UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 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

State of Incorporation: Maryland

Telephone: (704) 376-5502

  90-0945675

 

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

  

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

    Yes   ¨ No   ¨

 

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

 

  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 13(a) of the Exchange Act.           ¨

 

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

 

    Yes  ¨ No   x

  

The number of shares of Capitala Finance Corp.’s common stock, $0.01 par value, outstanding as of November 1, 2019 was 16,175,557.

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of September 30, 2019 (unaudited) and December 31, 2018 3
     
  Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2019 and 2018 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited) 6
     
  Consolidated Schedules of Investments as of September 30, 2019 (unaudited) and December 31, 2018 7
     
  Notes to Consolidated Financial Statements as of September 30, 2019 (unaudited) 20
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 68
     
Item 4. Controls and Procedures 68
     
PART II. OTHER INFORMATION 69
     
Item 1. Legal Proceedings 69
     
Item 1A. Risk Factors 69
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 71
     
Item 3. Defaults Upon Senior Securities 71
     
Item 4. Mine Safety Disclosures 71
     
Item 5. Other Information 71
     
Item 6. Exhibits 72
   
Signatures 73

 

 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 
   September 30, 2019   December 31, 2018 
   (unaudited)     
ASSETS        
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $248,479 and $280,114, respectively)  $259,747   $286,843 
Affiliate investments (amortized cost of $74,435 and $72,300, respectively)   91,355    92,939 
Control investments (amortized cost of $36,659 and $67,556, respectively)   20,249    69,145 
Total investments at fair value (amortized cost of $359,573 and $419,970, respectively)   371,351    448,927 
Cash and cash equivalents   62,776    39,295 
Interest and dividend receivable   1,572    3,778 
Prepaid expenses   117    454 
Deferred tax asset, net   -    628 
Other assets   114    83 
Total assets  $435,930   $493,165 
           
LIABILITIES          
SBA Debentures (net of deferred financing costs of $1,129 and $1,688, respectively)  $148,871   $164,012 
2022 Notes (net of deferred financing costs of $1,585 and $1,987, respectively)   73,415    73,013 
2022 Convertible Notes (net of deferred financing costs of $1,003 and $1,259, respectively)   51,085    50,829 
Credit Facility (net of deferred financing costs of $727 and $983, respectively)   (727)   9,017 
Management and incentive fees payable   3,509    2,487 
Interest and financing fees payable   1,440    3,063 
Trade settlement payable   6,442    - 
Accounts payable and accrued expenses   14    100 
Total liabilities  $284,049   $302,521 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $0.01, 100,000,000 common shares authorized, 16,161,075 and 16,051,547 common shares issued and outstanding, respectively  $162   $161 
Additional paid in capital   242,639    241,757 
Total distributable loss   (90,920)   (51,274)
Total net assets  $151,881   $190,644 
Total liabilities and net assets  $435,930   $493,165 
           
Net asset value per share  $9.40   $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 September 30,   For the Nine Months Ended September 30, 
   2019   2018   2019   2018 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/non-affiliate investments  $6,270   $6,692   $21,096   $20,915 
Affiliate investments   1,898    1,852    6,578    5,870 
Control investments   115    1,898    1,421    5,585 
Total interest and fee income   8,283    10,442    29,095    32,370 
Payment-in-kind interest and dividend income:                    
Non-control/non-affiliate investments   388    350    1,283    1,482 
Affiliate investments   235    343    611    1,118 
Control investments   -    295    372    715 
Total payment-in-kind interest and dividend income   623    988    2,266    3,315 
Dividend income:                    
Non-control/non-affiliate investments   -    -    1,281    59 
Affiliate investments   25    29    25    87 
Control investments   1,134    25    1,584    75 
Total dividend income   1,159    54    2,890    221 
Interest income from cash and cash equivalents   61    46    149    78 
Total investment income   10,126    11,530    34,400    35,984 
                     
