UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

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

 

For the Quarter Ended June 30, 2014

 

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

 

Commission
File Number
 

Exact name of registrants as specified in their charters, addresses of principal  executive

offices, telephone numbers and states or other jurisdictions of incorporation or organization

 

I.R.S. Employer

Identification Number

814-01022  

Capitala Finance Corp.

4201 Congress St., Suite 360

Charlotte, North Carolina

Telephone: (704) 376-5502

State of Incorporation: Maryland

  90-0945675

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Capitala Finance Corp. Yes  x            No  ¨  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Capitala Finance Corp. Yes  ¨            No  ¨  

 

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

 

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

 

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

 

Capitala Finance Corp. Yes  ¨            No  x  

 

The number of shares of Capitala Finance Corp.’s common stock, $0.01 par value, outstanding as of August 11, 2014 was 12,974,420.

 

 

 

 
 

  

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION 3
     
Item 1. Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of June 30, 2014 (unaudited) and December 31, 2013 3
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2014 (unaudited) and June 30, 2013 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2014 (unaudited) and June 30, 2013 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the six months ended June 30, 2014 (unaudited) and June 30, 2013 (unaudited) 6
     
  Consolidated Schedules of Investments as of June 30, 2014 (unaudited) and December 31, 2013 7
     
  Notes to Consolidated Financial Statements as of June 30, 2014 (unaudited) 15
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 50
     
Item 4. Controls and Procedures 50
     
PART II OTHER INFORMATION 50
     
Item 1. Legal Proceedings 50
     
Item 1A. Risk Factors 51
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51
     
Item 3. Defaults upon Senior Securities 51
     
Item 4. Mine Safety Disclosures 51
     
Item 5. Other Information 51
     
Item 6. Exhibits 51
   
Signatures 53

 

2
 

  

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Capitala Finance Corp.

 

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

   As of 
   June 30, 2014   December 31, 2013 
   (unaudited)     
ASSETS          
           
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $116,776 and $84,138, respectively)  $133,176   $99,140 
Affiliate investments (amortized cost of $163,896 and $159,104, respectively)   190,892    189,098 
Control investments (amortized cost of $67,074 and $58,057, respectively)   81,491    76,481 
Total investments at fair value (amortized cost of $347,746 and $301,299, respectively)   405,559    364,719 
Cash and cash equivalents   166,503    101,622 
Interest and dividend receivable   2,934    2,917 
Due from related parties   541    1,645 
Deferred financing fees (net of accumulated amortization of $2,585 and $2,216, respectively)   8,703    4,871 
Prepaid expenses   229    654 
Total assets  $584,469   $476,428 
           
LIABILITIES          
SBA debentures payable  $192,200   $202,200 
Notes payable   113,438    - 
Due to related parties   474    1,153 
Incentive fee payable   1,408    1,525 
Interest payable   2,875    2,723 
Trade settlement payable   9,959    - 
Accounts payable and accrued expenses   211    157 
Total liabilities  $320,565   $207,758 
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 12,974,420 common shares issued and outstanding  $130   $130 
Additional paid in capital   188,408    188,408 
Accumulated undistributed net investment income   15,919    16,760 
Accumulated undistributed net realized gain (loss) from investments   1,634    (48)
Net unrealized appreciation on investments   57,813    63,420 
Total net assets   263,904    268,670 
           
Total liabilities and net assets  $584,469   $476,428 
           
Net asset value per share  $20.34   $20.71 

 

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, 
   2014   2013   2014   2013 
       (combined)       (combined) 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/Non-affiliate investments  $3,125   $2,314   $6,066   $4,405 
Affiliate investments   3,884    3,385    7,625    5,829 
Control investments   1,504    862    2,837    1,631 
Total interest and fee income   8,513    6,561    16,528    11,865 
Payment-in-kind interest and dividend income:                    
Non-control/Non-affiliate investments   251    44    424    86 
Affiliate investments   330    102    623    154 
Control investments   163    229    287    428 
Total payment-in-kind interest and dividend income   744    375    1,334    668 
Dividend income:                    
Non-control/Non-affiliate investments   1,351    -    1,514    - 
Affiliate investments   687    29    716    58 
Control investments   1,225    414    4,795    459 
Total dividend income   3,263    443    7,025    517 
Other income   -    789    -    1,361 
Interest income from cash and cash equivalents   6    48    14    76 
Total investment income   12,526    8,216    24,901    14,487 
                     
