Table of Contents

 

 

 

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C.  20549

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2013 or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 814-00201

 

MVC CAPITAL, INC.

(Exact name of the registrant as specified in its charter)

 

DELAWARE
(State or other jurisdiction of
incorporation or organization)

 

94-3346760
(I.R.S. Employer
Identification No.)

 

 

 

 

287 Bowman Avenue
2nd Floor
Purchase, New York

 

10577

(Address of principal
executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (914) 701-0310

 

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 o

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

 

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

There were 22,617,688 shares of the registrant’s common stock, $.01 par value, outstanding as of September 9, 2013.

 

 

 



Table of Contents

 

 MVC Capital, Inc.

(A Delaware Corporation)

Index

 

 

Page

Part I. Consolidated Financial Information

 

 

 

Item 1.

Consolidated Financial Statements

 

 

Consolidated Balance Sheets

 

 

-

July 31, 2013 and October 31, 2012

3

 

Consolidated Statements of Operations

 

 

-

For the Period November 1, 2012 to July 31, 2013 and

 

 

-

For the Period November 1, 2011 to July 31, 2012

4

 

Consolidated Statements of Operations

 

 

-

For the Period May 1, 2013 to July 31, 2013 and

 

 

-

For the Period May 1, 2012 to July 31, 2012

5

 

Consolidated Statements of Cash Flows

 

 

-

For the Period November 1, 2012 to July 31, 2013 and

 

 

-

For the Period November 1, 2011 to July 31, 2012

6

 

Consolidated Statements of Changes in Net Assets

 

 

-

For the Period November 1, 2012 to July 31, 2013,

 

 

-

For the Period November 1, 2011 to July 31, 2012 and

 

 

-

For the Year ended October 31, 2012

7

 

Consolidated Selected Per Share Data and Ratios

 

 

-

For the Period November 1, 2012 to July 31, 2013,

 

 

-

For the Period November 1, 2011 to July 31, 2012 and

 

 

-

For the Year ended October 31, 2012

8

 

Consolidated Schedule of Investments

 

 

-

July 31, 2013

 

 

-

October 31, 2012

9

 

Notes to Consolidated Financial Statements

13

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

62

 

 

 

Item 4.

Controls and Procedures

69

 

 

 

Part II. Other Information

70

 

 

Exhibits

70

 

 

SIGNATURE

72

 



Table of Contents

 

Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

July 31,

 

October 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

94,631,624

 

$

36,160,558

 

Restricted cash and cash equivalents

 

6,650,000

 

6,480,000

 

Investments at fair value

 

 

 

 

 

Short term investments (cost $49,508,735 and $0)

 

50,026,641

 

 

Non-control/Non-affiliated investments (cost $82,461,260 and $54,629,419)

 

68,294,064

 

34,197,990

 

Affiliate investments (cost $130,204,755 and $128,521,214)

 

205,923,003

 

178,396,856

 

Control investments (cost $143,159,786 and $149,281,248)

 

142,202,543

 

191,575,802

 

Total investments at fair value (cost $405,334,536 and $332,431,881)

 

466,446,251

 

404,170,648

 

Escrow receivables, net of reserves

 

5,912,749

 

991,563

 

Dividends and interest receivables, net of reserves

 

4,149,151

 

4,559,703

 

Deferred financing fees

 

3,331,810

 

 

Fee and other receivables

 

1,973,959

 

3,314,116

 

Prepaid expenses

 

323,985

 

753,501

 

Prepaid taxes

 

336

 

591

 

 

 

 

 

 

 

Total assets

 

$

583,419,865

 

$

456,430,680

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes

 

$

114,408,750

 

$

 

Revolving credit facility

 

50,000,000

 

 

Provision for incentive compensation (Note 11)

 

21,799,378

 

15,655,438

 

Management fee payable

 

2,100,496

 

2,027,571

 

Professional fees payable

 

712,642

 

767,835

 

Other accrued expenses and liabilities

 

656,314

 

734,501

 

Management fee payable - Asset Management

 

374,393

 

1,054,433

 

Interest payable

 

368,651

 

 

Portfolio fees payable - Asset Management

 

138,528

 

140,293

 

Consulting fees payable

 

108,631

 

34,476

 

Term loan

 

 

50,000,000

 

 

 

 

 

 

 

Total liabilities

 

190,667,783

 

70,414,547

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 22,617,688 and 23,916,982 shares outstanding, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

425,651,660

 

425,651,660

 

Accumulated earnings

 

64,572,122

 

64,524,665

 

Distributions paid to stockholders

 

(101,484,091

)

(92,010,775

)

Accumulated net realized loss

 

(2,939,916

)

(46,401,983

)

Net unrealized appreciation

 

61,111,715

 

71,738,767

 

