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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, 2019

 

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

 

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

Capitala Finance Corp.

4201 Congress St., Suite 360

Charlotte, North Carolina 28209

State of Incorporation: Maryland

Telephone: (704) 376-5502

   90-0945675

 

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

 

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

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

6.00% Notes due 2022

  

CPTA

CPTAG

CPTAL

  

NASDAQ Global Select Market
NASDAQ Capital Market

NASDAQ Global Select Market

  

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

 

  Yes   x No   ¨

 

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

 

    Yes   ¨ No   ¨

 

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

 

  Large accelerated filer   ¨ Accelerated filer x
         
  Non-accelerated filer ¨ Smaller reporting company ¨
         
      Emerging growth company   ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.           ¨

 

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

 

    Yes  ¨ No   x

  

The number of shares of Capitala Finance Corp.’s common stock, $0.01 par value, outstanding as of August 2, 2019 was 16,130,669.

 

 

 

   

 

  

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, 2019 (unaudited) and December 31, 2018 3
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2019 and 2018 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited) 6
     
  Consolidated Schedules of Investments as of June 30, 2019 (unaudited) and December 31, 2018 7
     
  Notes to Consolidated Financial Statements as of June 30, 2019 (unaudited) 22
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 55
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 78
     
Item 4. Controls and Procedures 79
     
PART II. OTHER INFORMATION 80
     
Item 1. Legal Proceedings 80
     
Item 1A. Risk Factors 80
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 81
     
Item 3. Defaults Upon Senior Securities 81
     
Item 4. Mine Safety Disclosures 81
     
Item 5. Other Information 81
     
Item 6. Exhibits 82
   
Signatures 83

 

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, 2019   December 31, 2018 
   (unaudited)     
ASSETS          
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $260,927 and $280,114, respectively)  $270,677   $286,843 
Affiliate investments (amortized cost of $73,803 and $72,300, respectively)   89,505    92,939 
Control investments (amortized cost of $43,272 and $67,556, respectively)   30,877    69,145 
Total investments at fair value (amortized cost of $378,002 and $419,970, respectively)   391,059    448,927 
Cash and cash equivalents   43,474    39,295 
Interest and dividend receivable   2,453    3,778 
Prepaid expenses   217    454 
Deferred tax asset, net   -    628 
Other assets   104    83 
Total assets  $437,307   $493,165 
           
LIABILITIES          
SBA debentures (net of deferred financing costs of $1,264 and $1,688, respectively)  $148,736   $164,012 
2022 Notes (net of deferred financing costs of $1,721 and $1,987, respectively)   73,279    73,013 
2022 Convertible Notes (net of deferred financing costs of $1,090 and $1,259, respectively)   50,998    50,829 
Credit Facility (net of deferred financing costs of $828 and $983, respectively)   4,172    9,017 
Management and incentive fees payable   3,583    2,487 
Interest and financing fees payable   2,676    3,063 
Accounts payable and accrued expenses   -    100 
Total liabilities  $283,444   $302,521 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $0.01, 100,000,000 common shares authorized, 16,118,948 and 16,051,547 common shares issued and outstanding, respectively  $161   $161 
Additional paid in capital   242,307    241,757 
Total distributable loss   (88,605)   (51,274)
Total net assets  $153,863   $190,644 
Total liabilities and net assets  $437,307   $493,165 
           
Net asset value per share  $9.55   $11.88 

 

See accompanying notes to consolidated financial statements.

 

3

 

 

Capitala Finance Corp.

 

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2019   2018   2019   2018 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/non-affiliate investments  $7,541   $6,867   $14,826   $14,223 
Affiliate investments   2,281    2,077    4,680    4,018 
Control investments   582    1,838    1,306    3,687 
Total interest and fee income   10,404    10,782    20,812    21,928 
Payment-in-kind interest and dividend income:                    
Non-control/non-affiliate investments   453    427    895    1,132 
Affiliate investments   227    289    376    775 
Control investments   44    254    372    420 
Total payment-in-kind interest and dividend income   724    970    1,643    2,327 
Dividend income:                    
Non-control/non-affiliate investments   -    59    1,281    59 
Affiliate investments   -    29    -    58 
Control investments   425    25    450    50 
Total dividend income   425    113    1,731    167 
Interest income from cash and cash equivalents   37    17    88    32 
Total investment income   11,590    11,882    24,274    24,454 
                     
