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 Quarter Ended June 30, 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 August 7, 2015 was 16,145,625.

 

 
 

 

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, 2015 (unaudited) and December 31, 2014 3
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2015 and 2014 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the six months ended June, 2015 and 2014 (unaudited) 6
     
  Consolidated Schedules of Investments as of June 30, 2015 (unaudited) and December 31, 2014 7
     
  Notes to Consolidated Financial Statements as of June 30, 2015 (unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
     
Item 4. Controls and Procedures 46
     
PART II OTHER INFORMATION 47
     
Item 1. Legal Proceedings 47
     
Item 1A. Risk Factors 47
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 47
     
Item 3. Defaults upon Senior Securities 47
     
Item 4. Mine Safety Disclosures 47
     
Item 5. Other Information 47
     
Item 6. Exhibits 48
   
Signatures 50

 

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, 2015   December 31, 2014 
   (unaudited)     
ASSETS          
           
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $325,856 and $219,163, respectively)  $345,881   $236,804 
Affiliate investments (amortized cost of $142,628 and $154,552, respectively)   147,951    171,471 
Control investments (amortized cost of $78,150 and $67,440, respectively)   71,482    72,062 
Total investments at fair value (amortized cost of $546,634 and $441,155, respectively)   565,314    480,337 
Cash and cash equivalents   39,533    55,107 
Interest and dividend receivable   4,063    3,113 
Due from related parties   256    518 
Deferred financing fees (net of accumulated amortization of $4,231 and $3,288, respectively)   9,368    10,002 
Prepaid expenses   236    515 
Other assets   90    274 
Total assets  $618,860   $549,866 
           
LIABILITIES          
SBA debentures  $192,200   $192,200 
Notes   113,438    113,438 
Revolving Credit Facility   -    - 
Distribution payable   4,879    - 
Trade settlement payable   10,772    - 
Due to related parties   4    8 
Management and incentive fee payable   2,544    159 
Interest and financing fees payable   3,145    2,902 
Accounts payable and accrued expenses   13    322 
Total liabilities  $326,995   $309,029 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 16,262,391 and 12,974,420 common shares issued and outstanding, respectively   163    130 
Additional paid in capital   246,386    188,408 
Accumulated undistributed net investment income   8,640    12,314 
Accumulated undistributed net realized gain from investments   17,996    803 
Net unrealized appreciation on investments   18,680    39,182 
Total net assets   291,865    240,837 
           
Total liabilities and net assets  $618,860   $549,866 
           
Net asset value per share  $17.95   $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 June 30   For the six months ended June 30 
   2015    2014    2015    2014  
                 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/Non-affiliate investments  $9,516   $3,125   $17,191   $6,066 
Affiliate investments   3,081    3,884    6,672    7,625 
Control investments   1,086    1,504    2,725    2,837 
Total interest and fee income   13,683    8,513    26,588    16,528 
Payment-in-kind interest and dividend income:                    
Non-control/Non-affiliate investments   375    251    689    424 
Affiliate investments   394    330    650    623 
Control investments   422    163    621    287 
Total payment-in-kind interest and dividend income   1,191    744    1,960    1,334 
Dividend income:                    
Non-control/Non-affiliate investments   154    1,351    307    1,514 
Affiliate investments   29    687    58    716 
Control investments   25    1,225    209    4,795 
Total dividend income   208    3,263    574    7,025 
Interest income from cash and cash equivalents   2    6    3    14 
Total investment income   15,084    12,526    29,125    24,901 
                     
EXPENSES                    
Interest and financing expenses   4,681    2,401    9,317    4,601 
Base management fee   2,587    2,276    4,997    4,294 
Incentive fees   1,329    1,408    2,510    2,838 
General and administrative expenses   1,170    883    2,167    2,013 
Expenses before management fee waiver   9,767    6,968    18,991    13,746 
Management fee waiver (See Note 5)   -    (76)   -    (200)
Total expenses net of management fee waiver   9,767    6,892    18,991    13,546 
                     