EXPENSES                    
Interest and financing expenses   4,110    4,320    12,751    13,015 
Base management fee   1,925    2,254    6,063    6,871 
Incentive fees   -    -    1,497    244 
General and administrative expenses   1,107    1,105    3,236    3,334 
Expenses before incentive fee waiver   7,142    7,679    23,547    23,464 
Incentive fee waiver (See Note 6)   -    -    (288)   - 
Total expenses, net of incentive fee waiver   7,142    7,679    23,259    23,464 
                     
NET INVESTMENT INCOME   2,984    3,851    11,141    12,520 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN CALL OPTION:                    
Net realized gain (loss) on investments:                    
Non-control/non-affiliate investments   -    9,874    (3,544)   (15,820)
Affiliate investments   12    93    2,288    956 
Control investments   -    (3,669)   (19,656)   (5,315)
Net realized gain (loss) on investments   12    6,298    (20,912)   (20,179)
Net unrealized appreciation (depreciation) on investments:                    
Non-control/non-affiliate investments   1,518    (8,380)   4,539    18,847 
Affiliate investments   1,218    11,730    (3,719)   5,727 
Control investments   (4,015)   (32,100)   (17,999)   (31,722)
Net unrealized depreciation on investments   (1,279)   (28,750)   (17,179)   (7,148)
Net unrealized appreciation on written call option   -    6,795    -    6,795 
Net realized and unrealized loss on investments and written call option   (1,267)   (15,657)   (38,091)   (20,532)
Tax benefit (provision)   -    (110)   (628)   1,185 
Total net realized and unrealized loss on investments and written call option, net of taxes   (1,267)   (15,767)   (38,719)   (19,347)
                     
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $1,717   $(11,916)  $(27,578)  $(6,827)
                     
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.11   $(0.74)  $(1.71)  $(0.43)
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING  –  BASIC AND DILUTED   16,133,365    16,001,919    16,097,908    15,981,154 
                     
DISTRIBUTIONS PAID PER SHARE  $0.25   $0.25   $0.75   $0.75 

 

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             
For the Three Months Ended September 30, 2019 and 2018  Number of Shares   Par Value   Additional Paid
in Capital
   Total Distributable
Loss
   Total 
BALANCE, June 30, 2019   16,118,948   $161   $242,307   $(88,605)  $153,863 
Net investment income   -    -    -    2,984    2,984 
Net realized gain on investments   -    -    -    12    12 
Net unrealized depreciation on investments   -    -    -    (1,279)   (1,279)
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   42,127    1    332    -    333 
Distributions declared   -    -    -    (4,032)   (4,032)
BALANCE, September 30, 2019   16,161,075   $162   $242,639   $(90,920)  $151,881 
                          
BALANCE, June 30, 2018   15,994,690   $160   $241,350   $(22,193)  $219,317 
Net investment income   -    -    -    3,851    3,851 
Net realized gain on investments   -    -    -    6,298    6,298 
Net unrealized depreciation on investments   -    -    -    (28,750)   (28,750)
Net unrealized appreciation on written call option   -    -    -    6,795    6,795 
Tax provision   -    -    -    (110)   (110)
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   23,280    -    193    -    193 
Distributions declared   -    -    -    (3,998)   (3,998)
BALANCE, September 30, 2018   16,017,970   $160   $241,543   $(38,107)  $203,596 

 

   Common Stock             
For the Nine Months Ended September 30, 2019 and 2018  Number of Shares   Par Value   Additional Paid
in Capital
   Total Distributable
Loss
   Total 
BALANCE, December 31, 2018   16,051,547   $161   $241,757   $(51,274)  $190,644 
Net investment income   -    -    -    11,141    11,141 
Net realized loss on investments   -    -    -    (20,912)   (20,912)
Net unrealized depreciation on investments   -    -    -    (17,179)   (17,179)
Tax provision   -    -    -    (628)   (628)
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   109,528    1    882    -    883 
Distributions declared   -    -    -    (12,068)   (12,068)
BALANCE, September 30, 2019   16,161,075   $162   $242,639   $(90,920)  $151,881 
                          
BALANCE, December 31, 2017   15,951,231   $160  $241,027   $(19,300)  $221,887 
Net investment income   -    -    -    12,520    12,520 
Net realized loss on investments   -    -    -    (20,179)   (20,179)
Net unrealized depreciation on investments   -    -    -    (7,148)   (7,148)
Net unrealized appreciation on written call option   -    -    -    6,795    6,795 
Tax benefit   -    -    -    1,185    1,185 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   66,739    -    516    -    516 
Distributions declared   -    -    -    (11,980)   (11,980)
BALANCE, September 30, 2018   16,017,970   $160   $241,543   $(38,107)  $203,596 

 

See accompanying notes to consolidated financial statements.

