UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2019

 

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission
File Number
  Exact name of registrant as specified in its charter, 
address of principal executive office, telephone number and
state or other jurisdiction of incorporation or organization
  I.R.S. Employer
Identification Number
814-01022  

Capitala Finance Corp.

4201 Congress St., Suite 360

Charlotte, North Carolina 28209

Telephone: (704) 376-5502

State of Incorporation: Maryland

  90-0945675

  

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.

 

  Capitala Finance Corp. Yes   x No   ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

  Capitala Finance Corp. Yes   ¨ No   ¨

 

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

 

Capitala Finance Corp. Large accelerated filer   ¨ Accelerated filer x
         
  Non-accelerated filer ¨ Smaller reporting company ¨
         
      Emerging growth company   ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.           ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

  Capitala Finance Corp. Yes  ¨ No   x

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class    Trading symbol(s)   Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share
5.75% Convertible Notes due 2022

6.00% Notes due 2022

 

CPTA

CPTAG

CPTAL

 

NASDAQ Global Select Market
NASDAQ Capital Market

NASDAQ Global Select Market

  

The number of shares of Capitala Finance Corp.’s common stock, $0.01 par value, outstanding as of May 3, 2019 was 16,095,622.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2019 (unaudited) and December 31, 2018 3
     
  Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2019 and 2018 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited) 6
     
  Consolidated Schedules of Investments as of March 31, 2019 (unaudited) and December 31, 2018 7
     
  Notes to Consolidated Financial Statements as of March 31, 2019 (unaudited) 21
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 57
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 83
     
Item 4. Controls and Procedures 84
     
PART II. OTHER INFORMATION 85
     
Item 1. Legal Proceedings 85
     
Item 1A. Risk Factors 85
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 86
     
Item 3. Defaults Upon Senior Securities 86
     
Item 4. Mine Safety Disclosures 86
     
Item 5. Other Information 86
     
Item 6. Exhibits 87
   
Signatures 88

 

2

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

Capitala Finance Corp.

 

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

   As of 
   March 31, 2019   December 31, 2018 
   (unaudited)     
ASSETS          
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $271,596 and $280,114, respectively)  $284,364   $286,843 
Affiliate investments (amortized cost of $82,413 and $72,300, respectively)   102,784    92,939 
Control investments (amortized cost of $70,929 and $67,556, respectively)   68,242    69,145 
Total investments at fair value (amortized cost of $424,938 and $419,970, respectively)   455,390    448,927 
Cash and cash equivalents   28,470    39,295 
Interest and dividend receivable   3,458    3,778 
Prepaid expenses   376    454 
Deferred tax asset, net   694    628 
Other assets   90    83 
Total assets  $488,478   $493,165 
           
LIABILITIES          
SBA debentures (net of deferred financing cost of $1,404 and $1,688, respectively)  $148,596   $164,012 
2022 Notes (net of deferred financing cost of $1,855 and $1,987, respectively)   73,145    73,013 
2022 Convertible Notes (net of deferred financing cost of $1,175 and $1,259, respectively)   50,913    50,829 
Credit Facility (net of deferred financing cost of $949 and $983, respectively)   24,051    9,017 
Management and incentive fees payable   3,488    2,487 
Interest and financing fees payable   1,423    3,063 
Accounts payable and accrued expenses   128    100 
Total liabilities  $301,744   $302,521 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 16,084,143 and 16,051,547 common shares issued and outstanding, respectively  $161   $161 
Additional paid in capital   242,012    241,757 
Total distributable loss   (55,439)   (51,274)
Total net assets  $186,734   $190,644 
Total liabilities and net assets  $488,478   $493,165 
           
Net asset value per share  $11.61   $11.88 

 

See accompanying notes to consolidated financial statements.

3

 

 

Capitala Finance Corp.

