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, 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 November 2, 2020 was 2,711,068.

 

 

 

 

 

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, 2020 (unaudited) and December 31, 2019 3
     
  Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2020 and 2019 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited) 6
     
  Consolidated Schedules of Investments as of September 30, 2020 (unaudited) and December 31, 2019 7
     
  Notes to Consolidated Financial Statements as of and for the period ended September 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 
   September 30, 2020   December 31, 2019 
   (unaudited)     
ASSETS          
Investments at fair value:          
Non-control/non-affiliate investments (amortized cost of $190,961 and $250,433, respectively)  $185,260   $241,046 
Affiliate investments (amortized cost of $83,241 and $80,756, respectively)   86,361    98,763 
Control investments (amortized cost of $8,995 and $22,692, respectively)   8,628    22,723 
Total investments at fair value (amortized cost of $283,197 and $353,881, respectively)   280,249    362,532 
Cash and cash equivalents   43,687    62,321 
Interest and dividend receivable   2,172    1,745 
Prepaid expenses   470    624 
Deferred tax asset, net   -    - 
Other assets   25    115 
Total assets  $326,603   $427,337 
           
LIABILITIES          
SBA Debentures (net of deferred financing costs of $571 and $1,006, respectively)  $90,429   $148,994 
2022 Notes (net of deferred financing costs of $988 and $1,447, respectively)   71,845    73,553 
2022 Convertible Notes (net of deferred financing costs of $645 and $916, respectively)   51,443    51,172 
Credit Facility (net of deferred financing costs of $0 and $1,165, respectively)   -    (1,165)
Management and incentive fees payable   3,602    3,713 
Interest and financing fees payable   875    2,439 
Accounts payable and accrued expenses   -    518 
Total liabilities  $218,194   $279,224 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $0.01, 100,000,000 common shares authorized, 2,711,068 and 2,700,628 common shares issued and outstanding, respectively (1)     $  27        $  27   
Additional paid in capital   238,355    238,021 
Total distributable loss   (129,973)   (89,935)
Total net assets  $108,409   $148,113 
Total liabilities and net assets  $326,603   $427,337 
           
Net asset value per share (1)  $39.99   $54.84 

 

(1) Authorized, issued and outstanding shares of Capitala Finance Corp.'s common stock and net asset value per share have been adjusted for the periods shown to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.

 

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,
 
   2020   2019   2020   2019 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/non-affiliate investments  $4,407   $6,270   $13,807   $21,096 
Affiliate investments   1,721    1,898    5,032    6,578 
Control investments   103    115    309    1,421 
Total interest and fee income   6,231    8,283    19,148    29,095 
Payment-in-kind interest and dividend income:                    
Non-control/non-affiliate investments   220    388    934    1,283 
Affiliate investments   242    235    610    611 
Control investments   -    -    -    372 
Total payment-in-kind interest and dividend income   462    623    1,544    2,266 
Dividend income:                    
Non-control/non-affiliate investments   -    -    -    1,281 
Affiliate investments   -    25    25    25 
Control investments   -    1,134    -    1,584 
Total dividend income   -    1,159    25    2,890 
Interest income from cash and cash equivalents   1    61    50    149 
Total investment income   6,694    10,126    20,767    34,400 
                     
EXPENSES                    
Interest and financing expenses   3,423    4,110    12,134    12,751 
Base management fee   1,565    1,925    4,988    6,063 
Incentive fees   -    -    -    1,497 
General and administrative expenses   964    1,107    3,525    3,236 
Expenses before incentive fee waiver   5,952    7,142    20,647    23,547 
Incentive fee waiver (See Note 6)   -    -    -    (288)
Total expenses   5,952    7,142    20,647    23,259 
                     
NET INVESTMENT INCOME   742    2,984    120    11,141 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS                    
Net realized gain (loss) on investments:                    
Non-control/non-affiliate investments   (12,344)   -    (25,518)   (3,544)
Affiliate investments   -    12    1,341    2,288 
Control investments   -    -    (484)   (19,656)
Net realized gain (loss) on investments   (12,344)   12    (24,661)   (20,912)
Net unrealized appreciation (depreciation) on investments:                    
Non-control/non-affiliate investments   15,218    1,518    3,686    4,539 
Affiliate investments   (156)   1,218    (14,887)   (3,719)
Control investments   (260)   (4,015)   (398)   (17,999)
Net unrealized appreciation (depreciation) on investments   14,802    (1,279)   (11,599)   (17,179)
Net realized and unrealized gain (loss) on investments   2,458    (1,267)   (36,260)   (38,091)
Tax provision   -    -    -    (628)
Total net realized and unrealized gain (loss) on investments, net of taxes   2,458    (1,267)   (36,260)   (38,719)
                     
