percentage of Net Assets
Cable TV/Broadband Services	$	16.0		26.36	%
Consumer Financing		7.6		12.50
Radio Broadcasting		6.1		10.07
Staffing Services		5.0		8.22
Aerospace Parts Plating and Finishing		5.0		8.19
Munitions		5.0		8.17
Medical Transcription Services		4.5		7.43
Energy Efficiency Services		4.2		6.88
Food Distributors and Wholesalers		4.1		6.74
Industrial Metal Treatings		3.9		6.36
Real Estate Management Services		3.5		5.81
Healthcare Services		3.5		5.74
Equipment Rental Services		2.7		4.42
Information and Data Services		2.2		3.67
Outdoor Advertising Services		2.1		3.45
Asset Recovery Services		1.6		2.63
Art Dealers		0.6		1.01
Total	$	77.6		127.65	%

¹ Our investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act of 1933.

² A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or the U.S. prime rate, and which is reset daily, quarterly or semi-annually. For each debt investment we have provided the interest rate in effect as of December 31, 2012.

³ Full Circle Capital Corporation’s loan to European Evaluators, LLC is held through its wholly-owned subsidiary Art Credit Company, LLC.

⁴ Denotes a Control Investment. “Control Investments” are investments in those companies that are “Control Investments” of the Company, as defined in the Investment Company Act of 1940. A company is deemed to be a “Control Investment” of Full Circle Capital Corporation if Full Circle Capital Corporation owns more than 25% of the voting securities of such company.

⁵ Full Circle Capital Corporation’s equity investment in TransAmerican Asset Servicing Group, LLC is held through its wholly-owned subsidiary TransAmerican Asset Servicing Group, Inc.

⁶ Denotes an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the Investment Company Act of 1940, which are not “Control Investments.” A company is deemed to be an “Affiliate” of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5% or more but less than 25% of the voting securities of such company.

⁷ Full Circle Capital Corporation’s equity investment in New Media West, LLC is held through its wholly-owned subsidiary FC New Media, Inc.

⁸ Full Circle Capital Corporation’s equity investments in SOLEX Fine Foods, LLC; Catsmo, LCC are held through its wholly-owned subsidiary FC New Specialty Foods, Inc.

⁹ A portion of Full Circle Capital Corporation’s investment in West World Media, LLC is held through its wholly-owned subsidiary Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation.

**	Interest rate shown reflects yield to maturity at time of purchase.
^	Security is a non-income producing security.

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2012 (Audited)

Description ^1,2	Industry	Par Amount/ Quantity		Cost		Fair Value		% of Net Asset Value

Attention Transit Advertising Systems, LLC	Outdoor
Senior Secured Loan, 14.50%, 11/1/2012	Advertising Services	$	2,060,150	$	2,048,859	$	1,900,282		3.56	%

Background Images, Inc.	Equipment
Senior Secured Loan – Term A, 14.74%, 6/28/2014	Rental Services	$	2,012,500		1,986,949		2,027,594		3.79	%
Senior Secured Loan – Term B, 16.49%, 6/28/2014		$	1,137,500		1,122,922		1,123,433		2.10	%
Total					3,109,871		3,151,027		5.89	%

Blackstrap Broadcasting, LLC	Radio
Senior Secured Loan, 5.00%, 9/25/2012	Broadcasting	$	3,000,000		2,959,844		2,850,600		5.33	%
Subordinated Secured Loan, 16.00%, 9/25/2012		$	3,500,000		3,495,844		3,465,700		6.48	%
Total					6,455,688		6,316,300		11.81	%

Coast Plating, Inc.	Aerospace
Senior Secured Loan – Term A, 11.74%, 9/13/2014	Parts Plating and Finishing	$	1,450,000		1,449,081		1,464,790		2.74	%
Senior Secured Loan – Term B, 12.49%, 9/13/2014		$	3,550,000		3,540,361		3,484,325		6.52	%
Total					4,989,442		4,949,115		9.26	%

CSL Operating, LLC	Industrial
Senior Secured Loan – Term A, 11.74%, 5/11/2014	Metal Treatings	$	2,000,000		1,993,354		1,957,933		3.66	%
Senior Secured Loan – Term B, 11.74%, 5/11/2014		$	2,000,000		1,993,354		1,944,400		3.64	%
Total					3,986,708		3,902,333		7.30	%

Employment Plus, Inc.	Staffing
Senior Secured Loan, 12.00%, 10/24/2013	Services	$	5,000,000		5,000,000		5,000,000		9.36	%

Equisearch Acquisition, Inc.	Asset
Senior Secured Loan, 14.00%, 5/31/2012^{^}	Recovery Services	$	2,580,201		2,580,201		1,959,363		3.67	%
Warrants for 47.9056 shares (at a $0.01 strike price), expire 1/31/2016^{^}			48		225,000		-		-	%
Total					2,805,201		1,959,363		3.67	%

European Evaluators, LLC ³	Art
Senior Secured Loan, 11.99%, 8/29/2012	Dealers	$	615,000		614,240		614,240		1.15	%

iMedX, Inc.	Medical
Senior Secured Revolving Loan, 10.09%, 9/19/2014	Transcription Services	$	1,298,517		1,295,589		1,298,517		2.43	%
Senior Secured Loan – Term A, 15.99%, 9/19/2014		$	2,755,000		2,727,654		2,772,448		5.19	%
Total					4,023,243		4,070,965		7.62	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2012 (Audited)

Description ^1,2	Industry	Par Amount/ Quantity		Cost		Fair Value		% of Net Asset Value

Matt Martin Real Estate Management, LLC	Real Estate
Senior Secured Loan, 12.99%, 4/30/2015	Management Services	$	4,139,000	$	4,104,413	$	4,104,413		7.68	%

MDU Communications (USA) Inc.	Cable TV
Senior Secured Loan - Tranche A, 11.85%, 6/30/2013	Broadband Services	$	5,000,000		5,000,000		4,889,000		9.15	%
Senior Secured Loan - Tranche C, 9.75%, 6/30/2013		$	250,000		250,000		240,275		0.45	%
Senior Secured Loan - Tranche D, 8.75%, 6/30/2013		$	1,480,000		1,480,000		1,399,537		2.62	%
Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013^{^}			37,500		298		-		-	%
Total					6,730,298		6,528,812		12.22	%

ProGrade Ammo Group LLC⁵	Munitions
Senior Secured Revolving Loan, 9.24%, 8/1/2014		$	383,798		383,798		383,798		0.72	%
Senior Secured Term Loan, 15.24%, 8/1/2014		$	5,968,750		5,810,949		4,511,380		8.44	%
Warrants for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018^{^}			181,240		176,770		-		-	%
Total					6,371,517		4,895,178		9.16	%

Texas Westchester Financial, LLC⁴	Consumer
Limited Liability Company Interests^{^}	Financing		9,278		905,819		549,360		1.03	%

The Finance Company, LLC⁴	Consumer
Senior Secured Term Loan, 15.00%, 9/30/2015	Financing	$	5,724,261		5,593,415		5,617,738		10.51	%
Limited Liability Company Interests			50		140,414		610,413		1.14	%
Total					5,733,829		6,228,151		11.65	%

The Selling Source, LLC	Information and
Senior Secured Loan, 12.00%, 12/21/2012	Data Services	$	3,323,508		3,323,508		3,323,508		6.22	%

US Path Labs, LLC	Healthcare
Senior Secured Loan, 13.00%, 3/30/2014	Services	$	3,500,000		3,434,191		3,465,117		6.48	%

VaultLogix, LLC	Information
Warrants for Variable % Ownership, (at a $307.855 strike price), expire 1/14/2019^{^}	Retrieval Services		3,439		56,147		-		-	%

West World Media, LLC ^5,6	Information and
Limited Liability Company Interests^{^}	Data Services		85,210		430,500		216,964		0.41	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2012 (Audited)

Description ^1,2	Industry	Par Amount/ Quantity		Cost		Fair Value		% of Net Asset Value

Ygnition Networks, Inc.	Cable TV
Senior Secured Loan, 12.74%, 9/6/2012	Broadband Services	$	11,999,743	$	11,999,781	$	11,171,761		20.90	%

United States Treasury
United States Treasury Bill** (0.01)%, 7/5/2012		$	22,500,000		22,500,027		22,499,881		42.10	%

Total Investments				$	98,623,282	$	94,846,770		177.47	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2012 (Audited)

The following table shows the fair value of our portfolio of investments by industry, as of June 30, 2012, excluding United States Treasury Bills of approximately $22.5 million.

	June 30, 2012
	Investment at Fair Value (dollars in millions)		Percentage of Net Assets
Cable TV/Broadband Services	$	17.7		33.12	%
Consumer Financing		6.8		12.68
Radio Broadcasting		6.3		11.81
Staffing Services		5.0		9.36
Aerospace Parts Plating and Finishing		4.9		9.26
Munitions		4.9		9.16
Real Estate Management Services		4.1		7.68
Medical Transcription Services		4.1		7.62
Industrial Metal Treatings		3.9		7.30
Information and Data Services		3.5		6.63
Healthcare Services		3.5		6.48
Equipment Rental Services		3.1		5.89
Asset Recovery Services		2.0		3.67
Outdoor Advertising Services		1.9		3.56
Art Dealers		0.6		1.15
Total	$	72.3		135.37	%

³ Full Circle Capital Corporation’s loan to European Evaluators, LLC is held through its wholly-owned subsidiary Art Credit Company, LLC.

⁵ Denotes an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the Investment Company Act of 1940, which are not “Control Investments.” A company is deemed to be an “Affiliate” of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5% or more but less than 25% of the voting securities of such company.

⁶ A portion of Full Circle Capital Corporation’s investments in West World Media, LLC is held through its wholly-owned subsidiary Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation.

**	Interest rate shown reflects yield to maturity at time of purchase.
^	Security is a non-income producing security.

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

Note 1. Organization

References herein to “we”, “us” or “our” refer to Full Circle Capital Corporation and Subsidiaries (“Full Circle Capital” or “Company”) unless the context specifically requires otherwise.