EXPENSES                    
Interest expense and amortization of deferred financing fees   2,401    2,226    4,601    4,291 
Management fees   2,276    1,230    4,294    2,014 
Incentive fees   1,408    -    2,838    - 
General and administrative expenses   883    102    2,013    234 
Expenses before management fee waiver   6,968    3,558    13,746    6,539 
Management fee waiver (See Note 5)   (76)   -    (200)   - 
Total expenses net of management fee waiver   6,892    3,558    13,546    6,539 
                     
NET INVESTMENT INCOME   5,634    4,658    11,355    7,948 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:                    
Net realized gain from investments:                    
Non-control/Non-affiliate investments   -    -    1,158    - 
Affiliate investments   351    -    351    - 
Control investments   111    365    173    365 
Total realized gain from investments   462    365    1,682    365 
Net unrealized appreciation (depreciation) on investments   116    6,560    (5,607)   5,839 
Net gain/(loss) on investments   578    6,925    (3,925)   6,204 
                     
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $6,212   $11,583   $7,430   $14,152 
                     
NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.48    N/A   $0.57    N/A 
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED   12,974,420    N/A    12,974,420    N/A 

 

N/A – Not Applicable

 

4
 

  

Capitala Finance Corp.

 

Consolidated Statements of Changes in Net Assets

(in thousands except share and per share data)

(unaudited)

 

           Common Stock   Additional   Accumulated   Accumulated   Net Unrealized     
   General   Limited   Number of   Par   Paid in   Undistributed Net   Undistributed Net   Appreciation on     
   Partner   Partners   Shares   Value   Capital   Investment Income   Realized Gains   Investments   Total 
                                     
BALANCE, December 31, 2012  $282   $77,358   -   $-   $-   $8,560   $-   $56,233   $142,433 
Partners' capital contributions   -    24,852    -    -    -    -    -    -    24,852 
Net investment income   -    -    -    -    -    7,948    -    -    7,948 
Net realized gain on portfolio investments   -    -    -    -    -    -    365    -    365 
Net change in unrealized appreciation on portfolio investments   -    -    -    -    -    -    -    5,839    5,839 
BALANCE, June 30, 2013  $282   $102,210   -   $-   $-   $16,508   $365   $62,072   $181,437 
                                              
BALANCE, December 31, 2013  $-   $-   12,974,420   $130   $188,408   $16,760   $(48)  $63,420   $268,670 
Net investment income   -    -    -    -    -    11,355    -    -    11,355 
Net realized gain on portfolio investments   -    -    -    -    -    -    1,682         1,682 
Net change in unrealized appreciation on portfolio investments   -    -    -    -    -    -         (5,607)   (5,607)
Dividends declared and paid   -    -    -    -    -    (12,196)   -    -    (12,196)
BALANCE, June 30, 2014  $-   $-   12,974,420   $130   $188,408   $15,919   $1,634   $57,813   $263,904 

 

