Full Circle Capital Corp - FORM 10-Q

Attached files

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EX-32.2 - CERTIFICATION - Full Circle Capital Corp	v312425_ex32-2.htm
EX-32.1 - CERTIFICATION - Full Circle Capital Corp	v312425_ex32-1.htm
EX-31.2 - CERTIFICATION - Full Circle Capital Corp	v312425_ex31-2.htm
EX-10.9 - EXHIBIT 10.9 - Full Circle Capital Corp	v312425_ex10-9.htm
EX-31.1 - CERTIFICATION - Full Circle Capital Corp	v312425_ex31-1.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 March 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 May 10, 2012 was 6,219,382.

FULL CIRCLE CAPITAL CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of March 31, 2012 and June 30, 2011	3

	Consolidated Statements of Operations for the three and nine months ended March 31, 2012 and March 31, 2011	4

	Consolidated Statements of Changes in Net Assets for the nine months ended March 31, 2012 and March 31, 2011	5

	Consolidated Statements of Cash Flows for the nine months ended March 31, 2012 and March 31, 2011	6

	Consolidated Schedule of Investments as of March 31, 2012	7

	Consolidated Schedule of Investments as of June 30, 2011	11

	Notes to Consolidated Financial Statements as of March 31, 2012	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Forward-Looking Statements	28

	Overview	28

	Critical Accounting Policies	29

	Current Market Conditions and Market Opportunity	32

	Portfolio Composition and Investment Activity	33

	Results of Operations	36

	Liquidity and Capital Resources	39

	Recent Developments	42

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		44

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

		March 31, 2012			June 30, 2011
		(Unaudited)			(Audited)
Assets
Control Investments at Fair Value (Cost of $7,383,672 and $1,658,552, respectively)	(NOTE 2, 10)	$	7,426,135		$	842,884
Affiliate Investments at Fair Value (Cost of $430,500 and $7,174,348, respectively)	(NOTE 2, 10)		216,964			7,112,992
Non-Control/Non-Affiliate Investments at Fair Value (Cost of $90,625,968 and $75,757,764, respectively)	(NOTE 2, 10)		88,487,587			74,838,241
Total Investments at Fair Value (Cost of $98,440,140 and $84,590,664, respectively)			96,130,686			82,794,117

Cash			2,862,163			2,065,943
Deposit with Broker			3,050,000			2,657,859
Interest Receivable	(NOTE 2)		880,969			680,527
Principal Receivable			488,821			-
Dividends Receivable			47,306			-
Other Receivable			3,622			-
Prepaid Expenses			83,817			33,642
Other Current Assets			23,931			212,961
Deferred Offering Expenses			23,237			-
Deferred Credit Facility Fees			50,000			50,000
Total Assets			103,644,552			88,495,049

Liabilities
Due to Affiliate	(NOTE 5)		569,508			592,418
Accounts Payable			37,157			116,289
Accrued Liabilities			43,256			73,228
Due to Broker			30,000,050			25,999,632
Dividends Payable			478,892			1,399,361
Interest Payable			101,080			23,361
Other Current Liabilities			1,035,880			412,171
Line of Credit	(NOTE 8)		12,397,168			-
Distribution Notes	(NOTE 8)		3,404,583			3,404,583
Total Liabilities			48,067,574			32,021,043

Net Assets		$	55,576,978		$	56,474,006
Components of Net Assets
Common Stock, par value $0.01 per share
(100,000,000 authorized; 6,219,382 issued
and outstanding)		$	62,194		$	62,194
Paid-in Capital in Excess of Par			58,202,422			58,204,411
Distributions in Excess of Net Investment Income			(505,223	)		(340,534	)
Accumulated Net Realized Gains			127,039			344,482
Accumulated Net Unrealized Losses			(2,309,454	)		(1,796,547	)
Net Assets		$	55,576,978		$	56,474,006
Net Asset Value Per Share		$	8.94		$	9.08

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

		Three Months Ended March 31,					Nine Months Ended March 31,
		2012		2011¹			2012			2011¹
Investment Income
Interest Income		$	1,940,034	$	1,492,929		$	5,870,076		$	4,295,839
Interest Income from Affiliate Investments			-		441,640			234,864			772,674
Interest Income from Control Investments			228,456		-			483,100			-
Dividend Income			-		2,092			-			2,092
Dividend Income from Affiliate Investments			-		-			-			210,833
Dividend Income from Control Investments			55,393		-			57,216			-
Other Income	(NOTE 2)		138,688		307,689			515,137			508,691
Other Income from Affiliate Investments	(NOTE 2)		-		61,073			54,086			61,073
Other Income from Control Investments	(NOTE 2)		26,389		-			131,389			-
Total Investment Income			2,388,960		2,305,423			7,345,868			5,851,202

Operating Expenses
Management Fee	(NOTE 5)		291,919		250,194			878,569			661,607
Incentive Fee	(NOTE 5)		277,588		348,612			923,864			836,074
Total Advisory Fees			569,507		598,806			1,802,433			1,497,681

Allocation of Overhead Expenses	(NOTE 5)		89,211		90,270			264,103			210,630
Sub-Administration Fees	(NOTE 5)		78,114		78,115			234,343			182,267
Officers’ Compensation	(NOTE 5)		74,800		32,361			192,353			75,472
Total Costs Incurred Under Administration Agreement			242,125		200,746			690,799			468,369

Directors’ Fees			32,125		30,625			86,375			85,857
Interest Expenses	(NOTE 8)		211,491		83,365			578,456			413,884
Professional Services Expense			121,301		89,080			435,980			209,205
Bank Fees			2,774		12,866			9,740			29,756
Other			91,063		102,127			294,321			219,443
Organizational Expenses	(NOTE 2)		-		-			-			178,979
Total Gross Operating Expenses			1,270,386		1,117,615			3,898,104			3,103,174

Management Fee Waiver and Expense Reimbursement	(NOTE 5)		-		(173,827	)		(313,792	)		(415,515	)
Total Net Operating Expenses			1,270,386		943,788			3,584,312			2,687,659

Net Investment Income			1,118,574		1,361,635			3,761,556			3,163,543
Net Change in Unrealized Gain (Loss) on Investments			404,773		(1,051,141	)		(512,907	)		(1,381,276	)
Realized Gain on Investments			467		251,780			127,039			344,417
Net Increase in Net Assets Resulting from Operations		$	1,523,814	$	562,274		$	3,375,688		$	2,126,684

Net increase in net assets resulting from operations per common share	(NOTE 4)	$	0.25	$	0.09		$	0.54		$	0.44
Net investment income per common share		$	0.18	$	0.22		$	0.61		$	0.66
Weighted average shares of common stock outstanding			6,219,382		6,215,047			6,219,382			4,820,864

¹ Certain amounts have been reclassified to conform to the current period’s presentation

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)

	Nine months ended March 31, 2012			Nine months ended March 31, 2011
Increase (Decrease) in Net Assets Resulting from Operations:
Net Investment Income	$	3,761,556		$	3,163,543
Net Change in Unrealized Loss on Investments		(512,907	)		(1,381,276	)
Realized Gain on Investments		127,039			344,417

Net Increase in Net Assets Resulting from Operations		3,375,688			2,126,684

Dividends to Shareholders		(4,272,716	)		(3,263,007	)

Capital Share Transactions:
Issuance of Common Stock		-			59,317,172
Less Offering Costs and Underwriting Fees		-			(1,052,067	)

Net Increase in Net Assets Resulting from Capital Share Transactions		-			58,265,105

Total Increase (Decrease) in Net Assets		(897,028	)		57,128,782
Net Assets at Beginning of Period		56,474,006			(11,045	)

