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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 March 31, 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 April 30, 2020 was 16,266,484.  

 

 

  

 

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION  3
     
Item 1. Consolidated Financial Statements  3
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2020 (unaudited) and December 31, 2019 3
     
  Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2020 and 2019 (unaudited)  5
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)  6
     
  Consolidated Schedules of Investments as of March 31, 2020 (unaudited) and December 31, 2019  7
     
  Notes to Consolidated Financial Statements as of and for the period ended March 31, 2020 (unaudited)  18
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  46
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk  68
     
Item 4. Controls and Procedures  69
     
PART II. OTHER INFORMATION  69
     
Item 1. Legal Proceedings  69
     
Item 1A. Risk Factors  70
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  71
     
Item 3. Defaults Upon Senior Securities  71
     
Item 4. Mine Safety Disclosures  71
     
Item 5. Other Information  71
     
Item 6. Exhibits  72
   
Signatures  73

  

 2 

 

 

PART I. FINANCIAL INFORMATION  

 

Item 1. Consolidated Financial Statements 

  

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data) 

 

   As of 
   March 31, 2020   December 31, 2019 
   (unaudited)     
ASSETS          
Investments at fair value:          
Non-control/non-affiliate investments (amortized cost of $252,701 and $250,433, respectively)  $214,789   $241,046 
Affiliate investments (amortized cost of $80,578 and $80,756, respectively)   84,857    98,763 
Control investments (amortized cost of $22,692 and $22,692, respectively)   21,581    22,723 
Total investments at fair value (amortized cost of $355,971 and $353,881, respectively)   321,227    362,532 
Cash and cash equivalents   56,431    62,321 
Interest and dividend receivable   1,515    1,745 
Prepaid expenses   814    624 
Deferred tax asset, net   -    - 
Other assets   94    115 
Total assets  $380,081   $427,337 
           
LIABILITIES          
SBA Debentures (net of deferred financing costs of $883 and $1,006, respectively)  $149,117   $148,994 
2022 Notes (net of deferred financing costs of $1,307 and $1,447, respectively)   73,693    73,553 
2022 Convertible Notes (net of deferred financing costs of $827 and $916, respectively)   51,261    51,172 
Credit Facility (net of deferred financing costs of $1,165 and $1,165, respectively)   (1,165)   (1,165)
Management and incentive fees payable   3,621    3,713 
Interest and financing fees payable   1,224    2,439 
Accounts payable and accrued expenses   375    518 
Total liabilities  $278,126   $279,224 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $0.01, 100,000,000 common shares authorized,           
16,266,484 and 16,203,769 common shares issued and outstanding, respectively  $163   $162 
Additional paid in capital   238,220    237,886 
Total distributable loss   (136,428)   (89,935)
Total net assets  $101,955   $148,113 
Total liabilities and net assets  $380,081   $427,337 
           
Net asset value per share  $6.27   $9.14 

 

See accompanying notes to consolidated financial statements.

  

 3 

 

 

Capitala Finance Corp.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

    For the Three Months Ended March 31,  
    2020     2019  
INVESTMENT INCOME            
Interest and fee income:                
Non-control/non-affiliate investments   $ 4,707     $ 7,285  
Affiliate investments     1,679       2,399  
Control investments     103       724  
Total interest and fee income     6,489       10,408  
Payment-in-kind interest and dividend income:                
Non-control/non-affiliate investments     336       442  
Affiliate investments     180       149  
Control investments     -       328  
Total payment-in-kind interest and dividend income     516       919  
Dividend income:                
Non-control/non-affiliate investments     -       1,281  
Affiliate investments     25       -  
Control investments     -       25  
Total dividend income     25       1,306  
Interest income from cash and cash equivalents     44       51  
Total investment income     7,074       12,684  
                 
EXPENSES                
Interest and financing expenses     3,826       4,413  
Base management fee     1,757       2,118  
Incentive fees     -       1,034  
General and administrative expenses     1,504       984  
Total expenses     7,087       8,549  
                 
NET INVESTMENT INCOME (LOSS)     (13 )     4,135  
                 
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS                
Net realized gain (loss) on investments:                
Non-control/non-affiliate investments     968       (3,909 )
Affiliate investments     -       (111 )
Control investments     -       (1,827 )
Net realized gain (loss) on investments     968       (5,847 )
Net unrealized appreciation (depreciation) on investments:                
Non-control/non-affiliate investments     (28,525 )     6,039  
Affiliate investments     (13,728 )     (268 )
Control investments     (1,142 )     (4,276 )
Net unrealized appreciation (depreciation) on investments     (43,395 )     1,495  
Net realized and unrealized loss on investments     (42,427 )     (4,352 )
Tax benefit     -       66  
Total net realized and unrealized loss on investments, net of taxes     (42,427 )     (4,286 )
                 