Treasury stock, at cost, 5,686,760 and 4,387,466 shares held, respectively

 

(54,442,452

)

(37,769,245

)

 

 

 

 

 

 

Total shareholders’ equity

 

392,752,082

 

386,016,133

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

583,419,865

 

$

456,430,680

 

 

 

 

 

 

 

Net asset value per share

 

$

17.36

 

$

16.14

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Nine Month Period

 

For the Nine Month Period

 

 

 

November 1, 2012 to

 

November 1, 2011 to

 

 

 

July 31, 2013

 

July 31, 2012

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

1,804

 

$

6,352

 

Affiliate investments

 

7,817,470

 

92,574

 

Control investments

 

426,300

 

12,000,000

 

Total dividend income

 

8,245,574

 

12,098,926

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

200,408

 

185,146

 

Total payment-in-kind dividend income

 

200,408

 

185,146

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

1,785,285

 

1,453,152

 

Affiliate investments

 

2,673,283

 

2,987,903

 

Control investments

 

1,157,569

 

761,122

 

Total interest income

 

5,616,137

 

5,202,177

 

 

 

 

 

 

 

Payment-in-kind interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

899,068

 

51,597

 

Affiliate investments

 

726,483

 

873,564

 

Control investments

 

581,774

 

1,653,154

 

Total payment-in-kind interest income

 

2,207,325

 

2,578,315

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

686,095

 

67,427

 

Affiliate investments

 

707,308

 

807,246

 

Control investments

 

988,159

 

570,331

 

Total fee income

 

2,381,562

 

1,445,004

 

 

 

 

 

 

 

Fee income - Asset Management(1)

 

 

 

 

 

Portfolio fees

 

416,618

 

1,149,779

 

Management Fees

 

928,471

 

823,562

 

Total fee income - Asset Management

 

1,345,089

 

1,973,341

 

 

 

 

 

 

 

Other income

 

298,096

 

255,874

 

 

 

 

 

 

 

Total operating income

 

20,294,191

 

23,738,783

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Net Incentive compensation (Note 11)

 

6,143,940

 

(4,526,865

)

Management fee

 

6,045,866

 

6,560,420

 

Interest and other borrowing costs

 

4,470,464

 

2,480,757

 

Management fee - Asset Management(1)

 

696,350

 

617,671

 

Audit fees

 

473,700

 

522,000

 

Consulting fees

 

427,753

 

327,353

 

Other expenses

 

407,999

 

466,045

 

Legal fees

 

408,000

 

511,238

 

Portfolio fees - Asset Management(1)

 

312,464

 

862,335

 

Directors’ fee

 

309,375

 

259,000

 

Insurance

 

248,310

 

250,839

 

Administration fee

 

190,166

 

197,751

 

Public relations fees

 

145,500

 

76,500

 

Printing and postage

 

76,647

 

99,900

 

 

 

 

 

 

 

Total operating expenses

 

20,356,534

 

8,704,944

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser(2)

 

(112,500

)

(112,500

)

Less: Voluntary Management Fee Waiver by Adviser(3)

 

 

(58,728

)

Less: Voluntary Incentive Fee Waiver by Adviser(4)

 

 

(2,345,189

)

 

 

 

 

 

 

Total waivers

 

(112,500

)

(2,516,417

)

 

 

 

 

 

 

Net operating income before taxes

 

50,157

 

17,550,256

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

2,700

 

1,646

 

 

 

 

 

 

 

Total tax expense

 

2,700

 

1,646

 

 

 

 

 

 

 

Net operating income

 

47,457

 

17,548,610

 

 

 

 

 

 

 

Net Realized and Unrealized (Loss) Gain on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Non-control/Non-affiliated investments

 

(6,276,271

)

(25,170,615

)

Affiliate investments

 

82,512

 

 

Control investments

 

49,655,826

 

41,097

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

43,462,067

 

(25,129,518

)

 

 

 

 

 

 

Net unrealized depreciation on investments

 

(10,627,052

)

(10,517,555

)

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

32,835,015

 

(35,647,073

)

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

32,882,472

 

$

(18,098,463

)

 

 

 

 

 

 

Net increase (decrease) in net assets per share resulting from operations

 

$

1.41

 

$

(0.76

)

 

 

 

 

 

 

Dividends declared per share

 

$

0.405

 

$

0.360

 

 

 

 

 

 

 

Weighted average number of shares outstanding (5)

 

23,549,370

 

23,916,982

 

 


(1)These items are related to the management of the MVC Private Equity Fund, L.P. (“PE Fund”). Please see Note 10 “Management” for more information.

 

(2)Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2013 and 2012 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the “Voluntary Waiver”).  Please see Note 10 “Management” for more information.