EXPENSES                    
Interest and financing expenses   4,228    4,331    8,641    8,695 
Base management fee   2,020    2,314    4,138    4,617 
Incentive fees   463    -    1,497    244 
General and administrative expenses   1,145    1,006    2,129    2,229 
Expenses before incentive fee waiver   7,856    7,651    16,405    15,785 
Incentive fee waiver (See Note 6)   (288)   -    (288)   - 
Total expenses, net of incentive fee waiver   7,568    7,651    16,117    15,785 
                     
NET INVESTMENT INCOME   4,022    4,231    8,157    8,669 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:                    
Net realized gain (loss) on investments:                    
Non-control/non-affiliate investments   365    (21,115)   (3,544)   (25,694)
Affiliate investments   2,387    139    2,276    863 
Control investments   (17,829)   (1,646)   (19,656)   (1,646)
Net realized loss on investments   (15,077)   (22,622)   (20,924)   (26,477)
Net unrealized appreciation (depreciation) on investments:                    
Non-control/non-affiliate investments   (3,018)   25,093    3,021    27,227 
Affiliate investments   (4,669)   (5,227)   (4,937)   (6,003)
Control investments   (9,708)   2,128    (13,984)   378 
Net unrealized appreciation (depreciation) on investments   (17,395)   21,994    (15,900)   21,602 
Net realized and unrealized loss on investments   (32,472)   (628)   (36,824)   (4,875)
Tax benefit (provision)   (694)   1,345    (628)   1,295 
Total net realized and unrealized gain (loss) on investments, net of taxes   (33,166)   717    (37,452)   (3,580)
                     
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $(29,144)  $4,948   $(29,295)  $5,089 
                     
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC (SEE NOTE 11)  $(1.81)  $0.31   $(1.82)  $0.32 
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING – BASIC   16,096,678    15,981,857    16,079,885    15,970,599 
                     
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – DILUTED (SEE NOTE 11)  $(1.81)  $0.26   $(1.82)  $0.27 
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - DILUTED   16,096,678    19,297,331    16,079,885    19,286,073 
                     
DISTRIBUTIONS PAID PER SHARE  $0.25   $0.25   $0.50   $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 Paid   Total Distributable     
   Number of Shares   Par Value   in Capital   Earnings (Loss)   Total 
BALANCE, March 31, 2018   15,974,218   $160   $241,191   $(23,147)  $218,204 
Net investment income   -    -    -    4,231    4,231 
Net realized loss on investments   -    -    -    (22,622)   (22,622)
Net unrealized appreciation on investments   -    -    -    21,994    21,994 
Tax benefit   -    -    -    1,345    1,345 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   20,472    -    159    -    159 
Distributions declared   -    -    -    (3,994)   (3,994)
BALANCE, June 30, 2018   15,994,690   $160   $241,350   $(22,193)  $219,317 
                          
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 Paid   Total Distributable     
   Number of Shares   Par Value   in Capital   Earnings (Loss)   Total 
BALANCE, December 31, 2017   15,951,231   $160   $241,027   $(19,300)  $221,887 
Net investment income   -    -    -    8,669    8,669 
Net realized loss on investments   -    -    -    (26,477)   (26,477)
Net unrealized appreciation on investments   -    -    -    21,602    21,602 
Tax benefit   -    -    -    1,295    1,295 
Distributions to Shareholders:                         
Stock issued under dividend reinvestment plan   43,459    -    323    -    323 
Distributions declared   -    -    -    (7,982)   (7,982)
BALANCE, June 30, 2018   15,994,690   $160   $241,350   $(22,193)  $219,317 
                          
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, 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase (decrease) in net assets resulting from operations  $(29,295)  $5,089 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities:          
Purchase of investments   (34,924)   (38,976)
Repayments and sales of investments   58,131    53,656 
Net realized loss on investments   20,924    26,477 
Net unrealized (appreciation) depreciation on investments   15,900    (21,602)
Payment-in-kind interest and dividends   (1,643)   (2,327)
Accretion of original issue discount on investments   (520)   (550)
Amortization of deferred financing fees   1,096    931 
Tax (benefit) provision   628    (1,295)
Changes in assets and liabilities:          
Interest and dividend receivable   1,325    (444)
Due from related parties   -    95 
Prepaid expenses   237    49 
Other assets   (21)   (29)
Management and incentive fees payable   1,096    388 
Interest and financing fees payable   (387)   (30)
Accounts payable and accrued expenses   (100)   7 
Trade settlement payable   -    (175)
NET CASH PROVIDED BY OPERATING ACTIVITIES   32,447    21,264 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   (15,700)   - 
Proceeds from Credit Facility   15,000    21,000 
Payments to Credit Facility   (20,000)   (25,000)
Distributions paid to shareholders   (7,486)   (7,659)
Deferred financing fees paid   (82)   - 
NET CASH USED IN FINANCING ACTIVITIES   (28,268)   (11,659)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   4,179    9,605 
CASH AND CASH EQUIVALENTS, beginning of period   39,295    31,221 
CASH AND CASH EQUIVALENTS, end of period  $43,474   $40,826 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $7,279   $7,158 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions paid through dividend reinvestment plan share issuances  $550   $323 