 

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

   For the Three Months Ended March 31, 
   2019   2018 
INVESTMENT INCOME          
Interest and fee income:          
Non-control/non-affiliate investments  $7,285   $7,356 
Affiliate investments   2,399    1,941 
Control investments   724    1,849 
Total interest and fee income   10,408    11,146 
Payment-in-kind interest and dividend income:          
Non-control/non-affiliate investments   442    705 
Affiliate investments   149    486 
Control investments   328    166 
Total payment-in-kind interest and dividend income   919    1,357 
Dividend income:          
Non-control/non-affiliate investments   1,281    - 
Affiliate investments   -    29 
Control investments   25    25 
Total dividend income   1,306    54 
Interest income from cash and cash equivalents   51    15 
Total investment income   12,684    12,572 
           
EXPENSES          
Interest and financing expenses   4,413    4,364 
Base management fee   2,118    2,303 
Incentive fees   1,034    244 
General and administrative expenses   984    1,223 
Total expenses   8,549    8,134 
           
NET INVESTMENT INCOME   4,135    4,438 
           
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:          
Net realized gain (loss) on investments:          
Non-control/non-affiliate investments   (3,909)   (4,579)
Affiliate investments   (111)   724 
Control investments   (1,827)   - 
Net realized loss on investments   (5,847)   (3,855)
Net unrealized appreciation (depreciation) on investments:          
Non-control/non-affiliate investments   6,039    2,134 
Affiliate investments   (268)   (776)
Control investments   (4,276)   (1,750)
Net unrealized appreciation (depreciation) on investments   1,495    (392)
Net realized and unrealized loss on investments   (4,352)   (4,247)
Tax benefit (provision)   66    (50)
Total net realized and unrealized loss on investments, net of taxes   (4,286)   (4,297)
           
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $(151)  $141 
           
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $(0.01)  $0.01 
           
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING  –  BASIC AND DILUTED   16,062,906    15,959,215 
           
DISTRIBUTIONS PAID PER SHARE  $0.25   $0.25 

 

See accompanying notes to consolidated financial statements.

 

4

 

 

Capitala Finance Corp.

 

Consolidated Statements of Changes in Net Assets

(in thousands, except share data)

(unaudited)

 

   Common Stock             
   Number of Shares   Par Value   Additional Paid
in Capital
   Total Distributable
Earnings (Loss)
   Total 
BALANCE, December 31, 2017   15,951,231  $160  $241,027   $(19,300)  $221,887 
Net investment income   -    -    -    4,438    4,438 
Net realized loss on investments   -    -    -    (3,855)   (3,855)
Net unrealized depreciation on investments   -    -    -    (392)   (392)
Tax provision   -    -    -    (50)   (50)
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   22,987   -    164    -    164 
Distributions declared   -    -    -    (3,988)   (3,988)
BALANCE, March 31, 2018   15,974,218   $160   $241,191   $(23,147)  $218,204 
                          
BALANCE, December 31, 2018   16,051,547   $161   $241,757   $(51,274)  $190,644 
Net investment income   -    -    -    4,135    4,135 
Net realized loss on investments   -    -    -    (5,847)   (5,847)
Net unrealized appreciation on investments   -    -    -    1,495    1,495 
Tax benefit   -    -    -    66    66 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   32,596    -    255    -    255 
Distributions declared   -    -    -    (4,014)   (4,014)
BALANCE, March 31, 2019   16,084,143   $161   $242,012   $(55,439)  $186,734 

 

See accompanying notes to consolidated financial statements.