 

(3)Reflects TTG Advisers’ voluntary agreement that any assets of the Company invested in exchange-traded funds or the Octagon High Income Cayman Fund Ltd. would not be taken into the calculation of the base management fee due to TTG Advisers under the Advisory Agreement.  Please see Note 10 “Management” for more information.

 

(4)Reflects TTG Advisers’ voluntary waiver of the Incentive Fee associated with pre-incentive fee net operationg income for the fiscal quarter ended April 30, 2012.  Please see Note 10 “Management” for more information.

 

(5) Please see Note 13 “Dividends and Distributions to Shareholders and Share Repurchase Program” for more information.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Quarter

 

For the Quarter

 

 

 

May 1, 2013 to

 

May 1, 2012 to

 

 

 

July 31, 2013

 

July 31, 2012

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

253

 

$

2,110

 

Affiliate investments

 

2,975,320

 

31,471

 

Total dividend income

 

2,975,573

 

33,581

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

68,130

 

62,942

 

Total payment-in-kind dividend income

 

68,130

 

62,942

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

705,487

 

473,719

 

Affiliate investments

 

732,361

 

1,090,935

 

Control investments

 

264,850

 

250,983

 

Total interest income

 

1,702,698

 

1,815,637

 

 

 

 

 

 

 

Payment-in-kind interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

613,370

 

33,365

 

Affiliate investments

 

245,048

 

242,405

 

Control investments

 

84,643

 

563,382

 

Total payment-in-kind interest income

 

943,061

 

839,152

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

285,504

 

13,308

 

Affiliate investments

 

234,179

 

268,668

 

Control investments

 

449,861

 

196,300

 

Total fee income

 

969,544

 

478,276

 

 

 

 

 

 

 

Fee income - Asset Management(1)

 

 

 

 

 

Management fees

 

138,026

 

450,903

 

Portfolio fees

 

310,343

 

54,473

 

Total fee income - Asset Management

 

448,369

 

505,376

 

 

 

 

 

 

 

Other income

 

137,899

 

195,737

 

 

 

 

 

 

 

Total operating income

 

7,245,274

 

3,930,701

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Net Incentive compensation (Note 11)

 

3,960,795

 

(2,415,163

)

Interest and other borrowing costs

 

2,115,603

 

853,645

 

Management fee

 

2,100,496

 

2,127,182

 

Management fee - Asset Management(1)

 

232,758

 

40,855

 

Consulting fees

 

159,251

 

109,651

 

Audit fees

 

157,300

 

234,000

 

Other expenses

 

133,708

 

138,870

 

Legal fees

 

132,000

 

198,718

 

Portfolio fees - Asset Management(1)

 

103,520

 

338,178

 

Directors’ fees

 

103,125

 

84,000

 

Insurance

 

82,770

 

83,613

 

Administration fee

 

63,979

 

65,548

 

Public relations fees

 

48,000

 

25,500

 

Printing and postage

 

15,529

 

31,500

 

 

 

 

 

 

 

Total operating expenses

 

9,408,834

 

1,916,097

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser (2)

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Total waivers

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Net operating (loss) income before taxes

 

(2,126,060

)

2,052,104

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

900

 

549

 

 

 

 

 

 

 

Total tax expense

 

900

 

549

 

 

 

 

 

 

 

Net operating (loss) income

 

(2,126,960

)

2,051,555

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Non-control/Non-affiliated investments

 

164,945

 

(25,384,331

)

Affiliate investments

 

82,512

 

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

247,457

 

(25,384,331

)

 

 

 

 

 

 

Net unrealized appreciation on investments

 

19,994,333

 

12,737,773

 

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

20,241,790

 

(12,646,558

)

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

18,114,830

 

$

(10,595,003

)

 

 

 

 

 

 

Net increase (decrease) in net assets per share resulting from operations

 

$

0.79

 

$

(0.45

)

 

 

 

 

 

 

Dividends declared per share

 

$

0.135

 

$

0.120

 

 

 

 

 

 

 

Weighted average number of shares outstanding (3)

 

22,859,939

 

23,916,982

 

 


(1)These items are related to the management of the MVC Private Equity Fund, L.P. (“PE Fund”). Please see Note 10 “Management” for more information.

 

(2)Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2013 and 2012 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the “Voluntary Waiver”).  Please see Note 10 “Management” for more information.