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, 
   2014   2013 
       (combined) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase in net assets resulting from operations  $7,430   $14,152 
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:          
Purchase of portfolio investments   (63,584)   (41,380)
Repayments of portfolio investments   20,160    28,721 
Net realized gain on portfolio investments   (1,682)   (365)
(Increase) Decrease in net unrealized appreciation on portfolio investments   5,607    (5,839)
Payment-in-kind interest accrued, net of payments received   (1,334)   (565)
Accretion of original issue discount on portfolio investments   (7)   (34)
Amortization of deferred financing fees   369    344 
Changes in assets and liabilities:          
Interest and dividend receivable   (17)   (302)
Due from related parties   1,104    (2,699)
Prepaid expenses   425    - 
Due to related parties   (679)   2,128 
Incentive fee payable   (117)   - 
Interest payable   152    209 
Trade settlement payable   9,959    - 
Accounts payable and accrued expenses   54    26 
NET CASH USED IN OPERATING ACTIVITIES   (22,160)   (5,604)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of SBA-guaranteed debentures   -    25,000 
Partners' capital contributions   -    24,852 
Paydowns on SBA-guaranteed debentures   (10,000)   - 
Issuance of notes   113,438    - 
Dividends declared and paid   (12,196)   - 
Deferred financing fees paid   (4,201)   (606)
NET CASH PROVIDED BY FINANCING ACTIVITIES   87,041    49,246 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   64,881    43,642 
CASH AND CASH EQUIVALENTS, beginning of period   101,622    30,467 
CASH AND CASH EQUIVALENTS, end of period  $166,503   $74,109 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $4,075   $3,735 

 

See accompanying notes to consolidated financial statements.

 

6
 

  

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

June 30, 2014

(unaudited)

 

Company (4, 5)  Industry  Investment Interest Rate / Maturity  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 50.7%     
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 5/6/15)  $11,000   $10,996   $11,000    4.2%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)   -    17    2,333    0.9%
                           
               11,013    13,333    5.1%
                           
American Exteriors, LLC (1)  Replacement Window Manufacturer  Senior Secured Debt (14.0% Cash, Due 6/30/15)   4,404    3,204    4,404    1.7%
                           
American Exteriors, LLC (1)  Replacement Window Manufacturer  Jr. Convertible Note (10.0% Cash, Due 6/30/16)   500    416    638    0.2%
                           
American Exteriors, LLC (8)  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted)   -    -    -    0.0%
                           
               3,620    5,042    1.9%
                           
Boot Barn Holding Corporation  Western Wear Retail  Common Stock (2,400 shares)   -    2,400    7,177    2.7%
                           
               2,400    7,177    2.7%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)   -    258    188    0.1%
                           
Caregiver Services, Inc. (8)  In-Home Healthcare Services  Common Stock Warrants (655,908 units)   -    264    421    0.1%
                           
               522    609    0.2%
                           
Crowley Holdings, Inc. (6)  Transportation  Series A Income Preferred Shares (6,000 shares, 10% cash, 2% PIK dividend)   -    6,082    6,082    2.3%
                           
               6,082    6,082    2.3%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    2,000    0.8%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)   -    -    541    0.2%
                           
               2,000    2,541    1.0%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   15,800    15,783    15,800    6.0%
                           
Kelle's Transport Service, LLC (6)  Transportation  Preferred Units (1,000 units, 10% PIK Dividend)   -    2,663    2,600    1.0%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)   -    22    -    0.0%
                           
               18,468    18,400    7.0%
                           
Medical Depot, Inc. (1)  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20)   4,667    4,667    4,667    1.8%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)   -    1,333    3,424    1.3%
                           
               6,000    8,091    3.1%
                           
Naples Lumber & Supply Co (1)  Building Supplies  Subordinated Debt (7% cash, Due 6/30/15)   2,109    1,309    2,109    0.8%
                           
Naples Lumber & Supply Co  Building Supplies  Common Stock Warrants (10% fully diluted)   -    -    777    0.3%
                           
               1,309    2,886    1.1%
                           
Pickaway Plains Ambulance Services, Inc. (1) (2)  Medical Transportation Services  Senior Secured Term Debt (13% Cash, Due 12/31/15)   1,548    -    -    0.0%
                           
Pickaway Plains Ambulance Services, Inc.  Medical Transportation Services  Common Stock Warrants (5% fully diluted)   -    -    -    0.0%
                           
               -    -    0.0%
                           
Precision Manufacturing, LLC  Industrial Boiler Manufacturer  Subordinated Debt (14% PIK, Due 2/13/15)   211    211    183    0.1%
                           
Precision Manufacturing, LLC (3)  Industrial Boiler Manufacturer  Subordinated Debt (6.5% Cash, 6.5% PIK, Due 2/10/17)   2,568    2,568    1,732    0.7%
                           