 

See accompanying notes to consolidated financial statements.

 

6

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
Non-control/non-affiliated investments - 175.9%                      
                           
Non-control/non-affiliated investments - United States                      
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (11.4% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 12/4/22)  $13,784   $13,784   $13,784    9.0%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units, 8.0% PIK) (6)        1,090    807    0.5%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    -    0.0%
                           
               14,884    14,591    9.5%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (9.4% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/18/22)   111    111    111    0.1%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (12.4% Cash, Due 12/18/22) (7)   13,000    13,000    10,282    6.7%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               13,911    10,393    6.8%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (10.5% Cash, 2.0% PIK, Due 6/11/20) (8)   9,388    8,919    6,551    4.3%
                           
               8,919    6,551    4.3%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (12.8% Cash, Due 9/8/21)   17,800    17,585    17,518    11.4%
                           
               17,585    17,518    11.4%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (14.4% Cash, Due 11/14/21) (7)   8,746    8,746    8,746    5.7%
                           
BigMouth, Inc.  Consumer Products  Series A Preferred Stock (350,000 shares)        411    289    0.2%
                           
               9,157    9,035    5.9%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (9.9% Cash (1 month LIBOR + 7.5%, 1.0% Floor), Due 11/7/20)   3,654    3,654    3,494    2.4%
                           
               3,654    3,494    2.4%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    2,416    1.6%
                           
               5    2,416    1.6%
                           
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (12.5% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23)   5,000    4,915    4,800    3.1%
                           
               4,915    4,800    3.1%

 

7

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.9% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   $13,000   $ 13,000   $ 12,941    8.4%
                           
               13,000    12,941    8.4%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (10.9% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   9,712    9,712    9,712    6.3%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    1,721    1.1%
                           
               10,712    11,433    7.4%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,132    19,132    18,919    12.3%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    358    0.2%
                           
               20,707    19,277    12.5%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (14.4% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 2.0% PIK, Due 1/2/20) (9)   16,530    16,530    16,530    10.7%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (9)        2,000    1,791    1.3%
                           
               18,530    18,321    12.0%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  First Lien Debt (8.1% Cash (3 month LIBOR + 5.8%, 1.0% Floor), Due 4/3/20)   5,789    5,755    5,643    3.7%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Second Lien Debt (12.3% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 10/3/21)   12,000    11,843    11,307    7.3%
                           
               17,598    16,950    11.0%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (9.1% Cash, Due 12/20/23) (7)(10)   5,970    5,970    5,970    3.9%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    167    0.1%
                           
               6,152    6,137    4.0%
                           
Installs, LLC  Logistics  First Lien Debt (9.4% Cash (1 month LIBOR + 7.0%, 1.8% Floor), Due 6/20/23)   2,977    2,977    2,977    1.9%
                           
               2,977    2,977    1.9%
                           
Jurassic Quest Holdings, LLC  Entertainment  First Lien Debt (9.9% Cash (1 month LIBOR + 7.5%, 2.0% Floor), Due 5/1/24) (10)   10,570    10,570    10,570    6.9%
                           
Jurassic Quest Holdings, LLC  Entertainment  Preferred Units (375,000 units, 8.0% PIK) (6)        380    380    0.2%
                           
               10,950    10,950    7.1%

 

8

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.4% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22)   $490   $ 490   $ 490    0.3%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.4% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22)   4,168    4,168    4,168    2.7%
                           
               4,658    4,658    3.0%
                           
Nth Degree, Inc.  Business Services  First Lien Debt (13.9% Cash (1 month LIBOR + 11.5%, 1.0% Floor), 2.0% PIK, Due 3/29/23) (11)   7,272    7,272    7,272    4.7%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (2,400 Units, 10.0% PIK dividend) (6)        3,406    20,667    13.4%
                           