 

5

 

 

Capitala Finance Corp.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   For the Three Months Ended March 31, 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase (decrease) in net assets resulting from operations  $(151)  $141 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:          
Purchase of investments   (21,128)   (27,800)
Repayments and sales of investments   11,492    21,400 
Net realized loss on investments   5,847    3,855 
Net unrealized (appreciation) depreciation on investments   (1,495)   392 
Payment-in-kind interest and dividends   (919)   (1,357)
Accretion of original issue discount on investments   (260)   (273)
Amortization of deferred financing fees   616    465 
Tax provision (benefit)   (66)   50 
Changes in assets and liabilities:          
Interest and dividend receivable   320    (114)
Due from related parties   -    95 
Prepaid expenses   78    34 
Other assets   (7)   (2)
Management and incentive fees payable   1,001    274 
Interest and financing fees payable   (1,640)   (1,662)
Accounts payable and accrued expenses   28    - 
Trade settlement payable   -    (175)
NET CASH USED IN OPERATING ACTIVITIES   (6,284)   (4,677)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   (15,700)   - 
Proceeds from Credit Facility   15,000    16,000 
Payments to Credit Facility   -    (13,000)
Distributions paid to shareholders   (3,759)   (3,824)
Deferred financing fees paid   (82)   - 
NET CASH USED IN FINANCING ACTIVITIES   (4,541)   (824)
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (10,825)   (5,501)
CASH AND CASH EQUIVALENTS, beginning of period   39,295    31,221 
CASH AND CASH EQUIVALENTS, end of period  $28,470   $25,720 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $5,059   $5,196 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions paid through dividend reinvestment plan share issuances  $255   $164 

 

See accompanying notes to consolidated financial statements.

 

6

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/non-affiliated investments - 152.3%                          
                           
Non-control/non-affiliated investments - United States                          
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (11.5% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 12/4/22)  $13,954   $13,954   $13,954    7.5%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units, 8.0% PIK) (6)        1,070    1,070    0.5%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    160    0.1%
                           
               15,034    15,184    8.1%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/18/22)   118    118    118    0.1%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (12.5% Cash, Due 12/18/22) (7)   13,000    13,000    10,589    5.6%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               13,918    10,707    5.7%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (10.5% Cash, 2.0% PIK, Due 6/11/20) (8)   9,340    8,918    6,520    3.5%
                           
               8,918    6,520    3.5%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (12.8% Cash, Due 9/8/21)   18,050    17,808    17,994    9.6%
                           
               17,808    17,994    9.6%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (14.5% Cash, Due 11/14/21) (7)   8,920    8,920    8,920    4.8%
                           
BigMouth, Inc.  Consumer Products  Series A Preferred Stock (350,000 shares)        411    218    0.1%
                           
               9,331    9,138    4.9%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (10.0% Cash (1 month LIBOR + 7.5%, 1.0% Floor), Due 11/7/20)   3,717    3,710    3,467    1.9%
                           
               3,710    3,467    1.9%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    2,287    1.2%
                           
               5    2,287    1.2%
                           
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (12.5% Cash (1 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23)   5,000    4,908    4,800    2.6%
                           
               4,908    4,800    2.6%
                           
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (11.0% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   13,000    13,000    13,000    7.0%
                           
               13,000    13,000    7.0%

 

7

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
CIS Secure Computing, Inc.  Government Services  First Lien Debt (11.0% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)  $10,454   $10,454   $10,454    5.6%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    1,643    0.9%
                           
               11,454    12,097    6.5%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,036    19,036    18,805    10.1%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    818    0.4%
                           
               20,611    19,623    10.5%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (14.5% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 2.0% PIK, Due 1/2/20) (9)   16,659    16,659    16,659    8.9%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (9)        2,000    2,000    1.1%
                           
               18,659    18,659    10.0%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  First Lien Debt (8.4% Cash (3 month LIBOR + 5.8%, 1.0% Floor), Due 4/3/20)   6,200    6,153    6,015    3.2%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Second Lien Debt (12.6% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 10/3/21)   12,000    11,826    11,313    6.1%
                           
               17,979    17,328    9.3%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (9.2% Cash, Due 12/20/23) (7)(10)   5,985    5,985    5,985    3.2%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    175    0.1%
                           
               6,167    6,160    3.3%
                           
Installs, LLC  Logistics  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.8% Floor), Due 6/20/23)   2,984    2,984    2,984    1.6%
                           