Precision Manufacturing, LLC  Industrial Boiler Manufacturer  Membership Unit Warrants (6.5% fully diluted)   -    -    -    0.0%
                           
               2,779    1,915    0.8%
                           
Sierra Hamilton, LLC  Oil & Gas Engineering and Consulting Services  Senior Secured Debt (12.25% Cash, Due 12/15/18)   15,000    15,000    15,491    5.9%
                           
               15,000    15,491    5.9%
                           
Southern Pump & Tank Company, LLC (1)  Petroleum Equipment Supplier  Senior Secured Term Debt (13% Cash, 6% PIK, Due 1/15/15)   4,195    3,379    3,680    1.4%
                           
Southern Pump & Tank Company, LLC  Petroleum Equipment Supplier  Common Stock Warrants (10% fully diluted)   -    -    -    0.0%
                           
               3,379    3,680    1.4%
                           
Stoddard Hill Media Holdings, LLC  IT Hosting Services  Class D Preferred Units (132,159 shares)   -    300    415    0.2%
                           
               300    415    0.2%
                           
Tenere, Inc.  Industrial Manufacturing  Senior Secured Term Debt (11% Cash, 2% PIK, Due 12/15/17)   3,469    3,469    3,469    1.3%
                           
               3,469    3,469    1.3%
                           
TGI Friday's, Inc.  Restaurant  Subordinated Debt (L+8.25%, 1% Floor, Due 7/15/21)   10,000    9,959    10,000    3.8%
                           
               9,959    10,000    3.8%
                           
U.S. Well Services, LLC  Oil & Gas Services  Senior Secured Debt (L+11.50%, 0.5% floor, Due 5/2/19)   4,376    4,270    4,376    1.7%
                           
               4,270    4,376    1.7%
                           
Velum Global Credit Management, LLC  Financial Services  Senior Secured Debt (15% Cash, Due 12/31/15)   8,300    8,300    8,300    3.1%
                           
               8,300    8,300    3.1%
                           
Worklife America, Inc.  Professional Employer Organization  Senior Secured Debt (12% Cash, Due 12/28/16)   17,906    17,906    17,906    6.8%
                           
Worklife America, Inc.  Professional Employer Organization  Common Unit Warrants (3.8% ownership)   -    -    2,964    1.1%
                           
Worklife America, Inc.  Professional Employer Organization  Preferred Unit Warrants (3.8% ownership)   -    -    499    0.2%
                           
               17,906    21,369    8.1%
                           
Sub Total Non-control/Non-affiliated investments      $116,776   $133,176    50.7%

 

7
 

  

Affiliate investments - 72.2%                          
                           
Chef'N Corporation  Culinary Products  Subordinated Debt (13%, 2% PIK at company's option, Due 5/16/18)  $6,300   $6,300   $6,300    2.4%
                           
Chef'N Corporation  Culinary Products  Series A Preferred Stock (1,000,000 shares)   -    1,000    4,342    1.6%
                           
               7,300    10,642    4.0%
                           
City Gear, LLC  Footwear Retail  Subordinated Debt (13% Cash, Due 9/28/16)   8,231    8,231    8,231    3.1%
                           
City Gear, LLC (6)  Footwear Retail  Preferred Membership Units (9% cash dividend)   -    1,269    1,269    0.5%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (14.15% fully diluted)   -    -    6,042    2.3%
                           
               9,500    15,542    5.9%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (14% Cash, 2% PIK, Due 3/22/18)   11,286    11,286    11,286    4.3%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (2,216,463 shares)   -    2,576    9,797    3.7%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock Warrant (403,257 shares)   -    -    1,782    0.7%
                           
               13,862    22,865    8.7%
                           
GA Communications, Inc. (6)  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8% PIK dividend)   -    2,094    2,471    0.9%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)   -    2    2,685    1.0%
                           
               2,096    5,156    1.9%
                           
Impresa Aerospace Holdings, LLC (3)  Aerospace Parts Manufacturer  Subordinated Debt (4.1% Cash, Due 4/28/16)   14,028    12,258    9,934    3.8%
                           