We were formed as Full Circle Capital Corporation, a Maryland corporation. We were organized on April 16, 2010 and were funded in an initial public offering, or IPO, completed on August 31, 2010. We are a non-diversified, closed-end investment company that has filed an election to be treated as a business development company, or BDC, under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we expect to qualify annually as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code. We invest primarily in senior secured term debt issued by smaller and lower middle-market companies. Our investment objective is to generate both current income and capital appreciation through debt and equity investments.

Note 2. Significant Accounting Policies

Use of Estimates and Basis of Presentation

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending June 30, 2013.

Investment Classification

We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Affiliated Investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another company or person.

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other, non-security financial instruments, such as a limited partnership or private company, are recorded on the basis of subscription date or redemption date, as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.

Basis of Consolidation

Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Investment Companies, we are generally precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of Full Circle West, Inc., FC New Specialty Foods, Inc., FC New Media, Inc. and Art Credit Company, LLC, our only wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Valuation of Investments

In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, Full Circle Capital’s Board of Directors (the “Board”) uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Board. Unobservable inputs reflect the Board’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Board or the Audit Committee of the Board (the “Audit Committee”), does not represent fair value, shall each be valued as follows:

The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;

Preliminary valuation conclusions are then documented and discussed with the Company’s senior management. An independent third-party valuation firm is engaged by, or on behalf of, the Audit Committee to conduct independent appraisals and review management’s preliminary valuations and make their own independent assessment, for certain assets;

The Audit Committee discusses valuations and recommends the fair value of each investment in the portfolio in good faith based on the input of the Company and, where appropriate, the independent third-party valuation firm; and

The Board then discusses the valuations and determines in good faith the fair value of each investment in the portfolio based upon input from the Company, estimates from the independent valuation firm and the recommendations of the Audit Committee of the Board.

GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of valuation techniques and observable inputs can vary from investment to investment and is affected by a wide variety of factors including, the type of investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Board in determining fair value is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause an investment to be reclassified to a lower level within the fair value hierarchy.

Valuation Techniques

Senior and Subordinated Secured Loans

Our portfolio consists primarily of private debt instruments (“Level 3 debt”). The Company considers its Level 3 debt to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Board considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Board will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

This evaluation will be updated no less than quarterly for Level 3 debt instruments that are not performing, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired and analyzed by management and the Board.

Investments in Private Companies

The Board determines the fair value of its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value hierarchy.

Warrants

The Board will ascribe value to warrants based on fair value analyses that can include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate.

Cash

The Company places its cash with J.P. Morgan Chase Bank N.A., and at times, cash held in such an account may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash in money market funds, within the limitations of the 1940 Act.

Revenue Recognition

Realized gains or losses on the sale of investments are calculated using the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a senior or subordinated secured loan, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income.

Dividend income is recorded on the ex-dividend date.

Structuring fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when received. Other fee income, including administrative fees and unused line fees, is included in Other Income. Income from such sources was $453,057 and $64,992 for the three months ended December 31, 2012 and 2011, respectively, and $613,165 and $535,535 and for the six months ended December 31, 2012 and 2011, respectively.

Federal and State Income Taxes

We have elected to be treated as a regulated investment company and intend to continue to comply with the requirements of the Internal Revenue Code of 1986 (the “Code”), applicable to regulated investment companies. We will be required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gains to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

If we do not distribute (or are not deemed to have distributed) each calendar year sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the “Minimum Distribution Amount”), we will generally be required to pay an excise tax equal to 4% of the amount by the which Minimum Distribution Amount exceeds the distributions for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, of our monthly dividends are approved by our Board each quarter and are generally based upon our management’s estimate of our earnings for the quarter. Net realized capital gains, if any, are distributed at least annually.

Guarantees and Indemnification Agreements

We follow ASC Topic 460, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. ASC Topic 460 elaborates on the disclosure requirements of a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC Topic 460, the fair value of the obligation undertaken in issuing certain guarantees. ASC Topic 460 did not have a material effect on the consolidated financial statements. Refer to Note 5 and Note 8 for further discussion of guarantees and indemnification agreements.

Per Share Information

Basic and diluted earnings (loss) per common share is calculated using the weighted average number of common shares outstanding for the period presented. Basic and diluted earnings (loss) per share are the same since there are no potentially dilutive securities outstanding.

Organizational Expenses and Offering Costs

The Company did not incur organizational expenses during the six months ended December 31, 2012, and 2011. The Company complies with the requirements of ASC 340-10-S99-1, “Expenses of Offering”. Deferred offering costs consist principally of legal and audit costs incurred through the balance sheet date that are related to an offering of equity securities. Such costs are charged against the gross proceeds of the offering or will be charged to the Company’s operations if the offering is not completed. Offering expenses related to the Company’s November 27, 2012 offering were $153,330.

Capital Accounts

Certain capital accounts including undistributed net investment income, accumulated net realized gain or loss, net unrealized appreciation or depreciation, and paid in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

Note 3. Concentration of Credit Risk and Liquidity Risk

In the normal course of business, the Company maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties.

The Company utilizes one financial institution to provide financing, which is essential to its business. There are a number of other financial institutions available that could potentially provide the Company with financing. Management believes that such other financial institutions would likely be able to provide similar financing with generally comparable terms. However, a change in financial institutions at the present time could cause a delay in service provisioning or result in potential lost opportunities, which could adversely affect operating results.

As of December 31, 2012, we had approximately $6.0 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies.

Note 4. Earnings (Loss) per Common Share

The following information sets forth the computation of basic and diluted earnings (loss) per common share for the three and six months ended December 31, 2011, and 2012 (unaudited):

	Three months ended December 31,					Six months ended December 31,
	2012			2011		2012		2011
Per Share Data ⁽¹⁾ :
Net Increase (Decrease) in Net Assets Resulting from Operations	$	(428,202	)	$	252,541	$	466,689	$	1,851,874
Weighted average shares outstanding for period		6,732,969			6,219,382		6,476,175		6,219,382
Basic and diluted earnings (loss) per common share	$	(0.06	)	$	0.04	$	0.07	$	0.30

⁽¹⁾

Per share data based on weighted average shares outstanding.

Note 5. Related Party Agreements and Transactions

Investment Advisory Agreement

On June 27, 2012, our Board of Directors re-approved an investment advisory agreement (the “Investment Advisory Agreement”) with Full Circle Advisors, LLC (the “Adviser”) under which the Adviser, subject to the overall supervision of our Board, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, our Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.

The Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Adviser receives a fee from us, consisting of two components, a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of our gross assets, as adjusted. For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, as adjusted, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be appropriately pro-rated. In addition, our investment adviser agreed to waive any portion of the base management fee that exceeded 1.50% of Full Circle Capital’s gross assets, as adjusted, until August 31, 2011 when such waiver expired.

The total base management fees earned by the Adviser for the three and six months ended December 31, 2012, were $345,126 and $679,162, respectively. The total base management fee payable to the Adviser at December 31, 2012 was $345,126, after reflecting payment of $642,307 during the six months ended December 31, 2012, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The total base management fees earned by the Adviser for the three and six months ended December 31, 2011, were $300,690 and $586,650, respectively, after adjusting for the waivers of $0 and $28,124, respectively.

The incentive fee has two parts. The first part of the incentive fee (the “Income incentive fee”) is calculated and payable quarterly in arrears based on our 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 (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement to Full Circle Service Company (the “Administrator”), and any interest expenses and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include organizational costs or any realized capital gains, computed net of all realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management fee. We pay the Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

•

no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%;

•

100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle but is less than 2.1875%) as the “catch-up.” The “catch-up” is meant to provide our investment adviser with 20% of our pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 2.1875% in any calendar quarter; and

•

20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to the Adviser (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Adviser).

These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

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) and will equal 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees with respect to each of the investments in our portfolio, provided that, the incentive fee determined as of December 31, 2010 was calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation from the inception of Full Circle Capital. There were no incentive fees paid on realized capital gains for the six months ended December 31, 2012 and 2011.

Income incentive fees of $365,430 and $673,362 were earned by the Adviser for the three and six months ended December 31, 2012, and the total income incentive fee payable to the Adviser at December 31, 2012 was $365,430, after reflecting payment of $580,014 during the six months ended December 31, 2012, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The income incentive fee of $274,674 and $646,276 were earned by the Adviser for the three and six months ended December 31, 2011.

The Adviser had agreed to reimburse the Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public offering, which occurred on August 31, 2010. This agreement was extended through September 30, 2011, and equates to an accrual offset against the Advisor’s management fee of $0 and $285,668 for the three and six months ended December 31, 2011, respectively. There was no offset for the six months ended December 31, 2012.

Administration Agreement

On July 8, 2010, we also entered into an Administration Agreement with the Administrator under which the Administrator, among other things, furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, the Administrator also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders. In addition, the Administrator assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Full Circle Service Company’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our chief financial officer and our allocable portion of the compensation of any administrative support staff employed by the Administrator, directly or indirectly. Under the Administration Agreement, the Administrator will also provide on our behalf managerial assistance to those portfolio companies that request such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

The Administrator, and Vastardis Fund Services LLC (“Vastardis” or the “Sub-Administrator”), may also provide administrative services to the Adviser. As a result, the Adviser also reimburses the Administrator and/or the Sub-Administrator for its allocable portion of the Administrator’s and/or Sub-Administrator’s overhead, including rent, the fees and expenses associated with performing compliance functions for Full Circle Advisors, and its allocable portion of the compensation of any administrative support staff. To the extent the Adviser or any of its affiliates manage other investment vehicles in the future, no portion of any administrative services provided by the Administrator to such other investment vehicles will be charged to us.

The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Administrator and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from Full Circle Capital for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Administrator’s services under the Administration Agreement or otherwise as administrator for Full Circle Capital.