Net Assets at End of Period	$	55,576,978		$	57,117,737

Capital Share Activity:
Shares Issued		-			6,219,282
Shares Outstanding at Beginning of Period		6,219,382			100

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

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		Nine months ended March 31, 2012			Nine months ended March 31, 2011
Cash Flows from Operating Activities:
Net Increase in Net Assets Resulting from Operations		$	3,375,688		$	2,126,684
Adjustments to Reconcile Net Increase in Net Assets Resulting from
Operations to Net Cash Provided by (Used in) Operating Activities
Purchases of Investments			(137,831,493	)		(101,177,673	)
Proceeds from Sale or Refinancing of Investments			124,518,317			86,400,367
Realized Gain on Investments			(127,039	)		(344,417	)
Net change in Unrealized Loss on Investments			512,907			1,381,276
Amortization of Discount			(409,261	)		(599,607	)
Change in Operating Assets and Liabilities
Deposit with Broker			(392,141	)		(2,227,889	)
Interest Receivable			(200,442	)		(2,255	)
Principal Receivable			(488,821	)		-
Dividends Receivable			(47,306	)		-
Dividends Purchased			-			142,650
Due from Affiliates			-			(321,000	)
Other Receivable			(3,622	)		-
Prepaid Expenses			(50,175	)		(90,054	)
Other Current Assets			189,030			(94,947	)
Deferred Credit Facility Fees			-			(50,000	)
Due to Affiliate			(22,910	)		645,543
Accounts Payable			(79,132	)		59,624
Accrued Liabilities			(29,972	)		79,890
Due to Broker			4,000,418			26,999,595
Interest Payable			77,719			25,157
Other Current Liabilities			623,709			151,561
Accrued Organizational Expenses			-			(51,281	)

Net Cash Provided by (Used in) Operating Activities			(6,384,526	)		13,053,224

Cash Flows from Financing Activities:
Borrowings Under Credit Facility			56,491,598			31,668,590
Payments Under Credit Facility			(44,094,430	)		(59,144,575	)
Dividends Paid to Shareholders			(5,193,185	)		(1,622,040	)
Deferred Offering Expenses			(23,237	)		-
Accrued Offering Expenses			-			(579,196	)
Proceeds From Shares Issued, Net of Underwriting Fees			-			16,649,993

Net Cash Provided by (Used in) Financing Activities			7,180,746			(13,027,228	)

Total Increase in Cash			796,220			25,996
Cash Balance at Beginning of Period			2,065,943			1,455
Cash Balance at End of Period		$	2,862,163		$	27,451

Supplemental Disclosure of Non-Cash Financing Activity:
Assets Purchased for Shares	(NOTE 6)	$	-		$	73,306,379
Debt Issued to Purchase Shares	(NOTE 6)	$	-		$	(30,880,815	)
Dividends Declared, Not Yet Paid		$	478,892		$	1,399,361
27,867 Shares Issued in Connection with Dividend Reinvestment Plan		$	-		$	241,606

Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for Interest		$	501,282		$	388,727

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 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%, 11/1/2012	Advertising Services	$	2,099,183	$	2,078,432	$	2,019,414		3.63	%

Background Images, Inc.	Equipment
Senior Secured Loan – Term A, 14.75%, 6/28/2014	Rental Services	$	2,185,000		2,154,523		2,189,807		3.94	%
Senior Secured Loan – Term B, 16.50%, 6/28/2014		$	1,235,000		1,217,641		1,246,856		2.24	%
Totals					3,372,164		3,436,663		6.18	%

Blackstrap Broadcasting, LLC	Radio
Senior Secured Loan, 5.25%, 9/25/2012	Broadcasting	$	3,000,000		2,918,139		2,938,500		5.29	%
Subordinated Secured Loan, 16.00%, 9/25/2012		$	3,500,000		3,491,589		3,482,150		6.27	%
Totals					6,409,728		6,420,650		11.56	%

Coast Plating, Inc.	Aerospace
Senior Secured Loan – Term A, 11.75%, 9/13/2014	Parts Plating and Finishing	$	1,450,000		1,446,547		1,455,800		2.62	%
Senior Secured Loan – Term B, 13.25%, 9/13/2014		$	3,550,000		3,536,501		3,501,483		6.30	%
Totals					4,983,048		4,957,283		8.92	%

CSL Operating, LLC	Industrial
Senior Secured Loan – Term A, 11.75%, 5/11/2014	Metal Treatings	$	2,000,000		1,992,565		1,954,933		3.52	%
Senior Secured Loan – Term B, 11.75%, 5/11/2014		$	2,000,000		1,992,565		1,939,533		3.49	%
Totals					3,985,130		3,894,466		7.01	%

Equisearch Acquisition, Inc.	Asset
Senior Secured Loan, 14.00%, 5/31/2012^{^}	Recovery Services	$	2,580,201		2,580,201		1,989,892		3.58	%
Warrants for 47.9056 shares (at a $0.01 strike price), expire 1/31/2016^{^}			48		225,000		-		-	%
Totals					2,805,201		1,989,892		3.58	%

European Evaluators, LLC ³	Art
Senior Secured Loan, 12.00%, 8/29/2012	Dealers	$	615,000		613,067		613,067		1.10	%

iMedX, Inc.	Medical
Senior Secured Revolving Loan, 10.10%, 9/19/2014	Transcription Services	$	976,838		971,933		976,838		1.76	%
Senior Secured Loan – Term A, 16.00%, 9/19/2014		$	2,900,000		2,868,375		2,912,180		5.24	%
Totals					3,840,308		3,889,018		7.00	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

March 31, 2012 (Unaudited)

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

MDU Communications (USA) Inc.	Cable TV
Senior Secured Loan - Tranche A, 11.85%, 6/30/2013	Broadband Services	$	5,000,000	$	5,000,000	$	4,883,667		8.79	%
Senior Secured Loan - Tranche C, 9.75%, 6/30/2013		$	250,000		250,000		239,517		0.43	%
Senior Secured Loan - Tranche D, 8.75%, 6/30/2013		$	1,480,000		1,480,000		1,388,043		2.50	%
Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013^{^}			37,500		298		710		-	%
Totals					6,730,298		6,511,937		11.72	%

ProGrade Ammo Group LLC	Munitions
Senior Secured Revolving Loan, 9.25%, 8/1/2014		$	296,152		296,152		296,152		0.53	%
Senior Secured Term Loan, 14.50%, 8/1/2014		$	5,968,750		5,793,949		5,607,641		10.09	%
Warrants for 2.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/1/2018^{^}			181,240		176,770		52,633		0.09	%
Totals					6,266,871		5,956,426		10.71	%

Texas Westchester Financial, LLC⁴	Consumer
Limited Liability Company Interests^{^}	Financing		17,063		1,658,552		986,252		1.77	%

The Finance Company, LLC⁴	Consumer
Senior Secured Term Loan, 15.00%, 9/20/2015	Financing	$	5,724,261		5,584,706		5,747,528		10.34	%
Limited Liability Company Interests			50		140,414		692,355		1.25	%
Totals					5,725,120		6,439,883		11.59	%

The Selling Source, LLC	Information and
Senior Secured Loan, 12.00%, 12/21/2012	Data Services	$	4,171,472		4,171,472		4,171,472		7.51	%

US Path Labs, LLC	Healthcare
Senior Secured Loan, 13.00%, 3/30/2014	Services	$	3,500,000		3,427,220		3,477,600		6.26	%

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		85,210		430,500		216,964		0.39	%
Limited Liability Company Interests^{^}	Data Services

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

March 31, 2012 (Unaudited)

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	$	11,886,849	$	11,886,849	$	11,149,864		20.06	%

United States Treasury
United States Treasury Bill** (0.01)%, 4/15/2012		$	30,000,000		30,000,033		29,999,835		53.98	%

Total Investments				$	98,440,140	$	96,130,686		172.97	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

March 31, 2012 (Unaudited)

The following table shows the fair value of our portfolio of investments by industry, as of March 31, 2012, excluding United States Treasury Bills of approximately $30.0 million.