Net realized gain on extinguishment of debt   155    -    155    - 
                     
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $3,355   $1,717   $(35,985)  $(27,578)
                     
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED (1)  $1.24   $0.64   $(13.29)  $(10.28)
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING  –  BASIC AND DILUTED (1)   2,711,068    2,688,894    2,708,532    2,682,985 
                     
DISTRIBUTIONS PAID PER SHARE (2)  $-   $1.50   $1.50   $4.50 
                     

 

(1) Basic and diluted shares of Capitala Finance Corp.'s (the "Company") common stock have been adjusted for the periods shown to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.

(2) Dividends paid per share of the Company's common stock has been adjusted for the periods shown to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.

 

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, 2020 and 2019  Number of
Shares (1)
   Par Value   Additional Paid
in Capital
   Total
Distributable Loss
   Total 
BALANCE, June 30, 2020   2,711,081   $27   $238,355   $(133,328)  $105,054 
Net investment income   -    -    -    742    742 
Net realized loss on investments   -    -    -    (12,344)   (12,344)
Net unrealized appreciation on investments   -    -    -    14,802    14,802 
Tax provision   -    -    -    -    - 
Net realized gain on extinguishment of debt   -    -    -    155    155 
Fractional shares settled in cash as part of one-for-six reverse stock split   (13)   -    -    -    - 
BALANCE, September 30, 2020   2,711,068   $27   $238,355   $(129,973)  $108,409 
                          
BALANCE, June 30, 2019   2,686,491   $27   $242,441   $(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)
Tax provision   -    -    -    -    - 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   7,022    -    333    -    333 
Distributions declared   -    -    -    (4,032)   (4,032)
BALANCE, September 30, 2019   2,693,513   $27   $242,774   $(90,920)  $151,881 

 

   Common Stock             
For the Nine Months Ended September 30, 2020 and 2019  Number of
Shares (1)
   Par Value   Additional Paid
in Capital
   Total
Distributable Loss
   Total 
BALANCE, December 31, 2019   2,700,628   $27   $238,021   $(89,935)  $148,113 
Net investment income   -    -    -    120    120 
Net realized loss on investments   -    -    -    (24,661)   (24,661)
Net unrealized depreciation on investments   -    -    -    (11,599)   (11,599)
Tax provision   -    -    -    -    - 
Net realized gain on extinguishment of debt   -    -    -    155    155 
Fractional shares settled in cash as part of one-for-six reverse stock split   (13)   -    -    -    - 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   10,453    -    334    -    334 
Distributions declared   -    -    -    (4,053)   (4,053)
BALANCE, September 30, 2020   2,711,068   $27   $238,355   $(129,973)  $108,409 
                          
BALANCE, December 31, 2018   2,675,258   $27   $241,891   $(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   18,255    -    883    -    883 
Distributions declared   -    -    -    (12,068)   (12,068)
BALANCE, September 30, 2019   2,693,513   $27   $242,774   $(90,920)  $151,881 

 

(1) Shares of Capitala Finance Corp.'s common stock have been adjusted for the periods shown to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.

 

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,
 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net decrease in net assets resulting from operations  $(35,985)  $(27,578)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities:          
Purchase of investments   (21,070)   (48,785)
Repayments and sales of investments   69,157    91,320 
Net realized loss on investments   24,661    20,912 
Net realized gain on extinguishment of debt   (155)   - 
Net unrealized depreciation on investments   11,599    17,179 
Payment-in-kind interest and dividends   (1,544)   (2,266)
Accretion of original issue discount on investments   (520)   (784)
Amortization of deferred financing fees   2,512    1,579 
Tax provision   -    628 
Changes in assets and liabilities:          
Interest and dividend receivable   (427)   2,206 
Prepaid expenses   154    337 
Other assets   90    (31)
Management and incentive fees payable   (111)   1,022 
Interest and financing fees payable   (1,564)   (1,623)
Trade settlement payable   -    6,442 
Accounts payable and accrued expenses   (518)   (86)
NET CASH PROVIDED BY OPERATING ACTIVITIES   46,279    60,472 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   (59,000)   (15,700)
Repurchase of 2022 Notes   (1,980)   - 
Proceeds from Credit Facility   -    15,000 
Repayments on Credit Facility   -    (25,000)
Distributions paid to shareholders   (3,719)   (11,185)
Deferred financing fees paid   (214)   (106)
NET CASH USED IN FINANCING ACTIVITIES   (64,913)   (36,991)
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (18,634)   23,481 
CASH AND CASH EQUIVALENTS, beginning of period   62,321    39,295 
CASH AND CASH EQUIVALENTS, end of period  $43,687   $62,776 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $10,964   $11,906 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions paid through dividend reinvestment plan share issuances  $334   $883 

 

See accompanying notes to consolidated financial statements.