Sub-Administration Agreement

Our Chief Financial Officer, William E. Vastardis, is the President of Vastardis. The Administrator has engaged Vastardis to provide certain administrative services to us. In exchange for providing such services, the Administrator pays Vastardis an asset-based fee with a $200,000 annual minimum as adjusted for any reimbursement of expenses. This asset-based fee will vary depending upon our gross assets, as adjusted, as follows:

Gross Assets Fee
first $150 million of gross assets		20 basis points (0.20%)
next $150 million of gross assets		15 basis points (0.15%)
next $200 million of gross assets		10 basis points (0.10%)
in excess of $500 million of gross assets		5 basis points (0.05%)

In addition to the above fees, certain administrative services previously provided by Vastardis are now performed by the Administrator for an annual fee of $112,457 paid quarterly in advance. Such services had been provided by Vastardis prior to September 15, 2012.

Additionally, we reimburse the Administrator for the fees charged for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary at an annual rate of $250,000. Vastardis agreed to cap its first year fees at $200,000, plus any reimbursement of expenses, for administrative services to us, and at $100,000 for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary. Those caps expired on August 31, 2011.

For the three and six months ended December 31, 2012, the Company incurred $209,712 and $415,091, respectively, of expenses under the Administration Agreement, $50,000 and $123,429, respectively, of which were earned by the Sub-Administrator and $75,160 and $150,354, respectively, were paid for officers’ compensation. The remaining $84,552 and $141,308, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator in the Consolidated Statement of Operations.

For the three and six months ended December 31, 2011, the Company incurred $238,951 and $448,674, respectively, of expenses under the Administration Agreement, $78,115 and $156,229, respectively, of which were earned by the Sub-Administrator and $71,629 and $117,553, respectively, of which were paid for officers’ compensation. The remaining $89,207 and $174,892, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator in the Consolidated Statement of Operations.

Managerial Assistance

As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. With regard to the Control Investments in Texas Westchester Financial, LLC, New Media West, LLC, TransAmerican Asset Servicing Group, LLC and The Finance Company, LLC, the Company has provided managerial assistance during the period for which no fees were charged. Our Chief Executive Officer and President, John Stuart, currently serves as a director of The Finance Company, LLC and New Media West, LLC. As of December 31, 2012, none of the other portfolio companies had accepted our offer for such services.

Note 6. Equity Offerings, Related Expenses and Other Stock Issuances

During the year ended June 30, 2011, we issued 6,219,282 shares of our common stock through an initial public offering, a private placement and our dividend reinvestment plan. On November 27, 2012, we issued 1,350,000 shares of our common stock through a follow on offering. Offering expenses were charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us. The proceeds raised, the related underwriting fees, the offering expenses, and the price at which common stock was issued, since inception, are detailed in the following table:

Issuances of Common Stock	Number of Shares Issued			Gross Proceeds Raised, Net Assets Acquired and Dividends Reinvested		Underwriting Fees		Offering Expenses			Price
April 16, 2010		100		$	1,500		-		-		$	15.00 per/share
August 31, 2010		4,191,415	⁽¹⁾	$	42,425,564		-		-		$	10.13 per/share	⁽²⁾
August 31, 2010		2,000,000		$	18,000,000	$	1,350,000	$	1,052,067	⁽³⁾	$	9.00 per/share
January 14, 2011		27,867	⁽⁴⁾	$	241,608		-		-		$	8.67 per/share
November 27, 2012		1,350,000		$	10,665,000	$	533,250	$	153,330		$	7.90 per/share

⁽¹⁾ Includes 403,662 shares that were issued on September 30, 2010 upon the expiration of the overallotment option granted to the underwriters in connection with our initial public offering. Such shares were deemed to be outstanding at August 31, 2010.

⁽²⁾ Based on weighted average price assigned to shares.

⁽³⁾ Includes $190,894 of offering expenses that were accrued as of December 31, 2010.

⁽⁴⁾ Issued pursuant to the Company’s dividend reinvestment plan.

Note 7. Financial Highlights

	Three months ended December 31, 2012			Three months ended December 31, 2011

Per Share Data ⁽¹⁾ :
Net asset value at beginning of period	$	8.51		$	9.11
Dilution from offering		(0.17	)⁽²⁾		-
Offering costs		(0.01	)		-
Net investment income (loss)		0.22			0.18
Change in unrealized gain (loss)		0.20			(0.14	)
Realized gain (loss)		(0.49	)		-
Dividends declared		(0.23	)		(0.23	)
Net asset value at end of period	$	8.03		$	8.92

Per share market value at end of period	$	7.43		$	6.99
Total return based on market value		(5.48	)%⁽⁵⁾		1.85	%⁽⁵⁾
Total return based on net asset value		(2.65	)%⁽⁵⁾		1.15	%⁽⁵⁾
Shares outstanding at end of period		7,569,382			6,219,382
Weighted average shares outstanding for period		6,732,969			6,219,382

Ratio / Supplemental Data:
Net assets at end of period	$	60,806,640		$	55,489,842
Average net assets	$	56,690,087		$	56,081,911
Annualized ratio of gross operating expenses to average net assets ⁽⁶⁾		11.44	%		9.20	%
Annualized ratio of net operating expenses to average net assets ⁽⁶⁾		11.44	%		9.20	%
Annualized ratio of net investment income to average net assets ⁽⁶⁾		10.26	%		7.77	%

	Six months ended December 31, 2012			Six months ended December 31, 2011
Per Share Data ⁽¹⁾ :
Net asset value at beginning of period	$	8.59		$	9.08
Dilution from offering		(0.17	)⁽²⁾		-
Offering costs		(0.01	)		-
Net investment income (loss)		0.42			0.43
Change in unrealized gain (loss)		0.28			(0.15	)
Realized gain (loss)		(0.62	)		0.02
Dividends declared		(0.46	)		(0.46	)
Net asset value at end of period	$	8.03		$	8.92

Per share market value at end of period	$	7.43		$	6.99
Total return based on market value		3.10	%⁽⁵⁾		(5.57	)%⁽⁵⁾
Total return based on net asset value		(0.76	)%⁽⁵⁾		4.85	%⁽⁵⁾
Shares outstanding at end of period		7,569,382			6,219,382
Weighted average shares outstanding for period		6,476,175			6,219,382

Ratio / Supplemental Data:
Net assets at end of period	$	60,806,640		$	55,489,842
Average net assets	$	55,075,212		$	56,212,609
Annualized ratio of gross operating expenses to average net assets ⁽⁶⁾		11.41	%		9.37	%
Annualized ratio of net operating expenses to average net assets ⁽⁶⁾		11.41	%		8.82	%
Annualized ratio of net investment income to average net assets ⁽⁶⁾		9.74	%		7.62	%

	Year ended June 30, 2012			For the period from August 31, 2010 (commencement of operations) to June 30, 2011			For the period from April 16, 2010 (date of inception) to June 30, 2010

Per Share Data ⁽¹⁾ :
Net asset value at beginning of period	$	9.08		$	9.40		$	15.00	⁽³⁾
Offering costs		-			(0.04	)		-
Net investment income (loss)		0.78			0.70			(125.45	)
Change in unrealized gain (loss)		(0.32	)		(0.29	)		-
Realized gain (loss)		(0.03	)		0.06			-
Dividends declared		(0.92	)		(0.75	)		-
Net asset value at end of period	$	8.59		$	9.08		$	(110.45	)

Per share market value at end of period	$	7.65		$	7.90		$	(110.45	)
Total return based on market value		8.71	%⁽⁵⁾		(4.03	)%⁽⁴⁾		(836.33	)%⁽⁵⁾
Total return based on net asset value		6.20	%⁽⁵⁾		5.62	%⁽⁴⁾		(836.33	)%⁽⁵⁾
Shares outstanding at end of period		6,219,382			6,219,382			100
Weighted average shares outstanding for period		6,219,382			6,206,824			100

Ratio / Supplemental Data:
Net assets at end of period	$	53,442,785		$	56,474,006		$	(11,045	)
Average net assets	$	55,531,518		$	57,455,987		$	(4,773	)
Annualized ratio of gross operating expenses to average net assets ⁽⁶⁾		9.56	%		8.49	%		1,279.28	%
Annualized ratio of net operating expenses to average net assets ⁽⁶⁾		8.99	%		7.34	%		1,279.28	%
Annualized ratio of net investment income to average net assets ⁽⁶⁾		8.70	%		9.29	%		(1,279.28	)%

(1)	Financial highlights are based on weighted average shares outstanding.
(2)	Dilution from offering is based on the change in net asset value from the follow on offering on November 27, 2012.
(3)	For the period from April 16, 2010 (date of inception) to June 30, 2010, the net asset value at issuance was $15.00.
(4)	Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $9.00 per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized.

(5)

Total return based on market value is based upon the change in market price per share between the opening and ending net price per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. For the period from inception through June 30, 2010 total return based on market value is the same as total return based on net asset value as our shares were not publicly traded. The total returns are not annualized.

(6)

Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment income (loss) to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. For the period from August 31, 2010 (commencement of operations) to June 30, 2011 the Company incurred $102,609 of organizational expenses, which were deemed to be non-recurring. For the period from April 16, 2010 (date of inception) to June 30, 2010, the Company incurred $12,500 of organizational expenses, which were deemed to be non-recurring.

Note 8. Long Term Liabilities

Line of Credit

On August 31, 2010, the Company entered into the “Credit Facility” with First Capital. The facility size is $35 million and was initially scheduled to expire in January 2012. On January 27, 2012, the Company extended the Credit Facility through July 31, 2012. On July 31, 2012, the Company extended the Credit Facility though October 31, 2012. On October 31, 2012, the Company extended the Credit Facility through December 31, 2013. Under the Credit Facility, base rate borrowings bear interest at LIBOR (0.209% at December 31, 2012, and 0.246% at June 30, 2012) plus 5.50%, subject to a floor. The Company incurs unused line, average usage and other fees related to the Credit Facility. The Credit Facility is secured by all of the assets of the Company. Under the Credit Facility, the Company is required to satisfy several financial covenants, including maintaining a minimum level of stockholders’ equity, a maximum level of leverage and minimum asset coverage and earnings ratios. In addition, the Company is required to comply with other general covenants, including with respect to indebtedness, liens, restricted payments and mergers and consolidations. At December 31, 2012 and June 30, 2012, the Company had a balance of $16,622,598 and $18,544,600, respectively, on the Credit Facility, which is included in the Consolidated Statement of Assets and Liabilities.