 

(3) Please see Note 13 “Dividends and Distributions to Shareholders and Share Repurchase Program” for more information.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Nine Month Period

 

For the Nine Month Period

 

 

 

November 1, 2012 to

 

November 1, 2011 to

 

 

 

July 31, 2013

 

July 31, 2012

 

Cash flows from Operating Activities:

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

32,882,472

 

$

(18,098,463

)

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities:

 

 

 

 

 

Net realized (gain) loss

 

(43,462,067

)

25,129,518

 

Net change in unrealized depreciation

 

10,627,052

 

10,517,555

 

Amortization of discounts and fees

 

(145,462

)

(48,372

)

Increase in accrued payment-in-kind dividends and interest

 

(2,301,361

)

(2,294,938

)

Amortization of deferred financing fees

 

137,744

 

 

Allocation of flow through income

 

(149,320

)

(89,495

)

Changes in assets and liabilities:

 

 

 

 

 

Dividends and interest receivables, net of reserves

 

410,552

 

905,189

 

Fee and other receivables

 

1,340,157

 

 

Escrow receivables, net of reserves

 

(4,921,186

)

290,336

 

Prepaid expenses

 

429,516

 

144,357

 

Prepaid taxes

 

255

 

(1,978

)

Incentive compensation (Note 11)

 

6,143,940

 

(6,872,054

)

Other liabilities

 

(299,454

)

1,293,513

 

Purchases of equity investments

 

(28,993,574

)

(8,266,513

)

Purchases of debt instruments

 

(49,926,047

)

(2,500,000

)

Purchases of short term investments

 

(49,510,195

)

 

Proceeds from equity investments (1)

 

65,841,864

 

3,082,192

 

Proceeds from debt instruments

 

35,743,507

 

1,224,027

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

(26,151,607

)

4,414,874

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Proceeds from senior notes

 

114,408,750

 

 

Proceeds from revolving credit facility

 

50,000,000

 

 

Repayments of term loan

 

(50,000,000

)

 

Repurchase of common stock

 

(16,673,207

)

 

Financing fees paid

 

(3,469,554

)

 

Distributions paid to shareholders

 

(9,473,316

)

(8,610,114

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

84,792,673

 

(8,610,114

)

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

58,641,066

 

(4,195,240

)

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, beginning of period

 

$

42,640,558

 

$

35,242,460

 

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, end of period

 

$

101,281,624

 

$

31,047,220

 

 


(1) For the nine month ended July 31, 2013, proceeds from equity investments includes $5,678,975 held in escrow receivables, net of reserves.

 

During the nine months ended July 31, 2013 and 2012 MVC Capital, Inc. paid $4,502,326 and $2,188,207 in interest expense, respectively.

 

During the nine months ended July 31, 2013 and 2012 MVC Capital, Inc. paid $2,745 and $5,935 in income taxes, respectively.

 

Non-cash activity:

 

During the nine months ended July 31, 2013 and 2012, MVC Capital, Inc. recorded payment in-kind dividend and interest of $2,301,361 and $2,294,938, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the nine months ended July 31, 2013 and 2012, MVC Capital, Inc. was allocated $298,096 and $255,874, respectively, in flow-through income from its equity investment in Octagon Credit Investors, LLC.  Of these amounts, $148,777 and $166,379, respectively, was received in cash and the balance of $149,320 and $89,495, respectively, was undistributed and therefore increased the cost of the investment.  The fair value was then increased by $149,320 and $89,495, respectively, by the Company’s Valuation Committee.

 

On December 12, 2011, BP Clothing, LLC (“BP”) filed for Chapter 11 protection in New York with agreement to turn ownership over to secured lenders under a bankruptcy reorganization plan.  On June 20, 2012, BP completed the bankruptcy process which resulted in a realized loss of approximately $23.4 million on the second lien loan, term loan A and term loan B.  As a result of the bankruptcy process, the Company received limited liability company interest in BPC II, LLC (“BPC”).

 

On January 13, 2012, the Company received free warrants related to their debt investment in Freshii USA, Inc.  The Company allocated the cost basis in the investment between the senior secured loan and the warrant at the time the investment was made.  The Company will amortize the discount associated with the warrant over the life of the loan.  During the nine months ended July 31, 2013 and July 31, 2012, the Company recorded $4,807 and $6,034, respectively, of amortization.

 

On December 14, 2012, the Company received free warrants related to their debt investment in Biovation Holdings, Inc.  The Company allocated the cost basis in the investment between the bridge loan and the warrant at the time the investment was made.  The Company will amortize the discount associated with the warrant over the life of the loan.  During the nine months ended July 31, 2013, the Company recorded approximately $77,000 of amortization.