               10,678    27,939    18.1%
                           
Seitel, Inc.  Data Services  First Lien Debt (10.7% Cash (3 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)   4,938    4,938    4,938    3.2%
                           
               4,938    4,938    3.2%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (12.9% Cash (1 month LIBOR + 10.5%, 1.8% Floor), Due 8/21/23)   13,277    13,277    13,261    8.6%
                           
               13,277    13,261    8.6%
                           
Sunset Digital Holdings, LLC  Telecommunications  First Lien Debt (9.7% Cash (1 month LIBOR + 7.3%, 1.5% Floor), Due 8/2/19)   18,000    18,000    18,000    11.7%
                           
               18,000    18,000    11.7%
                           
Sur La Table, Inc.  Retail  First Lien Debt (11.4% Cash (3 month LIBOR + 9.0%, 1.0% Floor), Due 7/31/22) (11)   10,500    10,500    10,500    6.8%
                           
               10,500    10,500    6.8%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.5%
                           
               758    758    0.5%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (9.8% Cash, Due 12/14/23) (7)(10)   6,965    6,965    6,965    4.5%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units, 10.0% PIK) (6)        527    527    0.3%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    -    0.0%
                           
               7,493    7,492    4.8%

 

9

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(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) (9)(12)        $ 771   $ 371    0.2%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (9)(12)        6,701    5,425    3.5%
                           
               7,472    5,796    3.7%
                           
Vology, Inc.  Information Technology  Subordinated Debt (15.0% Cash (1 month LIBOR + 14.0%, 1.0% Ceiling), 4.0% PIK, Due 6/30/20)  $ 8,897    8,897    8,640    5.6%
                           
               8,897    8,640    5.6%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    911    0.6%
                           
               600    911    0.6%
                           
Sub Total Non-control/non-affiliated investments - United States       $260,927   $270,677    175.9%
                           
Affiliate Investments - 58.2%                    
                           
Affiliate investments - United States                    
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)  $14,699   $14,699   $14,571    9.5%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class A (1,253,198 shares)        1,504    -    0.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class B (1,085,070 shares)        362    -    0.0%
                           
               16,565    14,571    9.5%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (11.4% fully diluted) (13)        -    3,184    2.1%
                           
               -    3,184    2.1%
                           
Eastport Holdings, LLC  Business Services  Subordinated Debt (15.5% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 4/29/20)   16,500    15,872    16,500    10.7%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    15,533    10.1%
                           
               19,135    32,033    20.8%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend) (6)        3,323    3,618    2.4%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    659    0.4%
                           
               3,325    4,277    2.8%

 

10

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,852,824 shares)       $ 1,268   $ 2,039    1.3%
                           
               1,268    2,039    1.3%
                           
MMI Holdings, LLC  Medical Device Distributor  First Lien Debt (12.0% Cash, Due 1/31/20) (11)  $2,600    2,600    2,600    1.7%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6.0% Cash, Due 1/31/20) (11)   400    388    400    0.3%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6.0% PIK Dividend) (6)        1,522    1,660    1.1%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    205    0.1%
                           
               4,510    4,865    3.2%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  First Lien Debt (11.0% Cash, Due 6/30/23) (11)   10,100    10,100    10,100    6.6%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend) (6)        1,000    1,000    0.6%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (60,000 shares)        -    345    0.2%
                           
               11,100    11,445    7.4%
                           
RAM Payment, LLC  Financial Services  First Lien Debt (10.8% Cash, Due 1/4/24) (7)   9,375    9,375    9,375    6.1%
                           
RAM Payment, LLC  Financial Services  Preferred Units (86,000 units, 8.0% PIK) (6)        894    1,285    0.8%
                           
               10,269    10,660    6.9%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Common Stock (15,068,000 shares)        6,958    5,689    3.7%
                           
               6,958    5,689    3.7%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Subordinated Debt (14)   -    673    742    0.5%
                           
               673    742    0.5%
                           
Sub Total Affiliate investments - United States       $73,803   $89,505    58.2%

 

11

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
Control Investments - 20.1%                       
                           
Control investments - United States                       
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (8.0% Cash, Due 6/30/21) (11)  $1,000   $1,000   $1,000    0.7%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (8.0% Cash, Due 6/30/21) (11)   3,689    3,689    3,689    2.4%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Preferred Units - Series A1 (7,200,000 units)        5,373    -    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Preferred Units - Series A (4,000,000 units)        2,354    -    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (14.9% fully diluted)        1,394    -    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (40.0% fully diluted)        -    -    0.0%
                           