Distribution Notes

On August 31, 2010, the Company entered into multiple senior unsecured notes (the “Distribution Notes”). The Distribution Notes consist of $3,404,583 in senior unsecured notes, which bear interest at a rate of 8% per annum, payable quarterly in cash, and will mature in February 2014. The Distribution Notes are callable by the Company at any time, in whole or in part, at a price of 100% of their principal amount, plus accrued and unpaid interest. The Distribution Notes subject Full Circle Capital to customary covenants, including, among other things, a restriction on incurring any debt on a junior lien basis, or any debt that is contractually subordinated in right of payment to any other debt unless it is also subordinated to the Distribution Notes on substantially identical terms. The agreement under which the Distribution Notes were issued contains customary events of default. At December 31, 2012 and June 30, 2012, the Company had a balance of $3,404,583 on the Distribution Notes, which is included in the Consolidated Statement of Assets and Liabilities.

Note 9. Fair Value Measurements

The Company’s assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820. See Note 2 for a discussion of the Company’s policies.

The following table presents information about the Company’s assets measured at fair value as of December 31, 2012 and June 30, 2012, respectively:

As of December 31, 2012 (Unaudited)

	Level 1		Level 2		Level 3		Total
Assets

Senior and Subordinated Loans, at fair value	$	-	$	-	$	71,578,763	$	71,578,763

US Treasury Securities, at fair value⁽¹⁾		22,000,000		-		-		22,000,000

Investments in private companies, at fair value		-		-		5,982,148		5,982,148

Investments in securities, at fair value		-		-		58,055		58,055
	$	22,000,000	$	-	$	77,618,966	$	99,618,966

As of June 30, 2012

	Level 1		Level 2		Level 3		Total
Assets

Senior and Subordinated Loans, at fair value	$	-	$	-	$	70,970,152	$	70,970,152

US Treasury Securities, at fair value⁽¹⁾		22,499,881		-		-		22,499,881

Investments in private companies, at fair value		-		-		1,376,737		1,376,737
	$	22,499,881	$	-	$	72,346,889	$	94,846,770

⁽¹⁾ U.S. Treasury Securities were purchased and temporarily held in connection with compliance with RIC diversification requirements under Subchapter M of the Code.

During the six months ended December 31, 2012 and the year ended June 30, 2012, there were no transfers in or out of levels.

The following table presents additional information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the net unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Changes in Level 3 assets measured at fair value for the six months ended December 31, 2012 and for the year ended June 30, 2012 are as follows:

	Six months ended December 31, 2012 (Unaudited)
															Change in
															Unrealized
	Beginning		Accretion of										Ending		Gains (Losses) for Investments
	Balance		Original		Realized &					Sales			Balance		still held at
	July 1,		Issue		Unrealized					And			December 31,		December 31,
	2012		Discount		Gains (Losses)			Purchases		Settlements			2012		2012
Assets

Senior and Subordinated Loans, at fair value	$	70,970,152	$	160,519	$	(2,992,274	)	$	36,667,808	$	(33,227,442	)	$	71,578,763	$	(619,024	)

Investments in private companies, at fair value		1,376,737		-		755,411			3,850,000		-			5,982,148		755,411

Investments in securities, at fair value		-		-		-			58,055		-			58,055		-
	$	72,346,889	$	160,519	$	(2,236,863	)	$	40,575,863	$	(33,227,442	)	$	77,618,966	$	136,387

	Year ended June 30, 2012
															Change in
															Unrealized
	Beginning		Accretion of										Ending		Gains (Losses) for Investments
	Balance		Original		Realized &					Sales			Balance		still held at
	July 1,		Issue		Unrealized					And			June 30,		June 30,
	2011		Discount		Gains (Losses)			Purchases		Settlements			2012		2012
Assets

Senior and Subordinated Loans, at fair value	$	55,537,458	$	523,307	$	(2,407,353	)	$	55,031,538	$	(37,714,798	)	$	70,970,152	$	(2,976,991	)

Investments in private companies, at fair value		1,197,384		-		488,939			140,414		(450,000	)		1,376,737		791,672

Investments in securities, at fair value		59,561		-		(236,331	)		176,770		-			-		(236,331	)
	$	56,794,403	$	523,307	$	(2,154,745	)	$	55,348,722	$	(38,164,798	)	$	72,346,889	$	(2,421,650	)

Realized and unrealized gains and losses are included in net realized gain (loss) on investments and net change in unrealized gain (loss) on investments in the consolidated statements of operations. The change in unrealized losses for Level 3 investments still held at December 31, 2012 of $150,632 is included in net change in net unrealized loss on investments in the consolidated statement of operations for the six months ended December 31, 2012.

The following table provides quantitative information regarding Level 3 fair value measurements as of December 31, 2012:

Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average) ⁽¹⁾

Secured debt	$	65,010,190	Discounted cash flows (income approach)	Discount Rate	2.25% - 30.00% (13.98%)

Equity		5,484,878	Market comparable companies (market approach)	EBITDA multiple	3.30 - 7.50 (5.95)

Debt or Equity subject to liquidation		7,123,898	Liquidation Value	Asset Value	N/A

Total investments	$	77,618,966

⁽¹⁾	The average values were determined using the weighted average of the fair value of the investments in each investment category.

The primary significant unobservable input used in the fair value measurement of the Company’s debt securities (first lien debt, second lien debt and subordinated debt), including income-producing investments in funds, is the discount rate. Significant increases (decreases) in the discount rate in isolation would result in a significantly lower (higher) fair value measurement. In determining the discount rate, for the income, or yield, approach, the Company considers current market yields and multiples, portfolio company performance, leverage levels and credit quality, among other factors in its analysis. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate discount rate to use in the income approach.

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple, or the “Enterprise Value”. Significant increases (decreases) in the Enterprise Value in isolation would result in a significantly higher (lower) fair value measurement. To determine the Enterprise Value for the market approach, the Company considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate multiple to use in the market approach.

Note 10. Derivative Contracts

In the normal course of business, the Company may utilize derivative contracts in connection with its investment activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The derivative activities and exposure to derivative contracts primarily involve equity price risks. In addition to the primary underlying risk, additional counterparty risk exists due to the potential inability of counterparties to meet the terms of their contracts.

Warrants

The warrants provide exposure and potential gains upon equity appreciation or depreciation of the portfolio company’s equity value.

The value of a warrant has two components: time value and intrinsic value. A warrant has a limited life and expires on a certain date. As time to the expiration date of a warrant approaches, the time value of a warrant will decline. In addition, if the stock underlying the warrant declines in price, the intrinsic value of an “in the money” warrant will decline. Further, if the price of the stock underlying the warrant does not exceed the strike price of the warrant on the expiration date, the warrant will expire worthless. As a result, there is the potential for the entire value of an investment in a warrant to be lost.

The Company has written a warrant to sell within a limited time, a financial instrument at a contracted price based on differentials between specified prices. Written warrants may expose the Company to market risk of an unfavorable change in the financial instrument underlying the written warrant.

Counterparty risk exists from the potential failure of an issuer of warrants to settle its exercised warrants. The maximum risk of loss from counterparty risk is the fair value of the contracts and the purchase price of the warrants. The Company’s Board of Directors considers the effects of counterparty risk when determining the fair value of its investments in warrants.

Volume of Derivative Activities

At December 31, 2012, the notional amounts and number of warrants, categorized by primary underlying risk, are as follows:

Long Exposure

Short Exposure

Notional

Number of

Notional

Number of

Amounts

Warrants

Amounts

Warrants

Primary Underlying Risk

Equity Price Warrants ^(a)

105,680

222,180

1,800,000

(b)

	^(a)	Notional amounts presented for warrants are based on the fair value of the underlying shares as if the warrants were exercised at December 31, 2012.
	^(b)	The written warrant is on 360 of the Company’s 720 limited liability company interests in New Media West, LLC and has a strike price of $3,000,000, which increases over time to $3,500,000. This warrant expires on December 18, 2019.

Note 11. Subsequent Events

Dividend

On February 5, 2013, the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on May 15, 2013 for holders of record at April 30, 2013, June 14, 2013 for holders of record at May 31, 2013 and July 15, 2013 for holders of record at June 28, 2013.

Recent Portfolio Activity

On January 31, 2013 the Company received a full payoff of its senior secured term loan to The Selling Source, LLC, receiving $2,362,650 in principal, interest and fees. The senior secured term loan was paid off at par value of $2,017,700.

On February 1, 2013, the Company invested $4,000,000 in a new senior secured term loan to The Selling Source, LLC, bearing interest at 12.50% and maturing February 1, 2017.

Note 12. Selected Quarterly Financial Data (Unaudited)

	Total Investment Income				Net Investment Income				Net Realized and Unrealized Gains (Losses)						Net Increase (Decrease) in Net Assets from Operations
Quarter Ended	Total		Per Share ⁽¹⁾		Total		Per Share ⁽¹⁾		Total			Per Share ⁽¹⁾			Total			Per Share ⁽¹⁾
September 30, 2010	$	867,582	$	0.42	$	306,783	$	0.15	$	(99,791	)	$	(0.05	)	$	206,992		$	0.10
December 31, 2010		2,678,197		0.43		1,495,125		0.24		(137,707	)		(0.02	)		1,357,418			0.22
March 31, 2011		2,305,423		0.37		1,361,635		0.22		(799,361	)		(0.13	)		562,274			0.09
June 30, 2011		2,108,426		0.34		1,170,836		0.19		(415,206	)		(0.07	)		755,630			0.12
September 30, 2011		2,558,243		0.41		1,544,342		0.25		54,991			0.01			1,599,333			0.26
December 31, 2011		2,398,665		0.39		1,098,640		0.18		(846,099	)		(0.14	)		252,541			0.04
March 31, 2012		2,388,960		0.38		1,118,574		0.18		405,240			0.07			1,523,814			0.25
June 30, 2012		2,481,143		0.40		1,071,947		0.17		(1,769,463	)		(0.28	)		(697,516	)		(0.11	)
September 30, 2012		2,773,303		0.45		1,238,245		0.20		(343,354	)		(0.06	)		894,891			0.14
December 31, 2012		3,099,599		0.46		1,465,650		0.22		(1,893,852	)		(0.28	)		(428,202	)		(0.06	)

⁽¹⁾

Per share amounts are calculated using weighted average shares outstanding during the period.