NET INVESTMENT INCOME   5,317    5,634    10,134    11,355 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:                    
Net realized gain from investments:                    
Non-control/Non-affiliate investments   7,670    -    7,698    1,158 
Affiliate investments   7,098    351    7,098    351 
Control investments   1,069    111    10,381    173 
Total realized gain from investments   15,837    462    25,177    1,682 
Net unrealized appreciation/(depreciation) on investments   (16,212)   116    (20,502)   (5,607)
Net gain (loss) on investments   (375)   578    4,675    (3,925)
                     
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $4,942   $6,212   $14,809   $7,430 
                     
NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.31   $0.48   $1.02   $0.57 
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED   15,957,926    12,974,420    14,474,446    12,974,420 
                     
DISTRIBUTIONS PAID PER SHARE  $0.62   $0.47   $1.14   $0.47 
                     
DISTRIBUTIONS PAYABLE PER SHARE  $0.30   $-   $0.30   $- 

 

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    Par   Paid in    Undistributed Net   Realized Gains   (Depreciation) on      
   Shares   Value   Capital   Investment Income   (Losses)   Investments   Total 
                             
BALANCE, December 31, 2013   12,974,420   $130   $188,408   $16,760   $(48)  $63,420   $  268,670 
Net investment income   -    -    -    11,355    -    -    11,355 
Net realized gain on portfolio investments   -    -    -    -    1,682    -    1,682 
Net change in unrealized appreciation/(depreciation) on portfolio investments   -    -    -    -    -    (5,607)   (5,607)
Distributions declared   -    -    -    (12,196)   -    -    (12,196)
BALANCE, June 30, 2014   12,974,420   $130   $188,408   $15,919   $1,634   $57,813   $263,904 
                                    
BALANCE, December 31, 2014   12,974,420   $130   $188,408   $12,314   $803   $39,182   $240,837 
Net investment income   -    -    -    10,134    -    -    10,134 
Net realized gain from investments   -    -    -    -    25,177    -    25,177 
Net change in unrealized appreciation/(depreciation) on portfolio investments   -    -    -    -    -    (20,502)   (20,502)
Issuance of common stock, net of offering and underwriting costs   3,500,000    35    61,665                   61,700 
Repurchase and retirement of common stock under stock repurchase program   (224,602)   (2)   (3,888)                  (3,890)
Distributions to shareholders:                                 - 
Stock issued under dividend reinvestment plan   12,573    -    201    -    -    -    201 
Distributions declared   -    -    -    (13,808)   (7,984)   -    (21,792)
BALANCE, June 30, 2015   16,262,391   $163   $246,386   $8,640   $17,996   $18,680   $291,865 

 

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 
   2015    2014  
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase in net assets resulting from operations  $14,809   $7,430 
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:          
Purchase of portfolio investments   (170,008)   (63,584)
Repayments of portfolio investments   91,931    20,160 
Net realized gain on portfolio investments   (25,177)   (1,682)
Net unrealized depreciation on portfolio investments   20,502    5,607 
Payment-in-kind interest and dividends   (1,960)   (1,334)
Accretion of original issue discount on portfolio investments   (265)   (7)
Amortization of deferred financing fees   943    369 
Changes in assets and liabilities:          
Interest and dividend receivable   (950)   (17)
Due from related parties   262    1,104 
Prepaid expenses   279    425 
Other assets   184    - 
Trade settlement payable   10,772    9,959 
Due to related parties   (4)   (508)
Management and incentive fee payable   2,385    (288)
Interest payable   243    152 
Accounts payable and accrued expenses   (309)   54
NET CASH USED IN OPERATING ACTIVITIES   (56,363)   (22,160)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA-guaranteed debentures   -    (10,000)
Proceeds from credit facility   25,000    - 
Payments to credit facility   (25,000)   - 
Issuance of notes   -    113,438 
Issuance of common stock, net of offering and underwriting costs   61,700    - 
Distributions paid to shareholders   (16,713)   (12,196)
Repurchases of common stock under stock repurchase program   (3,890)   - 
Deferred financing fees paid   (308)   (4,201)
NET CASH PROVIDED BY FINANCING ACTIVITIES  $40,789   $87,041 
           
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS   (15,574)   64,881 
CASH AND CASH EQUIVALENTS, beginning of period  $55,107   $101,622 
CASH AND CASH EQUIVALENTS, end of period  $39,533   $166,503 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $7,883   $4,075 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions declared and payable  $4,879   $- 
Distribution paid through DRIP share issuances  $201   $- 

 

See accompanying notes to consolidated financial statements.

