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 June 30, 2020

 

  ¨ 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 August 3, 2020 was 16,266,484.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of June 30, 2020 (unaudited) and December 31, 2019 3
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2020 and 2019 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited) 6
     
  Consolidated Schedules of Investments as of June 30, 2020 (unaudited) and December 31, 2019 7
     
  Notes to Consolidated Financial Statements as of and for the period ended June 30, 2020 (unaudited) 19
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 43
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 61
     
Item 4. Controls and Procedures 62
     
PART II. OTHER INFORMATION 62
     
Item 1. Legal Proceedings 62
     
Item 1A. Risk Factors 63
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 67
     
Item 3. Defaults Upon Senior Securities 67
     
Item 4. Mine Safety Disclosures 67
     
Item 5. Other Information 67
     
Item 6. Exhibits 68
   
Signatures 69

 

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 
   June 30, 2020   December 31, 2019 
   (unaudited)     
ASSETS          
Investments at fair value:          
Non-control/non-affiliate investments (amortized cost of $211,569 and $250,433, respectively)  $190,650   $241,046 
Affiliate investments (amortized cost of $84,403 and $80,756, respectively)   87,679    98,763 
Control investments (amortized cost of $9,044 and $22,692, respectively)   8,937    22,723 
Total investments at fair value (amortized cost of $305,016 and $353,881, respectively)   287,266    362,532 
Cash and cash equivalents   95,226    62,321 
Interest and dividend receivable   2,078    1,745 
Prepaid expenses   640    624 
Deferred tax asset, net   -    - 
Other assets   301    115 
Total assets  $385,511   $427,337 
           
LIABILITIES          
SBA Debentures (net of deferred financing costs of $758 and $1,006, respectively)  $149,242   $148,994 
2022 Notes (net of deferred financing costs of $1,164 and $1,447, respectively)   73,836    73,553 
2022 Convertible Notes (net of deferred financing costs of $736 and $916, respectively)   51,352    51,172 
Credit Facility (net of deferred financing costs of $0 and $1,165, respectively)   -    (1,165)
Management and incentive fees payable   3,586    3,713 
Interest and financing fees payable   2,429    2,439 
Accounts payable and accrued expenses   11    518 
Total liabilities  $280,456   $279,224 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $0.01, 100,000,000 common shares authorized, 16,266,484 and 16,203,769 common shares issued and outstanding, respectively  $163   $162 
Additional paid in capital   238,220    237,886 
Total distributable loss   (133,328)   (89,935)
Total net assets  $105,055   $148,113 
Total liabilities and net assets  $385,511   $427,337 
           
Net asset value per share  $6.46   $9.14 

 

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 June 30,   For the Six Months Ended June 30, 
   2020   2019   2020   2019 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/non-affiliate investments  $4,693   $7,541   $9,400   $14,826 
Affiliate investments   1,632    2,281    3,311    4,680 
Control investments   103    582    206    1,306 
Total interest and fee income   6,428    10,404    12,917    20,812 
Payment-in-kind interest and dividend income:                    
Non-control/non-affiliate investments   378    453    714    895 
Affiliate investments   188    227    368    376 
Control investments   -    44    -    372 
Total payment-in-kind interest and dividend income   566    724    1,082    1,643 
Dividend income:                    
Non-control/non-affiliate investments   -    -    -    1,281 
Affiliate investments   -    -    25    - 
Control investments   -    425    -    450 
Total dividend income   -    425    25    1,731 
Interest income from cash and cash equivalents   5    37    49    88 
Total investment income   6,999    11,590    14,073    24,274 
                     
EXPENSES                    
Interest and financing expenses   4,885    4,228    8,711    8,641 
Base management fee   1,666    2,020    3,423    4,138 
Incentive fees   -    463    -    1,497 
General and administrative expenses   1,057    1,145    2,561    2,129 
Expenses before incentive fee waiver   7,608    7,856    14,695    16,405 
Incentive fee waiver (See Note 6)   -    (288)   -    (288)
Total expenses   7,608    7,568    14,695    16,117 
                     