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 our consolidated financial statements and related notes and schedules thereto appearing elsewhere in this quarterly report on Form 10-Q, as well as the sections entitled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes and schedules thereto included in our Annual Report on Form 10-K for the period ended June 30, 2012.

This quarterly report on Form 10-Q 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 Full Circle Capital Corporation, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

•

our future operating results;

•

our business prospects and the prospects of our portfolio companies;

•

the impact of investments that we expect to make;

•

our contractual arrangements and relationships with third parties;

•

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

•

the ability of our portfolio companies to achieve their objectives;

•

our expected financings and investments;

•

the adequacy of our cash resources and working capital; and

•

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

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:

•

an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

•

An expiration or contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;

•

interest rate volatility could adversely affect our results, particularly when we elect to use leverage as part of our investment strategy;

•

currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and

•

the risks, uncertainties and other factors we identify in “Risk Factors” in our Annual Report on Form 10-K for the period ended June 30, 2012 and elsewhere in this quarterly report on Form 10-Q and in our filings with the SEC.

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 inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q 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 on Form 10-Q.

Except as otherwise specified, references to “Full Circle Capital,” “the Company,” “we,” “us” and “our” refer to Full Circle Capital Corporation.

Overview

We are an externally managed non-diversified closed-end management investment company formed in April 2010, and have elected to be treated as a business development company under the 1940 Act. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We are managed by Full Circle Advisors, and Full Circle Service Company provides the administrative services necessary for us to operate.

We were formed to continue and expand the business of Full Circle Partners, LP and Full Circle Fund, Ltd. (collectively, the “Legacy Funds”), which were formed in 2005 and 2007, respectively. In connection with our initial public offering in August 2010, we acquired a portfolio of investments (the “Legacy Portfolio”), valued at approximately $72 million, from the Legacy Funds in exchange for shares of our common stock and senior unsecured notes (the “Distribution Notes”). On November 27, 2012, we completed a follow-on public offering of 1,350,000 shares of our common stock for gross proceeds of approximately $10.7 million.

We invest primarily in senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies that operate in a diverse range of industries. In our lending activities, we focus primarily on portfolio companies with both (i) tangible and intangible assets available as collateral and security against our loan to help mitigate our risk of loss, and (ii) cash flow to cover debt service. We believe this provides us with a more attractive risk adjusted return profile, with greater principal protection and likelihood of repayment.

Our investments generally range in size from $3 million to $10 million; however, we may make larger or smaller investments from time to time on an opportunistic basis. We focus primarily on senior secured loans and “stretch” senior secured loans, also referred to as “unitranche” loans, which combine characteristics of traditional first-lien senior secured loans and second-lien or subordinated loans. We believe that having a first lien, senior secured position provides us with greater control and security in the primary collateral of a borrower and helps to mitigate risk against loss of principal should a borrower default. Our stretch senior secured loans typically possess a greater advance rate against the borrower’s assets and cash flow, and accordingly carry a higher interest rate and/or greater equity participation, than traditional senior secured loans. This stretch senior secured loan instrument can provide borrowers with a more efficient and desirable solution than a senior bank line combined with a separate second lien or mezzanine loan obtained from another source. We also invest in mezzanine, subordinated or unsecured loans. In addition, we may acquire equity or equity related interests from a borrower along with our debt investment. We attempt to protect against risk of loss on our debt investments by securing our loans against a significant level of tangible or intangible assets of our borrowers, which may include accounts receivable and contracts for services, and obtaining a favorable loan-to-value ratio, and in many cases, securing other financial protections or credit enhancements, such as personal guarantees from the principals of our borrowers, make well agreements and other forms of collateral, rather than lending predominantly against anticipated cash flows of our borrowers. We believe this allows us more options and greater likelihood of repayment from refinancing, asset sales of our borrowers and/or amortization.

We generally seek to invest in smaller and lower middle-market companies in areas that we believe have been historically under-serviced, especially during and after the 2008/2009 credit crisis. These areas include industries that are outside the focus of mainstream institutions or investors due to required industry-specific knowledge or are too small to attract interest from larger investment funds or other financial institutions. Because we believe there are fewer banks and specialty finance companies focused on lending to these smaller and lower middle-market companies, we believe we can negotiate more favorable terms on our debt investments in these companies than those that would be available for debt investments in comparable larger, more mainstream borrowers. Such favorable terms may include higher debt yields, lower leverage levels, more significant covenant protection or greater equity grants than typical of other transactions. We generally seek to avoid competing directly with other capital providers with respect to specific transactions in order to avoid the less favorable terms we believe are typically associated with such competitive bidding processes.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported 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 the following items as critical accounting policies.

Basis of Consolidation

Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of Full Circle West, Inc., FC New Media Inc., FC New Specialty Foods, Inc., and Art Credit Company, LLC, our only wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Valuation of Investments in Securities at Fair Value — Definition and Hierarchy

In determining fair value, Full Circle Capital’s Board of Directors uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Board of Directors. Unobservable inputs reflect the Board of Directors’ assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Board of Directors in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

Valuation Techniques

Senior and Subordinated Secured Loans

Our portfolio consists primarily of private debt instruments (“Level 3 debt”). The Company considers its Level 3 debt to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Company’s Board of Directors considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Company’s Board of Directors will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

This evaluation will be updated no less than quarterly for Level 3 debt instruments, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired and analyzed by Management and the Company’s Board of Directors.

Investments in Private Companies

The Company’s Board of Directors determines the fair value of its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value hierarchy.

Warrants

The Company’s Board of Directors ascribes value to warrants based on fair value analyses that may include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate.

Fair Value

The Company’s assets measured at fair value on a recurring basis subject to the requirement of ASC Topic 820 at December 31, 2012 and June 30, 2012, were as follows:

As of December 31, 2012 (Unaudited)

	Level 1		Level 2		Level 3		Total
Assets
Senior and Subordinated Loans, at fair value	$	-	$	-	$	71,578,763	$	71,578,763
US Treasury Securities, at fair value⁽¹⁾		22,000,000		-		-		22,000,000
Investments in private companies, at fair value						5,982,148		5,982,148
Investments in securities, at fair value		-		-		58,055		58,055
	$	22,000,000	$	-	$	77,618,966	$	99,618,966

As of June 30, 2012

	Level 1		Level 2		Level 3		Total
Assets
Senior and Subordinated Loans, at fair value	$	-	$	-	$	70,970,152	$	70,970,152
US Treasury Securities, at fair value⁽¹⁾		22,499,881		-		-		22,499,881
Investments in private companies, at fair value		-		-		1,376,737		1,376,737
	$	22,499,881	$	-	$	72,346,889	$	94,846,770

⁽¹⁾ U.S. Treasury Securities were purchased and temporarily held in connection with compliance with RIC diversification requirements under Subchapter M of the Code.

During the six months ended December 31, 2012 and the year ended June 30, 2012, there were no transfers in or out of levels.

Revenue Recognition

Realized gains or losses on the sale of investments are calculated using the specific identification method.

Dividend income is recorded on the ex-dividend date.

Structuring fees, board fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when received. Other fee income, including annual fees and monitoring fees are included in Other Income.

Use of Estimates

The preparation of the financial statements of Full Circle Capital in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts disclosed in the financial statements of Full Circle Capital. Actual results could differ from those estimates.

Current Market Conditions and Market Opportunity

We believe that the current credit environment provides favorable opportunities to achieve attractive risk-adjusted returns on the types of senior secured loans and other investments we target. In particular, we believe that, despite an overall fall off in loan demand due to the depressed economic conditions, demand for financing from smaller to lower middle-market companies is largely outpacing the availability of lenders that have traditionally served this market. We believe that bank consolidations, the failure of a number of alternative lending vehicles due to poor underwriting practices and an overall tightening of underwriting standards has significantly reduced the number and activity level of potential lenders.

We believe there has long been a combination of demand for capital and an underserved market for capital addressing smaller and lower middle-market borrowers. We believe there is robust demand for continued growth capital as well as demand from very significant refinancing requirements of many borrowers as debt facilities come due, given the lack of willing and qualified capital providers. We believe these market conditions have been further exacerbated in the current environment due to:

larger lenders exiting this market to focus on larger investment opportunities which are more appropriate for their operating cost structures;

the elimination of many specialized lenders from the market due to lack of capital as a result of, for instance, the closing off of the securitization market or their own poor performance, and

the need for certain capital providers to reduce lending activities due to their reduced access to capital and the overall deleveraging of the financial market.

With the decreased availability of debt capital for smaller to lower middle-market borrowers, combined with the significant demand for refinancing, we believe there are increased lending opportunities for us. As always, we remain cautious in selecting new investment opportunities, and will only deploy capital in deals which are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.

Waiver and Expense Reimbursement

Our investment adviser agreed to waive the portion of the base management fee that exceeded 1.50% of Full Circle Capital’s gross assets, as adjusted, until August 31, 2011 when such waiver expired. In addition, our investment adviser agreed to reimburse the Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public offering, which occurred on August 31, 2010 (the “Expense Reimbursement Agreement”). This agreement was extended through September 30, 2011 and expired on such date.

Portfolio Composition and Investment Activity

Our portfolio of investments consists primarily of senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies. Our investment objective is to generate both current income and capital appreciation through debt and equity investments.

The following is a summary of our quarterly investment activity since the completion of our initial public offering. Such amounts are not inclusive of our holdings of United States Treasury Bills.