 

 5 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Cash Flows

 (in thousands)

 (unaudited)

 

   For the Nine Months Ended September 30, 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net decrease in net assets resulting from operations  $(27,578)  $(6,827)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities:          
Purchase of investments   (48,785)   (58,907)
Repayments and sales of investments   91,320    96,260 
Net realized loss on investments   20,912    20,179 
Net unrealized depreciation on investments   17,179    7,148 
Payment-in-kind interest and dividends   (2,266)   (3,315)
Accretion of original issue discount on investments   (784)   (847)
Payments from written call option   -    (20)
Net unrealized appreciation on written call option   -    (6,795)
Amortization of deferred financing fees   1,579    1,406 
Tax (benefit) provision   628    (1,185)
Changes in assets and liabilities:          
Interest and dividend receivable   2,206    (1,068)
Due from related parties   -    95 
Prepaid expenses   337    158 
Other assets   (31)   (73)
Management and incentive fees payable   1,022    337 
Interest and financing fees payable   (1,623)   (1,632)
Trade settlement payable   6,442    (175)
Accounts payable and accrued expenses   (86)   16 
NET CASH PROVIDED BY OPERATING ACTIVITIES   60,472    44,755 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   (15,700)   (5,000)
Proceeds from Credit Facility   15,000    21,000 
Repayments on Credit Facility   (25,000)   (30,000)
Distributions paid to shareholders   (11,185)   (11,464)
Deferred financing fees paid   (106)   (56)
NET CASH USED IN FINANCING ACTIVITIES   (36,991)   (25,520)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   23,481    19,235 
CASH AND CASH EQUIVALENTS, beginning of period   39,295    31,221 
CASH AND CASH EQUIVALENTS, end of period  $62,776   $50,456 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $11,906   $12,213 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions paid through dividend reinvestment plan share issuances  $883   $516 

 

See accompanying notes to consolidated financial statements.

 

 6 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 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 - 171.0%                          
                           
Non-control/non-affiliated investments - United States                          
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (11.1% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 12/4/22)  $13,444   $13,444   $13,444    8.8%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units)        1,090    725    0.5%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    -    0.0%
                           
               14,544    14,169    9.3%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, 3.8% PIK, Due 12/18/22)   6,760    6,545    6,545    4.3%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, 3.8% PIK, Due 12/18/22) (6)   13,000    13,000    10,368    6.8%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               20,345    16,913    11.1%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (10.5% Cash, 2.0% PIK, Due 6/11/20) (7)   9,435    8,919    6,596    4.3%
                           
               8,919    6,596    4.3%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (13.8% Cash, Due 9/8/21)   16,498    16,321    16,498    10.9%
                           
               16,321    16,498    10.9%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (14.1% Cash, Due 11/14/21) (6)   8,572    8,572    8,447    5.6%
                           
BigMouth, Inc.  Consumer Products  Series A Preferred Stock (350,000 shares)        411    163    0.1%
                           
               8,983    8,610    5.7%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (9.5% Cash (1 month LIBOR + 7.5%, 1.0% Floor), Due 11/7/20)   3,592    3,592    3,447    2.3%
                           
               3,592    3,447    2.3%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    2,497    1.6%
                           
               5    2,497    1.6%
                           
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (12.5% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23)   5,000    4,921    4,800    3.2%
                           
               4,921    4,800    3.2%

 

 7 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.6% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   $13,000    $13,000    $12,913    8.5%
                           
               13,000    12,913    8.5%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (10.6% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   9,489    9,489    9,489    6.3%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    1,534    1.0%
                           
               10,489    11,023    7.3%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,229    19,229    19,120    12.6%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    270    0.2%
                           