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS   $ (42,440 )   $ (151 )
                 
NET DECREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED   $ (2.62 )   $ (0.01 )
                 
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING  –  BASIC AND DILUTED     16,220,591       16,062,906  
                 
DISTRIBUTIONS PAID PER SHARE   $ 0.25     $ 0.25  

 

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 March 31, 2020 and 2019  Number of Shares   Par Value  

Additional Paid

in Capital

  

Total Distributable

 Loss

   Total 
BALANCE, December 31, 2019   16,203,769   $162   $237,886   $(89,935)  $148,113 
   Net investment loss   -    -    -    (13)   (13)
   Net realized gain on investments   -    -    -    968    968 
   Net unrealized depreciation on investments   -    -    -    (43,395)   (43,395)
   Distributions to Shareholders:                         
      Stock issued under dividend reinvestment plan   62,715    1    334    -    335 
      Distributions declared   -    -    -    (4,053)   (4,053)
 BALANCE, March 31, 2020   16,266,484   $163   $238,220   $(136,428)  $101,955 
                          
BALANCE, December 31, 2018   16,051,547   $161   $241,757   $(51,274)  $190,644 
   Net investment income   -    -    -    4,135    4,135 
   Net realized loss on investments   -    -    -    (5,847)   (5,847)
   Net unrealized appreciation on investments   -    -    -    1,495    1,495 
   Tax benefit   -    -    -    66    66 
   Distributions to Shareholders:                         
      Stock issued under dividend reinvestment plan   32,596    -    255    -    255 
      Distributions declared   -    -    -    (4,014)   (4,014)
BALANCE, March 31, 2019   16,084,143   $161   $242,012   $(55,439)  $186,734 

 

See accompanying notes to consolidated financial statements. 

 

 5 

 

 

Capitala Finance Corp.

Consolidated Statements of Cash Flows

 (in thousands)

 (unaudited)

 

   For the Three Months Ended March 31, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net decrease in net assets resulting from operations  $(42,440)  $(151)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:          
Purchase of investments   (8,267)   (21,128)
Repayments and sales of investments   7,768    11,492 
Net realized (gain) loss on investments   (968)   5,847 
Net unrealized (appreciation) depreciation on investments   43,395    (1,495)
Payment-in-kind interest and dividends   (516)   (919)
Accretion of original issue discount on investments   (107)   (260)
Amortization of deferred financing fees   506    616 
Tax benefit   -    (66)
Changes in assets and liabilities:          
Interest and dividend receivable   230    320 
Prepaid expenses   (190)   78 
Other assets   21    (7)
Management and incentive fees payable   (92)   1,001 
Interest and financing fees payable   (1,215)   (1,640)
Accounts payable and accrued expenses   (143)   28 
NET CASH USED IN OPERATING ACTIVITIES   (2,018)   (6,284)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   -    (15,700)
Proceeds from Credit Facility   -    15,000 
Distributions paid to shareholders   (3,718)   (3,759)
Deferred financing fees paid   (154)   (82)
NET CASH USED IN FINANCING ACTIVITIES   (3,872)   (4,541)
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (5,890)   (10,825)
CASH AND CASH EQUIVALENTS, beginning of period   62,321    39,295 
CASH AND CASH EQUIVALENTS, end of period  $56,431   $28,470 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $4,535   $5,059 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions paid through dividend reinvestment plan share issuances  $335   $255 

 

See accompanying notes to consolidated financial statements. 

 

 6 

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 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 - 210.7%                          
                           
Non-control/non-affiliated investments - United States                          
                           
3 Bridge Solutions, LLC  IT Consulting  First Lien Debt (13.0% Cash, Due 12/4/22)  $13,274   $13,274   $13,274    13.0%
                           
3 Bridge Solutions, LLC  IT Consulting  Preferred Units (965 units)        1,090    279    0.3%
                           
3 Bridge Solutions, LLC  IT Consulting  Membership Units (39,000 units)        10    -    0.0%
                           
               14,374    13,553    13.3%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, 3.8% PIK, Due 12/18/22)   5,543    5,397    5,273    5.2%
                           