Time Period	Acquisitions ⁽¹⁾ (dollars in millions)		Dispositions ⁽²⁾ (dollars in millions)		Weighted Average Interest Rate of Portfolio at End of Period
Legacy Portfolio Acquisition (August 31, 2010)	$	72.3	$	N/A		12.10	%
August 31, 2010 through September 30, 2010		0.4		1.4		12.16	%
October 1, 2010 through December 31, 2010		3.7		10.1		12.09	%
January 1, 2011 through March 31, 2011		4.0		19.9		12.39	%
April 1, 2011 through June 30, 2011		9.6		1.2		12.68	%
July 1, 2011 through September 30, 2011		27.7		15.9		12.89	%
October 1, 2011 through December 31, 2011		5.9		9.4		13.04	%
January 1, 2012 through March 31, 2012		6.7		5.7		12.98	%
April 1, 2012 through June 30, 2012		15.0		7.1		12.93	%
July 1, 2012 through September 30, 2012		11.4		8.1		12.84	%
October 1, 2012 through December 31, 2012		29.1		25.1		12.55	%
Since inception	$	185.8	$	103.9		N/A

	⁽¹⁾	Includes new deals, additional fundings, refinancings (inclusive of those on revolving credit facilities) and payment in kind “PIK” interest
	⁽²⁾	Includes scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities)

Portfolio Activity for the Six Months Ended December 31, 2012

The primary investment activities for the six months ended December 31, 2012, were fundings and repayments under the revolving credit facilities and the funding of the following loan facilities:

	·	On September 7, 2012 the Company originated a $3,250,000 credit facility, comprised of a $1,000,000 senior secured term loan and a $2,250,000 senior secured revolving credit facility, both bearing interest at LIBOR plus 12.25% to Global Energy Efficiency Holdings Inc. (“GEE”). GEE provides energy efficiency products, installation and maintenance services to small and medium sized businesses in multiple food sales and service industries.
	·	On September 27, 2012, the Company funded an additional $600,000 to iMedX, Inc. as part of the Company’s existing senior secured term loan.
	·	On December 19, 2012, Ygnition Networks, Inc. (“Ygnition”) entered into transactions which involved the sale of substantially all of its assets to Access Media 3, Inc. (“Access Media 3”) and to New Media West, LLC (“New Media West”), an affiliate of the Company and of Access Media 3. Pursuant to this transaction the Company, in exchange for its secured interest in the Ygnition assets, received: (i) an equity interest in New Media West, valued at $3.60 million, (ii) a $5.80 million five year note due from New Media West bearing interest at 9%, and (iii) cash consideration from Access Media 3 valued at $0.40 million. Such amounts are subject to final purchase price adjustments. At December 19, 2012, immediately prior to these transactions, the Company had $13.00 million of debt outstanding to Ygnition, held at approximately $12.05 million. As a result of the transaction, the Company recognized a loss of $2.25 million, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and the reversal of a previously unrealized loss of $0.95 million.
	·	On December 28, 2012, the Company funded $3,900,000 to SOLEX Fine Foods, LLC; Catsmo, LLC as a first out participation under a $5,600,000 senior secured term loan bearing interest of LIBOR plus 12.25% and maturing December 28, 2016. The Company also purchased $250,000 of common equity units as part of the transaction. SOLEX Fine Foods, LLC; Catsmo, LLC is a provider of specialty foods in New York City and the surrounding areas.

The following is a reconciliation of the investment portfolio for the six months ended December 31, 2012, and for the year ended June 30, 2012:

	Six Months Ended December 31, 2012			Year Ended June 30, 2012
Beginning Investment Portfolio	$	94,846,770		$	82,794,117
Portfolio Investments Acquired		40,575,863			55,279,880
Treasury and Money Market Purchases⁽¹⁾		47,001,337			120,000,601
Amortization of fixed income premiums and discounts		159,645			522,732
Portfolio Investments Repaid		(33,227,443	)		(38,164,798	)
Sales of Treasury and Money Market securities⁽¹⁾		(47,500,000	)		(123,499,273	)
Payment in Kind		-			68,842
Net Unrealized Appreciation (Depreciation)		1,809,902			(1,979,965	)
Net Realized Losses		(4,047,108	)		(175,366	)
Ending Investment Portfolio	$	99,618,966		$	94,846,770

⁽¹⁾ U.S. Treasury Securities were purchased and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the Code.

Portfolio Classifications

The following table shows the fair value of our portfolio of investments by asset class as of December 31, 2012, and June 30, 2012, excluding United States Treasury Bills of approximately $22.0 million and $22.5 million, respectively:

	December 31, 2012 (Unaudited)					June 30, 2012
	Investments at					Investments at
	Fair Value (dollars in millions)		Percentage of Total Portfolio			Fair Value (dollars in millions)		Percentage of Total Portfolio
Senior Secured Loans	$	68.2		87.9	%	$	67.5		93.3	%
Subordinated Secured Loans		3.3		4.3			3.4		4.8
Limited Liability Company Interests		6.0		7.7			1.4		1.9
Warrants		0.1		0.1			-		-
Total	$	77.6		100.0	%	$	72.3		100.0	%

At December 31, 2012, the eighteen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 59% (i.e., each $59 of loan value outstanding is secured by $100 of collateral value).

At June 30, 2012, the sixteen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 62% (i.e., each $62 of loan value outstanding is secured by $100 of collateral value).

The following table shows the fair value of our portfolio of investments by industry, as of December 31, 2012, and June 30, 2012, excluding United States Treasury Bills of approximately $22.0 million and $22.5 million, respectively:

	December 31, 2012 (Unaudited)					June 30, 2012 (Audited)
	Investments at					Investments at
	Fair Value (dollars in millions)		Percentage of Total Portfolio			Fair Value (dollars in millions)		Percentage of Total Portfolio
Cable TV/Broadband Services	$	16.0		20.6	%	$	17.7		24.5	%
Consumer Financing		7.6		9.8			6.8		9.4
Radio Broadcasting		6.1		7.9			6.3		8.7
Staffing Services		5.0		6.4			5.0		6.9
Aerospace Parts Plating and Finishing		5.0		6.4			4.9		6.8
Munitions		5.0		6.4			4.9		6.8
Medical Transcription Services		4.5		5.8			4.1		5.6
Energy Efficiency Services		4.2		5.4			-		-
Food Distributors and Wholesalers		4.1		5.3			-		-
Industrial Metal Treatings		3.9		5.0			3.9		5.4
Real Estate Management Services		3.5		4.5			4.1		5.7
Healthcare Services		3.5		4.5			3.5		4.8
Equipment Rental Services		2.7		3.5			3.1		4.4
Information and Data Services		2.2		2.9			3.5		4.9
Outdoor Advertising Services		2.1		2.7			1.9		2.6
Asset Recovery Services		1.6		2.1			2.0		2.7
Art Dealers		0.6		0.8			0.6		0.8
Total	$	77.6		100.0	%	$	72.3		100.0	%

Portfolio Grading

We have adopted a credit grading system to monitor the quality of our debt investment portfolio. As of December 31, 2012, our portfolio had a weighted average grade of 3.04, based upon the fair value of the debt investments in the portfolio, excluding United States Treasury Bills of approximately $22.0 million. Equity securities are not graded. This was an improvement of 0.26 from the weighted average grade of 3.30 at June 30, 2012.

At December 31, 2012, our debt investment portfolio was graded as follows:

	December 31, 2012
Grade	Summary Description	Fair Value		Percentage of Total Portfolio
1	Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).	$	-		-	%
2	The portfolio company is performing above expectations and the risk profile is generally favorable.		10,482,586		13.51
3	Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.		47,653,582		61.39
4	The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable.		13,442,595		17.32
5	The investment is performing well below expectations and the par value is not anticipated to be repaid in full.		-		-
		$	71,578,763		92.22	%

At June 30, 2012, our debt investment portfolio was graded as follows:

	June 30, 2012
Grade	Summary Description	Fair Value		Percentage of Total Portfolio
1	Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).	$	-		-	%
2	The portfolio company is performing above expectations and the risk profile is generally favorable.		6,788,625		9.38
3	Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.		44,638,741		61.70
4	The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable.		17,583,423		24.31
5	The investment is performing well below expectations and is not anticipated to be repaid in full.		1,959,363		2.71
		$	70,970,152		98.10	%

We expect that a portion of our investments will be in grades 4 or 5 from time to time, and, as such, we will be required to work with portfolio companies to improve their business and protect our investment. The number and amount of investments included in grades 4 or 5 may fluctuate from period to period.

Results of Operations

Comparison of the three months ended December 31, 2012 and 2011

Total Investment Income

Total investment income includes interest and dividend income on our investments and other income, which is comprised entirely of fee income for the three months ended December 31, 2012. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused line fees.

Total investment income for the three months ended December 31, 2012, was $3,099,599. This amount consisted of $2,574,049 of interest income from portfolio investments (which included no PIK interest), $72,493 of dividend income and $453,057 of fee income. Dividend income was solely earned from our investment in The Finance Company, LLC.

Total investment income for the three months ended December 31, 2011, was $2,398,665. This amount consisted of $2,331,850 of interest income from portfolio investments (which included no PIK interest), $1,823 of dividend income and $64,992 of fee income. Dividend income was solely earned from our investment in The Finance Company, LLC.

The increase in interest income for the three months ended December 31, 2012 relative to the same time period in 2011 was primarily due to growth in the size of our portfolio. The increase in dividend income for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was primarily due to the Company’s investment in The Finance Company, LLC. The increase in fee income, which can fluctuate, for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was primarily a result of higher prepayment, administration and other fees during the quarter ended December 31, 2012, which included a $316,871 exit fee from The Selling Source, LLC.

Expenses

Gross and net operating expenses for the three months ended December 31, 2012, were $1,633,949.

Gross and net operating expenses for the three months ended December 31, 2011, were $1,300,025.

The increase in our net operating expenses for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 is primarily due to the increase in the Company’s borrowings to fund additional portfolio investments, which resulted in increased interest expense and management and incentive fees resulting from the Company having a larger portfolio and higher interest and net investment income during the period.

Net Investment Income (Loss)

Net investment income for the three months ended December 31, 2012, was $1,465,650. Net investment income per share was $0.22 for the period.