	March 31, 2012
	Investment at
	Fair Value (dollars in millions)		Percentage of Net Assets
Cable TV/Broadband Services	$	17.7		31.8	%
Consumer Financing		7.4		13.4
Radio Broadcasting		6.4		11.5
Munitions		5.9		10.7
Aerospace Parts Plating and Finishing		5.0		8.9
Information and Data Services		4.4		7.9
Industrial Metal Treatings		3.9		7.0
Medical Transcription Services		3.9		7.0
Healthcare Services		3.5		6.3
Equipment Rental Services		3.4		6.2
Asset Recovery Services		2.0		3.6
Outdoor Advertising Services		2.0		3.6
Art Dealers		0.6		1.1
Total	$	66.1		119.0	%

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 current interest rate in effect as of March 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 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

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2011 (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	$	2,209,597	$	2,162,920	$	2,125,633		3.76	%

Background Images, Inc.	Equipment
Senior Secured Loan – Term A, 14.70%, 6/28/2014	Rental Services	$	2,300,000		2,259,824		2,351,750		4.16	%
Senior Secured Loan – Term B, 16.45%, 6/28/2014		$	1,300,000		1,277,291		1,332,500		2.36	%
Totals					3,537,115		3,684,250		6.52	%

Blackstrap Broadcasting, LLC	Radio
Senior Secured Loan, 5.00%, 9/25/2012	Broadcasting	$	3,000,000		2,798,172		2,860,500		5.06	%
Subordinated Secured Loan, 16.00%, 9/25/2012		$	3,500,000		3,480,089		3,479,000		6.16	%
Totals					6,278,261		6,339,500		11.22	%

CSL Operating, LLC	Industrial
Senior Secured Loan – Term A, 11.70%, 5/11/2014	Metal Treatings	$	2,000,000		1,990,333		1,963,000		3.48	%
Senior Secured Loan – Term B, 11.70%, 5/11/2014		$	2,000,000		1,990,333		1,943,000		3.44	%
Totals					3,980,666		3,906,000		6.92	%

Equisearch Acquisition, Inc.	Asset
Senior Secured Loan, 14.00%, 1/31/2012	Recovery Services	$	2,363,747		2,363,747		2,076,552		3.68	%
Warrants for 47.9056 shares (at a $0.01 strike price), expire 1/31/2016			48		225,000		13,000		0.02	%
Totals					2,588,747		2,089,552		3.70	%

Iron City Brewing, LLC	Beverages
Senior Secured Loan, 19.74%, 7/31/2011		$	521,666		521,666		521,666		0.92	%
Warrants for 148 Membership Units (at a $0.01 strike price), expire 08/10/2013³			148		-		-		0.00	%
Totals					521,666		521,666		0.92	%

MDU Communications (USA) Inc.	Cable TV
Senior Secured Loan - Tranche A, 11.85%, 6/30/2013	Broadband Services	$	5,000,000		5,000,000		5,000,000		8.85	%
Senior Secured Loan - Tranche C, 9.75%, 6/30/2013		$	250,000		250,000		248,000		0.44	%
Senior Secured Loan - Tranche D, 8.75%, 6/30/2013		$	1,480,000		1,480,000		1,414,880		2.51	%
Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013			37,500		298		845		0.00	%
Warrants for 30,476 shares (at a $8.20 strike price), expire 9/11/2011			30,476		-		-		0.00	%
Totals					6,730,298		6,663,725		11.80	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2011 (Audited)

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

Texas Westchester Financial, LLC⁴	Consumer
Limited Liability Company Interests	Financing		17,063	$	1,658,552	$	842,884		1.49	%

The Selling Source, LLC	Information and
Senior Secured Loan, 12.00%, 12/21/2012	Data Services	$	5,330,357		5,330,357		5,330,357		9.44	%

US Path Labs, LLC	Healthcare
Senior Secured Loan, 13.00%, 8/31/2012	Services	$	2,500,000		2,472,020		2,488,750		4.41	%

VaultLogix, LLC	Information
Senior Secured Loan, 12.00%, 9/4/2011	Retrieval Services	$	5,000,000		4,958,214		5,000,000		8.85	%
Warrants for 1.518% Ownership, (at a $307.855 strike price), expire 9/4/2013			3,439		56,147		45,716		0.08	%
Totals					5,014,361		5,045,716		8.93	%

West World Media, LLC ^5,6	Information and
Senior Secured Loan*, 16.00%, 12/31/2011	Data Services	$	6,909,993		6,743,848		6,758,492		11.97	%
Limited Liability Company Interests			85,210		430,500		354,500		0.63	%
Totals					7,174,348		7,112,992		12.60	%

Ygnition Networks, Inc.	Cable TV
Senior Secured Loan - Tranche A, 13.25%, 7/6/2011	Broadband Services	$	3,750,000		3,749,214		3,596,250		6.37	%
Senior Secured Loan - Tranche B, 12.75%, 7/6/2011		$	2,500,000		2,499,282		2,386,250		4.23	%
Senior Secured Loan - Tranche C, 12.75%, 7/6/2011		$	2,500,000		2,499,282		2,386,250		4.23	%
Senior Secured Loan - Tranche D, 12.25%, 7/6/2011		$	2,394,346		2,393,943		2,274,628		4.03	%
Totals					11,141,721		10,643,378		18.86	%

United States Treasury
United States Treasury Bill** 0.02%, 8/4/2011		$	26,000,000		25,999,632		25,999,714		46.04	%

Total Investments				$	84,590,664	$	82,794,117		146.61	%

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2011 (Audited)

The following table shows the fair value of our portfolio of investments by industry, as of June 30, 2011, excluding United States Treasury Bills of approximately $26 million.

	June 30, 2011
	Investment at
	Fair Value (dollars in millions)		Percentage of Net Assets
Cable TV/Broadband Services	$	17.3		30.65	%
Information and Data Services		12.5		22.03
Radio Broadcasting		6.3		11.23
Information Retrieval Services		5.1		8.94
Industrial Metal Treatings		3.9		6.92
Equipment Rental Services		3.7		6.52
Healthcare Services		2.5		4.41
Outdoor Advertising Services		2.1		3.76
Asset Recovery Services		2.1		3.70
Consumer Financing		0.8		1.49
Beverages		0.5		0.92
Total	$	56.8		100.57	%

³ A portion of Full Circle Capital Corporation’s warrants in Iron City Brewing, LLC is held through its wholly-owned subsidiary Full Circle ICB, Inc. The remainder of the warrants are held directly by Full Circle Capital Corporation.

*	Investment contains a partial payment in kind (“PIK”) feature.

**	Interest rate shown reflects yield to maturity at time of purchase.

See notes to consolidated financial statements.

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 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 and elect to be treated 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, 2012.

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 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. 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 any applicable independent pricing service, 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 & Co., and at times, cash held in these accounts 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 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 paid. Other fee income, including administrative fees and unused line fees, is included in Other Income. Income from such sources was $165,077 and $368,762 for the three months ended March 31, 2012 and 2011, respectively and $700,612 and $569,764 for the nine months ended March 31, 2012 and 2011, respectively.

Federal and State Income Taxes

We expect to elect 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 gain 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 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, to be paid as a dividend is approved by our Board each quarter and is 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 or offering costs during the nine months ended March 31, 2012. The Company currently has $23,237 of deferred offering costs related to its form N-2 registration statement filed with the Securities and Exchange Commission or “SEC” on March 23, 2012.