NET INVESTMENT INCOME (LOSS)   (609)   4,022    (622)   8,157 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS                    
Net realized gain (loss) on investments:                    
Non-control/non-affiliate investments   (14,142)   365    (13,174)   (3,544)
Affiliate investments   1,341    2,387    1,341    2,276 
Control investments   (484)   (17,829)   (484)   (19,656)
Net realized loss on investments   (13,285)   (15,077)   (12,317)   (20,924)
Net unrealized appreciation (depreciation) on investments:                    
Non-control/non-affiliate investments   16,993    (3,018)   (11,532)   3,021 
Affiliate investments   (1,003)   (4,669)   (14,731)   (4,937)
Control investments   1,004    (9,708)   (138)   (13,984)
Net unrealized appreciation (depreciation) on investments   16,994    (17,395)   (26,401)   (15,900)
Net realized and unrealized gain (loss) on investments   3,709    (32,472)   (38,718)   (36,824)
Tax provision   -    (694)   -    (628)
Total net realized and unrealized gain (loss) on investments, net of taxes   3,709    (33,166)   (38,718)   (37,452)
                     
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $3,100   $(29,144)  $(39,340)  $(29,295)
                     
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.19   $(1.81)  $(2.42)  $(1.82)
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING  –  BASIC AND DILUTED   16,266,484    16,096,678    16,243,538    16,079,885 
                     
DISTRIBUTIONS PAID PER SHARE  $-   $0.25   $0.25   $0.50 

 

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   Additional    Total     
For the Three Months Ended June 30, 2020 and 2019  Number of Shares   Par Value   Paid in Capital   Distributable Loss   Total 
BALANCE, March 31, 2020   16,266,484   $163   $               238,220   $                (136,428)  $101,955 
Net investment loss   -    -    -    (609)   (609)
Net realized loss on investments   -    -    -    (13,285)   (13,285)
Net unrealized appreciation on investments   -    -    -    16,994    16,994 
Tax provision   -    -    -    -    - 
BALANCE, June 30, 2020   16,266,484   $163   $238,220   $(133,328)  $105,055 
                          
BALANCE, March 31, 2019   16,084,143   $161   $242,012   $(55,439)  $186,734 
Net investment income   -    -    -    4,022    4,022 
Net realized loss on investments   -    -    -    (15,077)   (15,077)
Net unrealized depreciation on investments   -    -    -    (17,395)   (17,395)
Tax provision   -    -    -    (694)   (694)
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   34,805    -    295    -    295 
Distributions declared   -    -    -    (4,022)   (4,022)
BALANCE, June 30, 2019   16,118,948   $161   $242,307   $(88,605)  $153,863 

 

   Common Stock   Additional   Total     
For the Six Months Ended June 30, 2020 and 2019  Number of Shares   Par Value   Paid in Capital   Distributable  Loss   Total 
BALANCE, December 31, 2019   16,203,769   $162   $237,886   $(89,935)  $148,113 
Net investment loss   -    -    -    (622)   (622)
Net realized loss on investments   -    -    -    (12,317)   (12,317)
Net unrealized depreciation on investments   -    -    -    (26,401)   (26,401)
Tax provision   -    -    -    -    - 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   62,715    1    334    -    335 
Distributions declared   -    -    -    (4,053)   (4,053)
BALANCE, June 30, 2020   16,266,484   $163   $238,220   $(133,328)  $105,055 
                          
BALANCE, December 31, 2018   16,051,547   $161   $241,757   $(51,274)  $190,644 
Net investment income   -    -    -    8,157    8,157 
Net realized loss on investments   -    -    -    (20,924)   (20,924)
Net unrealized depreciation on investments   -    -    -    (15,900)   (15,900)
Tax provision   -    -    -    (628)   (628)
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   67,401    -    550    -    550 
Distributions declared   -    -    -    (8,036)   (8,036)
BALANCE, June 30, 2019   16,118,948   $161   $242,307   $(88,605)  $153,863 

 

See accompanying notes to consolidated financial statements.