               13,810    4,689    3.1%
                           
Capitala Senior Loan Fund II, LLC  Investment Funds  Membership Units (80.0% ownership) (9)(15)        13,600    13,763    8.9%
                           
               13,600    13,763    8.9%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10.0% Cash, Due 3/31/20) (11)   1,862    1,862    1,862    1.2%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14.0% Cash, 4.0% PIK, Due 3/31/20) (11)   4,413    4,413    4,413    2.9%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    2,898    1.9%
                           
               7,904    9,173    6.0%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  First Lien Debt (9.0% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 2.0% Ceiling), Due 12/31/22) (16)   1,080    1,080    1,080    0.7%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  First Lien Debt (9.4% Cash (1 month LIBOR + 7.0%, 1.0% Floor, 5.0% Ceiling), Due 12/31/22) (8)   4,500    4,428    2,172    1.4%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  Preferred Units (4,350,000 Units)        2,450    -    0.0%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  Membership Units (150,000 Units)        -    -    0.0%
                           
               7,958    3,252    2.1%
                           
Sub Total Control investments - United States       $43,272   $30,877    20.1%
                           
TOTAL INVESTMENTS - 254.2%       $378,002   $391,059    254.2%

 

(1)All investments valued using unobservable inputs (Level 3), unless otherwise noted.
(2)All investments valued by the Board of Directors.
(3)All debt investments are income producing, unless otherwise noted. Equity and warrant investments are non-income producing, unless otherwise noted.
(4)Percentages are based on net assets of $153,863 as of June 30, 2019.
(5)Capitala Finance Corp. generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Security Act.
(6)The equity investment is income producing, based on rate disclosed.
(7)The cash rate equals the approximate current yield on our last-out portion of the unitranche facility.

 

12

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

June 30, 2019

(unaudited)

 

(8)Non-accrual investment.
(9)Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company's total assets at the time of acquisition of any additional non-qualifying assets. As of June 30, 2019, 8.7% of the Company's total assets were non-qualifying assets.
(10)The investment has a $1.0 million unfunded commitment.
(11)The maturity date of the original investment has been extended.
(12)Investment is valued using observable inputs (Level 1). The stock of the company is traded on the NASDAQ Capital Market under the ticker "USWS."
(13)The investment has been exited. The residual value reflects estimated earnout to be settled post-closing.
(14)The investment has been exited. The residual value reflects estimated escrow and earnout to be settled post-closing.
(15)The investment has a $6.4 million unfunded commitment.
(16)The investment has a $3.9 million unfunded commitment.

 

See accompanying notes to consolidated financial statements.

 

13

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)   Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
Non-control/non-affiliated investments - 150.4%                      
                           
Non-control/non-affiliated investments - United States                      
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (11.3% Cash (1 month LIBOR + 9.0%, 1.0% Floor), Due 12/4/22)  $13,954   $13,954   $13,954    7.3%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units, 8.0% PIK) (5)        1,049    1,049    0.6%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    230    0.1%
                           
               15,013    15,233    8.0%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (9.5% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/18/22)   118    118    118    0.1%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (12.4% Cash, Due 12/18/22) (6)   13,000    13,000    10,370    5.4%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               13,918    10,488    5.5%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (10.5% Cash, 2.0% PIK, Due 6/11/20) (7)   9,293    8,918    6,484    3.4%
                           
               8,918    6,484    3.4%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (12.8% Cash, Due 9/8/21)   18,300    18,029    18,300    9.6%
                           
               18,029    18,300    9.6%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrants (91,739 Units)        -    5,880    3.1%
                           
               -    5,880    3.1%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (14.3% Cash, Due 11/14/21) (6)   9,094    9,094    9,094    4.8%
                           
BigMouth, Inc.  Consumer Products  Series A Preferred Stock (350,000 shares, 8.0% PIK) (5)        411    352    0.2%
                           
               9,505    9,446    5.0%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (10.0% Cash (1 month LIBOR + 7.5%, 1.0% Floor), Due 11/7/20)   3,779    3,762    3,499    1.8%
                           
               3,762    3,499    1.8%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    1,722    0.9%
                           
               5    1,722    0.9%

 

14

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

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

 

15

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)   Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.7% Cash (1 month LIBOR + 6.3%, 2.0% Floor), Due 12/20/23) (9)   $250   $ 250   $ 250    0.1%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (9.1% Cash, Due 12/20/23) (6)   6,000    6,000    6,000    3.1%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    182    0.1%
                           