A portion of the net proceeds of the Company’s initial public offering in August, 2010 was used for organizational and offering expenses of approximately $191,479 and $1,052,067, respectively. Organizational expenses were expensed as incurred. The Company incurred $178,979 of organizational expenses for the year ended June 30, 2011, with an additional $12,500 being incurred during the period from April 16, 2010 (date of inception) to June 30, 2010. Offering costs were charged against paid-in capital in excess of par. All organizational and offering costs were borne by the Company.

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 provide the Company with financing. Management believes that other financial institutions would be able to provide similar financing with comparable terms. However, a change in financial institutions could cause a delay in service provisioning or result in potential lost opportunities, which could adversely affect operating results.

As of March 31, 2012, we had approximately $6.3 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 income (loss) per common share for the three and nine months ended March 31, 2012, and 2011 (unaudited):

	Three months ended March 31,				Nine months ended March 31,
	2012		2011		2012		2011
Per Share Data ⁽¹⁾ :
Net Increase in Net Assets Resulting from Operations	$	1,523,814	$	562,274	$	3,375,688	$	2,126,684

Average weighted shares outstanding for period		6,219,382		6,215,047		6,219,382		4,820,864

Basic and diluted earnings per common share	$	0.25	$	0.09	$	0.54	$	0.44

(1)

Per share data based on weighted average shares outstanding.

Note 5. Related Party Agreements and Transactions

Investment Advisory Agreement

On July 8, 2010, we entered into 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 nine months ended March 31, 2012, were $291,919 and $878,569, repectively, after adjusting for the waivers of $0 and $28,124, respectively. The total base management fee payable to the Adviser at March 31, 2012 was $291,920, after reflecting payment of $897,458 during the period, 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 nine months ended March 31, 2011, were $250,194 and $661,607, respectively, after adjusting for the waivers of $35,742 and $94,515, 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 gains for the nine months ended March 31, 2012 or 2011.

Income incentive fees of $277,588 and $923,864 were earned by the Adviser for the three and nine months ended March 31, 2012, and the total income incentive fee payable to the Adviser at March 31, 2012 was $277,588, after reflecting payment of $927,885 during the period, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The income incentive fee of $348,612 and $836,074 were earned by the Adviser for the three and nine months ended March 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 nine months ended March 31, 2012, respectively, and $138,085 and $321,000 for the three and nine months ended March 31, 2011, respectively.

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 the Administrator are performed by Vastardis for the Administrator for an annual fee of $112,457, paid quarterly in advance.

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 nine months ended March 31, 2012, the Company incurred $242,125 and $690,799, respectively, of expenses under the Administration Agreement, $78,114 and $234,343, respectively, of which were earned by the Sub-Administrator and $74,800 and $192,353, respectively, of which were paid for officers’ compensation. The remaining $89,211 and $264,103, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator in the Consolidated Statement of Operations.

For the three and nine months ended March 31, 2011, the Company incurred $200,746 and $468,369, respectively, of expenses under the Administration Agreement, $78,115 and $182,267, respectively, of which were earned by the Sub-Administrator and $32,361 and $75,472, respectively, were paid for officers’ compensation. The remaining $90,270 and $210,630, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator in the Consolidated Statement of Operations.

The Administrator and Adviser did not begin charging Administration and Advisory fees to the Company until August 31, 2010, the date of the initial public offering and commencement of operations of the Company.

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 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. As of March 31, 2012, none of the other portfolio companies had accepted our offer for such services.

Note 6. Equity Offerings and 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. 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. We did not issue any shares of our common stock during the nine months ended March 31, 2012.

Issuances of Common Stock	Number of Shares Issued			Gross Proceeds Raised, Net Assets Acquired and Dividends Reinvested		Underwriting Fees		Offering Expenses			Offering 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

(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.

On April 16, 2010, we issued 100 shares of common stock to Full Circle Advisors, LLC for $1,500 in connection with the organization of the Company. The issuance of such shares of our common stock was deemed to be exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. We did not engage in any other sales of unregistered securities during the period ended June 30, 2010.

On August 31, 2010, we acquired a portfolio of investments (the “Legacy Portfolio”) from Full Circle Partners, LP and Full Circle Fund Ltd. (the “Legacy Funds”), which are managed by an affiliate of our investment adviser. The investments included in the Legacy Portfolio had a collective fair value of approximately $72.3 million as of June 30, 2010, as determined by our Board of Directors. 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 (defined below) to certain investors in the Legacy Funds. The issuance of such shares of our common stock and Distribution Notes was deemed to be exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.

In addition, we assumed approximately $27.5 million of outstanding debt from the Legacy Funds’ credit facilities with FCC, LLC d/b/a First Capital (“First Capital”) in connection with the acquisition of the Legacy Portfolio and our entry into a new secured revolving credit facility with First Capital (the “Credit Facility”) (Note 8).

The following schedule summarizes the assets and liabilities acquired on August 31, 2010 as part of the acquisition of the Legacy Portfolio, which are included in the Consolidated Statement of Cash Flows as follows:

Legacy Portfolio	$	72,280,294
Interest Purchased		671,262
Dividends Purchased		143,750
Other Assets		82,644
Other Liabilities		(285,658	)
Offering Costs Pre-Paid by Legacy Funds		355,303
Organizational Costs Pre-Paid by Legacy Funds		58,784
Assets Purchased for Shares	$	73,306,379

Distribution Notes	$	3,404,583
Line of Credit		27,476,232
Debt Issued in Connection with Share Issuance	$	30,880,815

On August 31, 2010 our registration statement on Form N-2 was declared effective (SEC File No. 333-166302), and we priced our initial public offering of 2,000,000 shares of our common stock at the offering price of $9.00 per share. The initial public offering closed on September 7, 2010, resulting in the sale of all 2,000,000 shares and net proceeds to Full Circle Capital of approximately $15.6 million, of which the entire amount was used to reduce outstanding borrowings under the Credit Facility (Note 8). Ladenburg Thalmann & Co. Inc. acted as the managing underwriter.

Note 7. Financial Highlights

	Three months ended March 31, 2012			Three months ended March 31, 2011

Per Share Data ⁽¹⁾ :
Net asset value at beginning of period	$	8.92		$	9.32
Offering costs		-			-
Net investment income		0.18			0.22
Change in unrealized gain (loss)		0.07			(0.17	)
Realized gain		-			0.04
Dividends declared		(0.23	)		(0.23	)
Net asset value at end of period	$	8.94		$	9.18

Per share market value at end of period	$	7.65		$	8.00
Total return based on market value		11.69	%⁽²⁾		(5.29	)%⁽²⁾
Total return based on net asset value		2.29	%⁽²⁾		0.97	%⁽²⁾
Shares outstanding at end of period		6,219,382			6,219,382
Average weighted shares outstanding for period		6,219,382			6,215,047

Ratio / Supplemental Data:
Net assets at end of period	$	55,576,978		$	57,117,737
Average net assets	$	55,533,410		$	57,415,476
Annualized ratio of gross operating expenses to average net assets ⁽⁴⁾		9.18	%		7.89	%
Annualized ratio of net operating expenses to average net assets ⁽⁴⁾		9.18	%		6.67	%
Annualized ratio of net investment income to average net assets ⁽⁴⁾		8.08	%		9.62	%

	Nine months ended March 31, 2012 (Unaudited)			For the period from August 31, 2010 (commencement of operations) to March 31, 2011 (Unaudited)			For the period from August 31, 2010 (commencement of operations) to June 30, 2011

