UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended March 31, 2023
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 001-40564
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(212 ) 905-4923
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Trading Symbol(s)
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Name of each exchange on which registered
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer
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☐
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Accelerated filer
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☐
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☒
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 12, 2023, the registrant had 6,214,672 shares of common stock
($0.01 par value per share) outstanding.
SILVER SPIKE
INVESTMENT CORP.
FORM 10-Q
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TABLE OF CONTENTS
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PAGE
NO.
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PART I
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FINANCIAL INFORMATION
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Item 1
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4 |
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4
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5
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6
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7
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8
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10
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Item 2
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21
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Item 3
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31
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Item 4
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32
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PART II
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OTHER INFORMATION
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Item 1
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32
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Item 1A
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32
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Item 2
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32
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Item 3
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32
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Item 4
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33
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Item 5
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33
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Item 6
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33
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34
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except where the context suggests otherwise, the terms “we,” “us,” “our,” “the Company,” and “SSIC” refer to Silver Spike Investment Corp. In addition, the terms “SSC,” “Adviser,” “investment adviser” and “administrator” refer to Silver Spike Capital, LLC, our external investment adviser and administrator.
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or
financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
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•
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our future operating results and distribution projections;
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•
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the ability of Silver Spike Capital, LLC (“SSC”) to attract and retain highly talented professionals;
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•
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our business prospects and the prospects of our portfolio companies;
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•
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the impact of interest and inflation rates on our business prospects and the prospects of our portfolio companies;
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•
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the impact of the investments that we expect to make;
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•
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the ability of our portfolio companies to achieve their objectives;
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•
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our expected financings and investments and the timing of our investments in our initial portfolio;
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•
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changes in regulation impacting the cannabis industry;
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•
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the adequacy of our cash resources and working capital;
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•
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the current and future effects of the COVID-19 pandemic on us and our portfolio companies; and
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•
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the timing of cash flows, if any, from the operations of our portfolio companies.
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In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements,
although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or
expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” in our transition report on Form 10-K for the transition period from April 1, 2022 to December 31, 2022 and elsewhere in this
quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:
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•
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our limited operating history;
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•
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changes or potential disruptions in our operations, the economy, financial markets or political environment;
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•
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risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or the COVID-19 pandemic;
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•
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future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business
development companies (“BDCs”) or regulated investment companies (“RICs”); and
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•
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other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
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We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the
date of this quarterly report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).
PART I: FINANCIAL INFORMATION
SILVER SPIKE INVESTMENT CORP.
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March 31, 2023 |
December 31, 2022
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(unaudited)
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|||||||
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ASSETS
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||||||||
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Investments at fair value:
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Non-control/non-affiliate investments at fair value (amortized cost of $
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$
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$
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||||
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Cash and cash equivalents
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||||||
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Interest receivable
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||||||
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Prepaid expenses
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||||||
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Total assets
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$
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$
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||||
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||||||||
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LIABILITIES
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||||||||
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||||||||
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Management fee payable
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$
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$
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||||
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Income-based incentive fee payable
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||||||||
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Capital gains incentive fee payable
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||||||||
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Legal fees payable
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||||||
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Administrator fees payable
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Valuation fees payables
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Audit fees payable
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Professional fees payable
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Director’s fee payable
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Excise tax payable
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Due to affiliate
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Other payables
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||||||
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Total liabilities
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$
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$
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||||||||
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Commitments and contingencies (Note 6)
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||||||||
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NET ASSETS
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||||||||
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Common Stock, $
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$
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$
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Additional paid-in-capital
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||||||
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Distributable earnings/(Accumulated losses)
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||||||
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Total net assets
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$
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$
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||||
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NET ASSET VALUE PER SHARE
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$
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$
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||||
See notes to financial statements.