Net investment income for the three months ended December 31, 2011, was $1,098,640. Net investment income per share was $0.18 for the period.

The increase in net investment income for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was primarily due to higher fee income, which can fluctuate, as the Company received greater repayment fees during the three months ended December 31, 2012 as compared to the same period in 2011 and to increased interest income as the Company had greater portfolio assets outstanding as compared to the same period in 2011. Such amounts were offset by increased interest expense and management and incentive fees resulting from the Company having a larger portfolio and higher interest and net investment income during the period.

Realized Gain (Loss) on Investments

Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. During the three months ended December 31, 2012, we recorded a realized loss of $3,186,441, primarily from the disposition of our senior secured loan in Ygnition Networks, Inc., as described below. Realized loss per share was $0.49 for the period.

The Company recognized a loss of $2.25 million on Ygnition, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and the reversal of a previously unrealized loss of $0.95 million. See prior discussion in “—Portfolio Activity for the Six Months Ended December 31, 2012” for further discussion of this transaction.

During the three months ended December 31, 2011, we recorded a realized gain of $766.

The decrease in realized gains for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was due to the items discussed above.

From time to time the Company may enter into a new transaction with a portfolio company as a result of the sale, merger, foreclosure, bankruptcy or other corporate event involving the portfolio company. In such cases, the Company may receive newly-issued notes, securities and/or other consideration in exchange for, or resulting from, the cancellation of the instruments previously held by the Company with regard to that portfolio company. In such cases, the Company may experience a realized loss on the instrument being sold or cancelled, and, concurrently, an elimination of any previously recognized unrealized losses on the portfolio investment. Such elimination of unrealized loss is included on the Statements of Operations as an increase in the Change in Unrealized Gain (Loss) on Investments.

Change in Unrealized Gain (Loss) on Investments

Change in unrealized gain (loss) on investments per share was $0.20 for the three months ended December 31, 2012. During the three months ended December 31, 2012, we recorded net unrealized appreciation of $1,292,589, primarily from the disposition of our senior secured loan in Ygnition and the realization of the prior unrealized loss of $953,715, as described below. The overall change in unrealized gain (loss) consisted of $695,913 of net unrealized appreciation on debt investments and $596,731 of net unrealized appreciation on equity investments.

Net Change in Unrealized Loss on Investments per share was $0.14 for the three months ended December 31, 2011. During the three months ended December 31, 2011, we recorded net unrealized depreciation of $846,865. This consisted of $757,404 of net unrealized depreciation on debt investments and $89,461 of net unrealized depreciation on equity investments.

The increase in change in unrealized gain (loss) on investments for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was due to the items discussed above.

Comparison of the six months ended December 31, 2012 and 2011

Total Investment Income

Total investment income includes interest and dividend income on our investments and other income, which is comprised entirely of fee income for the six months ended December 31, 2012. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused line fees.

Total investment income for the six months ended December 31, 2012, was $5,872,902. This amount consisted of $5,153,147 of interest income from portfolio investments (which included no PIK interest), $106,590 of dividend income and $613,165 of fee income.

Total investment income for the six months ended December 31, 2011, was $4,956,908. This amount consisted of $4,419,550 of interest income from portfolio investments (which included $68,482 of PIK interest), $1,823 of dividend income and $535,535 of fee income.

The increase in dividend income for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was primarily due to the Company’s investment in The Finance Company, LLC. The increase in total investment income for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was primarily a result of increased interest income as the Company had greater portfolio assets outstanding as compared to the same period in 2011.

Expenses

Gross and net operating expenses for the six months ended December 31, 2012, were $3,169,007.

Gross operating expenses for the six months ended December 31, 2011, were $2,627,718. Net operating expenses (offset by the waived portion of the base management fee and the accrual for the expense reimbursement) for the six months ended December 31, 2011, were $2,313,926.

The increase in our net operating expenses for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 is primarily due to the expiration of the Expense Reimbursement Agreement and Management Fee waiver, which resulted in increased net operating expenses, increased interest expense and increased management and incentive fees resulting from the Company having a larger portfolio and higher interest and net investment income during the period.

Net Investment Income (Loss)

Net investment income for the six months ended December 31, 2012, was $2,703,895. Net investment income per share was $0.42 for the period.

Net investment income for the six months ended December 31, 2011, was $2,642,982. Net investment income per share was $0.43 for the period.

The increase in net investment income for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was primarily due to the increase in interest income during the six months ended December 31, 2012 as compared to the same period in 2011 offset by increased interest expense and management and incentive fees resulting from the Company having a larger portfolio and higher interest and net investment income during the period.

Realized Gain (Loss) on Investments

Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs.

During the six months ended December 31, 2012, we recorded a realized loss of $4,047,108 primarily in connection with the disposition of our investment in Ygnition, as described below, and the conversion of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group, LLC upon the finalization of the Equisearch Acquisition, Inc.’s bankruptcy proceedings. Realized loss per share for the period was $0.62.

During the six months ended December 31, 2011, we recorded a realized gain of $126,572 primarily in connection with the repayment of a portion of our interests in West World Media, LLC. Realized gain per share for the period was $0.02.

The decrease in realized gains for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was due to the items discussed above.

Change in Unrealized Gain (Loss) on Investments

Change in unrealized gain (loss) on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. Change in unrealized gain (loss) on investments per share was $0.28 for the six months ended December 31, 2012.

During the six months ended December 31, 2012, we recorded net unrealized appreciation of $1,809,902. This consisted of $829,491 of net unrealized appreciation on debt investments, primarily in connection with the disposition of our investment in Ygnition Networks, Inc., as described below, and the conversion of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group, LLC upon the finalization of Equisearch Acquisition, Inc.’s bankruptcy proceedings, and $980,411 of net unrealized appreciation on equity investments.

Change in unrealized gain (loss) on investments per share was $(0.15) for the six months ended December 31, 2011. During the six months ended December 31, 2011, we recorded net unrealized depreciation of $917,680. This consisted of $1,020,707 of net unrealized depreciation on debt investments offset by $103,027 of net unrealized appreciation on equity investments.

The movement in Change in unrealized gain (loss) on investments for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was primarily due to the increase in fair value of one of the Company’s equity investments and the items discussed above.

Liquidity and Capital Resources

At December 31, 2012, we had investments in debt securities of eighteen companies, totaling approximately $71.6 million in fair value, and equity investments in nine companies, totaling approximately $6.0 million in fair value.

Cash used in operating activities for the six months ended December 31, 2012, consisting primarily of purchases, sales and repayments of investments and the items described in "Results of Operations," was approximately $5.4 million, reflecting the purchases and repayments of investments, income resulting from operations, offset by non-cash income related to OID income, changes in working capital and accrued interest receivable. Net cash used in purchases and sales of investments was approximately $7.3 million, reflecting net additional investments in securities of $40.5 million, offset by principal repayments of $33.2 million. Such amounts are not inclusive of our purchase of United States Treasury Bills or Money Market Funds.

Immediately prior to the Full Circle Portfolio Acquisition, Full Circle Capital entered into the Credit Facility, a secured revolving credit facility with First Capital. The facility size is $35 million and, as amended, expires on December 31, 2013. Under the agreement, base rate borrowings bear interest at LIBOR plus 5.50%. As of December 31, 2012, we had $16.6 million outstanding borrowings under the Credit Facility.

As of December 31, 2012, we had Distribution Notes outstanding of approximately $3.4 million. These senior unsecured notes bear interest at a rate of 8.0% per annum, payable quarterly in cash, and mature on February 28, 2014.

As of December 31, 2012, we held approximately $0.3 million in cash and did not have any cash equivalents in our investment portfolio.

Capital Raises

On November 30, 2012, we completed a follow-on public offering of 1,350,000 shares of our common stock for gross proceeds of approximately $10.7 million.

As a business development company, we generally 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 equity markets when we believe it is necessary and appropriate to do so. In this regard, we continue to explore various options for obtaining additional debt or equity capital for investments. This may include replacing or further extending our Credit Facility, or the issuance of additional shares of our common stock, possibly at prices below our then current net asset value per share pursuant to a proposal, approved by our stockholders at our 2012 annual meeting of stockholders, authorizing us to sell shares of our common stock below its then current net asset value per share in one or more offerings for a period of one year ending on the earlier of our 2013 annual meeting of stockholders or February 1, 2014. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. If we are unable to obtain leverage or raise equity capital on terms that are acceptable to us, our ability to grow our portfolio will be substantially impacted.

Contractual Obligations

Payments Due By Period
(dollars in millions)

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Credit Facility ⁽¹⁾	$	16.6	$	16.6	$		$	—	$	—
Distribution Notes		3.4		—		3.4		—		—
Total	$	20.0	$	16.6	$	3.4	$	—	$	—

^{_____________________}

⁽¹⁾ At December 31, 2012, $18.4 remained unused under the Credit Facility.

In addition to the contractual obligations set forth above, we have certain obligations with respect to the investment advisory and administration services we receive. See “Overview”. We incurred $1,352,524 for investment advisory services and $415,091 for administrative services for the six months ended December 31, 2012.

As of December 31, 2012, we had approximately $6.0 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Borrowings

Secured Revolving Credit Facility. Immediately prior to the Full Circle Portfolio Acquisition, Full Circle Capital entered into the Credit Facility, a secured revolving credit facility with First Capital. The facility size is $35 million and, as amended, expires on December 31, 2013. Under the agreement, base rate borrowings bear interest at LIBOR plus 5.50%, subject to a floor. We incur unused line, average usage, and other fees related to the Credit Facility. The Credit Facility is secured by all of our assets. Under the Credit Facility we are required to satisfy several financial covenants, including maintaining a minimum level of net assets, a maximum level of leverage and minimum asset coverage and interest coverage ratios. In addition, we are required to comply with other general covenants, including with respect to indebtedness, liens, restricted payments and mergers and consolidations.