Impresa Aerospace Holdings, LLC  Aerospace Parts Manufacturer  Class A Membership Units (1,006,621 units)   -    900    -    0.0%
                           
Impresa Aerospace Holdings, LLC  Aerospace Parts Manufacturer  Class C Membership Units (362,416 units)   -    362    -    0.0%
                           
Impresa Aerospace Holdings, LLC  Aerospace Parts Manufacturer  Class F Membership Units (604,504 units)   -    605    -    0.0%
                           
               14,125    9,934    3.8%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13% Cash, Due 7/16/18)   5,182    5,182    5,182    2.0%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock (8,182 shares)   -    818    598    0.2%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock Warrants (4,506 shares)   -    -    329    0.1%
                           
               6,000    6,109    2.3%
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,500,000 shares)   -    1,500    11,188    4.2%
                           
               1,500    11,188    4.2%
                           
MJC Holdings, LLC  Specialty Clothing  Subordinated Debt (14%, 2% PIK at Company's option, Due 1/16/18)   7,500    7,500    7,500    2.9%
                           
MJC Holdings, LLC  Specialty Clothing  Series A Preferred Units (2,000,000 units)   -    2,000    4,874    1.8%
                           
               9,500    12,374    4.7%
                           
MMI Holdings, LLC  Medical Device Distributor  Senior Secured Debt (12% Cash, Due 10/17/14)   2,600    2,600    2,600    1.0%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6% Cash, Due 8/15/15)   400    389    400    0.2%
                           
MMI Holdings, LLC (6)  Medical Device Distributor  Preferred Units (1,000 units, 6% PIK dividend)   -    1,097    1,235    0.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Units (45 units)   -    -    106    0.0%
                           
               4,086    4,341    1.6%
                           
MTI Holdings, LLC  Retail Display & Security Services  Subordinated Debt (12% Cash, Due 11/1/18)   8,000    8,000    8,000    3.0%
                           
MTI Holdings, LLC  Retail Display & Security Services  Capital Units (2,000,000 units)   -    2,000    3,910    1.5%
                           
               10,000    11,910    4.5%
                           
Source Capital ABUTEC, LLC  Environmental Services Products  Senior Secured Debt (12% Cash, 3% PIK, Due 12/28/17)   5,203    5,203    5,203    2.0%
                           
Source Capital ABUTEC, LLC  Environmental Services Products  Preferred Membership Units (10.8% fully diluted)   -    1,240    27    0.0%
                           
               6,443    5,230    2.0%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Subordinated Debt (13% Cash, Due 2/17/17)   2,500    2,500    2,500    0.9%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Common Stock Warrants (6.65% ownership)   -    -    546    0.2%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Membership Units (11.3% ownership)   -    750    771    0.3%
                           
               3,250    3,817    1.4%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Subordinated Debt (14% Cash, Due 9/15/17)   17,125    17,125    15,389    5.8%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Senior Secured Term Debt (10% Cash, Due 6/12/17)   3,000    3,000    2,768    1.1%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Preferred Membership Units (15.8% ownership)   -    1,878    -    0.0%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Membership Unit Warrant (0.31% ownership)   -    10    -    0.0%
                           
               22,013    18,157    6.9%
                           
Source Recycling, LLC (2)  Metal Recycler  Subordinated Debt (13% Cash, Due 9/2/16)   5,000    5,000    3,950    1.5%
                           
Source Recycling, LLC  Metal Recycler  Membership Units (68,656 units)   -    1,590    -    0.0%
                           
Source Recycling, LLC  Metal Recycler  Membership Unit Warrants (1% fully diluted)   -    -    -    0.0%
                           
               6,590    3,950    1.5%
                           
Sparus Holdings, Inc. (1)  Energy Services  Subordinated Debt (13% Cash, 2% PIK, Due 3/21/16)   8,025    8,025    8,025    3.0%
                           
Sparus Holdings, Inc.  Energy Services  Series B Preferred Stock (5,703 shares)   -    1,173    -    0.0%