 

6
 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

June 30, 2015

(unaudited)

 

Company (4, 5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value    % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 118.6%                      
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18) (1)   $11,000   $10,999   $11,000     3.8%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,449    0.8%
                           
               11,016    13,449    4.6%
                           
American Clinical Solutions, LLC  Healthcare  Senior Secured Debt (L+9.5% Cash, 1% Floor, Due 6/11/20)   10,000    10,000    10,000    3.4%
                           
               10,000    10,000    3.4%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 1/15/16) (1)   4,879    3,679    4,868    1.6%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Jr. Convertible Note (10% Cash, Due 12/31/16) (1)   500    416    500    0.2%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted) (7)        -    -    0.0%
                           
               4,095    5,368    1.8%
                           
B&W Quality Growers, LLC  Farming  Subordinated Debt (14% Cash, Due 7/23/20)   10,000    9,991    10,000    3.4%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrants (91,739 Units)        20    1,068    0.4%
                           
               10,011    11,068    3.8%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/20)   4,654    4,487    4,487    1.5%
                           
               4,487    4,487    1.5%
                           
Boot Barn Holdings, Inc   Western Wear Retail  Common Stock (95,252 shares) (8)        381    3,048    1.0%
                           
               381    3,048    1.0%
                           
Brock Holdings III, Inc.  Industrial Specialty Services  Subordinated Debt (L+8.25% Cash, 1.75% Floor, Due 3/16/18)   5,000    4,863    4,863    1.7%
                           
               4,863    4,863    1.7%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Senior Secured Term Debt (L+6.0% Cash, 2% Floor, Due 5/22/20)   2,000    2,000    2,000    0.7%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Subordinated Debt (L+14.25% Cash, 2% Floor, Due 5/22/20)   6,983    6,983    6,983    2.4%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Preferred Shares (2,966 shares, 8% PIK)        2,993    2,993    1.0%
                           
               11,976    11,976    4.1%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Senior Secured Term Debt (9.5% cash, due 4/30/20)   5,000    4,852    4,852    1.7%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Warrants (14 units)        5    5    0.0%
                           
               4,857    4,857    1.7%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    281    0.1%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        264    629    0.2%
                           
               522    910    0.3%
                           
Cedar Electronics Holding Corp.  Consumer Electronics  Subordinated Debt (12% Cash, Matures 12/26/20)   28,300    28,300    28,300    9.7%
                           
               28,300    28,300    9.7%
                           
Community Choice Financial, Inc.  Financial Services  Senior Secured Revolving Debt (L+13.0% Cash, 1% Floor, Due 3/27/17) (8)   20,000    20,000    20,000    6.9%
                           
               20,000    20,000    6.9%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/20)   12,500    12,500    12,500    4.3%
                           
               12,500    12,500    4.3%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9% Cash, 2% PIK, Due 11/29/21)   15,779    15,779    15,779    5.4%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    1,575    0.5%
                           
               17,354    17,354    5.9%
                           
Crowley Holdings, Inc.  Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend) (6)        6,207    6,207    2.1%
                           
               6,207    6,207    2.1%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,663    16,244    5.6%
                           
               16,663    16,244    5.6%
                           
Emerging Markets Communications, LLC  Satellite Communications  Subordinated Debt (L+9.625% Cash, 1% Floor, Due 7/16/23)   5,000    4,925    4,925    1.7%
                           
               4,925    4,925    1.7%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/20)   7,700    7,430    7,430    2.5%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10% Cash, 1% Floor, Due 10/3/21)   12,000    11,567    11,567    4.0%
                           
               18,997    18,997    6.5%
                           
Group Cirque du Soleil, Inc.  Entertainment  Subordinated Debt (L+8.25% Cash, 1% Floor, Due 7/8/23) (8)   1,000    985    985    0.3%
                           
               985    985    0.3%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    1,577    0.5%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)        -    -    0.0%
                           
