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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

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

 

For the Quarter Ended March 31, 2015

 

¨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 of incorporation

 

I.R.S. Employer

Identification Number

814-01022  

Capitala Finance Corp.

4201 Congress St., Suite 360

Charlotte, North Carolina

Telephone: (704) 376-5502

State of Incorporation: Maryland

   90-0945675

 

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

 

Capitala Finance Corp. Yes  x            No  ¨  

 

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

 

Capitala Finance Corp. Yes  ¨            No  ¨  

 

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

 

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

 

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

 

Capitala Finance Corp. Yes  ¨            No  x  

 

The number of shares of Capitala Finance Corp.’s common stock, $0.01 par value, outstanding as of May 11, 2015 was 16,477,242.

 

 
 

  

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements  
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2015 (unaudited) and December 31, 2014 3
     
  Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2015 and 2014 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (unaudited) 6
     
  Consolidated Schedules of Investments as of March 31, 2015 (unaudited) and December 31, 2014 7
     
  Notes to Consolidated Financial Statements as of March 31, 2015 (unaudited) 14
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 56
     
Item 4. Controls and Procedures 56
     
PART II OTHER INFORMATION 57
     
Item 1. Legal Proceedings 57
     
Item 1A. Risk Factors 57
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57
     
Item 3. Defaults upon Senior Securities 57
     
Item 4. Mine Safety Disclosures 57
     
Item 5. Other Information 57
     
Item 6. Exhibits 58
   
Signatures 60

 

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   
   March 31, 2015   December 31, 2014 
   (unaudited)     
ASSETS          
           
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $256,792 and $219,163, respectively)  $278,690   $236,804 
Affiliate investments (amortized cost of $156,307 and $154,552, respectively)   173,585    171,471 
Control investments (amortized cost of $70,936 and $67,440, respectively)   66,652    72,062 
Total investments at fair value (amortized cost of $484,035 and $441,155, respectively)   518,927    480,337 
Cash and cash equivalents   32,007    55,107 
Interest and dividend receivable   4,929    3,113 
Due from related parties   518    518 
Deferred financing fees (net of accumulated amortization of $3,755 and $3,288, respectively)   9,843    10,002 
Prepaid expenses   371    515 
Other assets   380    274 
Total assets  $566,975   $549,866 
           
LIABILITIES          
SBA debentures  $192,200   $192,200 
Notes   113,438    113,438 
Revolving credit facility   15,000    - 
Distribution payable   5,840    - 
Due to related parties   89    8 
Management and incentive fee payable   1,183    159 
Interest payable   997    2,902 
Accounts payable and accrued expenses   56    322 
Total liabilities  $328,803   $309,029 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 12,977,242 and 12,974,420 common shares issued and outstanding, respectively   130    130 
Additional paid in capital   188,458    188,408 
Accumulated undistributed net investment income   11,033    12,314 
Accumulated undistributed net realized gain from investments   3,659    803 
Net unrealized appreciation on investments   34,892    39,182 
Total net assets   238,172    240,837 
           
Total liabilities and net assets  $566,975   $549,866 
           
Net asset value per share  $18.35   $18.56 

 

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, 
   2015   2014 
        
INVESTMENT INCOME          
Interest and fee income:          
Non-control/Non-affiliate investments  $7,675   $2,940 
Affiliate investments   3,591    3,740 
Control investments   1,639    1,333 
Total interest and fee income   12,905    8,013 
Payment-in-kind interest and dividend income:          
Non-control/Non-affiliate investments   314    173 
Affiliate investments   257    293 
Control investments   198    125 
Total payment-in-kind interest and dividend income   769    591 
Dividend income:          
Non-control/Non-affiliate investments   153    163 
Affiliate investments   29    29 
Control investments   184    3,570 
Total dividend income   366    3,762 
Interest income from cash and cash equivalents   1    8 
Total investment income   14,041    12,374 
           
EXPENSES          
Interest and financing expenses   4,637    2,199 
Base management fee   2,410    2,018 
Incentive fees   1,180    1,430 
Administrative expenses   275    226 
Other operating expenses   722    904 
Expenses before management fee waiver   9,224    6,777 
Management fee waiver (See Note 5)   -    (124)
Total expenses net of management fee waiver   9,224    6,653 
           
NET INVESTMENT INCOME   4,817    5,721 
           
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:          
Net realized gain from investments:          
Non-control/Non-affiliate investments   28    1,158 
Control investments   9,312    62 
Total realized gain from investments   9,340    1,220 
Net unrealized depreciation on investments   (4,290)   (5,723)
Net gain (loss) on investments   5,050    (4,503)
           