 

6

 

  

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 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 - 170.9%                          
                           
Non-control/non-affiliated investments - United States                          
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (13.0% Cash, Due 12/4/22)  $12,441   $12,441   $12,441    11.5%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units)        1,090    981    0.9%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    -    0.0%
               13,541    13,422    12.4%
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, Due 12/18/22)   7,119    7,119    7,119    6.5%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Series A Preferred Units (13,014 units)        1,275    1,301    1.2%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Series B Preferred Units (45,255 units)        3,943    3,668    3.4%
                           
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 Units Warrant (49,295 units)        -    -    0.0%
               13,137    12,088    11.1%
American Clinical Solutions, LLC  Healthcare  First Lien Debt (7.0% Cash, Due 12/31/22)   3,500    3,500    3,455    3.2%
                           
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    3,293    3.0%
               6,948    6,998    6.4%

 

7

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2020

(unaudited)

  

 
Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (14.5% Cash, 1.3% PIK, Due 9/8/21)  $15,032   $14,954   $14,954    13.8%
               14,954    14,954    13.8%
BigMouth, Inc.  Consumer Products  First Lien Debt (9.0% Cash (1 month LIBOR + 8.5%, 0.5% Floor), Due 11/14/21) (6)   2,471    1,928    1,104    1.0%
               1,928    1,104    1.0%
BLST Operating Company, LLC  Online Merchandise Retailer  First Lien Debt (10.0% (1 month LIBOR + 8.5%, 1.5% Floor), Due 8/28/25) (7)   1,953    1,953    1,953    1.8%
                           
BLST Operating Company, LLC  Online Merchandise Retailer  Class A Common Units (217,013 units)        286    286    0.3%
               2,239    2,239    2.1%
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    2,367    2.2%
               5    2,367    2.2%
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    12.0%
               13,000    13,000    12.0%
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    6,080    5.6%
                           
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    6,080    5.6%
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)   8,424    8,424    8,424    7.8%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    2,617    2.4%
               9,424    11,041    10.2%
Corporate Visions, Inc.  Sales & Marketing Services  Second Lien Debt (11.0%, Due 11/29/21) (8)   19,425    19,425    19,402    17.9%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    975    0.9%
               21,000    20,377    18.8%
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) (9)(10)   16,334    16,334    16,158    14.9%

 

8

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2020

(unaudited)

 

 
Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (9)       $2,000   $968    0.9%
               18,334    17,126    15.8%
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (7.0% Cash (1 month LIBOR + 5.0%, 2.0% Floor), Due 12/20/23)  $2,697    2,697    2,697    2.5%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.7% Cash, Due 12/20/23) (11)(12)   5,885    5,885    5,808    5.4%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    153    0.1%
               8,764    8,658    8.0%
HUMC Opco, LLC  Healthcare  First Lien Debt (9.0% Cash, Due 11/16/20) (10)   5,000    5,000    5,000    4.6%
               5,000    5,000    4.6%
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) (13)   -    -    -    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)   6,965    6,965    6,965    6.4%
               6,965    6,965    6.4%
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    9,634    8.9%
                           
Jurassic Quest Holdings, LLC  Entertainment  Preferred Units (467,784 units)        480    103    0.1%
               10,145    9,737    9.0%
MicroHoldco, LLC  General Industrial  Preferred Units (838,042 units) (14)        838    670    0.6%
               838    670    0.6%
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) (15)   634    634    634    0.6%
                           
Rapid Fire Protection, Inc.  Security System Services  First Lien Debt (8.9% Cash, Due 11/22/24) (11)(16)   7,356    7,356    7,356    6.8%
                           
Rapid Fire Protection, Inc.  Security System Services  Common Stock (363 shares)        500    1,080    1.0%
               8,490    9,070    8.4%
Seitel, Inc.  Data Services  First Lien Debt (9.3% Cash (3 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)   4,561    4,561    3,771    3.5%
               4,561    3,771    3.5%

 