               20,804    19,390    12.8%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (14.1% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 2.0% PIK, Due 1/2/20) (8)   16,400    16,400    16,400    10.8%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (8)        2,000    2,364    1.6%
                           
               18,400    18,764    12.4%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  First Lien Debt (7.9% Cash (3 month LIBOR + 5.8%, 1.0% Floor), Due 4/3/20)   5,789    5,766    5,683    3.7%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Second Lien Debt (12.1% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 10/3/21)   12,000    11,861    11,324    7.5%
                           
               17,627    17,007    11.2%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.8% Cash, Due 12/20/23) (6)(9)   5,955    5,955    5,955    3.9%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    172    0.1%
                           
               6,137    6,127    4.0%
                           
HUMC Opco, LLC  Healthcare  First Lien Debt (9.0% Cash, Due 8/16/20)   5,000    5,000    5,000    3.3%
                           
               5,000    5,000    3.3%
                           
Installs, LLC  Logistics  First Lien Debt (9.1% Cash (1 month LIBOR + 7.0%, 1.8% Floor), Due 6/20/23)   2,947    2,947    2,947    1.9%
                           
               2,947    2,947    1.9%
                           
Jurassic Quest Holdings, LLC  Entertainment  First Lien Debt (9.6% Cash (1 month LIBOR + 7.5%, 2.0% Floor), Due 5/1/24) (10)   10,744    10,744    10,744    7.1%
                           
Jurassic Quest Holdings, LLC  Entertainment  Preferred Units (375,000 units, 8.0% PIK) (11)        388    331    0.2%
                           
               11,132    11,075    7.3%

 

 8 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
MicroHoldco, LLC  General Industrial  Preferred Units (838,042 units)        $838    $838    0.6%
                           
               838    838    0.6%
                           
Nth Degree, Inc.  Business Services  First Lien Debt (13.6% Cash (1 month LIBOR + 11.5%, 1.0% Floor), 2.0% PIK, Due 3/29/23) (12)   $7,309    7,309    7,309    4.8%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (2,400 Units, 10.0% PIK dividend) (11)        3,492    28,102    18.5%
                           
               10,801    35,411    23.3%
                           
Seitel, Inc.  Data Services  First Lien Debt (10.3% Cash (1 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)   4,875    4,875    4,875    3.2%
                           
               4,875    4,875    3.2%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (12.8% Cash , Due 6/26/20)   13,069    13,069    12,968    8.5%
                           
               13,069    12,968    8.5%
                           
Sur La Table, Inc.  Retail  First Lien Debt (11.1% Cash (3 month LIBOR + 9.0%, 1.0% Floor), Due 7/31/22) (12)(13)   10,515    10,515    10,515    6.9%
                           
               10,515    10,515    6.9%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.5%
                           
               758    758    0.5%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (9.5% Cash, Due 12/14/23) (6)(9)   6,948    6,948    6,948    4.6%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units, 10.0% PIK) (11)        539    266    0.2%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    -    0.0%
                           
               7,488    7,214    4.8%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (77,073 shares) (8)(14)        771    168    0.1%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (8)(14)        6,701    2,465    1.6%
                           
               7,472    2,633    1.7%
                           
Vology, Inc.  Information Technology  Subordinated Debt (15.0% Cash (1 month LIBOR + 14.0%, 1.0% Ceiling), 4.0% PIK, Due 6/30/20) (7)   8,988    8,897    6,140    4.0%
                           
               8,897    6,140    4.0%

 

 9 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        $600     $619    0.4%
                           
               600    619    0.4%
                           
Sub Total Non-control/non-affiliated investments - United States             $248,479   $259,747    171.0%
                           
Affiliate Investments - 60.2%                          
                           
Affiliate investments - United States                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)  $14,561   $14,561   $14,530    9.6%
                           
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 (1,085,073 shares)        362    41    0.0%
                           
               16,427    14,571    9.6%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (11.4% fully diluted) (15)        -    3,184    2.1%
                           
               -    3,184    2.1%
                           
Eastport Holdings, LLC  Business Services  Subordinated Debt (15.1% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 4/29/20)   16,500    16,062    16,500    10.9%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    16,781    11.0%
                           