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For the three
months ended |
For the three
months ended |
||||||
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March 31, 2023
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March 31, 2022
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||||||
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INVESTMENT INCOME
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||||||||
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Non-control/non-affiliate investment income
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Interest income
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$
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$
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Fee income
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||||||
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Total investment income
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||||||
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||||||||
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EXPENSES
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||||||||
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Management fee
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Income-based incentive fee
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||||||||
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Capital gains incentive fee
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||||||||
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Legal expenses
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||||||
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Audit expense
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||||||
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Administrator fees
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||||||
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Valuation fees
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||||||
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Insurance expense
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||||||
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Director expenses
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||||||
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Professional fees
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||||||
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Custodian fees
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Organizational expenses
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Other expenses
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Total expenses
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||||||
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||||||||
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NET INVESTMENT INCOME (LOSS)
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(
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)
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|||||
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||||||||
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NET REALIZED GAIN (LOSS) FROM INVESTMENTS
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||||||
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Net realized gain (loss) from investments
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||||||
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||||||||
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NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
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||||||||
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Non-controlled/non-affiliate investments
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||||||
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Net change in unrealized appreciation/(depreciation) on investments
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||||||
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||||||||
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
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$
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$
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(
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)
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|||
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||||||||
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NET INVESTMENT INCOME (LOSS) PER SHARE — BASIC AND DILUTED
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$
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$
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(
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)
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|||
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE — BASIC AND DILUTED
|
$
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$
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(
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)
|
|||
|
WEIGHTED AVERAGE SHARES OUTSTANDING — BASIC AND DILUTED
|
|
|
||||||
See notes to financial statements.
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Common Stock
|
|||||||||||||||||||
|
|
Shares
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Par Value
|
Additional
paid-in-capital |
Distributable Earnings/
(Accumulated Loss)
|
Total net assets/
(net liabilities)
|
|||||||||||||||
|
Balance, December 31, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Net increase (decrease) in net assets resulting from operations
|
||||||||||||||||||||
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Net investment income (loss)
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-
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|
|
|
|
|||||||||||||||
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Net realized gain (loss) from investments
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-
|
|
|
|
|
|||||||||||||||
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Net change in unrealized appreciation (depreciation) from investments
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-
|
|
|
|
|
|||||||||||||||
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Total net increase (decrease) in net assets resulting from operations
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-
|
|
|
|
|
|||||||||||||||
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Capital transactions
|
||||||||||||||||||||
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Issuance of common stock
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|||||||||||||||
| Total increase (decrease) in net assets | ||||||||||||||||||||
| Effect of permanent adjustments |
- | ( |
) | |||||||||||||||||
|
Balance, March 31, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Common Stock
|
||||||||||||||||||||
|
|
Shares
|
Par value
|
Additional
paid-in-capital |
Distributable Earnings/
(Accumulated Loss) |
Total net assets/
(net liabilities) |
|||||||||||||||
|
Balance, December 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||||||
|
Net increase (decrease) in net assets resulting from operations
|
||||||||||||||||||||
|
Net investment income (loss)
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Net realized gain (loss) from investments
|
-
|
|
|
|
|
|||||||||||||||
|
Net change in unrealized appreciation (depreciation) from investments
|
-
|
|
|
|
|
|||||||||||||||
|
Total net increase (decrease) in net assets resulting from operations
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Capital transactions
|
||||||||||||||||||||
|
Issuance of common stock, net of offering costs of $
|
|
|
|
|
|
|||||||||||||||
|
Total increase (decrease) in net assets
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Effect of permanent adjustments
|
-
|
|
(
|
)
|
|
|
||||||||||||||
|
Balance, March 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
See notes to financial statements.