Per Share Data ⁽¹⁾ :
Net asset value at beginning of period	$	9.08		$	9.40		$	9.40
Offering costs		-			(0.04	)		(0.04	)
Net investment income		0.61			0.52			0.70
Change in unrealized loss		(0.08	)		(0.23	)		(0.29	)
Realized gain		0.02			0.06			0.06
Dividends declared		(0.69	)		(0.53	)		(0.75	)
Net asset value at end of period	$	8.94		$	9.18		$	9.08

Per share market value at end of period	$	7.65		$	8.00		$	7.90
Total return based on market value		5.48	%⁽²⁾		(5.22	)%⁽³⁾		(4.03	)%⁽³⁾
Total return based on net asset value		7.24	%⁽²⁾		3.30	%⁽³⁾		5.62	%⁽³⁾
Shares outstanding at end of period		6,219,382			6,219,382			6,219,382
Average weighted shares outstanding for period		6,219,382			6,201,458			6,206,824

Ratio / Supplemental Data:
Net assets at end of period	$	55,576,978		$	57,117,737		$	56,474,006
Average net assets	$	56,053,701		$	57,600,498		$	57,455,987
Annualized ratio of gross operating expenses to average net assets ⁽⁴⁾		9.23	%		8.82	%		8.49	%
Annualized ratio of net operating expenses to average net assets ⁽⁴⁾		8.67	%		7.59	%		7.34	%
Annualized ratio of net investment income to average net assets ⁽⁴⁾		8.72	%		9.82	%		9.29	%

(1)	Financial highlights are based on average weighted shares outstanding.
(2)	Total return based on market value is based on the change in market price per share between the opening and ending market values per share in the 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 the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized.
(3)	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.

(4)

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 to March 31, 2011, the Company received $415,515 of Management Fee waivers and Expense Reimbursements, which are deemed to be non-recurring. For the period from August 31, 2010 to March 31, 2011, the Company incurred $102,609 of Organizational Expenses, which were deemed to be non-recurring. For the period from August 31, 2010 to June 30, 2011 the Company incurred $102,609 of Organizational Expenses, which were deemed to be non-recurring. The Company did not incur Organizational Expenses for the three and nine months ended March 31, 2012.

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. Under the Credit Facility, base rate borrowings bear interest at LIBOR (0.241% at March 31, 2012, and 0.186% at June 30, 2011) plus 5.50%. 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 interest coverage 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 March 31, 2012, the Company had a balance of $12,397,168 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 March 31, 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 March 31, 2012 and June 30, 2011, respectively:

As of March 31, 2012 (Unaudited)

	Level 1		Level 2		Level 3		Total
Assets

Senior and Subordinated Loans, at fair value	$	-	$	-	$	64,181,937	$	64,181,937

US Treasury Securities, at fair value⁽¹⁾		29,999,835		-		-		29,999,835

Investments in private companies, at fair value		-		-		1,895,571		1,895,571

Investments in securities, at fair value		-		-		53,343		53,343
	$	29,999,835	$	-	$	66,130,851	$	96,130,686

As of June 30, 2011 (Audited)

	Level 1		Level 2		Level 3		Total
Assets

Senior and Subordinated Loans, at fair value	$	-	$	-	$	55,537,458	$	55,537,458

US Treasury Securities, at fair value⁽¹⁾		25,999,714		-		-		25,999,714

Investments in private companies, at fair value		-		-		1,197,384		1,197,384

Investments in securities, at fair value		-		-		59,561		59,561
	$	25,999,714	$	-	$	56,794,403	$	82,794,117

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

During the nine months ended March 31, 2012 and the year ended June 30, 2011, 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 nine months ended March 31, 2012 and for the year ended June 30, 2011 are as follows:

	Nine months ended March 31, 2012 (Unaudited)


	Beginning Balance June 30, 2011


				Accretion of Original Issue Discount			Realized & Unrealized Gains (Losses)			Purchases			Sales And Settlements			Ending Balance March 31, 2012			Change in Unrealized Gains (Losses) for Investments still held at March 31, 2012
Assets

Senior and Subordinated Loans, at fair value	$	55,537,458	$		409,789	$		(760,014)	$		40,013,748	$		(31,019,044)	$		64,181,937	$		(830,981)

Investments in private companies, at fair value		1,197,384			-			557,773			140,414			-			1,895,571			557,773

Investments in securities, at fair value		59,561			-			(182,988)			176,770			-			53,343			(182,988)
	$	56,794,403	$		409,789	$		(385,229)	$		40,330,932	$		(31,019,044)	$		66,130,851	$		(456,196)

	Year ended June 30, 2011 (Audited)
													Change in
													Unrealized
	Beginning		Accretion of								Ending		Losses for Investments
	Balance		Original		Realized &				Sales		Balance		still held at
	June 30,		Issue		Unrealized				And		June 30,		June 30,
	2010		Discount		Losses		Purchases		Settlements		2011		2011
Assets

Senior and Subordinated Loans, at fair value	$	-	$	835,926	$	(337,635)	$	87,529,153	$	(32,489,986)	$	55,537,458	$	(683,077)

Investments in private companies, at fair value		-		-		(891,668)		2,089,052		-		1,197,384		(891,668)

Investments in securities, at fair value		-		-		(221,884)		281,445		-		59,561		(221,884)
	$	-	$	835,926	$	(1,451,187)	$	89,899,650	$	(32,489,986)	$	56,794,403	$	(1,796,629)

Realized and unrealized gains and losses are included in realized gain on investments and net change in unrealized loss on investments in the consolidated statements of operations. The change in unrealized losses for Level 3 investments still held at March 31, 2012 of $456,196 is included in net change in net unrealized loss on investments in the consolidated statement of operations for the nine months ended March 31, 2012. The change in unrealized losses for Level 3 investments still held at June 30, 2011 of $1,796,629 is included in net change in net unrealized loss on investments in the consolidated statement of operations for the year ended June 30, 2011.

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

Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average) ⁽¹⁾
Secured debt	$	62,192,045	Discounted cash flows (income approach)	Discount Rate	3% - 21% (16%)
Equity		961,952	Market comparable companies (market approach)	EBITDA multiple	3.5 – 7.5 (4.5)
Debt or Equity subject to liquidation		2,976,144	Liquidation Value	Asset Value	N/A
Other		710	Option Pricing Model	Volatility	50%
Total investments	$	66,130,851

(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 of the investment company’s share price.

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.

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

	Long Exposure

	Notional	Number of
	Amounts	Warrants
Primary Underlying Risk
Equity Price
Warrants ^(a)	$90,143	222,227

(a)

Notional amounts presented for warrants are based on the fair value of the underlying shares as if the warrants were exercised at March 31, 2012.

Note 11. Recently Issued Accounting Standards

In May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurements (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on our financial condition and results of operations.

In February 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring (“ASU 2011-02”). ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 provides guidance to clarify whether the creditor has granted a concession and whether a debtor is experiencing financial difficulties. The new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. The adoption of ASU 2011-02 did not have a significant impact on our financial condition and results of operations.

Note 12. Subsequent Events

Dividend

On May 7, 2012, the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on August 15, 2012 for holders of record at July 31, 2012, September 14, 2012 for holders of record at August 31, 2012 and October 15, 2012 for holders of record at September 28, 2012, respectively.

Recent Portfolio Activity

On April 1, 2012, the Company amended the loan to ProGrade Ammo Group LLC. The interest rate on the Senior Secured Term Loan was increased by 0.75% and the Company obtained additional warrants in the borrower for 9.5% of the outstanding LLC interests.

On May 1, 2012, the Company invested $4,250,000 in a senior secured term loan bearing interest at LIBOR plus 12.75% to Matt Martin Real Estate Management, LLC. Matt Martin Real Estate Management, LLC provides real estate disposition services to federal government agencies and other parties.