               6,432    6,432    3.3%
                           
Installs, LLC  Logistics  First Lien Debt (9.3% Cash (1 month LIBOR + 7.0%, 1.8% Floor), Due 6/20/23)   2,984    2,984    2,984    1.6%
                           
               2,984    2,984    1.6%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.3% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22) (10)   -    -    -    0.0%
                           
MC Sign Lessor Corp.  Advertising & Marketing Services  First Lien Debt (9.3% Cash (1 month LIBOR + 7.0%, 1.0% Floor), Due 12/22/22) (11)   3,905    3,905    3,905    2.0%
                           
               3,905    3,905    2.0%
                           
Nth Degree, Inc.  Business Services  First Lien Debt (13.9% Cash (1 month LIBOR + 11.5%, 1.0% Floor), 2.0% PIK, Due 3/29/23) (12)   7,346    7,346    7,346    3.9%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (2,400 Units, 10.0% PIK dividend) (5)        3,244    16,490    8.6%
                           
               10,590    23,836    12.5%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (10.8% Cash (1 month LIBOR + 8.5%, 1.8% Floor), Due 8/21/23)   13,792    13,792    13,792    7.2%
                           
               13,792    13,792    7.2%
                           
Sunset Digital Holdings, LLC  Telecommunications  First Lien Debt (9.6% Cash (1 month LIBOR + 7.3%, 1.5% Floor), Due 8/2/19)   18,000    18,000    18,000    9.4%
                           
               18,000    18,000    9.4%
                           
Sur La Table, Inc.  Retail  First Lien Debt (12.0% Cash, Due 7/28/20)   15,000    15,000    14,979    7.9%
                           
               15,000    14,979    7.9%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.4%
                           
               758    758    0.4%

 

16

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)   Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
U.S. BioTek Laboratories, LLC  Testing laboratories  First Lien Debt (10.1% Cash, Due 12/14/23) (6)(13)   $7,000   $ 7,000   $ 7,000    3.7%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units, 10.0% PIK) (5)        502    502    0.3%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    1    0.0%
                           
               7,503    7,503    4.0%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (77,073 shares) (8)        771    632    0.3%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (8)        6,701    9,229    4.9%
                           
               7,472    9,861    5.2%
                           
Vology, Inc.  Information Technology  Subordinated Debt (15.0% Cash (1 month LIBOR + 14.0%, 1.0% Ceiling), 4.0% PIK Due 6/30/20)   8,720    8,720    8,645    4.5%
                           
               8,720    8,645    4.5%
                           
Xirgo Technologies, LLC  Information Technology  Subordinated Debt (11.5% Cash, Due 3/1/22)   15,750    15,750    15,750    8.3%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    837    0.4%
                           
               16,350    16,587    8.7%
                           
Sub Total Non-control/non-affiliated investments - United States        268,298    283,965    148.9%
                           
Non-control/non-affiliated investments - Brazil                    
                           
Velum Global Credit Management, LLC  Financial Services  First Lien Debt (15.0% PIK, Due 12/31/17) (7) (8) (12)   14,277    11,816    2,878    1.5%
                           
               11,816    2,878    1.5%
                           
Sub Total Non-control/non-affiliated investments - Brazil        11,816    2,878    1.5%
                           
Sub Total Non-control/non-affiliated investments       $280,114   $286,843    150.4%

 

17

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

December 31, 2018

 

Portfolio Company, Country (1), (2), (3), (4), (19)   Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       
Affiliate Investments - 48.8%                    
                           
Affiliate investments - United States                    
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 1.0% PIK, Due 3/23/21)  $14,801   $14,801   $14,384    7.5%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class A (1,253,198 shares)        1,504    -    0.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class B (900,000 shares)        300    -    0.0%
                           
               16,605    14,384    7.5%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (11.4% fully diluted) (14)        -    3,184    1.7%
                           
               -    3,184    1.7%
                           
Eastport Holdings, LLC  Business Services  Subordinated Debt (15.8% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 4/29/20)   16,500    15,496    16,500    8.7%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    17,610    9.2%
                           
               18,759    34,110    17.9%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8.0% PIK Dividend) (5)        3,179    3,482    1.8%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,325    0.7%
                           
               3,181    4,807    2.5%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13.0% Cash, Due 6/16/19) (12)   6,406    6,406    6,210    3.3%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock (8,182 shares)        818    -    0.0%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock Warrants (6,369 shares)        -    -    0.0%
                           
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