|
|
For the three months ended
|
|||||||
|
|
March 31, 2023
|
March 31, 2022
|
||||||
|
Cash flows from operating activities
|
||||||||
|
Net increase (decrease) in net assets resulting from operations
|
$
|
|
$
|
(
|
)
|
|||
|
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
|
||||||||
|
Net change in unrealized (appreciation) depreciation from investments
|
(
|
)
|
|
|||||
|
Net (accretion of discounts) and amortization of premiums
|
(
|
)
|
|
|||||
|
Purchase of investments
|
(
|
)
|
|
|||||
|
PIK interest capitalized
|
( |
) | ||||||
|
(Increase)/Decrease in operating assets:
|
||||||||
|
Prepaid expenses
|
(
|
)
|
(
|
)
|
||||
|
Interest receivable
|
(
|
)
|
(
|
)
|
||||
|
Deferred offering costs
|
|
|
||||||
|
Increase/(Decrease) in operating liabilities:
|
||||||||
|
Management fee payable
|
|
|
||||||
|
Income-based incentive fee payable
|
||||||||
|
Capital gains incentive fee payable
|
||||||||
|
Legal fees payable
|
|
|
||||||
|
Administrator fees payable
|
|
|
||||||
|
Valuation fees payables
|
|
|
||||||
|
Audit fees payable
|
(
|
)
|
|
|||||
|
Professional fees payable
|
|
|
||||||
|
Director’s fee payable
|
|
|
||||||
|
Excise tax payable
|
(
|
)
|
|
|||||
|
Due to affiliate
|
(
|
)
|
(
|
)
|
||||
|
Offering cost payable
|
|
(
|
)
|
|||||
|
Organizational costs payable
|
|
(
|
)
|
|||||
|
Other payables
|
(
|
)
|
|
|||||
|
Net cash provided by (used in) operating activities
|
(
|
)
|
(
|
)
|
||||
|
|
||||||||
|
Cash flows from financing activities
|
||||||||
|
Issuance of common stock, net of offering cost
|
|
|
||||||
|
Net cash provided by (used in) financing activities
|
|
|
||||||
|
|
||||||||
|
Net increase (decrease) in cash & cash equivalents
|
(
|
)
|
|
|||||
|
Cash & cash equivalents, beginning of period
|
|
|
||||||
|
Cash & cash equivalents, end of period
|
$
|
|
$
|
|
||||
See notes to financial statements.
|
Portfolio Company (1)
|
Type of Investment (2)
|
Investment
Date (3)
|
Maturity
Date
|
Interest Rate (4)
|
Fair Value
Hierarchy (5)
|
Geographic
Region (6) |
Non-
Qualifying
Asset (7)
|
Principal
Amount (8)
|
Amortized
Cost
|
Fair
Value (9)
|
% of Net
Assets
|
|||||||||||||||
|
Debt Securities - United States
|
||||||||||||||||||||||||||
|
Wholesale Trade (10)
|
||||||||||||||||||||||||||
|
|
|
|
|
Fixed interest rate
|
|
|
No
|
$
|
|
$
|
|
$
|
|
|
%
|
|||||||||||
|
.
|
|
|
|
Fixed interest rate
|
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Variable interest rate PRIME(11) +
( |
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Fixed interest rate
|
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Variable interest rate PRIME(11) +
( |
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Variable interest rate PRIME(11) +
( |
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
$
|
|
|
|
|
|||||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Total: Debt Securities -United States (
|
|
|
|
|||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Total: Debt Securities (
|
|
|
|
|||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Total Investment in Securities (
|
$
|
|
$
|
|
|
%
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Cash equivalents
|
||||||||||||||||||||||||||
|
State Street Institutional U.S. Government Money Market Fund (12)
|
$
|
|
$
|
|
|
%
|
||||||||||||||||||||
|
Cash equivalents (
|
|
|
|
|||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Total Portfolio Investments and Cash equivalents (
|
$
|
|
$
|
|
|
%
|
||||||||||||||||||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
| (5) |
|
| (6) |
|
| (7) |
Under the Investment Company Act of 1940, as amended (the “1940 Act”), a business development company (“BDC”) may not
acquire any “non-qualifying asset” (i.e., an asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as “qualifying assets”), unless, at the time the acquisition is made, qualifying assets
represent at least 70% of the BDC’s total assets.
|
| (8) |
|
| (9) |
|
| (10) |
The Company uses the North American Industry Classification System (“NAICS”) code for classifying the industry
grouping of its portfolio companies.
|
| (11) |
As of March 31, 2023 PRIME is
|
| (12) |
|
See notes to financial statements.
SILVER SPIKE INVESTMENT CORP.