 

5

 

 

Capitala Finance Corp.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   For the Six Months Ended June 30, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net decrease in net assets resulting from operations  $(39,340)  $(29,295)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities:          
Purchase of investments   (20,820)   (34,924)
Repayments and sales of investments   58,888    58,131 
Net realized loss on investments   12,317    20,924 
Net unrealized depreciation on investments   26,401    15,900 
Payment-in-kind interest and dividends   (1,082)   (1,643)
Accretion of original issue discount on investments   (438)   (520)
Amortization of deferred financing fees   2,090    1,096 
Tax provision   -    628 
Changes in assets and liabilities:          
Interest and dividend receivable   (333)   1,325 
Prepaid expenses   (16)   237 
Other assets   (186)   (21)
Management and incentive fees payable   (127)   1,096 
Interest and financing fees payable   (10)   (387)
Accounts payable and accrued expenses   (507)   (100)
NET CASH PROVIDED BY OPERATING ACTIVITIES   36,837    32,447 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   -    (15,700)
Proceeds from Credit Facility   -    15,000 
Repayments on Credit Facility   -    (20,000)
Distributions paid to shareholders   (3,718)   (7,486)
Deferred financing fees paid   (214)   (82)
NET CASH USED IN FINANCING ACTIVITIES   (3,932)   (28,268)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   32,905    4,179 
CASH AND CASH EQUIVALENTS, beginning of period   62,321    39,295 
CASH AND CASH EQUIVALENTS, end of period  $95,226   $43,474 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $6,409   $7,279 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions paid through dividend reinvestment plan share issuances  $335   $550 

 

See accompanying notes to consolidated financial statements.

 

6

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2020

(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 - 181.4%                      
                           
Non-control/non-affiliated investments - United States                      
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (13.0% Cash, Due 12/4/22)  $13,036   $13,036   $13,036    12.4%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units)        1,090    709    0.7%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    -    0.0%
                           
               14,136    13,745    13.1%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, Due 12/18/22)   7,119    7,119    7,119    6.8%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Series A Preferred Units (12,759 units)        1,275    1,275    1.2%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Series B Preferred Units (44,367 units)        3,943    3,943    3.8%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Series C Preferred Units (78,900 units)        -    -    0.0%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Unit Warrants (49,295 warrants)        -    -    0.0%
                           
               13,137    12,337    11.8%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (7.0% Cash, Due 12/31/22)   3,500    3,500    3,430    3.3%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (7.0% Cash, Due 10/13/20)   250    250    250    0.2%
                           
American Clinical Solutions, LLC  Healthcare  Class A Membership Units (6,030,384 units)        3,198    3,198    3.0%
                           
               6,948    6,878    6.5%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (14.3% Cash, Due 9/8/21)   15,373    15,273    15,023    14.3%
                           
               15,273    15,023    14.3%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (9.0% Cash (1 month LIBOR + 8.5%, 0.5% Floor), Due 11/14/21) (6)   5,803    5,372    2,460    2.3%
                           
               5,372    2,460    2.3%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (7.0% Cash (1 month LIBOR + 6.0%, 1.0% Floor), Due 9/8/20) (7)   -    -    -    0.0%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (7.0% Cash (1 month LIBOR + 6.0%, 1.0% Floor), Due 9/8/20)   1,803    1,803    1,803    1.7%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (9.8% Cash (Prime + 6.5%, 2.0% Floor), Due 11/7/20) (6)   3,529    3,529    2,057    2.0%
                           
               5,332    3,860    3.7%

 

7

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal Amount   Cost   Fair Value   % of
Net Assets
 
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)       $ 5   $ 2,118    2.0%
                           
               5    2,118    2.0%
                           
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (11.0% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23) (6)   $5,000    4,933    944    0.9%
                           
               4,933    944    0.9%
                           
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.0% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   13,000    13,000    13,000    12.4%
                           