 

8
 

  

Sparus Holdings, Inc.  Energy Services  Common Stock Warrants (3,491 shares)   -    -    -    0.0%
                           
               9,198    8,025    3.0%
                           
STX Healthcare Management Services, Inc. (1)  Dental Practice Management  Subordinated Debt (14% Cash, Due 7/31/15)   7,425    7,425    7,425    2.8%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock (1,200,000 shares)   -    1,200    766    0.3%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock Warrants (1,154,254 shares)   -    218    813    0.3%
                           
               8,843    9,004    3.4%
                           
Take 5 Oil Change, Inc.  Quick Lube Services  Common Stock (10,692 shares)   -    1,069    2,047    0.8%
                           
               1,069    2,047    0.8%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 11/22/18)   12,210    12,210    12,210    4.6%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19)   9,730    9,730    9,730    3.7%
                           
TCE Holdings, Inc.  Oil & Gas Services  Class A Common Stock (3,600 shares)   -    3,600    3,600    1.4%
                           
               25,540    25,540    9.7%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Bridge Note (0% Cash, Due 12/31/14)   663    361    663    0.2%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Tier 2 Note (0% Cash, Due 12/31/14)   81    44    81    0.0%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Senior Subordinated Note (0% Cash, Due 12/31/14)   3,563    2,369    3,563    1.4%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Tier 3 Note (0% Cash, Due 12/31/14)   299    207    299    0.1%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Jr. Subordinated Note (0% Cash, Due 12/31/14)   2,750    -    455    0.2%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Tier 4 Note (0% Cash, Due 12/31/14)   243    -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-1 Preferred Stock (255,102 shares)   -    -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-3 Preferred Stock (88,194 shares)   -    -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-5 Preferred Stock (20,530 shares)   -    -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Common Stock Warrants (2,063,629 warrants)   -    -    -    0.0%
                           
               2,981    5,061    1.9%
                           
Sub Total Affiliate investments             $163,896   $190,892    72.2%
                           
Control investments - 30.9%                          
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Senior Secured Term Debt (12% Cash, 4% PIK, Due 5/24/18)  $10,606   $10,606   $10,606    4.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (1,125,000 shares)   -    1,125    -    0.0%
                           
               11,731    10,606    4.0%
                           
KBP Investments, LLC (6) (7)  QSR Franchisee  Class A Preferred Stock (8,270 shares, 10% Cash Dividend)   -    8,269    8,269    3.1%
                           
KBP Investments, LLC  QSR Franchisee  Class A Common Stock (380,413 shares)   -    -    15,830    6.0%
                           
               8,269    24,099    9.1%
                           
Market E's, LLC (2)  Online Travel Sales & Marketing  Senior Secured Debt (10% Cash, Due 5/1/15)   810    810    810    0.3%
                           
Market E's, LLC (1) (2)  Online Travel Sales & Marketing  Subordinated Debt (14% Cash, 3% PIK, Due 12/31/14)   2,897    2,833    800    0.3%
                           
Market E's, LLC  Online Travel Sales & Marketing  Class A Preferred Stock (600 shares)   -    240    -    0.0%
                           
Market E's, LLC  Online Travel Sales & Marketing  Class B Preferred Stock (2,411 shares)   -    965    -    0.0%
                           
Market E's, LLC  Online Travel Sales & Marketing  Class A Common Stock (600 shares)   -    -    -    0.0%
                           
               4,848    1,610    0.6%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10% Cash, Due 9/16/16)   1,862    1,862    1,862    0.7%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14% Cash, 4% PIK, Due 9/16/16)   3,623    3,623    3,623    1.4%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)   -    1,628    1,740    0.7%
                           
               7,113    7,225    2.8%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Senior Secured Term Debt (17%, 3% PIK at Company's option, Due 2/1/16)   6,500    6,500    6,500    2.5%
                           
Navis Holdings, Inc. (6)  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10% Cash Dividend)   -    1,000    1,000    0.3%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (300,000 shares)   -    1    2,286    0.9%
                           