Schedule of Investments
December 31, 2022
(in thousands)
|
Portfolio Company (1)
|
Type of Investment (2)
|
Investment
Date (3)
|
Maturity
Date
|
Interest Rate (4)
|
Fair Value
Hierarchy (5) |
Geographic
Region (6) |
Non-
Qualifying
Asset (7)
|
Principal
Amount (8)
|
Amortized
Cost
|
Fair
Value (9) |
% of
Net Assets
|
|||||||||||||||
|
Debt Securities - United States
|
|
|
|
|
|
|||||||||||||||||||||
|
Wholesale Trade (10)
|
|
|
||||||||||||||||||||||||
|
|
|
|
|
Fixed interest rate
|
|
|
No
|
$
|
|
$
|
|
$
|
|
|
%
|
|||||||||||
|
|
|
|
|
Fixed interest rate
|
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Fixed interest rate
|
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Variable interest rate PRIME(11) +
( |
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
Variable interest rate PRIME(11) +
( |
|
|
No
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
$
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total: Debt Securities - United States (
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total: Debt Securities (
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total Investment in Securities (
|
|
|
$
|
|
$
|
|
|
%
|
||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Cash equivalents
|
|
|
||||||||||||||||||||||||
|
State Street Institutional U.S. Government Money Market Fund (12)
|
|
|
|
$
|
|
$
|
|
|
%
|
|||||||||||||||||
|
Cash equivalents (
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total Portfolio Investments and Cash equivalents (
|
|
|
$
|
|
$
|
|
|
%
|
||||||||||||||||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
| (5) |
|
| (6) |
|
| (7) |
Under the Investment Company Act of 1940, as amended (the “1940 Act”), a business development company (“BDC”) may not
acquire any “non-qualifying asset” (i.e., an asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as “qualifying assets”), unless, at the time the acquisition is made, qualifying assets
represent at least 70% of the BDC’s total assets.
|
| (8) |
|
| (9) |
|
| (10) |
The Company uses the North American Industry Classification System (“NAICS”) code for classifying the industry
grouping of its portfolio companies.
|
| (11) |
As of December 31, 2022 PRIME is
|
| (12) |
|
See notes to financial statements.
NOTE 1 — ORGANIZATION
Silver Spike Investment Corp. (an emerging growth company) (the “Company”, “we” or “our”) was formed on January 25, 2021
as a Maryland corporation structured as an externally managed, closed-end, non-diversified management investment company. The Company has elected to be treated as a business development company (“BDC”), under the Investment Company Act of 1940,
as amended (“1940 Act”). In addition, for U.S. federal income tax purposes the Company adopted an initial tax year end of December 31, 2021, and was taxed as a corporation for the tax period ended December 31, 2021. The Company adopted the tax
year end of March 31, 2022 and elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) for the tax period January 1,
2022 through March 31, 2022, as well as maintain such election in future taxable years. However, there is no guarantee that the Company will qualify to make such an election for any taxable year.
On February 4, 2022, the Company’s common stock began trading on the Nasdaq Global Market under the ticker symbol “SSIC,” and we completed our initial public
offering of 6,214,286 shares of our common stock, par value $0.01 , inclusive of an over-allotment option that was exercised in full on March 1, 2022 (“IPO”), for approximately $87 million.
The Company is managed by Silver Spike Capital, LLC (“SSC” or “Adviser”), a registered investment advisor under the Investment Advisers Act of 1940 with the
Securities and Exchange Commission. SSC has engaged SS&C Technologies, Inc. and ALPS Fund Services, Inc. (“SS&C”), as sub-administrator, to perform administrative services necessary for the Company to operate.
The Company’s investment objective is to maximize risk-adjusted returns on equity for its shareholders. The Company seeks to drive return on equity by generating
current income from debt investments and capital appreciation from equity and equity-related investments. The Company intends to achieve its investment objective by investing primarily in secured debt, unsecured debt, equity warrants and direct
equity investments in private leveraged middle-market cannabis companies and other companies in the health and wellness sector. The debt investments are often secured by either a first or second priority lien on the assets of the portfolio
company, can include either fixed or floating rate terms and will generally have a term of between and six years from the original investment date.
On November 8, 2022, the Board of Directors (“Board”) of the Company approved a change in its fiscal year end from March 31 to December 31. Certain prior period information has been reclassified to conform to the current period presentation.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
including the requirements under ASC 946, Financial Services—Investment Companies and Articles 6 and 12 of Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the financial statements have been made. The current period’s results of
operations are not necessarily indicative of results that may be achieved for the year.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions affecting reported amounts of assets and liabilities at the date of the financial statements (i.e. fair value of investments) and the reported amounts of income, expenses, and gains and losses
during the reported period. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could
differ materially from those estimates under different assumptions and conditions.