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $9,867   $1,218 
           
NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.76   $0.09 
           
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED   12,974,483    12,974,420 
           
DISTRIBUTIONS DECLARED AND PAID PER SHARE  $0.52   $0.47 
           
DISTRIBUTIONS DECLARED AND PAYABLE PER SHARE  $0.45   $- 

 

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     Accumulated     Accumulated
Undistributed Net 		    Net Unrealized
Appreciation		        
    Number of
 Shares		     Par
Value		     Paid in  
Capital		     Undistributed Net
Investment Income		      Realized Gains
(Losses)		     (Depreciation) on
 Investments		       Total  
                                           
BALANCE, December 31, 2013     12,974,420     $ 130     $ 188,408     $ 16,760     $ (48 )   $ 63,420     $ 268,670  
Net investment income     -       -       -       5,721       -       -       5,721  
Net realized gain on                                                        
portfolio investments     -       -       -       -       1,220       -       1,220  
Net change in unrealized appreciation/(depreciation) on portfolio investments     -       -       -       -       -       (5,723 )     (5,723 )
Distributions declared     -       -       -       (6,098 )     -       -       (6,098 )
BALANCE, March 31, 2014     12,974,420     $ 130     $ 188,408     $ 16,383     $ 1,172     $ 57,697     $ 263,790  
                                                         
BALANCE, December 31, 2014     12,974,420     $ 130   $ 188,408   $ 12,314   $ 803   $ 39,182       240,837  
Net investment income     -       -       -       4,817       -       -       4,817  
Net realized gain from investments     -       -       -       -       9,340       -       9,340  
Net change in unrealized appreciation/(depreciation) on portfolio investments     -       -               -       -       (4,290 )     (4,290 )
Distributions to shareholders:                                                        
Stock issued under dividend reinvestment plan     2,822       -       50       -       -       -       50  
Distributions declared     -       -       -       (6,098 )     (6,484 )     -       (12,582 )
BALANCE, March 31, 2015     12,977,242     $ 130   $ 188,458   $ 11,033   $ 3,659   $ 34,892     $   238,172  

 

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, 
    2015     2014  
        
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase in net assets resulting from operations  $9,867   $1,218 
Adjustments to reconcile net increase in net assets resulting from operations to net cash  used in operating activities:          
Purchase of portfolio investments   (67,233)   (41,100)
Repayments of portfolio investments   34,556    10,728 
Net realized gain on portfolio investments   (9,340)   (1,220)
Net unrealized depreciation on portfolio investments   4,290    5,723 
Payment-in-kind interest and dividends   (769)   (591)
Accretion of original issue discount on portfolio investments   (94)   (2)
Amortization of deferred financing fees   467    191 
Changes in assets and liabilities:          
Interest and dividend receivable   (1,816)   (688)
Due from related parties   -    1,104 
Prepaid expenses   144    101 
Other assets   (106)   (583)
Due to related parties   81    (488)
Management and incentive fee payable   1,024    (570)
Interest payable   (1,905)   (2,071)
Accounts payable and accrued expenses   (266)   290 
NET CASH USED IN OPERATING ACTIVITIES   (31,100)   (27,958)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA-guaranteed debentures   -    (10,000)
Proceeds from credit facility   15,000    - 
Distributions paid to shareholders   (6,692)   (6,098)
Deferred financing fees paid   (308)   - 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  $8,000   $(16,098)
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (23,100)   (44,056)
CASH AND CASH EQUIVALENTS, beginning of period  $55,107   $101,622 
CASH AND CASH EQUIVALENTS, end of period  $32,007   $57,566 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $5,826   $4,075 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions declared and payable  $5,840   $- 
Distribution paid through DRIP share issuances  $50      

 

See accompanying notes to consolidated financial statements.