Alternative Biomedical Solutions, LLC  Healthcare  First Lien Debt (8.0% Cash, 3.8% PIK, Due 12/18/22) (6)(7)   13,250    12,860    5,323    5.2%
                           
Alternative Biomedical Solutions, LLC  Healthcare  Membership Units (20,092 units)        800    -    0.0%
                           
               19,057    10,596    10.4%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (7.0% Cash, Due 12/31/22) (7)   3,500    3,500    3,500    3.4%
                           
American Clinical Solutions, LLC  Healthcare  First Lien Debt (2.0% PIK, Due 12/31/22) (7)(8)   6,030    3,485    1,972    2.0%
                           
               6,985    5,472    5.4%
                           
AmeriMark Direct, LLC  Consumer Products  First Lien Debt (14.3% Cash, Due 9/8/21)   15,748    15,624    15,169    14.9%
                           
               15,624    15,169    14.9%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (10.1% Cash (1 month LIBOR + 8.5%, 0.5% Floor), Due 11/14/21) (9)   1,714    1,714    1,692    1.7%
                           
BigMouth, Inc.  Consumer Products  First Lien Debt (10.1% Cash (1 month LIBOR + 8.5%, 0.5% Floor), Due 11/14/21) (7)   8,784    8,557    2,501    2.4%
                           
               10,271    4,193    4.1%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (7.0% Cash (1 month LIBOR + 6.0%, 1.0% Floor), Due 9/8/20) (10)   2,869    2,869    2,869    2.8%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (7.0% Cash (1 month LIBOR + 6.0%, 1.0% Floor), Due 9/8/20)   1,803    1,803    1,803    1.8%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  First Lien Debt (11.3% Cash (Prime + 6.5%), Due 11/7/20) (7)   3,529    3,529    2,416    2.4%
                           
               8,201    7,088    7.0%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    1,956    1.9%
                           
               5    1,956    1.9%

 

 7 

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment 

Principal

Amount

   Cost   Fair Value   % of
Net Assets		 
                       
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (11)       $ 1,532   $ 1,540    1.5%
                           
               1,532    1,540    1.5%
                           
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (11.6% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23) (7)  $5,000    4,933    2,700    2.6%
                           
               4,933    2,700    2.6%
                           
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.1% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   13,000    13,000    13,000    12.8%
                           
               13,000    13,000    12.8%
                           
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) (7)   8,100    8,100    7,103    7.0%
                           
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    7,103    7.0%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (10.1% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   9,289    9,289    9,289    9.1%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    2,487    2.5%
                           
               10,289    11,776    11.6%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Second Lien Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,425    19,425    18,816    18.5%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    -    0.0%
                           
               21,000    18,816    18.5%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (13.4% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 4.0% PIK, Due 4/20/20) (12)(13)   16,219    16,219    15,963    15.7%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (12)        2,000    1,525    1.5%
                           
               18,219    17,488    17.2%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  First Lien Debt (7.2% Cash (3 month LIBOR + 5.8%, 1.0% Floor), Due 6/30/20) (13)   5,789    5,778    5,778    5.6%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Second Lien Debt (11.5% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 10/3/21)   12,000    11,896    11,896    11.7%
                           
               17,674    17,674    17.3%

 

 8 

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2020

(unaudited) 

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment 

Principal

Amount

   Cost   Fair Value   % of
Net Assets		 
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.7% Cash, Due 12/20/23) (6)(14)  $ 6,425   $6,425   $ 6,265    6.2%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    129    0.1%
                           
               6,607    6,394    6.3%
                           
HUMC Opco, LLC  Healthcare  First Lien Debt (9.0% Cash, Due 8/16/20)   5,000    5,000    5,000    4.9%
                           
               5,000    5,000    4.9%
                           
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) (15)   2,000    2,000    1,961    1.9%
                           
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)   7,000    7,000    6,864    6.8%
                           
               9,000    8,825    8.7%
                           
Jurassic Quest Holdings, LLC  Entertainment  First Lien Debt (9.5% Cash (1 month LIBOR + 7.5%, 2.0% Floor), Due 5/1/24)   9,665    9,665    8,763    8.6%
                           
Jurassic Quest Holdings, LLC  Entertainment  Preferred Units (467,784 units)        480    -    0.0%
                           
               10,145    8,763    8.6%
                           
MicroHoldco, LLC  General Industrial  Preferred Units (838,042 units) (11)        838    670    0.7%
                           
               838    670    0.7%
                           
Rapid Fire Protection, Inc.  Security System Services  First Lien Debt (9.5% Cash, Due 11/22/24) (6)(16)   6,427    6,427    6,229    6.1%
                           