Investment Valuation
The Company’s investments are recorded at their estimated fair value on the Statement of Assets and Liabilities. Investments for which market
quotations are readily available will typically be valued at the bid price of those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the
source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by the Adviser, as the Company’s valuation designee
(the “Valuation Designee”), based on inputs that may include valuations, or ranges of valuations, provided by independent third-party valuation firm(s) engaged by the Adviser. Generally, the valuation approach used for debt investments is the
income approach. The approach derives a value based on either determining the present value of a projected level of cash flow, including a terminal value, or by the capitalization of a normalized measure of future cash flow. The discounted cash
flow (“DCF”) method, one of the methodologies under the income approach, involves estimating future cash flows under various scenarios and discounting them to the measurement date. The discount rate represents a return required by a market
participant in order to make an investment in the subject company. Generally, the valuation approach used for debt investments is the income approach.
SILVER SPIKE INVESTMENT CORP.
Notes to Financial Statements
(Unaudited)
Alternatively, the market approach or asset approach may be used. The market approach is a way of determining a value indication by using one or
more methods that compare the portfolio company to similar businesses. Value indicators are applied to relevant financial information of the entity being valued to estimate its fair value. There are two methodologies to consider under the market
approach: the guideline company method (“GCM”) and the controlling transaction method (“CTM”). The GCM is based on the premise that the pricing multiples of comparable publicly traded companies can be used as a tool to value privately held
companies. The publicly traded companies’ ratios and business enterprise value provide guidance in the valuation process. Considerations of factors such as size, growth, profitability and return on investment are also analyzed and compared to the
subject business. The CTM is based on the same premise as the GCM. Guideline transactions include change-of-control transactions involving public or private businesses for companies engaged in similar lines of business or with similar economic
characteristics. The valuation considers the price at which the merger or acquisition took place to other factors in order to create a pricing multiple that can be used to determine an estimate of value for the subject company.
The asset approach provides an indication of the company’s value by developing a valuation-based balance sheet. This approach requires adjusting
the historical assets and liabilities listed on the U.S. GAAP-based balance sheet to market fair values. The excess of assets over liabilities represents the tangible value of the business enterprise. The asset approach does not consider the
relevant earnings capacity of a going concern business.
Effective September 8, 2022, pursuant to Rule 2a-5 under the 1940 Act, the Board designated the Adviser as the Valuation Designee to perform the fair value
determinations for the Company, subject to the oversight of the Board and certain Board reporting and other requirements.
As part of the valuation process, the Adviser takes into account relevant factors in determining the fair value of our investments, including: the estimated
enterprise value of a portfolio company (i.e., the total fair value of the portfolio company’s debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash
flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets. When an
external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Adviser considers whether the pricing indicated by the external event corroborates its valuation.
The Adviser undertakes a multi-step valuation process, which includes, among other procedures, the following:
| • |
With respect to investments for which market quotations are readily available, those investments will typically be valued at the bid price of those market quotations;
|
| • |
With respect to investments for which market quotations are not readily available, the valuation process begins with the Adviser’s valuation committee establishing a preliminary valuation of each investment, which may be based on
valuations, or ranges of valuations, provided by independent valuation firm(s);
|
| • |
Preliminary valuations are documented and discussed by the Adviser’s valuation committee and, where appropriate, the independent valuation firm(s); and
|
| • |
The Adviser determines the fair value of each investment.
|
We conduct this valuation process on a quarterly basis.
We apply Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurement (“ASC 820”),
which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale,
which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are
independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, we consider the principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that
prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:
| • |
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;
|
| • |
Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not
active, or for which all significant inputs are observable, either directly or indirectly; and
|
| • |
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
SILVER SPIKE INVESTMENT CORP.
Notes to Financial Statements
(Unaudited)
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may
fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that
may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If we were required to liquidate a portfolio investment in a
forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on
these investments to be different than the unrealized gains or losses reflected previously.