               2,984    2,984    1.6%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22) (11)   -    -    -    0.0%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22)   4,179    4,179    4,179    2.2%
                           
               4,179    4,179    2.2%
                           
Nth Degree, Inc.  Business Services  First Lien Debt (14.0% Cash (1 month LIBOR + 11.5%, 1.0% Floor), 2.0% PIK, Due 3/29/23) (12)   7,236    7,236    7,236    3.9%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (2,400 Units, 10.0% PIK dividend) (6)        3,324    18,468    9.9%
                           
               10,560    25,704    13.8%

 

8

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Seitel, Inc.  Data Services  First Lien Debt (10.9% Cash (3 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)  $5,000   $5,000   $5,000    2.7%
                           
               5,000    5,000    2.7%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (13.0% Cash (1 month LIBOR + 10.5%, 1.8% Floor), Due 8/21/23)   13,485    13,485    13,424    7.2%
                           
               13,485    13,424    7.2%
                           
Sunset Digital Holdings, LLC  Telecommunications  First Lien Debt (9.7% Cash (1 month LIBOR + 7.3%, 1.5% Floor), Due 8/2/19)   18,000    18,000    18,000    9.6%
                           
               18,000    18,000    9.6%
                           
Sur La Table, Inc.  Retail  First Lien Debt (12.0% Cash, Due 7/28/20)   15,000    15,000    14,853    8.0%
                           
               15,000    14,853    8.0%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.4%
                           
               758    758    0.4%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (9.9% Cash, Due 12/14/23) (7)(13)   6,983    6,983    6,983    3.7%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units, 10.0% PIK) (6)        514    509    0.3%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    -    0.0%
                           
               7,498    7,492    4.0%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (77,073 shares) (9)(14)        771    615    0.3%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (9)(14)        6,701    8,981    4.8%
                           
               7,472    9,596    5.1%
                           
Vology, Inc.  Information Technology  Subordinated Debt (15.0% Cash (1 month LIBOR + 14.0%, 1.0% Ceiling), 4.0% PIK, Due 6/30/20)   8,808    8,808    8,730    4.7%
                           
               8,808    8,730    4.7%
                           
Xirgo Technologies, LLC  Information Technology  Subordinated Debt (11.5% Cash, Due 3/1/22)   15,750    15,750    15,750    8.4%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    930    0.5%
                           
               16,350    16,680    8.9%
                           
Sub Total Non-control/non-affiliated investments - United States        271,596    284,364    152.3%

 

9

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Affiliate Investments - 55.0%                          
                           
Affiliate investments - United States                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 1.0% PIK, Due 3/23/21)  $14,838   $14,838   $14,467    7.7%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class A (1,253,198 shares)        1,504    -    0.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class B (900,000 shares)        300    -    0.0%
                           
               16,642    14,467    7.7%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (11.4% fully diluted) (15)        -    3,184    1.7%
                           
               -    3,184    1.7%
                           
Eastport Holdings, LLC  Business Services  Subordinated Debt (15.6% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 4/29/20)   16,500    15,683    16,500    8.8%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    16,393    8.8%
                           
               18,946    32,893    17.6%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend) (6)        3,250    3,549    1.9%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,291    0.7%
                           
               3,252    4,840    2.6%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13.0% Cash, Due 6/16/19) (12)   6,406    6,406    6,338    3.4%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock (8,182 shares)        818    -    0.0%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock Warrants (6,369 shares)        -    -    0.0%
                           
               7,224    6,338    3.4%
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,852,824 shares)        1,268    2,442    1.3%
                           
               1,268    2,442    1.3%

 

10

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
MMI Holdings, LLC  Medical Device Distributor  First Lien Debt (12.0% Cash, Due 1/31/20) (12)  2,600   2,600   2,600    1.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6.0% Cash, Due 1/31/20) (12)   400    388    400    0.2%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6.0% PIK Dividend) (6)        1,498    1,636    0.9%
                       