 

On March 23, 2012, the Company sold its shares in the Octagon High Income Cayman Fund Ltd. (“Octagon Fund”).  As part of this transaction, there was $152,000 held back until Octagon Fund’s fiscal year 2012 audit is complete.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Changes in Net Assets

 

 

 

For the Nine Month Period

 

For the Nine Month Period

 

 

 

 

 

November 1, 2012 to

 

November 1, 2011 to

 

For the Year Ended

 

 

 

July 31, 2013

 

July 31, 2012

 

October 31, 2012

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating income

 

$

47,457

 

$

17,548,610

 

$

21,121,070

 

Net realized gain (loss) on investments

 

43,462,067

 

(25,129,518

)

(20,518,433

)

Net change in unrealized depreciation on investments

 

(10,627,052

)

(10,517,555

)

(22,257,313

)

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets from operations

 

32,882,472

 

(18,098,463

)

(21,654,676

)

 

 

 

 

 

 

 

 

Shareholder Distributions From:

 

 

 

 

 

 

 

Income

 

(9,329,620

)

(8,610,114

)

(11,838,907

)

Return of capital

 

(143,696

)

 

 

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(9,473,316

)

(8,610,114

)

(11,838,907

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Repurchase of common stock

 

(16,673,207

)

 

 

 

 

 

 

 

 

 

 

Net decrease in net assets from capital share transactions

 

(16,673,207

)

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in net assets

 

6,735,949

 

(26,708,577

)

(33,493,583

)

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

386,016,133

 

419,509,716

 

419,509,716

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

392,752,082

 

$

392,801,139

 

$

386,016,133

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,617,688

 

23,916,982

 

23,916,982

 

 

 

 

 

 

 

 

 

Undistributed net operating income

 

$

 

$

8,938,496

 

$

9,282,163

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

MVC Capital, Inc.

Consolidated Selected Per Share Data and Ratios

 

 

 

For the Nine Month Period

 

For the Nine Month Period

 

For the

 

 

 

November 1, 2012 to

 

November 1, 2011 to

 

Year Ended

 

 

 

July 31, 2013

 

July 31, 2012

 

October 31, 2012

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

16.14

 

$

17.54

 

$

17.54

 

 

 

 

 

 

 

 

 

Gain from operations:

 

 

 

 

 

 

 

Net operating income

 

 

0.73

 

0.88

 

Net realized and unrealized gain (loss) on investments

 

1.41

 

(1.49

)

(1.78

)

 

 

 

 

 

 

 

 

Total gain (loss) from investment operations

 

1.41

 

(0.76

)

(0.90

)

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

(0.39

)

(0.36

)

(0.50

)

Return of capital

 

(0.01

)

 

 

 

 

 

 

 

 

 

 

Total distributions

 

(0.40

)

(0.36

)

(0.50

)

 

 

 

 

 

 

 

 

Capital share transactions

 

 

 

 

 

 

 

Anti-dilutive effect of share repurchase program

 

0.21

 

 

 

 

 

 

 

 

 

 

 

Total capital share transactions

 

0.21

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period/year

 

$

17.36

 

$

16.42

 

$

16.14

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

12.72

 

$

12.71

 

$

12.36

 

 

 

 

 

 

 

 

 

Market discount

 

(26.73

)%

(22.59

)%

(23.42

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

10.18

%(d)

(4.38

)%(d)

(5.21

)%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

6.25

%(d)

2.16

%(d)

0.44

%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

20.35

%(d)

0.97

%(d)

3.31

%

 

 

 

 

 

 

 

 

Net assets, end of period/year (in thousands)

 

$

392,753

 

$

392,801

 

$

386,016

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses excluding tax expense

 

6.99

%(c)

2.01

%(c)

2.17

%

Expenses including tax expense

 

6.99

%(c)

2.01

%(c)

2.17

%

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

0.02

%(c)

5.72

%(c)

5.22

%

Net operating income after tax expense

 

0.02

%(c)

5.72

%(c)

5.22

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses excluding tax expense

 

7.03

%(c)

2.84

%(c)

2.80

%

Expenses including tax expense

 

7.03

%(c)

2.84

%(c)

2.80

%

 

 

 

 

 

 

 

 

Net operating (loss) income before tax expense

 

(0.02

)%(c)

4.90

%(c)

4.59

%

Net operating (loss) income after tax expense

 

(0.02

)%(c)

4.90

%(c)

4.59

%

 

 

 

 

 

 

 

 


(a)        Total annual return is historical and assumes changes in share price, reinvestments of all dividends and distributions, and no sales charge for the period/year.

 

(b)         Supplemental Ratio information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to average net assets: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

4.87

%(c)

3.49

%(c)

4.21

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.33

%(c)

2.68

%(c)

3.38

%

 

 

 

 

 

 

 

 

Net operating income before incentive compensation

 

2.14

%(c)

4.24

%(c)

3.18

%

Net operating income before incentive compensation, interest and other borrowing costs

 

3.68

%(c)

5.05

%(c)

4.01

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

4.91

%(c)

4.31

%(c)

4.27

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.37

%(c)

3.50

%(c)

3.44

%

 

 

 

 

 

 

 

 

Net operating income before incentive compensation

 

2.10

%(c)

3.42

%(c)

3.12

%

Net operating income before incentive compensation, interest and other borrowing costs

 

3.64

%(c)

4.23

%(c)

3.95

%

 

(c)         Annualized.