Cash and Cash Equivalents
Cash and cash equivalents consists of funds deposited with financial institutions and short-term (maturity of 90 days or less) liquid investments and money market
funds. Funds held in money market funds are considered Level 1 in the fair value hierarchy in accordance with ASC 820. Cash held in demand deposit accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit. As of March
31, 2023 and December 31, 2022, cash and cash equivalents consisted of $32.54 million and $35.13 million, respectively, of which $32.54 million and $35.13 million, respectively, was held in the State Street Institutional U.S. Government Money Market Fund.
Earnings per share
Basic earnings per share is computed by dividing net increase (decrease) in net assets resulting from operations by the
weighted-average number of common shares outstanding for the period. Other potentially dilutive common shares, and the related impact to earnings are considered when calculating earnings per share on a diluted basis.
Investment Transactions
Investment transactions are recorded on trade date. Realized gains or losses are recognized as the difference between the net proceeds received (excluding prepayment
fees, if any) and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments written off during the period, net of recoveries.
Current-period changes in fair value of investments are reflected as a component of the net change in unrealized appreciation/(depreciation) on investments on the Statements of Operations. The net change in unrealized appreciation/(depreciation)
primarily reflects the change in investment fair values as of the last business day of the reporting period, including the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.
Investments traded but not yet settled are reported in payable for investments purchased and receivable for investments sold on the Statement of Assets and
Liabilities.
Interest and Dividend Income
Interest income is recorded on the accrual basis and includes accretion and amortization of discounts or premiums, respectively. Discounts and premiums to par value
on securities purchased are accreted and amortized, respectively, into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted
for the accretion and amortization of discounts and premiums, respectively. Upon prepayment of a loan or debt security, any prepayment premiums and unamortized discounts or premiums are recorded as interest income in the current period.
When a debt security becomes 90 days or more past due, or if management otherwise does not expect that principal, interest, and other obligations due will be
collected in full, the Company will generally place the debt security on non-accrual status and cease recognizing interest income on that debt security until all principal and interest due has been paid or the Company believes the borrower has
demonstrated the ability to repay its current and future contractual obligations. Any uncollected interest is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may
make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. As of March 31, 2023 and December 31, 2022, there were no
We typically receive debt investment origination or closing fees in connection with investments. Such debt investment origination and closing fees are capitalized as
unearned income and offset against investment cost basis on our Statements of Assets and Liabilities and accreted into interest income using the effective yield method over the term of the investment. Upon the prepayment of a debt investment, any
unaccreted debt investment origination and closing fees are accelerated into interest income.
Interest income earned, excluding accretion of discounts and amortization of premiums, was $2,317,020 and $10,073 for the three months ended March 31, 2023 and 2022. As
of March 31, 2023 and December 31, 2022, $1,568,026 and $1,559,081 , respectively were recorded as interest receivable.
Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are
expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
SILVER SPIKE INVESTMENT CORP.
Notes to Financial Statements
(Unaudited)
Certain investments may have contractual PIK interest or dividends. PIK interest or dividends represents accrued interest or dividends that is added to the principal
amount of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity. If PIK interest or dividends are not expected to be realized by the Company, the investment
generating PIK interest or dividends will be placed on non-accrual status. When an investment with PIK is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest or dividend income,
respectively.
Fee Income
All transaction fees earned in connection with our investments are recognized as fee income and are generally non-recurring. Such fees typically include fees for
services, including structuring and advisory services, provided to portfolio companies. We recognize income from fees for providing such structuring and advisory services when the services are rendered or the transactions are completed.
For the three months ended March 31, 2023 and 2022, no
Income Taxes
The Company adopted an initial tax year end of December 31, 2021 and was taxed as a corporation for U.S. federal income tax purposes for the tax period ended
December 31, 2021. The Company adopted the tax year end of March 31, 2022 and elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code for the tax period January 1, 2022 through March 31, 2022, and
intends to maintain such election in the current and future taxable years. To maintain its tax treatment as a RIC, the Company must meet specified source-of-income and asset diversification requirements and timely distribute to its stockholders
for each taxable year at least 90 % of its investment company taxable income. In order for the Company not to be subject to U.S.
federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98 % of its net ordinary income for the
calendar year, (ii) 98.2 % of its capital gains in excess of capital losses for the one-year period ending on October 31 of the
calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion (subject to the requirement to distribute 90 % of its investment company taxable income as described above), may carry forward taxable income in excess of calendar year dividends and pay a 4 % nondeductible U.S. federal excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the
amount available to be distributed to stockholders. As of March 31, 2023 and December 31, 2022, $0 and $80,566 of accrued excise taxes remained payable.