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)       -   191    0.1%
                           
               4,486    4,827    2.6%
                           
RAM Payment, LLC  Financial Services  First Lien Debt (11.2% Cash, Due 1/4/24) (7)(16)   9,150    9,150    9,150    4.9%
                           
RAM Payment, LLC  Financial Services  Preferred Units (86,000 units, 8.0% PIK) (6)        876    876    0.5%
                           
               10,026    10,026    5.4%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Common Stock (15,068,000 shares)        6,958    6,629    3.5%
                           
               6,958    6,629    3.5%
                           
US Bath Group, LLC  Building Products  First Lien Debt (11.5% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 1/2/23)   12,438    12,438    12,438    6.7%
                           
US Bath Group, LLC  Building Products  Membership Units (500,000 units)        500    3,958    2.1%
                           
               12,938    16,396    8.8%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Subordinated Debt (17)   -    673    742    0.4%
                           
               673    742    0.4%
                           
Sub Total Affiliate investments - United States             $82,413   $102,784    55.0%
                           
Control Investments - 36.6%                          
                           
Control investments - United States                          
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Second Lien Debt (6.0% PIK, Due 8/24/19) (12)  $20,411   $20,411   $17,260    9.2%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (2.2% fully diluted)        17    -    0.0%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Warrants (37.8% fully diluted)        -    -    0.0%
                           
               20,428    17,260    9.2%

 

11

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (8.0% Cash, Due 6/30/21) (12)(18)  $-   $-   $-    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (8.0% Cash, Due 6/30/21) (12)   3,689    3,689    3,689    2.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Preferred Units - Series A1 (7,200,000 units)        5,373    5,373    2.9%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Preferred Units - Series A (4,000,000 units)        2,354    -    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (14.9% fully diluted)        1,394    -    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (40.0% fully diluted )        -    -    0.0%
                           
               12,810    9,062    4.9%
                           
Capitala Senior Loan Fund II, LLC  Investment Funds  Membership Units (80.0% ownership) (9)(19)        13,600    13,930    7.5%
                           
               13,600    13,930    7.5%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10.0% Cash, Due 1/1/19) (12)   1,862    1,862    1,862    1.0%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14.0% Cash, 4.0% PIK, Due 1/1/19) (12)   4,369    4,369    4,369    2.4%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    2,857    1.5%
                           
               7,860    9,088    4.9%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  First Lien Debt (15.0% Cash, Due 10/30/20) (12)   7,500    7,500    7,500    4.0%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend) (6)        1,000    1,000    0.5%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (300,000 shares)        1    3,533    1.9%
                           
               8,501    12,033    6.4%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  First Lien Debt (9.0% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 2.0% Ceiling), Due 12/31/22) (20)   780    780    780    0.4%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 5.0% Ceiling), Due 12/31/22)   4,500    4,500    4,500    2.4%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  Preferred Units (4,350,000 Units)        2,450    1,589    0.9%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  Membership Units (150,000 Units)        -    -    0.0%
                           
               7,730    6,869    3.7%
                           
Sub Total Control investments - United States             $70,929   $68,242    36.6%
                           
TOTAL INVESTMENTS - 243.9%             $424,938   $455,390    243.9%

 

12

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2019

(unaudited)

 

(1) All investments valued using unobservable inputs (Level 3), unless otherwise noted.

(2) All investments valued by the Board of Directors.

(3) All debt investments are income producing, unless otherwise noted. Equity and warrant investments are non-income producing, unless otherwise noted.

(4) Percentages are based on net assets of $186,734 as of March 31, 2019.

(5) Capitala Finance Corp. generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Security Act.

(6) The equity investment is income producing, based on rate disclosed.

(7) The cash rate equals the approximate current yield on our last-out portion of the unitranche facility.