               13,000    13,000    12.4%
                           
Chief Fire Intermediate, Inc.  Security System Services  First Lien Debt (8.6% Cash (1 month LIBOR + 7.0%, 1.6% Floor), Due 11/8/24) (6)   8,100    8,100    6,824    6.5%
                           
Chief Fire Intermediate, Inc.  Security System Services  Class A Preferred Units (34,740 units)        913    -    0.0%
                           
Chief Fire Intermediate, Inc.  Security System Services  Class B Common Units (3,510 units)        -    -    0.0%
                           
               9,013    6,824    6.5%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (9.5% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   9,189    9,189    9,189    8.7%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    2,550    2.4%
                           
               10,189    11,739    11.1%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Second Lien Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,425    19,425    19,025    18.1%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    667    0.6%
                           
               21,000    19,692    18.7%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (12.5% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 4.0% PIK, Due 7/20/21) (8)(9)   16,170    16,170    15,988    15.2%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (8)        2,000    1,258    1.2%
                           
               18,170    17,246    16.4%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (7.0% Cash (1 month LIBOR + 5.0%, 2.0% Floor), Due 12/20/23)   2,704    2,704    2,704    2.6%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.6% Cash, Due 12/20/23) (10)(11)   6,399    6,399    6,219    5.9%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    139    0.1%
                           
               9,285    9,062    8.6%

 

8

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal Amount   Cost   Fair Value   % of
Net Assets
 
HUMC Opco, LLC  Healthcare  First Lien Debt (9.0% Cash, Due 8/16/20)  $ 5,000   5,000    $5,000    4.8%
                           
               5,000    5,000    4.8%
                           
J5 Infrastructure Partners, LLC  Wireless Deployment Services  First Lien Debt (8.3% Cash (1 month LIBOR + 6.5%, 1.8% Floor), Due 12/20/24) (12)   -    -    -    0.0%
                           
J5 Infrastructure Partners, LLC  Wireless Deployment Services  First Lien Debt (8.3% Cash (1 month LIBOR + 6.5%, 1.8% Floor), Due 12/20/24)   6,983    6,983    6,983    6.6%
                           
               6,983    6,983    6.6%
                           
Jurassic Quest Holdings, LLC  Entertainment  First Lien Debt (9.5% Cash (1 month LIBOR + 7.5%, 2.0% Floor), Due 5/1/24)   9,665    9,665    8,662    8.3%
                           
Jurassic Quest Holdings, LLC  Entertainment  Preferred Units (467,784 units)        480    -    0.0%
                           
               10,145    8,662    8.3%
                           
MicroHoldco, LLC  General Industrial  Preferred Units (838,042 units) (13)        838    670    0.7%
                           
               838    670    0.7%
                           
Rapid Fire Protection, Inc.  Security System Services  First Lien Debt (5.5% Cash (1 month LIBOR + 3.8%, 1.7% Floor), Due 11/22/24) (14)   646    646    646    0.6%
                           
Rapid Fire Protection, Inc.  Security System Services  First Lien Debt (9.0% Cash, Due 11/22/24) (10)(15)   7,479    7,479    7,479    7.1%
                           
Rapid Fire Protection, Inc.  Security System Services  Common Stock (363 shares)        500    848    0.8%
                           
               8,625    8,973    8.5%
                           
Seitel, Inc.  Data Services  First Lien Debt (9.3% Cash (3 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)   4,624    4,624    4,039    3.9%
                           
               4,624    4,039    3.9%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (12.8% Cash, Due 8/16/20) (6)(9)   12,535    12,535    11,601    11.0%
                           
               12,535    11,601    11.0%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.7%
                           
               758    758    0.7%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (7.0% Cash (3 month LIBOR + 5.0%, 2.0% Floor), Due 12/14/23)   1,843    1,843    1,843    1.8%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (9.3% Cash, Due 12/14/23) (10)(16)   5,734    5,734    5,606    5.3%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class D Preferred Units (78 Units)        78    81    0.1%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units)        540    118    0.1%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (578 Units)        1    -    0.0%
                           
               8,196    7,648    7.3%

 