               7,501    9,786    3.7%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Subordinated Debt (14% Cash, 4% PIK, Due 12/19/16)   4,946    4,946    4,946    1.9%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Series A Preferred Stock (32,782 shares)   -    3,278    -    0.0%
                           
On-Site Fuel Services, Inc. (6)  Fuel Transportation Services  Series B Preferred Stock (14% scheduled cash dividend, 4% PIK dividend)   -    2,365    2,676    1.0%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Common Stock (33,107 shares)   -    33    -    0.0%
                           
               10,622    7,622    2.9%
                           
                           
Print Direction, Inc.  Printing Services  Senior Secured Term Debt (15% Cash, Due 2/24/19)   14,000    14,000    14,000    5.3%
                           
Print Direction, Inc.  Printing Services  Common Stock (19,363 shares)   -    2,990    6,266    2.4%
                           
Print Direction, Inc.  Printing Services  Common Stock Warrants (3% fully diluted)   -    -    277    0.1%
                           
               16,990    20,543    7.8%
                           
Sub Total Control investments             $67,074   $81,491    30.9%
                           
TOTAL INVESTMENTS - 153.8%          $347,746   $405,559    153.8%

 

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

(2) Due to deterioration in credit quality, this investment is on non- accrual status.

(3) The debt investment is accruing interest based on the terms of the forebearance agreement.

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

(5) Percentages are based on net assets of $263,904 as of June 30, 2014.

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

(7) During the fourth quarter of 2013, the Company accepted a consent fee that waives its right to dividends through September 30, 2014.

(8) The equity investment has an exercisable put option.

 

See accompanying notes to consolidated financial statements.

 

9
 

  

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

December 31, 2013

 

Company (4, 5)  Industry  Investment Interest Rate /
Maturity
  Principal
Amount
   Cost   Fair
Value
   % of
Net
Assets
 
Non-control/Non-affiliated investments - 36.9%                          
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 5/6/15)  $19,000   $18,992   $19,000    7.1%
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (21% fully diluted)   -    25    3,500    1.3%
               19,017    22,500    8.4%
American Exteriors, LLC(1)  Replacement Window Manufacturer  Senior Secured Debt (14.0% Cash, Due 6/30/14)   4,565    3,365    4,565    1.7%
American Exteriors, LLC (1)  Replacement Window Manufacturer  Jr. Convertible Note (10.0% Cash, Due 6/30/15)   500    416    612    0.2%
American Exteriors, LLC (8)  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted)   -    -    1,106    0.4%
               3,781    6,283    2.3%
Boot Barn Holding Corporation  Western Wear Retail  Common Stock (2,400 shares)   -    2,400    4,774    1.8%
               2,400    4,774    1.8%
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)   -    258    231    0.1%
Caregiver Services, Inc. (8)  In-Home Healthcare Services  Common Stock Warrants (655,908 units)   -    264    517    0.2%
               522    748    0.3%
Crowley Holdings, Inc. (6)  Transportation  Series A Income Preferred Shares (6,000 shares, 10% cash, 2% PIK dividend)   -    6,000    6,000    2.2%
               6,000    6,000    2.2%
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    2,000    0.7%
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)   -    -    800    0.3%
               2,000    2,800    1.0%
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 10/11/16)   4,667    4,667    4,667    1.7%
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)   -    1,333    2,129    0.8%
   `                       
               6,000    6,796    2.5%
Naples Lumber & Supply Co (1)  Building Supplies  Subordinated Debt (6% cash, Due 2/15/14)   2,109    1,309    2,109    0.8%
Naples Lumber & Supply Co  Building Supplies  Common Stock Warrants (10% fully diluted)   -    -    400    0.1%
               1,309    2,509    0.9%
Pickaway Plains Ambulance Services, Inc. (1, 2)  Medical Transportation Services  Senior Secured Term Debt (13% Cash, Due 12/31/15)   1,548    -    -    0.0%
Pickaway Plains Ambulance Services, Inc.  Medical Transportation Services  Common Stock Warrants (5% fully diluted)