 

6
 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

March 31, 2015

(unaudited)

 

 

Company (3, 4)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value   % of
Net Assets		 
                       

Non-control/Non-affiliated investments - 117.0%

                      
                       
AAE Acquisition, LLC (1)  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18)  $11,000   $10,999   $11,000    4.6%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,302    1.0%
                           
               11,016    13,302    5.6%
                           
American Exteriors, LLC (1) (11)  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 1/15/16)   4,368    3,168    4,368    1.8%
                           
American Exteriors, LLC (1)  Replacement Window Manufacturer  Jr. Convertible Note (10% Cash, Due 12/31/16)   500    415    500    0.2%
                           
American Exteriors, LLC  (6)  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted)        -    -    0.0%
                           
               3,583    4,868    2.0%
                           
B&W Quality Growers, LLC  Farming  Subordinated Debt (14% Cash, Due 7/23/20)   20,000    19,981    19,981    8.4%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrant (91,739 Units)        20    20    0.0%
                           
               20,001    20,001    8.4%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/2020)   5,000    4,812    4,812    2.0%
                           
               4,812    4,812    2.0%
                           
Boot Barn Holdings, Inc (7)  Western Wear Retail  Common Stock (420,252 shares)        1,681    10,052    4.2%
                           
               1,681    10,052    4.2%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    213    0.1%
                           
Caregiver Services, Inc. (6)  In-Home Healthcare Services  Common Stock Warrants (655,908 units)        264    476    0.2%
                           
               522    689    0.3%
                           
Community Choice Financial, Inc.  Financial Services  Senior Secured Revolving Debt (L+13% Cash, 1% Floor, Due 3/27/17)   15,000    15,000    15,000    6.3%
                           
               15,000    15,000    6.3%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/2020)   12,500    12,500    12,500    5.2%
                           
               12,500    12,500    5.2%
                           
Crowley Holdings, Inc. (5)  Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend)        6,176    6,176    2.6%
                           
               6,176    6,176    2.6%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,652    16,244    6.8%
                           
               16,652    16,244    6.8%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/2020)   7,800    7,512    7,512    3.2%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10% Cash, 1% Floor, Due 10/3/2021)   12,000    11,549    11,549    4.8%
                           
               19,061    19,061    8.0%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    1,612    0.7%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)        -    -    0.0%
                           
               2,000    1,612    0.7%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   15,173    15,159    15,173    6.4%
                           
Kelle's Transport Service, LLC (5)   Transportation  Preferred Units (1,000 units, 10% PIK Dividend)        2,873    2,873    1.2%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        23    3,231    1.4%
                           
               18,055    21,277    9.0%
                           
Medical Depot, Inc. (1)  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20)   4,667    4,667    4,667    2.0%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)        1,333    5,317    2.2%
                           
               6,000    9,984    4.2%
                           
Meritas Schools Holdings, LLC  Education Services  Subordinated Debt (L+9% Cash, 1% Floor, Due 1/23/2021)   3,000    2,987    3,000    1.3%
                           
               2,987    3,000    1.3%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/2019)   20,000    20,000    20,000    8.4%
                           
               20,000    20,000    8.4%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 8/15/21)   15,000    14,793    14,611    6.1%
                           
               14,793    14,611    6.1%
                           
Portrait Innovations, Inc.  Professional and Personal Digital Imaging  Senior Secured Term Debt (12% Cash, Due 2/26/20)   15,000    15,000    15,000    6.3%
                           
               15,000    15,000    6.3%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  Senior Secured Term Debt (12% cash, 4% PIK, due 7/17/2019)   12,388    12,178    12,388    5.2%
                           
               12,178    12,388    5.2%
                           
Sierra Hamilton, LLC  Oil & Gas Engineering and Consulting Services  Senior Secured Debt (12.25% Cash, Due 12/15/18)   15,000    15,000    14,547    6.1%
                           
               15,000    14,547    6.1%
                           
Southern Pump & Tank Company, LLC (1)  Petroleum Equipment Supplier  Senior Secured Term Debt (13% Cash, 6% PIK, Due 7/15/15)   4,379    3,554    4,213    1.8%
                           
Southern Pump & Tank Company, LLC  Petroleum Equipment Supplier  Common Stock Warrants (10% fully diluted)        -    -    0.0%
                           
               3,554    4,213    1.8%
                           
Stoddard Hill Media Holdings, LLC  IT Hosting Services  Class D Preferred Units (132,159 shares)        -    95    0.0%
                           
               -    95    0.0%

 

7
 

 

Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.3%
                           
               758    758    0.3%
                           
Tenere, Inc. (8)  Industrial Manufacturing  Senior Secured Term Debt (11% Cash, 2% PIK, Due 12/15/17)   3,528    3,528    3,528    1.5%
                           
               3,528    3,528    1.5%
                           
TGI Friday's, Inc.  Restaurant Chain  Subordinated Debt (L+8.25% Cash, 1% Floor, Due 7/15/21)   10,000    9,963    10,300    4.3%
                           