9

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   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) (17)       $ 771   38    0.0%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (17)        6,701    551    0.5%
                           
               7,472    589    0.5%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    799    0.8%
                           
               600    799    0.8%
                           
Sub Total Non-control/non-affiliated investments - United States       $211,569   $190,650    181.4%
                           
Affiliate Investments - 83.5%                         
                           
Affiliate investments - United States                       
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)  $14,135   $14,135   $14,016    13.4%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class B (1,085,073 shares)        362    -    0.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class A (1,253,198 shares)        1,504    -    0.0%
                           
               16,001    14,016    13.4%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (13)        -    1,810    1.7%
                           
               -    1,810    1.7%
                           
Eastport Holdings, LLC  Business Services  Second Lien Debt (13.5% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 12/29/21) (9)   16,500    16,243    16,395    15.6%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    15,545    14.8%
                           
               19,506    31,940    30.4%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares)        3,477    3,908    3.7%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    31    0.0%
                           
               3,479    3,939    3.7%
                           
LJS Partners, LLC  QSR Franchisor  Preferred Units (175,867 units)        437    704    0.7%
                           
LJS Partners, LLC  QSR Franchisor  Membership Units (2,593,234 units)        1,224    2,357    2.2%
                           
               1,661    3,061    2.9%

 

10

 

 

Capitala Finance Corp.

  

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2020

(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 1/31/21) (9)  $ 2,600    $2,600    $2,600    2.5%
                           
MMI Holdings, LLC  Medical Device Distributor  Second Lien Debt (6.0% Cash, Due 1/31/21) (9)   400    388    400    0.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6.0% PIK Dividend) (18)        1,623    1,762    1.7%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    208    0.2%
                           
               4,611    4,970    4.8%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  First Lien Debt (9.0% Cash, 2.0% PIK, Due 6/30/23) (9)   11,428    11,428    10,963    10.4%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares)        1,000    959    0.9%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (60,000 shares)        -    -    0.0%
                           
               12,428    11,922    11.3%
                           
Nth Degree Investment Group, LLC  Business Services  Membership Units (6,088,000 Units)        6,088    -    0.0%
                           
               6,088    -    0.0%
                           
RAM Payment, LLC  Financial Services  First Lien Debt (6.5% Cash (1 month LIBOR + 5.0%, 1.5% Floor), Due 1/4/24)   3,029    3,029    3,029    2.9%
                           
RAM Payment, LLC  Financial Services  First Lien Debt (9.8% Cash, Due 1/4/24) (10)   8,212    8,212    8,212    7.8%
                           
RAM Payment, LLC  Financial Services  Preferred Units (86,000 units, 8.0% PIK Dividend) (18)        962    2,331    2.2%
                           
               12,203    13,572    12.9%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Second Lien Debt (15.0% PIK, Due 9/12/23)   843    813    813    0.8%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Common Stock (15,068,000 shares)        6,958    928    0.9%
                           
               7,771    1,741    1.7%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Second Lien Debt (13)        655    708    0.7%
                           
               655    708    0.7%
                           
Sub Total Affiliate investments - United States         $84,403   $87,679    83.5%

 

11

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal Amount   Cost   Fair Value   % of
Net Assets
 
Control Investments - 8.5%                         
                           
Control investments - United States                      
                           
Vology, Inc.  Information Technology  First Lien Debt (10.5% Cash (1 month LIBOR + 8.5%, 2.0% Floor), Due 12/31/21)  $3,829   $3,829   $3,829    3.6%
                           
Vology, Inc.  Information Technology  Class A Preferred Units (9,041,810 Units)        5,215    5,108    4.9%
                           
Vology, Inc.  Information Technology  Membership Units (5,363,982 Units)        -    -    0.0%
                           
               9,044    8,937    8.5%
                           
Sub Total Control investments - United States       $9,044   $8,937    8.5%
                           
TOTAL INVESTMENTS - 273.4%       $305,016   $287,266    273.4%

 