               2,000    1,577    0.5%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   14,984    14,971    14,984    5.2%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        2,947    2,947    1.0%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        22    4,337    1.5%
                           
               17,940    22,268    7.7%
                           
Maxim Crane Works, L.P  Crane Rental and Sales  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 11/26/18)   5,000    5,038    5,038    1.7%
                           
               5,038    5,038    1.8%
                           
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20) (1)   4,667    4,667    4,667    1.6%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)        1,333    7,820    2.7%
                           
               6,000    12,487    4.3%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/19)   20,000    20,000    20,000    6.9%
                           
               20,000    20,000    6.9%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 8/15/21)   15,000    14,801    14,535    5.0%
                           
               14,801    14,535    5.0%
                           
Portrait Innovations, Inc.  Professional and Personal Digital Imaging  Senior Secured Term Debt (12% Cash, Due 2/26/20)   15,000    15,000    15,000    5.1%
                           
               15,000    15,000    5.1%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  Senior Secured Term Debt (12% cash, 4% PIK, due 7/17/19)   12,357    12,162    12,357    4.2%
                           
               12,162    12,357    4.2%
                           
Sierra Hamilton, LLC  Oil & Gas Engineering and Consulting Services  Senior Secured Debt (12.25% Cash, Due 12/15/18)   15,000    15,000    14,196    4.9%
                           
               15,000    14,196    4.9%
                           
Southern Pump & Tank Company, LLC  Petroleum Equipment Supplier  Senior Secured Term Debt (13% Cash, 6% PIK, Due 7/15/15) (1)   4,442    3,614    4,442    1.5%
                           
Southern Pump & Tank Company, LLC  Petroleum Equipment Supplier  Common Stock Warrants (10% fully diluted)        -    -    0.0%
                           
               3,614    4,442    1.5%
                           
Stoddard Hill Media Holdings, LLC  IT Hosting Services  Class D Preferred Units (12)        -    96    0.0%
                           
               -    96    0.0%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.3%
                           
               758    758    0.3%
                           
Tenere, Inc.  Industrial Manufacturing  Senior Secured Term Debt (11% Cash, 2% PIK, Due 12/15/17) (9)   3,546    3,546    3,546    1.2%
                           
               3,546    3,546    1.2%
                           
US LBM Holdings, LLC  Building Products  Senior Secured Debt (L+7% Cash, 1% Floor, Due 5/2/20)   4,968    4,879    4,875    1.7%
                           
               4,879    4,875    1.7%
                           
U.S. Well Services, LLC  Oil & Gas Services  Senior Secured Debt (L+11.5% Cash, 0.5% floor, Due 5/2/19) (10)   8,758    8,679    8,671    3.0%
                           
               8,679    8,671    3.0%
                           
Velum Global Credit Management, LLC  Financial Services  Senior Secured Debt (15% Cash, Due 12/31/15) (8)   8,300    8,300    8,300    2.8%
                           
               8,300    8,300    2.8%
                           
Worklife America, Inc.  Professional Employer Organization  Common Stock Warrants (3.84% ownership)        -    1,808    0.7%
                           
Worklife America, Inc.  Professional Employer Organization  Preferred Stock Warrants (3.84% ownership)        -    389    0.1%
                           
               -    2,197    0.8%
                           
Sub Total Non-control/Non-affiliated investments             $325,856   $345,881    118.6%
                           
Affiliate investments - 50.7%                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Senior Subordinated Debt (14% Cash, due 8/9/2019)  $5,000   $5,000   $5,000    1.7%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Junior Subordinated Debt (12% Cash, due 8/9/2019)   7,200    7,200    7,200    2.5%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock (1,253,198 shares)        1,504    3,734    1.3%
                           
               13,704    15,934    5.5%
                           
City Gear, LLC  Footwear Retail  Subordinated Debt (13% Cash, Due 9/28/16)   8,231    8,231    8,231    2.8%
                           
City Gear, LLC  Footwear Retail  Preferred Membership Units (9% Cash dividend) (6)        1,269    1,269    0.4%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (14.15% fully diluted)        -    7,839    2.7%
                           