9

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (12.8% Cash, Due 11/16/20) (6)(10)  $11,935   $11,935   $10,835    10.0%
               11,935    10,835    10.0%
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)   1,829    1,829    1,829    1.7%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (9.3% Cash, Due 12/14/23) (11) (12)   5,690    5,690    5,690    5.2%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class D Preferred Units (78 Units)        78    84    0.1%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units)        540    187    0.2%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (578 Units)        1    -    0.0%
               8,138    7,790    7.2%
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (1,202,499 shares) (17)        1,244    325    0.3%
               1,244    325    0.3%
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    885    0.8%
               600    885    0.8%
Sub Total Non-control/non-affiliated investments - United States             $190,961   $185,260    170.9%
                           
Affiliate Investments - 79.6%                          
                           
Affiliate investments - United States                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)  $13,992   $13,992   $13,992    12.9%
                           
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%
               15,858    13,992    12.9%

 

10

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2020

(unaudited)

 

 
Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
City Gear, LLC  Footwear Retail  Membership Unit Warrants (14)       $-   $2,011    1.9%
               -    2,011    1.9%
Eastport Holdings, LLC  Business Services  Second Lien Debt (13.5% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 12/29/21) (10)  $16,500    16,285    16,500    15.2%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    14,003    12.9%
               19,548    30,503    28.1%
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares)        3,477    3,985    3.7%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    7    0.0%
               3,479    3,992    3.7%
LJS Partners, LLC  QSR Franchisor  Preferred Units (182,288 units)        437    729    0.7%
                           
LJS Partners, LLC  QSR Franchisor  Common Membership Units (2,593,234 units)        1,224    2,898    2.6%
               1,661    3,627    3.3%
MMI Holdings, LLC  Medical Device Distributor  First Lien Debt (12.0% Cash, Due 1/31/21) (10)   2,600    2,600    2,600    2.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Second Lien Debt (6.0% Cash, Due 1/31/21) (10)   400    388    400    0.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6.0% PIK Dividend) (18)        1,650    1,788    1.6%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    205    0.2%
               4,638    4,993    4.6%
Navis Holdings, Inc.  Textile Equipment Manufacturer  First Lien Debt (9.0% Cash, 2.0% PIK, Due 6/30/23) (10)   11,738    11,738    11,291    10.4%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares)        1,000    962    0.9%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (60,000 shares)        -    -    0.0%
               12,738    12,253    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)   2,738    2,738    2,738    2.5%

 

11

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
RAM Payment, LLC  Financial Services  First Lien Debt (9.8% Cash, Due 1/4/24) (11)  $7,423   $7,423   $7,423    6.8%
                           
RAM Payment, LLC  Financial Services  Preferred Units (86,000 units, 8.0% PIK Dividend) (18)        980    2,656    2.5%
               11,141    12,817    11.8%
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Second Lien Debt (15.0% PIK, Due 9/12/23)   491    477    477    0.4%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Common Stock (15,068,000 shares)        6,958    988    0.9%
               7,435    1,465    1.3%
V12 Holdings, Inc.  Data Processing & Digital Marketing  Second Lien Debt (14)        655    708    0.7%
               655    708    0.7%
Sub Total Affiliate investments - United States             $83,241   $86,361    79.6%
                           
Control Investments - 8.0%                          
                           
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)  $3,780   $3,780   $3,780    3.5%
                           
Vology, Inc.  Information Technology  Class A Preferred Units (9,041,810 Units)        5,215    4,848    4.5%
                           
Vology, Inc.  Information Technology  Membership Units (5,363,982 Units)        -    -    0.0%
               8,995    8,628    8.0%
Sub Total Control investments - United States             $8,995   $8,628    8.0%
TOTAL INVESTMENTS - 258.5%             $283,197   $280,249    258.5%

 

 
(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 $108,409 as of September 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) 1.0% of interest payable in cash. 9.0% of interest payable in cash or paid-in-kind at borrower's election.
(8) 9.0% of interest payable in cash. 2.0% of interest payable in cash or paid-in-kind at borrower's election.
(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 September 30, 2020, 5.3% of the Company's total assets were non-qualifying assets.
(10) The maturity date of the original investment has been extended.
(11) The cash rate equals the approximate current yield on our last-out portion of the unitranche facility.
(12) The investment has a $1.0 million unfunded commitment.
(13) The investment has a $3.5 million unfunded commitment.
(14) The investment has been exited or sold. The residual value reflects estimated earnout, escrow, or other proceeds expected post-closing.
(15) The investment has a $3.0 million unfunded commitment.
(16) The investment has a $1.3 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.

 

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%