The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax
positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as
tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense.
Based on the analysis of the Company’s tax position, the Company has no
Organization Expenses and Offering Costs
Organizational expenses
Costs associated with the organization of the Company are expensed as incurred. These expenses consist primarily of legal fees and other costs of organizing the
Company.
For the three months ended March 31, 2023 and 2022, the Company incurred organizational expenses of $0 and $34,168 , respectively. As of
March 31, 2023 and December 31, 2022, there were no
Offering costs
These costs consist primarily of legal fees and other costs incurred in connection with the Company’s share offerings, the preparation of the Company’s
registration statement, and registration fees.
Costs associated with the offering of common shares of the Company are capitalized as deferred offering and, if any, are included in deferred offering costs on the
Statements of Assets and Liabilities. Costs of approximately $1,690,184 were charged to
capital upon the completion of the Company’s public offering during the three months ended March 31, 2022. For the three months ended March 31, 2023, no
offering costs were charged to capital. As of March 31, 2023 and December 31, 2022, there were no
New Accounting Standards
Management does not believe any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying
financial statements.
SILVER SPIKE INVESTMENT CORP.
Notes to Financial Statements
(Unaudited)
NOTE 3 — INVESTMENTS
The Company seeks to invest in portfolio companies primarily in the form of loans (secured and unsecured), but may include equity warrants and direct equity
investments. The loans typically pay interest with some amortization of principal. As of March 31, 2023, 82.3 % of the portfolio (based
on amortized cost) pays interest on a floating rate basis with a PRIME floor, and 17.7 % of the portfolio (based on amortized cost)
pays fixed interest. As of December 31, 2022, 80.9 % of the portfolio (based on amortized cost) pays interest on a floating rate basis
with a PRIME floor, and 19.1 % of the portfolio (based on amortized cost) pays fixed interest. We will generally seek to obtain
security interests in the assets of our portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first or second priority liens on the assets of a portfolio company. In some of
our portfolio investments, we expect to receive nominally priced equity warrants and/or make direct equity investments in connection with a debt investment. In addition, a portion of our portfolio may be comprised of derivatives, including total
return swaps.
We expect that our loans will typically have final maturities of
to six years . However, we expect that our portfolio companies often may repay these loans early, generally within three years from the date of initial investment.
Portfolio Composition
The Company’s portfolio investments are in companies conducting business in or supporting the cannabis industries. The following tables summarize the composition of
the Company’s portfolio investments by industry at cost and fair value and as a percentage of the total portfolio as of March 31, 2023 and December 31, 2022.
|
March 31, 2023
|
|||||||||||||||||
|
Amortized Cost
|
Fair Value
|
||||||||||||||||
|
Industry
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Wholesale Trade
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
December 31, 2022
|
|||||||||||||||||
|
Amortized Cost
|
Fair Value
|
||||||||||||||||
|
Industry
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Wholesale Trade
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
The geographic composition is determined by the location of headquarters of the portfolio company. The following tables summarize the composition of the Company’s
portfolio investments by geographic region of the United States at cost and fair value and as a percentage of the total portfolio as of March 31, 2023 and December 31, 2022. Geographic regions are defined as: West, for the states of WA, OR, ID,
MT, WY, CO, AK, HI, UT, NV and CA; Midwest, for the states ND, SD, NE, KS, MO, IA, MN, WI, MI, IL, IN and OH; Northeast, for the states PA, NJ, NY, CT, RI, MA, VT, NH and ME; Southeast, for the states of AR, LA, MS, TN, KY, AL, FL, GA, SC, NC,
VA, DE, WV and MD; and Southwest, for the states of AZ, NM, TX and OK.
|
March 31, 2023
|
|||||||||||||||||
|
Amortized Cost
|
Fair Value
|
||||||||||||||||
|
Geographic Location
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Midwest
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
West
|
|
|
|
|
|||||||||||||
|
Northeast
|
|
|
|
|
|||||||||||||
|
Southeast
|
|
|
|
|
|||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
SILVER SPIKE INVESTMENT CORP.