Rapid Fire Protection, Inc.  Security System Services  Common Stock (363 shares)        500    438    0.4%
                           
               6,927    6,667    6.5%
                           
Seitel, Inc.  Data Services  First Lien Debt (9.3% Cash (3 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)   4,686    4,686    4,319    4.2%
                           
               4,686    4,319    4.2%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (12.8% Cash, Due 6/26/20) (7)   12,535    12,535    11,250    11.0%
                           
               12,535    11,250    11.0%
                           
Sur La Table, Inc.  Retail  First Lien Debt (10.0% Cash (3 month LIBOR + 9.0%, 1.0% Floor), Due 7/31/22) (7)(13)   10,568    10,502    6,161    6.0%
                           
               10,502    6,161    6.0%

 

 9 

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment 

Principal

Amount

   Cost   Fair Value   % of
Net Assets		 
                           
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 (9.3% Cash, Due 12/14/23) (6)(17)  $ 6,913    6,913    6,665    6.5%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units)        540    174    0.2%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    -    0.0%
                           
               7,454    6,839    6.7%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (77,073 shares) (18)        771    23    0.0%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (18)        6,701    338    0.3%
                           
               7,472    361    0.3%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    658    0.6%
                           
               600    658    0.6%
                           
Sub Total Non-control/non-affiliated investments - United States             $252,701   $214,789    210.7%
                           
Affiliate Investments - 83.2%                          
                           
Affiliate investments - United States                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  First Lien Debt (12.0% Cash, 3.0% PIK, Due 3/23/21)  $14,278   $14,278   $14,035    13.8%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class B (1,085,073 shares)        362    -    0.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock Class A (1,253,198 shares)        1,504    -    0.0%
                           
               16,144    14,035    13.8%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (11)        -    2,477    2.4%
                           
               -    2,477    2.4%
                           
Eastport Holdings, LLC  Business Services  Second Lien Debt (14.3% Cash (3 month LIBOR + 13.0%, 0.5% Floor), Due 12/29/21) (13)   16,500    16,199    16,211    15.9%
                           
Eastport Holdings, LLC  Business Services  Membership Units (22.9% ownership)        3,263    15,522    15.2%
                           
               19,462    31,733    31.1%

 

 10 

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment 

Principal

mount

   Cost   Fair Value   % of
Net Assets		 
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares)        $3,477    $3,696    3.6%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    -    0.0%
                           
               3,479    3,696    3.6%
                           
LJS Partners, LLC  QSR Franchisor  Preferred Units (169,888 units)        437    722    0.7%
                           
LJS Partners, LLC  QSR Franchisor  Common Membership Units (2,593,234 units)        1,224    792    0.8%
                           
               1,661    1,514    1.5%
                           
MMI Holdings, LLC  Medical Device Distributor  First Lien Debt (12.0% Cash, Due 1/31/21) (13)  $ 2,600    2,600    2,600    2.6%
                           
MMI Holdings, LLC  Medical Device Distributor  Second Lien Debt (6.0% Cash, Due 1/31/21) (13)   400    388    400    0.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6.0% PIK Dividend) (19)        1,598    1,736    1.7%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    196    0.2%
                           
               4,586    4,932    4.9%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  First Lien Debt (11.0% Cash, Due 6/30/23) (13)   9,921    9,921    9,630    9.4%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10.0% Cash Dividend) (19)        1,000    1,000    1.0%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (60,000 shares)        -    99    0.1%
                           
               10,921    10,729    10.5%
                           
Nth Degree Investment Group, LLC  Business Services  Membership Units (6,088,000 Units)        6,088    1,271    1.2%
                           
               6,088    1,271    1.2%
                           
RAM Payment, LLC  Financial Services  First Lien Debt (9.9% Cash, Due 1/4/24) (6)   8,900    8,900    8,900    8.7%
                           
RAM Payment, LLC  Financial Services  Preferred Units (86,000 units, 8.0% PIK Dividend) (19)        945    2,004    2.0%
                           
               9,845    10,904    10.7%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Second Lien Debt (15.0% PIK, Due 9/12/23)   811    779    778    0.8%
                           
Sierra Hamilton Holdings Corporation  Oil & Gas Engineering and Consulting Services  Common Stock (15,068,000 shares)        6,958    2,080    2.0%
                           
               7,737    2,858    2.8%

 

 11 

 

 

Capitala Finance Corp.