               9,963    10,300    4.3%
                           
US LBM Holdings, LLC  Building Products  Senior Secured Debt (L+7% Cash, 1% Floor, Due 5/2/2020)   4,980    4,887    4,887    2.1%
                           
               4,887    4,887    2.1%
                           
U.S. Well Services, LLC (9)  Oil & Gas Services  Senior Secured Debt (L+11.5% Cash, 0.5% floor, Due 5/2/19)   8,872    8,785    8,785    3.7%
                           
               8,785    8,785    3.7%
                           
Velum Global Credit Management, LLC (7)  Financial Services  Senior Secured Debt (15% Cash, Due 12/31/15)   8,300    8,300    8,300    3.5%
                           
               8,300    8,300    3.5%
                           
Worklife America, Inc.  Professional Employer Organization  Common Stock Warrants (3.84% ownership)        -    2,311    0.9%
                           
Worklife America, Inc.  Professional Employer Organization  Preferred Stock Warrants (3.84% ownership)        -    389    0.2%
                           
               -    2,700    1.1%
                           
Sub Total Non-control/Non-affiliated investments             $256,792   $278,690    117.0%
                           
Affiliate investments - 72.9%                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Senior Subordinated Debt (14% Cash, due 8/9/2019)  $5,000   $5,000   $5,000    2.1%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Junior Subordinated Debt (12% Cash, due 8/9/2019)   7,200    7,200    7,200    3.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock (1,253,198 shares)        1,504    3,834    1.6%
                           
               13,704    16,034    6.7%
                           
City Gear, LLC  Footwear Retail  Subordinated Debt (13% Cash, Due 9/28/16)   8,231    8,231    8,213    3.5%
                           
City Gear, LLC (5)  Footwear Retail  Preferred Membership Units (9% Cash dividend)        1,269    1,269    0.5%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (14.15% fully diluted)        -    7,216    3.0%
                           
               9,500    16,698    7.0%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (14% Cash, 2% PIK, Due 3/22/18)   11,459    11,459    11,459    4.8%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (2,216,463 shares)        2,576    10,348    4.3%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock Warrant (403,257 shares)        -    1,882    0.8%
                           
               14,035    23,689    9.9%
                           
GA Communications, Inc. (5)  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8% PIK dividend)        2,248    2,608    1.1%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,624    0.7%
                           
               2,250    4,232    1.8%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13% Cash, Due 7/16/18)   5,182    5,182    5,182    2.2%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock (8,182 shares)        818    83    0.0%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock Warrants (4,506 shares)        -    46    0.0%
                           
               6,000    5,311    2.2%
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,500,000 shares)        1,500    2,489    1.0%
                           
               1,500    2,489    1.0%
                           
MJC Holdings, LLC  Specialty Clothing  Series A Preferred Units (2,000,000 units)        2,000    5,719    2.4%
                           
               2,000    5,719    2.4%
                           
MMI Holdings, LLC (1)  Medical Device Distributor  Senior Secured Debt (12% Cash, Due 1/31/17)   2,600    2,600    2,600    1.1%
                           
MMI Holdings, LLC (1)  Medical Device Distributor  Subordinated Debt (6% Cash, Due 1/31/17)   400    388    400    0.2%
                           
MMI Holdings, LLC (5)  Medical Device Distributor  Preferred Units (1,000 units, 6% PIK dividend)        1,155    1,291    0.5%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    122    0.1%
                           
               4,143    4,413    1.9%
                           
MTI Holdings, LLC  Retail Display & Security Services  Subordinated Debt (12% Cash, Due 11/1/18)   8,000    8,000    8,000    3.3%
                           
MTI Holdings, LLC  Retail Display & Security Services  Membership Units (2,000,000 units)        2,000    4,900    2.1%
                           
               10,000    12,900    5.4%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Senior Secured Term Debt (12% Cash, 3% PIK, Due 12/28/17)   5,323    5,323    4,948    2.1%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Preferred Membership Units (10.8% fully diluted)        1,240    -    0.0%
                           
               6,563    4,948    2.1%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Subordinated Debt (13% Cash, Due 2/17/17)   2,500    2,500    2,500    1.0%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Common Stock Warrants (6.65% ownership)        -    503    0.3%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Membership Units  (11.3% ownership)        750    714    0.3%
                           
               3,250    3,717    1.6%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Senior Secured Term Debt (7% Cash, Due 6/12/17)   5,750    5,750    5,470    2.3%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Subordinated Debt (7% Cash, Due 9/15/17)   17,875    17,875    13,922    5.8%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Preferred Membership Units (15.8% ownership)        1,878    -    0.0%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Membership Unit Warrant (0.31% ownership)        10    -    0.0%
                           