               9,500    17,339    5.9%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (12)        -    588    0.2%
                           
               -    588    0.2%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8% PIK dividend) (6)        2,302    2,659    0.9%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,161    0.4%
                           
               2,304    3,820    1.3%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13% Cash, Due 7/16/18)   5,182    5,182    5,158    1.8%
                           
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 (4,506 shares)        -    -    0.0%
                           
               6,000    5,158    1.8%
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,500,000 shares)        1,500    2,587    0.9%
                           
               1,500    2,587    0.9%
                           
MJC Holdings, LLC  Specialty Clothing  Series A Preferred Units (2,000,000 units)        2,000    6,250    2.1%
                           
               2,000    6,250    2.1%
                           
MMI Holdings, LLC  Medical Device Distributor  Senior Secured Debt (12% Cash, Due 1/31/17) (1)   2,600    2,600    2,600    0.9%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6% Cash, Due 1/31/17) (1)   400    388    400    0.1%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6% PIK dividend) (6)        1,175    1,311    0.4%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    208    0.1%
                           
               4,163    4,519    1.5%
                           
MTI Holdings, LLC  Retail Display & Security Services  Subordinated Debt (12% Cash, Due 11/1/18)   8,000    8,000    8,000    2.8%
                           
MTI Holdings, LLC  Retail Display & Security Services  Membership Units (2,000,000 units)        2,000    5,095    1.7%
                           
               10,000    13,095    4.5%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Senior Secured Term Debt (12% Cash, 3% PIK, Due 12/28/17) (13)   5,404    5,404    4,689    1.6%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Preferred Membership Units (10.8% fully diluted)        1,240    -    0.0%
                           
               6,644    4,689    1.6%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Subordinated Debt (13% Cash, Due 2/17/17)   2,500    2,500    2,500    0.8%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Common Stock Warrants (6.65% ownership)        -    553    0.2%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Membership Units (11.3% ownership)        750    781    0.3%
                           
               3,250    3,834    1.3%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Senior Secured Term Debt (7% Cash, Due 6/12/17)   5,750    5,750    5,470    1.9%
                           
Source Capital SSCR, LLC  Personal Product Manufacturer  Subordinated Debt (7% Cash, Due 9/15/17) (2)   17,875    17,875    10,530    3.6%
                           
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    16,000    5.5%
                           
Source Recycling, LLC  Scrap Metal Recycler  Subordinated Debt (13% Cash, Due 9/2/16)   5,000    5,000    4,927    1.7%
                           
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    1.7%
                           
Sparus Holdings, Inc.  Energy Services  Senior Secured Term Debt (12% Cash, 2% PIK, Due 3/21/16)   5,085    5,085    5,085    1.7%
                           
Sparus Holdings, Inc.  Energy Services  Subordinated Debt (9% Cash, 5% PIK, Due 3/21/16) (3)   8,314    8,066    5,740    2.0%
                           
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%
                           
               14,324    10,825    3.7%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Subordinated Debt (12.5% Cash, Due 7/31/18) (1)   6,425    6,425    6,425    2.2%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock (1,200,000 shares)        1,200    915    0.3%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock Warrants (1,154,254 shares)        218    881    0.3%
                           
               7,843    8,221    2.8%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19)   12,397    12,397    11,914    4.1%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19)   9,879    9,879    9,494    3.3%
                           
TCE Holdings, Inc.  Oil & Gas Services  Class A Common Stock (3,600 shares)        3,600    721    0.2%
                           
               25,876    22,129    7.6%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Secured Term Debt (15% PIK, Due 11/26/16)   437    437    437    0.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Bridge Note (0% Cash, Due 6/30/15) (1)   663    361    663    0.2%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Tier 2 Note (0% Cash, Due 6/30/15) (1)   81    44    81    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Subordinated Note (0% Cash, Due 6/30/15) (1)   3,563    2,369    3,563    1.3%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Tier 3 Note (0% Cash, Due 6/30/15) (1)   299    206    299    0.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Jr. Subordinated Note (0% Cash, Due 6/30/15) (1)   2,750    -    2,750    1.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Tier 4 Note (0% Cash, Due 6/30/15) (1)   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%
                           