Consolidated Schedule of Investments

(in thousands, except for units/shares)

March 31, 2020

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)   Industry  Type of Investment 

Principal

Amount

   Cost   Fair Value   % of
Net Assets		 
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Second Lien Debt (11)       $ 655   $ 708    0.7%
                           
               655    708    0.7%
                           
Sub Total Affiliate investments - United States             $80,578   $84,857    83.2%
                           
Control Investments - 21.2%                          
                           
Control investments - United States                          
                           
Capitala Senior Loan Fund II, LLC  Investment Funds  Second Lien Debt (6.6% Cash (1 month LIBOR + 5.0%), Due 9/3/24) (12)(20)   -    -    -    0.0%
                           
Capitala Senior Loan Fund II, LLC  Investment Funds  Membership Units (80.0% ownership) (12)(21)(22)       $13,600   $13,786    13.5%
                           
               13,600    13,786    13.5%
                           
Vology, Inc.  Information Technology  First Lien Debt (10.5% Cash (1 month LIBOR + 8.5%, 2.0% Floor), Due 12/31/21)  $ 3,877    3,877    3,877    3.8%
                           
Vology, Inc.  Information Technology  Class A Preferred Units (9,041,810 Units)        5,215    3,918    3.9%
                           
Vology, Inc.  Information Technology  Membership Units (5,363,982 Units)        -    -    0.0%
                           
               9,092    7,795    7.7%
                           
Sub Total Control investments - United States             $22,692   $21,581    21.2%
                           
TOTAL INVESTMENTS - 315.1%             $355,971   $321,227    315.1%

 

(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 $101,955 as of March 31, 2020.
(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”). Unless otherwise noted, all of the Company's investments are deemed to be restricted securities under the Securities Act.
(6)The cash rate equals the approximate current yield on our last-out portion of the unitranche facility.
(7)Non-accrual investment.
(8)The investment is convertible to preferred equity.
(9)The investment has a $1.7 million unfunded commitment.
(10)The investment has a $5.3 million unfunded commitment.
(11)The investment has been exited or sold. The residual value reflects estimated earnout, escrow, or other proceeds expected post-closing.
(12)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 March 31, 2020, 8.2% of the Company's total assets were non-qualifying assets.
(13)The maturity date of the original investment has been extended.
(14)The investment has a $0.5 million unfunded commitment.
(15)The investment has a $1.5 million unfunded commitment.
(16)The investment has a $4.5 million unfunded commitment.
(17)The investment has a $1.0 million unfunded commitment.
(18)Investment is valued using observable inputs (Level 1). The stock of the company is traded on the NASDAQ Capital Market under the ticker "USWS."
(19)The equity investment is income producing, based on rate disclosed.
(20)The investment has a $5.0 million unfunded commitment.
(21)The investment has a $6.4 million unfunded commitment.
(22)The investment is valued based on the net asset value of the company.

 

 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%

 

 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		 
                       
CableOrganizer Acquisition, LLC  Computer Supply Retail  First Lien Debt (9)       $1,532   $1,490    1.0%
                           
               1,532    1,490    1.0%
                           
California Pizza Kitchen, Inc.  Restaurant  Second Lien Debt (11.9% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 8/23/23)  $5,000    4,927    4,697    3.2%
                           
               4,927    4,697    3.2%
                           
Chicken Soup for the Soul, LLC  Multi-platform Media and Consumer Products  First Lien Debt (10.2% Cash (1 month LIBOR + 8.5%, 1.5% Floor), Due 12/13/20)   13,000    13,000    13,000    8.8%
                           
               13,000    13,000    8.8%
                           
Chief Fire Intermediate, Inc.  Security System Services  First Lien Debt (8.7% Cash (1 month LIBOR + 7.0%, 1.6% Floor), Due 11/8/24)   8,100    8,100    8,100    5.5%
                           
Chief Fire Intermediate, Inc.  Security System Services  Class A Preferred Units (34,740 units, 10.0% PIK Dividend) (10)        913    913    0.6%
                           
Chief Fire Intermediate, Inc.  Security System Services  Class B Common Units (3,510 units)        -    -    0.0%
                           
               9,013    9,013    6.1%
                           
CIS Secure Computing, Inc.  Government Services  First Lien Debt (10.2% Cash (1 month LIBOR + 8.5%, 1.0% Floor), 1.0% PIK, Due 9/14/22)   9,389    9,389    9,389    6.3%
                           
CIS Secure Computing, Inc.  Government Services  Common Stock (46,163 shares)        1,000    1,890    1.3%
                           