(d)        Non- Annualized.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

July 31, 2013 (Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 17.39% (a), (c), (f), (g)

Actelis Networks, Inc.

 

Technology Investment

 

Preferred Stock (150,602 shares) (d), (i)

 

 

 

$

5,000,003

 

$

 

Biogenic Reagents

 

Renewable energy

 

Senior Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b)

 

$

4,500,000

 

4,500,000

 

4,500,000

 

 

 

 

 

Senior Convertible Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b)

 

5,000,000

 

5,000,000

 

5,000,000

 

 

 

 

 

 

 

 

 

9,500,000

 

9,500,000

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material and Composites

 

Bridge Loan 6.0000% Cash, 6.0000% PIK, 02/28/2014 (b)

 

2,180,038

 

2,092,120

 

2,144,047

 

 

 

 

 

Warrants (d)

 

 

 

165,000

 

78,000

 

 

 

 

 

 

 

 

 

2,257,120

 

2,222,047

 

BPC II, LLC

 

Apparel

 

Limited Liability Company Interest (d)

 

 

 

180,000

 

 

FOLIOfn, Inc.

 

Technology Investment

 

Preferred Stock (5,802,259 shares) (d), (i)

 

 

 

15,000,000

 

10,790,000

 

Freshii USA, Inc.

 

Food Services

 

Senior Secured Loan 6.0000% Cash, 6.0000% PIK, 01/11/2017 (b)

 

1,092,544

 

1,062,278

 

1,069,176

 

 

 

 

 

Warrants (d), (l)

 

 

 

33,873

 

30,493

 

 

 

 

 

 

 

 

 

1,096,151

 

1,099,669

 

MainStream Data, Inc.

 

Technology Investment

 

Common Stock (5,786 shares) (d), (i)

 

 

 

3,750,000

 

 

NPWT Corporation

 

Medical Device Manufacturer

 

Series B Common Stock (281 shares) (d)

 

 

 

1,231,638

 

13,000

 

 

 

 

 

Series A Convertible Preferred Stock (5,000 shares) (d)

 

 

 

 

223,000

 

 

 

 

 

 

 

 

 

1,231,638

 

236,000

 

Prepaid Legal Services, Inc.

 

Consumer Services

 

2nd Lien Term Loan , 9.75% Cash, 07/01/2020

 

9,850,474

 

9,850,474

 

9,850,474

 

SGDA Sanierungsgesellschaft fur Deponien und Altlasten GmbH

 

Soil Remediation

 

Term Loan 7.0000% Cash, 08/31/2014 (e)

 

6,547,350

 

6,547,350

 

6,547,350

 

Summit Research Labs, Inc.

 

Specialty Chemicals

 

Second Lien Loan 4.2500% Cash, 9.7500% PIK , 10/01/2018 (b)

 

22,560,524

 

22,560,524

 

22,560,524

 

U.S. Spray Drying Holdging Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares)

 

 

 

5,488,000

 

5,488,000

 

Sub Total Non-control/Non-affiliated investments

 

 

 

82,461,260

 

68,294,064

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 52.43% (a), (c), (f), (g) 

 

 

 

 

 

 

 

 

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d), (e)

 

 

 

3,174,376

 

4,209,000

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings

 

Unsecured Subordinated Loan 12.0000% Cash, 09/04/2016

 

8,967,522

 

8,967,522

 

8,967,522

 

 

 

 

 

Convertible Series A Preferred Stock (9 shares) (d)

 

 

 

44,000

 

69,696

 

 

 

 

 

Convertible Series B Preferred Stock (1,991 shares) (d)

 

 

 

9,956,000

 

15,770,304

 

 

 

 

 

 

 

 

 

18,967,522

 

24,807,522

 

Harmony Health & Beauty, Inc.

 

Health & Beauty - Retail

 

Common Stock (147,621 shares) (d)

 

 

 

6,700,000

 

 

JSC Tekers Holdings

 

Real Estate Management

 

Common Stock (2,250 shares) (d), (e)

 

 

 

4,500

 

4,500

 

 

 

 

 

Secured Loan 8.0000% Cash, 12/31/2014 (e), (h)

 

12,000,000

 

12,000,000

 

11,000,000

 

 

 

 

 

 

 

 

 

12,004,500

 

11,004,500

 

Marine Exhibition Corporation

 

Theme Park

 

Senior Subordinated Debt 7.0000% Cash, 4.0000% PIK, 08/30/2017 (b)

 

11,448,035

 

11,448,035

 

11,448,035

 

 

 

 

 

Convertible Preferred Stock (20,000 shares) (b)

 

 

 

3,474,627

 

3,474,627

 

 

 

 

 

 

 

 

 

14,922,662

 

14,922,662

 

Octagon Credit Investors, LLC

 

Financial Services

 

Limited Liability Company Interest

 

 

 

2,514,065

 

6,821,116

 

RuMe Inc.