On May 8, 2012 the Company invested $5,000,000 in a senior secured loan bearing interest at 12.00% to Employment Plus, Inc. Employment Plus Inc. provides temporary and permanent staffing services to the private sector across multiple industries.

Note 13. Selected Quarterly Financial Data (Unaudited)

	Total Investment Income				Net Investment Income				Net Realized and Unrealized Gains (Losses)						Net Increase 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

(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, 2011.

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. 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;

•

a 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 if 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, 2011 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. 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. These risks and uncertainties include those described or identified in “Risk Factors” in our Annual Report on Form 10-K for the period ended June 30, 2011 and elsewhere in this quarterly report on Form 10-Q. 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.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this quarterly report on Form 10-Q.

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.

On August 31, 2010, we priced our initial public offering of 2,000,000 shares of our common stock at the offering price of $9.00 per share. Our shares are currently listed on the NASDAQ Capital Market under the symbol “FULL.”

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. As part of this continuation and expansion, we invest primarily in asset-based 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, with a specific focus on the media, communications and business services industries where we believe we have particular expertise. 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.

Immediately prior to the pricing of our initial public offering, we acquired a portfolio of investments (the “Legacy Portfolio”) from the Legacy Funds, which are managed by an affiliate of our investment adviser. The investments included in the Legacy Portfolio had a collective fair value of approximately $72.3 million as of June 30, 2010, as determined by our Board of Directors. In connection with our acquisition of the Legacy Portfolio, we issued approximately 4.19 million shares of our common stock and approximately $3.4 million of senior unsecured notes (the “Distribution Notes”) to investors in the Legacy Funds (the “Legacy Investors”), pursuant to a Purchase and Sale Agreement (the “Asset Purchase Agreement”). We also incurred approximately $27.5 million of debt upon entry into a new secured revolving credit facility (the “Credit Facility”) with FCC, LLC d/b/a First Capital (“First Capital”) in connection with the assumption of outstanding amounts under the Legacy Funds’ credit facilities (the “Legacy Credit Facilities”). We refer to these transactions, collectively, as the “Full Circle Portfolio Acquisition.”

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

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 disclosure of ASC Topic 820 at March 31, 2012 and June 30, 2011, respectively:

As of March 31, 2012 (Unaudited)

	Level 1		Level 2		Level 3		Total
Assets

Senior and Subordinated Loans, at fair value	$	-	$	-	$	64,181,937	$	64,181,937

US Treasury Securities, at fair value		29,999,835		-		-		29,999,835

Investments in private companies, at fair value		-		-		1,895,571		1,895,571

Investments in securities, at fair value		-		-		53,343		53,343
	$	29,999,835	$	-	$	66,130,851	$	96,130,686

As of June 30, 2011 (Audited)

	Level 1		Level 2		Level 3		Total
Assets

Senior and Subordinated Loans, at fair value	$	-	$	-	$	55,537,458	$	55,537,458

US Treasury Securities, at fair value		25,999,714		-		-		25,999,714

Investments in private companies, at fair value		-		-		1,197,384		1,197,384

Investments in securities, at fair value		-		-		59,561		59,561
	$	25,999,714	$	-	$	56,794,403	$	82,794,117

During the nine months ended March 31, 2012 and the year ended June 30, 2011, 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, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when paid. 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.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurements (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on our financial condition and results of operations.

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.

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 may 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.

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%
Since inception	$	130.3	$	63.6		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)

The primary investment activity for the nine months ended March 31, 2011, was the purchase of the Legacy Portfolio on August 31, 2010 which coincided with the commencement of operations on that date. The investments included in the Legacy Portfolio had a collective fair value of approximately $72.3 million as of June 30, 2010, as determined by our Board of Directors.

The primary investment activity for the nine months ended March 31, 2012, was the origination of the following loan facilities:

On August 3, 2011, the Company invested $1,000,000 in a revolving loan bearing interest at LIBOR plus 9.00% and $6,250,000 in a term loan bearing interest at LIBOR plus 13.00% to ProGrade Ammo Group, LLC as part of an $8,250,000, three year loan facility. ProGrade Ammo Group, LLC provides ammunition, accessories and components to retail outlets, ammunition manufacturers and law enforcement agencies.

On September 14, 2011, the Company invested $300,000 in a revolving loan bearing interest at LIBOR plus 9.75%, $4,000,000 in a term loan bearing interest at LIBOR plus 11.50% and $4,500,000 in a term loan bearing interest at LIBOR plus 13.00% to Coast Plating, Inc. as part of a $10,500,000 three year loan facility. Coast Plating, Inc. provides metal processing and metal finishing services for the aerospace and defense industries.

On September 20, 2011, the Company invested $5,785,000 in a term loan bearing interest at 15.00% and received equity interests in The Finance Company, LLC as part of a $7,000,000 four year loan facility. The Finance Company, LLC, through its subsidiaries which operate under the Cashwell trade name, provides consumer finance loan programs in South Carolina.

On September 20, 2011, the Company invested $500,000 in a revolving loan bearing interest at LIBOR plus 9.85% and $2,500,000 in a term loan bearing interest at LIBOR plus 14.75% to iMedX, Inc. as part of a $4,500,000 loan facility. iMedX, Inc. is a medical transcription services company that addresses the small physician practice and medical clinic markets.

On February 28, 2012, the Company invested an additional $400,000 in a term loan to iMedX, Inc. as part of a $4,500,000 loan facility.

On March 22, 2012, the Company invested $615,000 in a term loan to European Evaluators, LLC bearing interest at LIBOR plus 11.70%. European Evaluators is a dealer in fine art.

On March 31, 2012, the Company invested an additional $1,000,000 in a term loan to US Path Labs, LLC and extended the maturity of the loan agreement to March 30, 2014.

Additionally, the Company received proceeds, including sales proceeds and prepayments, during the nine months ended March 31, 2012 related to the following companies:

On August 15, 2011, VaultLogix, LLC pre-paid, at par, its loan from the Company, remitting a total of $5,023,333 to the Company for outstanding principal and interest.

On September 1, 2011, West World Media, LLC pre-paid, at par, its loan from the Company, remitting a total of $6,992,171 to the Company for outstanding principal, interest and fees.

On November 30, 2011, the Company sold participations in Coast Plating, Inc.’s Term A and Term B loans to a third party for an aggregate of $3,500,000, which represented par value for the loans sold.

On December 31, 2011, the Company received a principal prepayment of $964,276 from The Selling Source, LLC based upon the borrower's cash flow, as defined in their loan documents.

On January 31, 2012, Iron City Brewing, LLC repaid, at par, its loan from the Company, remitting a total of $521,666 of outstanding principal.

The following is a reconciliation of the investment portfolio for the nine months ended March 31, 2012, and for the year ended June 30, 2011:


	Nine Months Ended March 31, 2012		Year Ended June 30, 2011
Beginning Investment Portfolio	$	82,794,117	$	-
Portfolio Investments Acquired		40,262,090		17,468,968
Portfolio Investments Acquired in the Initial Public Offering		-		72,280,294
Treasury and Money Market Purchases⁽¹⁾		97,500,561		120,295,651
Amortization of fixed income premiums and discounts		409,261		835,861
Portfolio Investments Repaid		(31,019,044)		(32,588,630)
Sales of Treasury and Money Market securities⁽¹⁾		(93,499,273)		(94,292,528)
Payment in Kind		68,842		246,566
Net Unrealized Depreciation		(512,907)		(1,796,547)
Net Realized Gains		127,039		344,482
Ending Investment Portfolio	$	96,130,686	$	82,794,117

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

During the nine months ended March 31, 2012, we recorded net unrealized depreciation of $512,907. This consisted of $887,692 of net unrealized depreciation on debt investments offset by $374,785 of net unrealized appreciation on equity investments.