               19,325    33,281    21.9%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend) (11)        3,399    3,689    2.5%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    644    0.4%
                           
               3,401    4,333    2.9%
                           
LJS Partners, LLC  QSR Franchisor  Common Membership Units (1,764,976 units)        975    1,686    1.1%
                           
LJS Partners, LLC  QSR Franchisor  Preferred Units (89,612 units)        293    358    0.2%
                           
               1,268    2,044    1.3%

 

 10 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 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    1.7%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6.0% Cash, Due 1/31/20) (12)   400    388    400    0.3%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6.0% PIK Dividend) (11)        1,548    1,685    1.1%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    209    0.1%
                           
               4,536    4,894    3.2%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  First Lien Debt (11.0% Cash, Due 6/30/23) (12)   10,100    10,100    10,100    6.6%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend) (11)        1,000    1,000    0.7%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (60,000 shares)        -    385    0.3%
                           
               11,100    11,485    7.6%
                           
RAM Payment, LLC  Financial Services  First Lien Debt (10.4% Cash, Due 1/4/24) (6)   9,137    9,137    9,137    6.0%
                           
RAM Payment, LLC  Financial Services  Preferred Units (86,000 units, 8.0% PIK) (11)        911    1,507    1.0%
                           
               10,048    10,644    7.0%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Second Lien Debt (15.0% PIK, Due 9/12/23)   754    717    717    0.5%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Common Stock (15,068,000 shares)        6,958    5,494    3.6%
                           
               7,675    6,211    4.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Subordinated Debt (16)        655    708    0.5%
                           
               655    708    0.5%
                           
Sub Total Affiliate investments - United States             $74,435   $91,355    60.2%
                           
Control Investments - 13.3%                          
                           
Control investments - United States                          
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (8.0% Cash, Due 6/30/21) (12)  $1,250   $1,250   $1,250    0.8%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (8.0% Cash, Due 6/30/21) (7)(12)   3,689    3,638    1,685    1.1%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Preferred Units - Series A1 (7,200,000 units)        5,373    -    0.0%
                           
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%
                           
               14,009    2,935    1.9%

 

 11 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
Capitala Senior Loan Fund II, LLC  Investment Funds  Membership Units (80.0% ownership) (8)(17)        $13,600    $13,658    9.0%
                           
Capitala Senior Loan Fund II, LLC  Investment Funds  Subordinated Debt (7.0% Cash (1 month LIBOR + 5.0%), Due 9/3/24) (18)   -    -    -    0.0%
                           
               13,600    13,658    9.0%
                           
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) (19)   $2,280    2,280    2,280    1.5%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  First Lien Debt (9.1% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 5.0% Ceiling), Due 12/31/22) (7)   4,500    4,320    1,376    0.9%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  Preferred Units (4,350,000 Units)        2,450    -    0.0%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  Membership Units (150,000 Units)        -    -    0.0%
                           
               9,050    3,656    2.4%
                           
Sub Total Control investments - United States             $36,659   $20,249    13.3%
                           
TOTAL INVESTMENTS - 244.5%             $359,573   $371,351    244.5%

 

(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 $151,881 as of September 30, 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 cash rate equals the approximate current yield on our last-out portion of the unitranche facility.
(7) Non-accrual investment.
(8) 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 September 30, 2019, 8.0% of the Company's total assets were non-qualifying assets.
(9) The investment has a $1.0 million unfunded commitment.
(10) The investment has a $0.7 million unfunded commitment.
(11) The equity investment is income producing, based on rate disclosed.
(12) The maturity date of the original investment has been extended.
(13) The company may elect to have 1.5% of its cash interest capitalized as paid-in-kind interest.
(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 been exited. The residual value reflects estimated escrow and earnout to be settled post-closing.
(17) The investment has a $6.4 million unfunded commitment.
(18) The investment has a $5.0 million unfunded commitment.
(19) The investment has a $2.7 million unfunded commitment.

 

See accompanying notes to consolidated financial statements. 

 

 12 

 

 

 

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%

 

 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
 
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%

 

 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