 

Consumer Products

 

Common Stock (999,999 shares) (d)

 

 

 

160,000

 

160,000

 

 

 

 

 

Series B-1 Preferred Stock (4,999,076 shares) (d)

 

 

 

999,815

 

1,840,000

 

 

 

 

 

 

 

 

 

1,159,815

 

2,000,000

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d), (e)

 

 

 

40,186,620

 

32,900,000

 

SGDA Europe B.V.

 

Soil Remediation

 

Common Equity Interest (d), (e)

 

 

 

20,084,599

 

6,600,000

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan 9.0000% Cash, 5.0000% PIK , 06/30/2015 (b)

 

9,990,596

 

9,990,596

 

9,990,596

 

 

 

 

 

Convertible Series I Preferred Stock (32,200 shares) (k)

 

 

 

500,000

 

92,667,607

 

 

 

 

 

Convertible Series J Preferred Stock (8,216 shares) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

10,490,596

 

102,658,203

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

130,204,755

 

205,923,003

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9



Table of Contents

 

 MVC Capital, Inc.

 Consolidated Schedule of Investments - (Continued)

 July 31, 2013 (Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value

 

Control Investments - 36.21% (a), (c), (f), (g)

 

 

 

 

 

 

 

 

 

MVC Automotive Group B.V.

 

Automotive Dealerships

 

Common Equity Interest (d), (e)

 

 

 

$

34,736,939

 

$

36,364,000

 

 

 

 

 

Bridge Loan 10.0000% Cash, 12/31/2013 (e)

 

$

1,635,244

 

1,635,244

 

1,635,244

 

 

 

 

 

 

 

 

 

36,372,183

 

37,999,244

 

MVC Private Equity Fund L.P.

 

Private Equity

 

Limited Partnership Interest (d), (j)

 

 

 

9,097,164

 

10,751,129

 

 

 

 

 

General Partnership Interest (d), (j)

 

 

 

232,071

 

272,596

 

 

 

 

 

 

 

 

 

9,329,235

 

11,023,725

 

Ohio Medical Corporation

 

Medical Device Manufacturer

 

Common Stock (5,620 shares) (d)

 

 

 

15,763,636

 

 

 

 

 

 

Series A Convertible Preferred Stock (23,820 shares) (b)

 

 

 

30,000,000

 

26,500,000

 

 

 

 

 

Series C Convertible Preferred Stock (7,544 shares) (b)

 

 

 

22,618,461

 

22,819,518

 

 

 

 

 

 

 

 

 

68,382,097

 

49,319,518

 

SIA Tekers Invest

 

Port Facilities

 

Common Stock (68,800 shares) (d), (e)

 

 

 

2,300,000

 

1,263,000

 

Turf Products, LLC

 

Distributor - Landscaping and

 

Senior Subordinated Debt 9.0000% Cash, 4.0000% PIK , 01/31/2014 (b)

 

8,395,262

 

8,395,262

 

8,395,262

 

 

 

Irrigation Equipment

 

Junior Revolving Note 6.0000% Cash, 01/31/2014

 

1,000,000

 

1,000,000

 

1,000,000

 

 

 

 

 

Limited Liability Company Interest (d)

 

 

 

3,535,694

 

3,466,794

 

 

 

 

 

Warrants (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

12,930,956

 

12,862,056

 

Velocitius B.V.

 

Renewable Energy

 

Common Equity Interest (d), (e)

 

 

 

11,395,315

 

19,360,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Senior Subordinated Debt 12.0000% Cash, 04/29/2015

 

600,000

 

600,000

 

600,000

 

 

 

 

 

Common Stock (81,000 shares) (d)

 

 

 

1,850,000

 

9,775,000

 

 

 

 

 

 

 

 

 

2,450,000

 

10,375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control Investments

 

 

 

 

 

143,159,786

 

142,202,543

 

 

 

 

 

 

 

 

 

 

 

 

 

Short Term Investments - 12.74% (g)

 

 

 

 

 

 

 

 

 

U.S. Treasury Note

 

U.S. Government & Agency Securities

 

3.2246%, 8/15/2028 (m)

 

49,510,195

 

49,508,735

 

50,026,641

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Short Term Investments

 

 

 

 

 

49,508,735

 

50,026,641

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENT ASSETS - 118.77% (f)

 

 

 

 

 

$

405,334,536

 

$

466,446,251

 

 


(a) These securities are restricted from public sale without prior registration under the Securities Act of 1933.  The Company negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

 

(b) These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

 

(c) All of the Company’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except MVC Automotive Group B.V., Security Holdings B.V., SGDA Europe B.V., SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH, SIA Tekers Invest, JSC Tekers Holdings, Centile Holdings B.V., Velocitius B.V., MVC Private Equity Fund L.P., and Freshii USA, Inc. The Company makes available significant managerial assistance to all of the portfolio companies in which it has invested.