Notes to Financial Statements
(Unaudited)
|
December 31, 2022
|
||||||||||||||||
|
Amortized Cost
|
Fair Value
|
|||||||||||||||
|
Geographic Location
|
Amount
|
%
|
Amount
|
%
|
||||||||||||
|
Midwest
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
West
|
|
|
|
|
||||||||||||
|
Northeast
|
|
|
|
|
||||||||||||
|
Southeast
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
The following tables summarize the composition of the Company’s portfolio investments by investment type at cost and fair value and as a percentage of the total
portfolio as of March 31, 2023 and December 31, 2022.
|
March 31, 2023
|
|||||||||||||||||
|
Amortized Cost
|
Fair Value
|
||||||||||||||||
|
Investment
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Senior Secured First Lien Term Loan
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
Senior Secured Notes
|
|
|
|
|
|||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
December 31, 2022
|
|||||||||||||||||
|
Amortized Cost
|
Fair Value
|
||||||||||||||||
|
Investment
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Senior Secured First Lien Term Loan
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
Senior Secured Notes
|
|
|
|
|
|||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
Certain Risk Factors
In the ordinary course of business, the Company manages a variety of risks including market risk, credit risk, liquidity risk, interest rate risk, prepayment risk,
risks associated with political tensions and risks associated with the COVID-19 pandemic. The Company identifies, measures and monitors risk through various control mechanisms, including trading limits and diversifying exposures and activities
across a variety of instruments, markets and counterparties.
Market risk is the risk of potential adverse changes to the value of financial instruments because of changes in market conditions, including as a result of changes
in the credit quality of a particular issuer, credit spreads, interest rates, and other movements and volatility in security prices or commodities. In particular, the Company may invest in issuers that are experiencing or have experienced
financial or business difficulties (including difficulties resulting from the initiation or prospect of significant litigation or bankruptcy proceedings), which involves significant risks. The Company manages its exposure to market risk through
the use of risk management strategies and various analytical monitoring techniques.
Concentration risk is the risk that the
Company’s focus on investments in cannabis companies may subject the Company to greater price volatility and risk of loss as a result of adverse economic, business or other developments affecting cannabis companies than funds investing in a
broader range of industries or sectors. At times, the performance of investments in cannabis companies will lag the performance of other industries or sectors or the broader market as a whole.
Credit risk is the risk that a decline in the credit quality of an investment could cause the Company to lose money. The Company could lose money if the issuer or
guarantor of a portfolio security or a counterparty to a derivative contract fails to make timely payment or otherwise honor its obligations. Fixed income securities rated below investment grade (high-yield bonds) involve greater risks of default
or downgrade and are generally more volatile than investment grade securities. Below investment grade securities involve greater risk of price declines than investment grade securities due to actual or perceived changes in an issuer’s
creditworthiness. In addition, issuers of below investment grade securities may be more susceptible than other issuers to economic downturns. Such securities are subject to the risk that the issuer may not be able to pay interest or dividends and
ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security.
The Company’s investments may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or
sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any
such investments accurately.
Interest rate risk refers to the change in earnings that may result from changes in the level of interest rates. To the extent that the Company borrows money to make
investments, including under any credit facility, net investment income will be affected by the difference between the rate at which the Company borrows funds and the rate at which the Company invests these funds. In periods of rising interest
rates, the Company’s cost of borrowing funds would increase, which may reduce net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on net
investment income.
SILVER SPIKE INVESTMENT CORP.
Notes to Financial Statements
(Unaudited)
Prepayment risk is the risk that a loan in the Company’s portfolio will prepay due to the existence of favorable financing market conditions that allow the portfolio
company the ability to replace existing financing with less expensive capital. As market conditions change, prepayment may be possible for each portfolio company. In some cases, the prepayment of a loan may reduce the Company’s achievable yield
if the capital returned cannot be invested in transactions with equal or greater expected yields, which could have a material adverse effect on our business, financial condition and results of operations.