               25,513    19,392    8.1%

 

8
 

 

Source Recycling, LLC  Scrap Metal Recycler  Subordinated Debt (13% Cash, Due 9/2/16)   5,000    5,000    4,927    2.1%
                           
Source Recycling, LLC  Scrap Metal Recycler  Membership Units (68,656 units)        1,590    -    0.0%
                           
Source Recycling, LLC  Scrap Metal Recycler  Membership Unit Warrants (1% fully diluted)        -    -    0.0%
                           
               6,590    4,927    2.1%
                           
Sparus Holdings, Inc. (2)  Energy Services  Senior Secured Term Debt (12% Cash, 2% PIK, Due 3/21/16)   5,060    5,012    5,109    2.1%
                           
Sparus Holdings, Inc. (2)  Energy Services  Subordinated Debt (9% Cash, 5% PIK, Due 3/21/16)   8,210    8,066    5,391    2.3%
                           
Sparus Holdings, Inc.  Energy Services  Series B Preferred Stock (5,703 shares)        1,173    -    0.0%
                           
Sparus Holdings, Inc.  Energy Services  Common Stock Warrants (3,491 shares)        -    -    0.0%
                           
               14,251    10,500    4.4%
                           
STX Healthcare Management Services, Inc. (1)  Dental Practice Management  Subordinated Debt (12.5% Cash, Due 7/31/18)   6,425    6,425    6,425    2.7%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock (1,200,000 shares)        1,200    822    0.4%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock Warrants (1,154,254 shares)        218    791    0.3%
                           
               7,843    8,038    3.4%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 11/22/18)   12,334    12,334    11,906    5.0%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 11/22/18)   9,829    9,829    9,488    4.0%
                           
TCE Holdings, Inc.  Oil & Gas Services  Class A Common Stock (3,600 shares)        3,600    1,164    0.5%
                           
               25,763    22,558    9.5%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Secured Term Debt (15% PIK, Due 11/26/16)   421    421    421    0.2%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Bridge Note (0% Cash, Due 6/30/15)   663    361    663    0.3%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Tier 2 Note (0% Cash, Due 6/30/15)   81    44    81    0.0%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Senior Subordinated Note (0% Cash, Due 6/30/15)   3,563    2,369    3,563    1.5%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Tier 3 Note (0% Cash, Due 6/30/15)   299    207    299    0.1%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Jr. Subordinated Note (0% Cash, Due 6/30/15)   2,750    -    2,750    1.2%
                           
V12 Holdings, Inc. (1)  Data Processing & Digital Marketing  Tier 4 Note (0% Cash, Due 6/30/15)   243    -    243    0.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-1 Preferred Stock (255,102 shares)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-3 Preferred Stock (88,194 shares)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-5 Preferred Stock (20,530 shares)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Common Stock Warrants (2,063,629 warrants)        -    -    0.0%
                           
               3,402    8,020    3.4%
                           
Sub Total Affiliate investments             $156,307   $173,585    72.9%
                           
Control investments - 28.0%                           
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Senior Secured Term Debt (12% Cash, 4% PIK, Due 5/24/18)  $10,694   $10,694   $10,694    4.5%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (1,125,000 shares)        1,125    943    0.4%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (570,000 shares)        -    480    0.2%
               11,819    12,117    5.1%
                           
Capitala Senior Liquid Loan Fund I, LLC (7) (10)  Investment Fund  Common Stock (80% ownership)        10,000    10,000    4.2%
                           
               10,000    10,000    4.2%
                           
KBP Investments, LLC  QSR Franchisee  Class A Common Stock (380,413 shares)        -    900    0.4%
                           
               -    900    0.4%
                           
Market E's, LLC (1)  Online Travel Sales & Marketing  Senior Secured Debt (0% Cash, Due 12/31/16)   985    985    1,000    0.4%
                           
Market E's, LLC (1)   Online Travel Sales & Marketing  Subordinated Debt (0% Cash, Due 12/31/16)   2,897    2,875    750    0.3%
                           
Market E's, LLC  Online Travel Sales & Marketing  Class A Preferred Stock (600 shares)        240    -    0.0%
                           
Market E's, LLC  Online Travel Sales & Marketing  Class B Preferred Stock (2,411 shares)        965    -    0.0%
                           
Market E's, LLC  Online Travel Sales & Marketing  Class A Common Stock (600 shares)        -    -    0.0%
                           