(8) Non-accrual investment.

(9) Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company's total assets at the time of acquisition of any additional non-qualifying assets. As of March 31, 2019, 8.6% of the Company's total assets were non-qualifying assets.

(10) The investment has a $1.0 million unfunded commitment.

(11) The investment has a $0.5 million unfunded commitment.

(12) The maturity date of the original investment has been extended.

(13) The investment has a $1.0 million unfunded commitment.

(14) Investment is valued using observable inputs (Level 1). The stock of the company is traded on the NASDAQ Capital Market under the ticker "USWS."

(15) The investment has been exited. The residual value reflects estimated earnout to be settled post-closing.

(16) The investment has a $0.3 million unfunded commitment.

(17) The investment has been exited. The residual value reflects estimated escrow and earnout to be settled post-closing.

(18) The investment has a $1.0 million unfunded commitment.

(19) The investment has a $6.4 million unfunded commitment.

(20) The investment has a $4.2 million unfunded commitment.

 

13

 

  

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)   Industry  Type of Investment  Principal
Amount
   Cost   Fair Value  

% of

Net Assets

 
                       
Non-control/non-affiliated investments - 150.4%                          
                           
Non-control/non-affiliated investments - United States                          
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (11.3% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 12/4/22)  $13,954   $13,954   $13,954    7.3%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units, 8.0% PIK) (5)        1,049    1,049    0.6%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    230    0.1%
                           
               15,013    15,233    8.0%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/18/22)   118    118    118    0.1%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (12.4% Cash, Due 12/18/22) (6)   13,000    13,000    10,370    5.4%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               13,918    10,488    5.5%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (10.5% Cash, 2.0% PIK, Due 6/11/20) (7)   9,293    8,918    6,484    3.4%
                           
               8,918    6,484    3.4%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (12.8% Cash, Due 9/8/21)   18,300    18,029    18,300    9.6%
                           
               18,029    18,300    9.6%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrants (91,739 Units)        -    5,880    3.1%
                           
               -    5,880    3.1%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (14.3% Cash, Due 11/14/21) (6)   9,094    9,094    9,094    4.8%
                           
BigMouth, Inc.  Consumer Products  Series A Preferred Stock (350,000 shares, 8.0% PIK) (5)        411    352    0.2%
                           
               9,505    9,446    5.0%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (10.0% Cash (1 month LIBOR + 7.5%, 1.0% Floor), Due 11/7/20)   3,779    3,762    3,499    1.8%
                           
               3,762    3,499    1.8%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    1,722    0.9%
                           
               5    1,722    0.9%

 

14

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value  

% of

Net Assets

 
                       
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (12.5% Cash (1 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23)  $5,000   $4,903   $4,903    2.6%
                           
               4,903    4,903    2.6%
                           
Cedar Ultimate Parent, LLC  Consumer Electronics  Series C Preferred Stock (4,759,250 units)        958    -    0.0%
                           
Cedar Ultimate Parent, LLC  Consumer Electronics  Series D Preferred Stock (16,562,190 units)        -    -    0.0%
                           
Cedar Ultimate Parent, LLC  Consumer Electronics  Series E Common Units (190,370 units)        -    -    0.0%
                           
               958    -    0.0%
                           
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.9% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   13,000    13,000    13,000    6.8%
                           
               13,000    13,000    6.8%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (10.8% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   10,428    10,428    10,428    5.5%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    1,681    0.9%
                           
               11,428    12,109    6.4%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   18,940    18,940    18,679    9.8%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    817    0.4%
                           
               20,515    19,496    10.2%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (13.4% Cash (1 month LIBOR + 11.0%, 0.5% Floor), Due 1/2/20) (8)   16,788    16,788    16,788    8.8%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (8)        2,000    2,000    1.0%
                           