               3,417    8,036    2.8%
                           
Sub Total Affiliate investments             $142,628   $147,951    50.7%
                           
Control investments - 24.4%                           
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Senior Secured Term Debt (12% Cash, 4% PIK, Due 5/24/18)  $10,802   $10,802   $10,802    3.7%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (1,125,000 shares)        1,125    575    0.2%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (570,000 shares)        -    292    0.1%
                           
               11,927    11,669    4.0%
                           
Capitala Senior Liquid Loan Fund I, LLC  Investment Fund  Common Stock (80% ownership) (8) (11)        15,200    15,256    5.2%
                           
               15,200    15,256    5.2%
                           
CION/Capitala Senior Liquid Loan Fund I, LLC  Investment Fund  Common Stock (20% ownership) (8) (15)        -    -    0.0%
                           
               -    -    0.0%
                           
Market E's, LLC  Online Travel Sales & Marketing  Senior Secured Debt (0% Cash, Due 12/31/16) (1)   985    985    1,000    0.3%
                           
Market E's, LLC  Online Travel Sales & Marketing  Subordinated Debt (0% Cash, Due 12/31/16) (1)   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    0.6%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10% Cash, Due 9/16/16)   1,862    1,862    1,862    0.6%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14% Cash, 4% PIK, Due 9/16/16)   3,753    3,753    3,753    1.3%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    1,629    0.6%
                           
               7,244    7,244    2.5%
                           
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    2.1%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10% Cash Dividend) (6)        1,000    1,000    0.3%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (300,000 shares)        1    3,966    1.4%
                           
               7,501    11,466    3.8%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Subordinated Debt (14% Cash, 4% PIK, Due 12/19/16) (14)   7,473    7,473    6,629    2.3%
                           
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%
                           
               13,149    6,629    2.3%
                           
Print Direction, Inc.  Printing Services  Senior Secured Term Debt (10% Cash, 2% PIK, Due 2/24/19)   15,074    15,074    15,074    5.2%
                           
Print Direction, Inc.  Printing Services  Common Stock (19,363 shares)        2,990    2,294    0.8%
                           
Print Direction, Inc.  Printing Services  Common Stock Warrants (3% fully diluted)        -    100    0.0%
                           
               18,064    17,468    6.0%
                           
Sub Total Control investments             $78,150   $71,482    24.4%
                           
TOTAL INVESTMENTS -193.7%             $546,634   $565,314    193.7%

 

(1)The maturity date of the original investment has been extended.
(2)Non-accrual investment.
(3)PIK non-accrual investment.
(4)All debt investments are income producing. Equity and warrant investments are non-income producing, unless otherwise noted.
(5)Percentages are based on net assets of $291,865 as of June 30, 2015.
(6)The equity investment is income producing, based on rate disclosed.
(7)The equity investment has an exercisable put option.
(8)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, 2015, 7.7% of the Company's total assets were non-qualifying assets.
(9)The investment has a $0.6 million unfunded commitment.
(10)The investment has a $6.0 million unfunded commitment.
(11)The investment has a $4.8 million unfunded commitment.
(12)Investment has been exited. The remaining fair value represents post transaction true-up that will result in additional cash payments made to the Company.
(13)Interest rate amended to 6% cash and 6% PIK through December 31, 2015.
(14)Interest rate amended to 8% cash through December 31, 2015.
(15)The investment has a $10.0 million unfunded commitment.

 

See accompanying notes to consolidated financial statements.

 

7
 

 

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  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18) (1)  $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  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 6/30/15) (1) (11)   4,357    3,157    4,357    1.8%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Jr. Convertible Note (10% Cash, Due 6/30/16) (1)   500    415    500    0.2%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted) (7)        -    -    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   Western Wear Retail  Common Stock (600,000 shares) (8)        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.   In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        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.   Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend) (6)        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%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   15,366    15,351    15,366    6.3%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        2,802    2,802    1.2%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        23    2,781    1.2%
                           
               18,176    20,949    8.7%
                           
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20) (1)   4,667    4,667    4,667    1.9%
                           
Medical Depot, Inc.  Medical Device Distributor