 

(d) Non-income producing assets.

 

(e) The principal operations of these portfolio companies are located in Europe which represents approximately 21% of the total assets.  The remaining portfolio companies are located in North America which represents approximately 51% of the total assets.

 

(f) Percentages are based on net assets of $392,752,082 as of July 31, 2013.

 

(g) See Note 3 for further information regarding “Investment Classification.”

 

(h) All or a portion of the accrued interest on these securities have been reserved against.

 

(i) Legacy Investments.

 

(j) MVC Private Equity Fund, L.P. is a private equity fund focused on control equity investments in the lower middle market.  The fund currently holds three investments, two located in the United States and one in Gibraltar, which are in the energy, services, and industrial sectors, respectively.

 

(k) Upon a liquidity event, the Company may receive additional ownership in U.S. Gas & Electric, Inc.

 

(l) Includes a warrant in Freshii One LLC, an affiliate of Freshii USA, Inc.

 

(m) All or a portion of these securities may serve as collateral for the BB&T Credit Facility.

 

PIK - Payment-in-kind

 

— Denotes zero cost or fair value.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

10



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

October 31, 2012

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value

 

Non-control/Non-affiliated investments- 8.86% (a), (c), (f), (g) 

 

 

 

 

 

 

 

Actelis Networks, Inc.

 

Technology Investment

 

Preferred Stock (150,602 shares) (d,) (j)

 

 

 

$

5,000,003

 

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material & Composites

 

Bridge Loan 6.0000% Cash, 6.0000% PIK, 02/28/2014 (b), (h)

 

$

1,500,000

 

1,500,000

 

$

1,500,000

 

BPC II, LLC

 

Apparel

 

Limited Liability Company Interest (d)

 

 

 

180,000

 

 

DPHI, Inc.

 

Technology Investment

 

Preferred Stock (602,131 shares) (d,) (j)

 

 

 

4,520,355

 

 

FOLIOfn, Inc.

 

Technology Investment

 

Preferred Stock (5,802,259 shares) (d), (j)

 

 

 

15,000,000

 

10,790,000

 

Freshii USA, Inc.

 

Food Services

 

Senior Secured Loan 6.0000% Cash, 6.0000% PIK, 01/11/2017 (b), (h)

 

1,044,304

 

1,009,230

 

1,017,224

 

 

 

 

 

Warrants (d), (m)

 

 

 

33,873

 

33,873

 

 

 

 

 

 

 

 

 

1,043,103

 

1,051,097

 

Lockorder Limited

 

Technology Investment

 

Common Stock (21,064 shares) (d), (e), (j)

 

 

 

2,007,701

 

 

MainStream Data, Inc.

 

Technology Investment

 

Common Stock (5,786 shares) (d), (j)

 

 

 

3,750,000

 

 

NPWT Corporation

 

Medical Device Manufacturer

 

Series B Common Stock (281 shares) (d)

 

 

 

1,236,364

 

25,000

 

 

 

 

 

Series A Convertible Preferred Stock (5,000 shares) (d)

 

 

 

 

440,000

 

 

 

 

 

 

 

 

 

1,236,364

 

465,000

 

Prepaid Legal Services, Inc.

 

Consumer Services

 

Tranche A Term Loan 7.5000% Cash, 01/01/2017 (h)

 

3,024,390

 

2,989,832

 

2,989,832

 

 

 

 

 

Tranche B Term Loan 11.0000% Cash, 01/01/2017 (h)

 

4,000,000

 

3,908,589

 

3,908,589

 

 

 

 

 

 

 

 

 

6,898,421

 

6,898,421

 

SGDA Sanierungsgesellschaft fur Deponien und Altlasten GmbH

 

Soil Remediation

 

Term Loan 7.0000% Cash, 08/31/2014 (e), (h)

 

6,547,350

 

6,547,350

 

6,547,350

 

Teleguam Holdings, LLC

 

Telecommunications

 

Second Lien Loan 9.7500% Cash, 06/09/2017 (h)

 

7,000,000

 

6,946,122

 

6,946,122

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

54,629,419

 

34,197,990

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 46.21% (a), (c), (f), (g) 

 

 

 

 

 

 

 

Centile Holding B.V.

 

Software

 

Common Equity Interest (d), (e)

 

 

 

3,174,376

 

3,140,000

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings

 

Unsecured Subordinated Loan 7.0000% Cash, 7.0000% PIK , 06/18/2013 (b), (h)

 

15,623,348

 

15,623,348

 

15,623,348

 

 

 

 

 

Convertible Series A Preferred Stock (9 shares) (d)

 

 

 

44,000

 

44,000