On February 17, 2011, the Company placed Bloomingdale Partners, LP in default on its loan. On March 31, 2011 the assets of Bloomingdale Partners, LP were transferred to Texas Westchester Financial, LLC, and the Company forgave its loan in exchange for a controlling interest in Texas Westchester Financial, LLC. Accordingly, the Company has acquired a Control Investment in Texas Westchester Financial, LLC through the Company’s ownership of LLC units therein. The Company’s Board of Directors determined that the value of this investment should be written down, resulting in a $815,668 unrealized loss for the year ended June 30, 2011, which is included above in net unrealized depreciation for the year ended June 30, 2011.

The following table shows the fair value of our portfolio of investments by asset class as of March 31, 2012, and June 30, 2011, excluding United States Treasury Bills of approximately $30.0 million and $26.0 million, respectively:

	March 31, 2012 (Unaudited)					June 30, 2011 (Audited)
	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	$	60.7		91.8	%	$	52.0		91.7	%
Subordinated Secured Loans		3.5		5.3			3.5		6.1
Limited Liability Company Interests		1.9		2.9			1.2		2.1
Warrants		-		-			0.1		0.1
Total	$	66.1		100.0	%	$	56.8		100.0	%

At March 31, 2012, the fourteen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 61% (i.e., each $61 of loan value outstanding is secured by $100 of collateral value).

At June 30, 2011, the twelve borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 55% (i.e., each $55 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 March 31, 2012, and June 30, 2011, excluding United States Treasury Bills of approximately $30.0 million and $26.0 million, respectively:

	March 31, 2012 (Unaudited)					June 30, 2011 (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	$	17.7		26.7	%	$	17.3		30.5	%
Consumer Financing		7.4		11.2			0.8		1.5
Radio Broadcasting		6.4		9.7			6.3		11.1
Munitions		5.9		9.0			-		-
Aerospace Parts Plating and Finishing		5.0		7.5			-		-
Information and Data Services		4.4		6.6			12.5		21.9
Industrial Metal Treatings		3.9		5.9			3.9		6.9
Medical Transcription Services		3.9		5.9			-		-
Healthcare Services		3.5		5.3			2.5		4.4
Equipment Rental Services		3.4		5.2			3.7		6.5
Outdoor Advertising Services		2.0		3.1			2.1		3.7
Asset Recovery Services		2.0		3.0			2.1		3.7
Art Dealers		0.6		0.9			-		-
Beverages		-		-			0.5		0.9
Information Retrieval Services		-		-			5.1		8.9
Total	$	66.1		100.0	%	$	56.8		100.0	%

Portfolio Grading

We have adopted a credit grading system to monitor the quality of our debt investment portfolio. As of March 31, 2012, our portfolio had a weighted average grade of 3.34, based upon the fair value of the debt investments in the portfolio, excluding United States Treasury Bills of approximately $30.0 million. Equity securities are not graded. This was a decline of 0.23 from the weighted average grade of 3.11 at June 30, 2011, which was based upon the fair value of the debt investments in the portfolio:

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


		March 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.		7,649,072		11.57

	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.		35,765,912		54.08

	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		18,776,918		28.39

	5	The investment is performing well below expectations and is not anticipated to be repaid in full.		1,989,892		3.01

			$	64,181,794		97.05	%

At June 30, 2011, our debt investment portfolio was graded as follows:


		June 30, 2011
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.		5,330,357		9.39

	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.		37,438,090		65.92

	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		12,769,011		22.48

	5	The investment is performing well below expectations and is not anticipated to be repaid in full.		-		-

			$	55,537,458		97.79	%

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 March 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 March 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 March 31, 2012, was $2,388,960. This amount consisted of $2,168,490 of interest income from portfolio investments (which included no PIK interest), $55,393 of dividend income and $165,077 of fee income. Dividend income was solely earned from our investment in The Finance Company, LLC.

Total investment income for the three months ended March 31, 2011, was $2,305,423. This amount consisted of $1,934,569 of interest income from portfolio investments (which included $61,891 of PIK interest), $2,092 of dividend income and $368,762 of fee income.

The increase in interest income for the three months ended March 31, 2012 relative to the same time period in 2011 was primarily due to growth in the size of our portfolio. The decrease in PIK interest for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 is primarily attributable to the fact that the Company received a prepayment from West World Media, LLC and ceased generating PIK interest from any of its portfolio investments. The increase in dividend income for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was primarily due to the Company’s investment in The Finance Company, LLC in September 2011. The decrease in fee income, which can fluctuate, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was primarily a result of fewer prepayment, administration and other fees during the quarter ended March 31, 2012.

Expenses

Gross and net operating expenses for the three months ended March 31, 2012, were $1,270,386.

Gross operating expenses for the three months ended March 31, 2011, were $1,117,615. Net operating expenses (offset by the waived portion of the base management fee and the accrual for waiver of operating expenses) for the three months ended March 31, 2011, were $943,788.

The increase in our net operating expenses for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 is primarily due to the increase in the Company’s greater use of borrowings resulting in increased interest expense. Additionally, the expiration of the Expense Reimbursement Agreement resulted in $173,827 of increased net operating expenses.

Net Investment Income (Loss)

Net investment income for the three months ended March 31, 2012, was $1,118,574. Net investment income per share was $0.18 for the period.

Net investment income for the three months ended March 31, 2011, was $1,361,635. Net investment income per share was $0.22 for the period.

The decrease in net investment income for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was primarily due to the increase in net operating expenses due to the expiration of the Expense Reimbursement Agreement and an increase in interest expenses, as the Company had increased debt usage in 2012 as compared to the same period in 2011. Additionally, the decrease in other income was due to lower fee income, which can fluctuate, as the Company received fewer prepayment fees during the three months ended March 31, 2012 as compared to the three months ended March 31, 2011.

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 March 31, 2012, we recorded a realized gain of $467.

During the three months ended March 31, 2011, we recorded a realized gain of $251,780. Of this gain, $240,509 was associated with the full repayment of the loan to Icon Groupe, LLC on January 31, 2011. Realized gain per share was $0.04 for the period.

The decrease in realized gains for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was primarily due to the pre-payment of Icon Groupe, LLC on January 31, 2011.

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 on investments per share was $0.07 for the three months ended March 31, 2012. During the three months ended March 31, 2012, we recorded net unrealized appreciation of $404,773. This consisted of $133,015 of net unrealized appreciation on debt investments and $271,758 of net unrealized appreciation on equity investments.

Change in unrealized loss on investments per share was $0.17 for the three months ended March 31, 2011. During the three months ended March 31, 2011, we recorded net unrealized depreciation of $1,051,141. This consisted of $505,827 of net unrealized depreciation on debt investments and $545,314 of net unrealized depreciation on equity investments.

The movement in change in unrealized gain (loss) on investments for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was primarily due to the increase in fair value of the one of the Company’s equity investments.

Comparison of the nine months ended March 31, 2012 and 2011

Full Circle Capital commenced operations on August 31, 2010, so the results for the nine months ended March 31, 2011, reflect approximately seven months of operations subsequent to the completion of the Full Circle Portfolio Acquisition.

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 nine months ended March 31, 2012. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused line fees.

Total investment income for the nine months ended March 31, 2012, was $7,345,868. This amount consisted of $6,588,040 of interest income from portfolio investments (which included $68,842 of PIK interest), $57,216 of dividend income and $700,612 of fee income.

Total investment income for the nine months ended March 31, 2011, was $5,851,202. This amount consisted of $5,068,513 of interest income from portfolio investments (which included $168,013 of PIK interest), $212,925 of dividend income and $569,764 of fee income.