Distribution Notes. The Distribution Notes consist of $3.4 million in senior unsecured notes, which bear interest at a rate of 8.0% per annum, payable quarterly in cash, and mature on February 28, 2014. The Distribution Notes are callable by us at any time, in whole or in part, at a price of 100% of their principal amount, plus accrued and unpaid interest. In electing to exercise our call right with respect to the Distribution Notes, our Board of Directors will consider all of the relevant factors, including alternative uses of available capital and whether any Distribution Notes have recently been transferred or sold at prices below par value, and will be required to determine that such a call is in the best interests of Full Circle Capital and our stockholders. The Distribution Notes subject Full Circle Capital to customary covenants, including, among other things, a restriction on incurring any debt on a junior lien basis, or any debt that is contractually subordinated in right of payment to any other debt unless it is also subordinated to the Distribution Notes on substantially identical terms. The agreement under which the Distribution Notes were issued contains customary events of default.

Distributions

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.

The following table lists the cash distributions, including dividends and returns of capital, if any, per share that we have declared since our formation on April 16, 2010. The table is divided by fiscal year according to record date.

Date Declared	Record Date	Payment Date	Amount

Fiscal 2011:
July 21, 2010	September 30, 2010	October 15, 2010	$	0.076	⁽¹⁾
November 5, 2010	December 31, 2010	January 14, 2011		0.225
February 4, 2011	March 31, 2011	April 15, 2011		0.225
May 6, 2011	June 30, 2011	July 15, 2011		0.225
Total (2011)			$	0.751
Fiscal 2012:
June 28, 2011	July 29, 2011	August 15, 2011	$	0.075	⁽²⁾
June 28, 2011	August 31, 2011	September 15, 2011		0.075
June 28, 2011	September 30, 2011	October 14, 2011		0.075
September 8, 2011	October 31, 2011	November 15, 2011		0.077
September 8, 2011	November 30, 2011	December 15, 2011		0.077
September 8, 2011	December 30, 2011	January 13, 2012		0.077
November 7, 2011	January 31, 2012	February 15, 2012		0.077
November 7, 2011	February 29, 2012	March 15, 2012		0.077
November 7, 2011	March 30, 2012	April 13, 2012		0.077
February 3, 2012	April 30, 2012	May 15, 2012		0.077
February 3, 2012	May 31, 2012	June 15, 2012		0.077
February 3, 2012	June 29, 2012	July 13, 2012		0.077
Total (2012)			$	0.918
Fiscal 2013:
May 7, 2012	July 31, 2012	August 15, 2012	$	0.077
May 7, 2012	August 31, 2012	September 14, 2012		0.077
May 7, 2012	September 28, 2012	October 15, 2012		0.077
September 10, 2012	October 31, 2012	November 15, 2012		0.077
September 10, 2012	November 30, 2012	December 14, 2012		0.077
September 10, 2012	December 31, 2012	January 15, 2013		0.077
November 5, 2012	January 31, 2013	February 15, 2013		0.077
November 5, 2012	February 28, 2013	March 15, 2013		0.077
November 5, 2012	March 29, 2013	April 15, 2013		0.077
February 5, 2013	April 30, 2013	May 15, 2013		0.077
February 5, 2013	May 31, 2012	June 14, 2013		0.077
February 5, 2013	June 28, 2013	July 15, 2013		0.077
Total (2013 to date)			$	0.924

⁽¹⁾ This quarterly dividend was prorated for the number of days remaining in the third calendar quarter after our initial public offering. Our initial public offering was on August 31, 2010, and the gross amount of the prorated dividend was $0.225.

⁽²⁾ From our initial public offering through the fourth fiscal quarter of 2011, we paid quarterly dividends, but in the first fiscal quarter of 2012 we began paying, and we intend to continue paying, monthly dividends to our stockholders. Our monthly dividends, if any, are determined by our Board of Directors on a quarterly basis.

Related Parties

We have entered into a number of business relationships with affiliated or related parties, including the following:

•

We have entered into the Investment Advisory Agreement with Full Circle Advisors. John E. Stuart, our Chief Executive Officer and President, is the managing member of, and has financial and controlling interests in, Full Circle Advisors.

•

We have entered into the Administration Agreement with Full Circle Service Company. Pursuant to the terms of the Administration Agreement, Full Circle Service Company provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. Mr. Stuart, our Chief Executive Officer and President, is the managing member of, and has financial and controlling interests in, Full Circle Service Company.

•

We have entered into a license agreement with Full Circle Advisors, pursuant to which Full Circle Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Full Circle.”

•

Our Chief Financial Officer, Treasurer and Secretary, William E. Vastardis, is the President of Vastardis Fund Services, LLC (“Vastardis”). Full Circle Service Company has engaged Vastardis to provide certain administrative services to us. For the six months ended December 31, 2012, Vastardis was paid $123,429 for services provided under the Administration Agreement and $125,000 for the services of Mr. Vastardis as the Chief Financial Officer.

Full Circle Advisors’ investment committee presently manages Full Circle Funding, LP, a specialty lender serving smaller and lower middle-market companies. Although the existing investment funds managed by Full Circle Funding, LP, which currently consist of the Legacy Funds, are no longer making investments in new opportunities, any affiliated investment vehicle formed in the future and managed by our investment adviser or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. Full Circle Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, Full Circle Advisors or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with Full Circle Advisors’ allocation procedures. In connection with our acquisition of the Legacy Portfolio, we issued an aggregate of 4,191,415 shares of our common stock and approximately $3.4 million of Distribution Notes to investors in the Legacy Funds.

We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).

Recent Developments

Dividend

Recent Portfolio Activity

On February 1, 2013, the Company invested $4,000,000 in a new senior secured term loan to The Selling Source, LLC, bearing interest at 12.50% and maturing February 1, 2017.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of December 31, 2012, three debt investments in our portfolio were at a fixed rate, and the remaining 27 debt investments were at variable rates, representing approximately $11.2 million and $60.4 in fair value debt, respectively. The majority of our floating rate debt instruments are currently at their floor interest rate. The variable rates are based upon the Prime rate or LIBOR.

To illustrate the potential impact of a change in the underlying interest rate on our net investment income, we have assumed a 1% increase in the underlying Prime rate or LIBOR, and no other change in our portfolio as of December 31, 2012. We have also assumed $16.6 million of outstanding borrowings bearing a floating rate based upon LIBOR. Under this analysis, net investment income would increase by approximately $0.3 million annually. If we had instead assumed a 1% decrease in the underlying Prime rate or LIBOR, net investment income would decrease correspondingly by approximately $0.1 million annually. Although management believes that this analysis is indicative of our existing interest rate sensitivity at December 31, 2012, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis.

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 4.

Controls and Procedures

As of December 31, 2012, 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) under the Securities Exchange Act of 1934). Based on that evaluation, 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 SEC filings.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended December 31, 2012 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

None of us, our investment adviser or administrator, is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us, or against our investment adviser or administrator. From time to time, we, our investment adviser or administrator, may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to 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 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no material changes during the six months ended December 31, 2012 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended June 30, 2012.

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

We did not engage in unregistered sales of equity securities during the three months ended December 31, 2012.

Issuer Purchases of Equity Securities

For the quarter ended December 31, 2012, as a part of our dividend reinvestment plan for our common stockholders, we purchased 1,035 shares of our common stock for approximately $7.52 in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines repurchases of our common stock during the quarter ended December 31, 2012.

Month	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

October 2012		310	$	8.18		—		—
November 2012		379	$	7.05		—		—
December 2012		346	$	7.45		—		—
Total		1,035	$	7.52		—		—

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

Exhibit Number		Description
3.1		Articles of Amendment and Restatement ⁽²⁾
3.2		Bylaws ⁽¹⁾
4.1		Form of Common Stock Certificate ⁽¹⁾
4.2		Form of Note Agreement for Senior Unsecured Notes ⁽¹⁾
4.3		Form of Senior Unsecured Note ⁽¹⁾
10.1		Form of Dividend Reinvestment Plan ⁽¹⁾
10.2		Form of Second Amended and Restated Loan and Security Agreement by and between the Registrant and FCC, LLC d/b/a First Capital ⁽²⁾
10.3		Investment Advisory Agreement by and between Registrant and Full Circle Advisors, LLC ⁽¹⁾
10.4		Administration Agreement by and between Registrant and Full Circle Service Company, LLC ⁽¹⁾
10.5		Form of Indemnification Agreement by and between Registrant and each of its directors ⁽¹⁾
10.6		Trademark License Agreement by and between Registrant and Full Circle Advisors, LLC ⁽¹⁾
10.7		Form of Purchase and Sale Agreement by and between Registrant, Full Circle Partners, LP, Full Circle Fund, Ltd., Full Circle Offshore, LLC, and FCC, LLC d/b/a First Capital ⁽²⁾
10.8		First Amendment to the Second Amended and Restated Loan and Security Agreement by and between the Registrant and FCC, LLC d/b/a First Capital ⁽³⁾
10.9		Waiver and Second Amendment to Second Amended and Restated Loan and Security Agreement by and between the Registrant and FCC, LLC d/b/a First Capital ⁽⁴⁾
10.10		Third Amendment to Second Amended and Restated Loan and Security Agreement, among Full Circle Capital Corporation and FCC, LLC, d/b/a First Capital ⁽⁵⁾
10.11		Fourth Amendment to Second Amended and Restated Loan and Security Agreement, among Full Circle Capital Corporation and FCC, LLC, d/b/a First Capital ⁽⁶⁾
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

	⁽¹⁾	Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-166302) filed on August 5, 2010.
	⁽²⁾	Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 3 (File No. 333-166302) filed on August 26, 2010.
	⁽³⁾	Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on January 27, 2012.
	⁽⁴⁾	Incorporated by reference to Registrant’s quarterly report on Form 10-Q (File No. 814-00809) filed on May 10, 2012.
	⁽⁵⁾	Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on August 1, 2012.
	⁽⁶⁾	Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on November 2, 2012.

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.

	FULL CIRCLE CAPITAL CORPORATION

Date: February 11, 2013	By:	/s/ John E. Stuart
		John E. Stuart, Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)


Date: February 11, 2013	By:	/s/ William E. Vastardis
		William E. Vastardis, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

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