               5,065    1,750    0.7%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10% Cash, Due 9/16/16)   1,862    1,862    1,862    0.8%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14% Cash, 4% PIK, Due 9/16/16)   3,720    3,720    3,720    1.6%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    1,629    0.7%
                           
               7,211    7,211    3.1%
                           
Navis Holdings, Inc.   Textile Equipment Manufacturer  Senior Secured Term Debt (17%, 3% PIK at Company's option, Due 2/1/16)   6,500    6,500    6,500    2.7%
                           
Navis Holdings, Inc. (5)  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10% Cash Dividend)        1,000    1,000    0.4%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (300,000 shares)        1    3,814    1.6%
                           
               7,501    11,314    4.7%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Subordinated Debt (14% Cash, 4% PIK, Due 12/19/16)   6,674    6,674    6,238    2.6%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Series A Preferred Stock (32,782 shares)        3,278    -    0.0%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Series B Preferred Stock (23,648 shares)        2,365    -    0.0%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Common Stock (33,107 shares)        33    -    0.0%
                           
               12,350    6,238    2.6%
                           
Print Direction, Inc.  Printing Services  Senior Secured Term Debt (15% Cash, Due 2/24/19)   14,000    14,000    14,000    5.8%
                           
Print Direction, Inc.  Printing Services  Common Stock (19,363 shares)        2,990    2,990    1.3%
                           
Print Direction, Inc.  Printing Services  Common Stock Warrants (3% fully diluted)        -    132    0.1%
                           
               16,990    17,122    7.2%
                           
Sub Total Control investments             $70,936   $66,652    28.0%
                           
TOTAL INVESTMENTS -217.9%             $484,035   $518,927    217.9%

 

(1)The maturity date of the original investment has been extended.
(2)PIK non-accrual Investment.
(3)All debt investments are income producing. Equity and warrant investments are non-income producing, unless otherwise noted.
(4)Percentages are based on net assets of $238,172 as of March 31, 2015.
(5)The equity investment is income producing, based on rate disclosed.
(6)The equity investment has an exercisable put option.
(7)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.
(8)The investment has a $0.6 million unfunded commitment.
(9)The investment has a $5.8 million unfunded commitment.
(10)The investment has a $10.0 million unfunded commitment.
(11)The Company is currently accruing 3% PIK due to covenant non-compliance.

 

See accompanying notes to consolidated financial statements.

 

9
 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

December 31, 2014

 

 

Company (4, 5)  Industry  Type of Investment  Principal
Amount		   Cost   Fair Value    % of
Net Assets		 
                       
Non-control/Non-affiliated investments - 98.3%                          
                           
AAE Acquisition, LLC (1)  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18)  $11,000   $10,998   $11,000    4.6%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,212    0.9%
                           
               11,015    13,212    5.5%
                           
A Wireless Holding Company  Wireless Communication Retailer  Subordinated Debt (12% Cash, Due 9/09/19)   12,000    12,000    12,000    5.0%
                           
               12,000    12,000    5.0%
                           
American Exteriors, LLC (1) (11)  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 6/30/15)   4,357    3,157    4,357    1.8%
                           
American Exteriors, LLC (1)  Replacement Window Manufacturer  Jr. Convertible Note (10% Cash, Due 6/30/16)   500    415    500    0.2%
                           
American Exteriors, LLC  (7)  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted)        -    -    0.0%
                           
               3,572    4,857    2.0%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/2020)   5,000    4,804    4,804    2.0%
                           
               4,804    4,804    2.0%
                           
Boot Barn Holdings, Inc (8)  Western Wear Retail  Common Stock (600,000 shares)        2,400    10,920    4.5%
                           
               2,400    10,920    4.5%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    193    0.1%
                           
Caregiver Services, Inc. (7)  In-Home Healthcare Services  Common Stock Warrants (655,908 units)        264    431    0.2%
                           
               522    624    0.3%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/2020)   12,500    12,500    12,500    5.2%
                           
               12,500    12,500    5.2%
                           
Crowley Holdings, Inc. (6)  Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend)        6,145    6,145    2.6%
                           
               6,145    6,145    2.6%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,640    16,297    6.8%
                           
               16,640    16,297    6.8%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/2020)   7,900    7,594    7,594    3.2%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10%, 1% Floor, Due 10/3/2021)   12,000    11,532    11,532    4.7%
                           
               19,126    19,126    7.9%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    1,850    0.8%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)        -    -    0.0%
                           
               2,000    1,850    0.8%