The increase in interest income for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 was primarily due to the Company’s operations commencing on August 31, 2011. The decrease in dividend income for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 was primarily due to the redemption of the Company’s previous investment in First Capital Lotus Asset-Based Loan Fund I, LP in December 2010. The decrease in PIK interest for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 is primarily attributable to the fact that the Company received a prepayment from West World Media, LLC and ceased generating PIK interest from any of its portfolio investments. The increase in fee income, which often fluctuates from period to period, for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 was primarily due to additional originations resulting in structuring fees recognized during the nine months ended March 31, 2012.

Expenses

Gross operating expenses for the nine months ended March 31, 2012, were $3,898,104. Net operating expenses (offset by the waived portion of the base management fee and the accrual for waiver of operating expenses) for the nine months ended March 31, 2012, were $3,584,312.

Gross operating expenses for the nine months ended March 31, 2011, were $3,103,174. Net operating expenses (offset by the waived portion of the base management fee and the accrual for waiver of operating expenses) for the nine months ended March 31, 2011, were $2,687,659.

The increase in our net operating expenses for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 is primarily due to the Company’s operations commencing on August 31, 2010. As the company commenced operations on August 31, 2010, the expenses for the nine months ended March 31, 2011, represent approximately seven months of operations, except for organizational expenses of $178,979, which were incurred over the nine months ended March 31, 2011, and operating expenses of $18,465, which were incurred in the months of July and August 2010.

Net Investment Income (Loss)

Net investment income for the nine months ended March 31, 2012, was $3,761,556. Net investment income per share was $0.61 for the period.

As the company commenced operations on August 31, 2010, the net investment income of $3,163,543 for the nine months ended March 31, 2011, represents approximately seven months of operations, except for organizational expenses of $178,979, which were incurred over the nine months ended March 31, 2011, and operating expenses of $18,465, which were incurred in the months of July and August 2010. Organizational expenses are not expected to reoccur. Net investment income per share was $0.52 for the time period from August 31, 2010 to March 31, 2011. The increase in our net investment income for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 is primarily due to the Company’s operations commencing on August 31, 2011.

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 nine months ended March 31, 2012, we recorded a realized gain of $127,039 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.

During the nine months ended March 31, 2011, we recorded a realized gain in the amount of $344,417. Of this gain, $66,980 was associated with the partial repayment of the loan to Georgia Outdoor Advertising, LLC on February 1, 2011 and $240,509 was associated with the full repayment of the loans to the Icon Groupe, LLC on January 21, 2011. Realized gain per share for the period from August 31, 2010 to March 31, 2011 was $0.06.

Change in Unrealized Gain (Loss) on Investments

Change in unrealized loss on investments per share was $0.23 for the time period from August 31, 2010 to March 31, 2011. During the nine months ended March 31, 2011, we recorded net unrealized depreciation of $1,381,276. This consisted of $517,064 of net unrealized depreciation on debt investments and $864,212 of net unrealized depreciation on equity investments recognized between the commencement of operations on August 31, 2010 and March 31, 2011.

The movement in change in unrealized gain (loss) on investments for the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2011 was primarily due to the increase in fair value of one of the Company’s equity investments.

Liquidity and Capital Resources

At March 31, 2012, we had investments in debt securities of fourteen companies, totaling approximately $64.2 million, and equity investments in seven companies, totaling approximately $1.9 million.

Cash used in operating activities for the nine months ended March 31, 2012, consisting primarily of purchases, sales and repayments of investments and the items described in "Results of Operations," was approximately $6.4 million, reflecting the purchases and repayments of investments, income resulting from operations, offset by non-cash income related to PIK interest and OID income, changes in working capital and accrued interest receivable. Net cash provided by purchases and sales of investments was approximately $9.3 million, reflecting net additional investments in existing securities of $7.5 million, offset by principal repayments of $10.6 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, will expire on July 31, 2012. Under the agreement, base rate borrowings bear interest at LIBOR plus 5.50%. As of March 31, 2012, we had $12.4 million outstanding borrowings under the Credit Facility.

As of March 31, 2012, we had Distribution Notes outstanding of approximately $3.4 million. These senior unsecured notes bear interest at a rate of 8% per annum, payable quarterly in cash, and mature on February 28, 2014.

As of March 31, 2012, we held approximately $2.9 million in cash and did not have any cash equivalents in our investment portfolio.

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 are currently exploring 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 December 2011 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 December 21, 2012. 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⁾	$	12.4	$	12.4	$	—	$	—	$	—

Distribution Notes		3.4		—		3.4		—		—

Total	$	15.8	$	12.4	$	3.4	$	—	$	—

^{_____________________________________}

⁽¹⁾ At March 31, 2012, $22.6 million 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 $1,802,433 for investment advisory services and $690,799 for administrative services for the nine months ended March 31, 2012.

As of March 31, 2012, we had approximately $6.3 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 will expire on July 31, 2012. Under the agreement, base rate borrowings bear interest at LIBOR plus 5.50%. 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% 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
Total (2013 to date)			$	0.231

(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 manager 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 three months ended and the nine months ended March 31, 2012, Vastardis was paid $78,114 and $234,343, respectively, for services provided under the Administration Agreement and $62,500 and $162,500, respectively, for the services of Mr. Vastardis as the Chief Financial Officer.

Full Circle Advisors’ investment team 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 the Legacy Investors, pursuant to the Asset Purchase Agreement.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of March 31, 2012, two debt investments in our portfolio were at a fixed rate, and the remaining twenty debt investments were at variable rates, representing approximately $5.6 million and $60.1 million in principal debt, respectively. A portion 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 March 31, 2012. We have also assumed $12.4 million of outstanding borrowings, with no outstanding borrowings having 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 March 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 March 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 March 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, 2011, 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 three months ended March 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, 2011.

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 March 31, 2012.

Issuer Purchases of Equity Securities

For the quarter ended March 31, 2012, as a part of our dividend reinvestment plan for our common stockholders, we purchased 2,599 shares of our common stock for approximately $19,515 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 March 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
January 2012		647	$	7.15		—		—
February 2012		703	$	7.89		—		—
March 2012		1,249	$	7.48		—		—
Total		2,599	$	7.51		—		—

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

On May 7, 2012, we entered into the Waiver and Second Amendment to the Second Amended and Restated Loan Agreement with FCC, LLC, d/b/a First Capital (the "Credit Facility Amendment"), which waived a technical default of a fixed charge coverage ratio requirement (the "Fixed Charge Coverage Requirement") and replaced such Fixed Charge Coverage Requirement with a requirement to maintain a specified level of earnings before interest expense, taxes, depreciation and amortization. The Credit Facility Amendment is attached to this Form 10-Q as exhibit 10.9 and is incorporated herein by reference.

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**
3.2		Bylaws*
4.1		Form of Common Stock Certificate*
4.2		Form of Note Agreement for Senior Unsecured Notes*
4.3		Form of Senior Unsecured Note*
10.1		Form of Dividend Reinvestment Plan*
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**
10.3		Investment Advisory Agreement by and between Registrant and Full Circle Advisors, LLC*
10.4		Administration Agreement by and between Registrant and Full Circle Service Company, LLC*
10.5		Form of Indemnification Agreement by and between Registrant and each of its directors*
10.6		Trademark License Agreement by and between Registrant and Full Circle Advisors, LLC*
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**
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***
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
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.

	*	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.
	**	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.
	***	Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-000809) filed on January 27, 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: May 10, 2012	By:	/s/ John E. Stuart
		John E. Stuart, Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)

Date: May 10, 2012	By:	/s/ William E. Vastardis
		William E. Vastardis, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

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