               10,389    11,279    7.6%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Second Lien Debt (9.0% Cash, 2.0% PIK, Due 11/29/21)   19,327    19,327    18,962    12.8%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    329    0.2%
                           
               20,902    19,291    13.0%
                           
Currency Capital, LLC  Financial Services  First Lien Debt (13.7% Cash (1 month LIBOR + 12.0%, 0.5% Floor), 2.0% PIK, Due 1/2/20) (11)   16,269    16,269    16,269    11.0%
                           
Currency Capital, LLC  Financial Services  Class A Preferred Units (2,000,000 units) (11)        2,000    2,504    1.7%
                           
               18,269    18,773    12.7%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  First Lien Debt (7.7% Cash (3 month LIBOR + 5.8%, 1.0% Floor), Due 4/3/20)   5,789    5,778    5,767    3.9%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Second Lien Debt (11.9% Cash (3 month LIBOR + 10.0%, 1.0% Floor), Due 10/3/21)   12,000    11,878    11,842    8.0%
                           
               17,656    17,609    11.9%
                           
Freedom Electronics, LLC  Electronic Machine Repair  First Lien Debt (8.7% Cash, Due 12/20/23) (6)(12)   5,940    5,940    5,940    4.0%
                           
Freedom Electronics, LLC  Electronic Machine Repair  Membership Units (181,818 units)        182    160    0.1%
                           
               6,122    6,100    4.1%
                           
HUMC Opco, LLC  Healthcare  First Lien Debt (9.0% Cash, Due 8/16/20)   5,000    5,000    5,000    3.4%
                           
               5,000    5,000    3.4%
                           
Installs, LLC  Logistics  First Lien Debt (9.3% Cash, Due 6/20/23) (6)   2,924    2,924    2,924    2.0%
                           
               2,924    2,924    2.0%

 

 14 

 

 

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		 
                       
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)  $7,000   $7,000   $7,000    4.7%
                           
               7,000    7,000    4.7%
                           
Jurassic Quest Holdings, LLC  Entertainment  First Lien Debt (9.5% Cash (1 month LIBOR + 7.5%, 2.0% Floor), Due 5/1/24) (14)   10,827    10,827    10,827    7.3%
                           
Jurassic Quest Holdings, LLC  Entertainment  Preferred Units (375,000 units)        388    85    0.1%
                           
               11,215    10,912    7.4%
                           
MicroHoldco, LLC  General Industrial  Preferred Units (9)        838    838    0.6%
                           
               838    838    0.6%
                           
Portrait Studio, LLC  Professional and Personal Digital Imaging  First Lien Debt (9)        510    510    0.3%
                           
               510    510    0.3%
                           
Rapid Fire Protection, Inc.  Security System Services  First Lien Debt (9.2% Cash, Due 11/22/24) (6)(15)   6,550    6,550    6,550    4.4%
                           
Rapid Fire Protection, Inc.  Security System Services  Common Stock (363 shares)        500    500    0.4%
                           
               7,050    7,050    4.8%
                           
Seitel, Inc.  Data Services  First Lien Debt (10.0% Cash (1 month LIBOR + 8.3%, 1.0% Floor), Due 3/15/23)   4,749    4,749    4,749    3.2%
                           
               4,749    4,749    3.2%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  First Lien Debt (12.8% Cash, Due 6/26/20)   12,744    12,744    12,607    8.5%
                           
               12,744    12,607    8.5%
                           
Sur La Table, Inc.  Retail  First Lien Debt (10.9% Cash (3 month LIBOR + 9.0%, 1.0% Floor), Due 7/31/22) (16)(17)   10,528    10,528    10,045    6.8%
                           
               10,528    10,045    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 (9.3% Cash, Due 12/14/23) (6)(12)   6,930    6,930    6,822    4.6%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class A Preferred Units (500 Units)        540    204    0.1%
                           
U.S. BioTek Laboratories, LLC  Testing laboratories  Class C Units (500 Units)        1    -    0.0%
                           
               7,471    7,026    4.7%

 

 15 

 

 

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		 
                       
U.S. Well Services, Inc.  Oil & Gas Services  Class A Common Stock (77,073 shares) (11)(18)       $771   $146    0.1%
                           
U.S. Well Services, Inc.  Oil & Gas Services  Class B Common Stock (1,125,426 shares) (11)(18)        6,701    2,127    1.4%
                           
               7,472    2,273    1.5%
                           
Xirgo Technologies, LLC  Information Technology  Membership Units (600,000 units)        600    917    0.6