               18,788    18,788    9.8%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  First Lien Debt (8.6% Cash (3 month LIBOR + 5.8%, 1.0% Floor), Due 4/3/20)   6,300    6,241    6,070    3.2%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Second Lien Debt (12.8% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 10/3/21)   12,000    11,809    11,265    5.9%
                           
               18,050    17,335    9.1%

 

15

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value  

% of

Net Assets

 
                       
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.7% Cash (1 month LIBOR + 6.25%, 2.0% Floor), Due 12/20/23) (9)  $250   $250   $250    0.1%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (9.1% Cash, Due 12/20/23) (6)   6,000    6,000    6,000    3.1%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    182    0.1%
                           
               6,432    6,432    3.3%
                           
Installs, LLC  Logistics  First Lien Debt (9.3% Cash (1 month LIBOR + 7.0%, 1.8% Floor), Due 6/20/23)   2,984    2,984    2,984    1.6%
                           
               2,984    2,984    1.6%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.3% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22) (10)   -    -    -    0.0%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.3% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22) (11)   3,905    3,905    3,905    2.0%
                           
               3,905    3,905    2.0%
                           
Nth Degree, Inc.  Business Services  First Lien Debt (13.9% Cash (1 month LIBOR + 11.5%, 1.0% Floor), 2.0% PIK, Due 3/29/23) (12)   7,346    7,346    7,346    3.9%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (2,400 Units, 10.0% PIK dividend) (5)        3,244    16,490    8.6%
                           
               10,590    23,836    12.5%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (10.8% Cash (1 month LIBOR + 8.5%, 1.8% Floor), Due 8/21/23)   13,792    13,792    13,792    7.2%
                           
               13,792    13,792    7.2%
                           
Sunset Digital Holdings, LLC  Telecommunications  First Lien Debt (9.6% Cash (1 month LIBOR + 7.3%, 1.5% Floor), Due 8/2/19)   18,000    18,000    18,000    9.4%
                           
               18,000    18,000    9.4%
                           
Sur La Table, Inc.  Retail  First Lien Debt (12.0% Cash, Due 7/28/20)   15,000    15,000    14,979    7.9%
                           
               15,000    14,979    7.9%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.4%
                           
               758    758    0.4%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (10.1% Cash, Due 12/14/23) (6)(13)   7,000    7,000    7,000    3.7%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units, 10.0% PIK) (5)        502    502    0.3%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    1    0.0%
                           
               7,503    7,503    4.0%

 

16

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value  

% of

Net Assets

 
                       
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (77,073 shares) (8)  $    771   632    0.3%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (8)        6,701    9,229    4.9%
                           
               7,472    9,861    5.2%
                       
Vology, Inc.  Information Technology  Subordinated Debt (15.0% Cash (1 month LIBOR + 14.0%, 1.0% Ceiling), 4.0% PIK Due 6/30/20)  8,720   8,720   8,645    4.5%
                           
               8,720    8,645    4.5%
                           
Xirgo Technologies, LLC  Information Technology  Subordinated Debt (11.5% Cash, Due 3/1/22)   15,750    15,750    15,750    8.3%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    837    0.4%
                           
               16,350    16,587    8.7%
                           
Sub Total Non-control/non-affiliated investments - United States              268,298    283,965    148.9%
                           
Non-control/non-affiliated investments - Brazil                          
                           
Velum Global Credit Management, LLC  Financial Services  First Lien Debt (15.0% PIK, Due 12/31/17) (7) (8) (12)   14,277    11,816    2,878    1.5%
                           
               11,816    2,878    1.5%
                           
Sub Total Non-control/non-affiliated investments - Brazil              11,816    2,878    1.5%
                           
Sub Total Non-control/non-affiliated investments             $280,114   $286,843    150.4%
                           
Affiliate Investments - 48.8%                          
                           
Affiliate investments - United States                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 1.0% PIK, Due 3/23/21)  $14,801   $14,801   $14,384    7.5%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class A (1,253,198 shares)        1,504    -    0.0%