(1) All investments valued using unobservable inputs (Level 3), unless otherwise noted.
(2) All investments valued by Capitala Finance Corp.'s (the "Company") 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 $105,055 as of June 30, 2020.
(5) The Company 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 Securities Act.
(6) Non-accrual investment.
(7) The investment has a $8.2 million unfunded commitment.
(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 June 30, 2020, 4.5% of the Company's total assets were non-qualifying assets.
(9) The maturity date of the original investment has been extended.
(10) The cash rate equals the approximate current yield on our last-out portion of the unitranche facility.
(11) The investment has a $0.5 million unfunded commitment.
(12) The investment has a $3.5 million unfunded commitment.
(13) The investment has been exited or sold. The residual value reflects estimated earnout, escrow, or other proceeds expected post-closing.
(14) The investment has a $3.0 million unfunded commitment.
(15) The investment has a $3.3 million unfunded commitment.
(16) The investment has a $1.0 million unfunded commitment.
(17) Investment is valued using observable inputs (Level 1). The stock of the company is traded on the NASDAQ Capital Market under the ticker "USWS."
(18) The equity investment is income producing, based on rate disclosed.

 

See accompanying notes to consolidated financial statements.

 

12

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2019

 

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 - 162.8%                      
                           
Non-control/non-affiliated investments - United States                      
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (10.7% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 12/4/22)  $13,274   $13,274   $13,274    9.0%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units)        1,090    499    0.3%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    -    0.0%
                           
               14,374    13,773    9.3%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, 3.8% PIK, Due 12/18/22)   5,491    5,331    5,319    3.6%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, 3.8% PIK, Due 12/18/22) (6)   13,125    13,125    10,624    7.2%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               19,256    15,943    10.8%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (7.0% Cash, Due 12/31/22)   3,500    3,500    3,500    2.3%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (2.0% PIK, Due 12/31/22) (7)   6,000    3,485    3,485    2.4%
                           
               6,985    6,985    4.7%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (14.3% Cash, Due 9/8/21)   16,123    15,974    15,633    10.6%
                           
               15,974    15,633    10.6%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (10.3% Cash (1 month LIBOR + 8.5%, 0.5% Floor, Due 11/14/21) (8)   857    857    857    0.6%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (10.2% Cash (1 month LIBOR + 8.5%, 0.5% Floor, Due 11/14/21)   8,784    8,784    8,628    5.8%
                           
               9,641    9,485    6.4%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (9.3% Cash (1 month LIBOR + 7.5%, 1.0% Floor), Due 11/7/20)   3,529    3,529    2,877    1.9%
                           
               3,529    2,877    1.9%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    2,489    1.7%
                           
               5    2,489    1.7%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (9)        1,532    1,490    1.0%
                           
               1,532    1,490    1.0%

 

13

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2019

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment  Principal Amount   Cost   Fair Value   % of
Net Assets
 
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (11.9% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23)  5,000   $ 4,927    $4,697    3.2%
                           
               4,927    4,697    3.2%
                           
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.2% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   13,000    13,000    13,000    8.8%
                           
               13,000    13,000    8.8%
                           
Chief Fire Intermediate, Inc.  Security System Services  First Lien Debt (8.7% Cash (1 month LIBOR + 7.0%, 1.6% Floor), Due 11/8/24)   8,100    8,100    8,100    5.5%
                           
Chief Fire Intermediate, Inc.  Security System Services  Class A Preferred Units (34,740 units, 10.0% PIK Dividend) (10)        913    913    0.6%
                           
Chief Fire Intermediate, Inc.  Security System Services  Class B Common Units (3,510 units)        -    -    0.0%
                           
               9,013    9,013    6.1%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (10.2% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   9,389    9,389    9,389    6.3%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    1,890    1.3%
                           
               10,389    11,279    7.6%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Second Lien Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,327    19,327    18,962    12.8%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    329    0.2%
                           
               20,902    19,291    13.0%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (13.7% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 2.0% PIK, Due 1/2/20) (11)   16,269    16,269    16,269    11.0%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (11)        2,000    2,504    1.7%