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, 2014 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

 

94-3346760

(State or other jurisdiction of
incorporation or organization)

 

(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 22,702,821 shares of the registrant’s common stock, $.01 par value, outstanding as of September 9, 2014.

 

 

 



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, 2014 and October 31, 2013

3

 

Consolidated Statements of Operations

 

 

-

For the Period November 1, 2013 to July 31, 2014 and

 

 

-

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

4

 

Consolidated Statements of Operations

 

 

-

For the Period May 1, 2014 to July 31, 2014 and

 

 

-

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

5

 

Consolidated Statements of Cash Flows

 

 

-

For the Period November 1, 2013 to July 31, 2014 and

 

 

-

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

6

 

Consolidated Statements of Changes in Net Assets

 

 

-

For the Period November 1, 2013 to July 31, 2014

 

 

-

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

 

 

-

For the Year ended October 31, 2013

7

 

Consolidated Selected Per Share Data and Ratios

 

 

-

For the Period November 1, 2013 to July 31, 2014,

 

 

-

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

 

 

-

For the Year ended October 31, 2013

8

 

Consolidated Schedules of Investments

 

 

-

July 31, 2014

 

 

-

October 31, 2013

11

 

Notes to Consolidated Financial Statements

13

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

67

 

 

 

Item 4. Controls and Procedures

76

 

 

 

Part II. Other Information

78

 

 

 

SIGNATURE

 

79

 

 

 

Exhibits

 

 

 



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,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash

 

$

17,650,431

 

$

74,234,560

 

Restricted cash equivalents (cost $6,694,500 and $6,792,000)

 

6,694,500

 

6,792,000

 

Cash equivalents (cost $11,455,152 and $0)

 

11,455,152

 

 

Short-term investments (cost $0 and $49,937,320)

 

 

49,826,893

 

Investments, at fair value

 

 

 

 

 

Non-control/Non-affiliated investments (cost $117,598,667 and $92,139,375)

 

93,398,599

 

74,433,413

 

Affiliate investments (cost $122,831,153 and $136,499,386)

 

200,673,576

 

219,694,633

 

Control investments (cost $171,819,080 and $143,292,881)

 

154,823,356

 

146,169,917

 

Total investments at fair value (cost $412,248,900 and $371,931,642)

 

448,895,531

 

440,297,963

 

Receivable on sale of short-term investments

 

99,698,193

 

 

Escrow receivables, net of reserves

 

5,936,928

 

6,236,928

 

Deferred financing fees

 

3,095,180

 

3,265,495

 

Fee and other receivables

 

1,830,048

 

2,109,538

 

Dividends and interest receivables, net of reserves

 

1,286,429

 

3,528,899

 

Prepaid expenses

 

399,088

 

534,904

 

Prepaid taxes

 

 

336

 

 

 

 

 

 

 

Total assets

 

$

596,941,480

 

$

586,827,516

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes

 

$

114,408,750

 

$

114,408,750

 

Revolving credit facility

 

100,000,000

 

50,000,000

 

Provision for incentive compensation (Note 11)

 

17,814,123

 

23,959,109

 

Management fee payable

 

2,162,573

 

2,221,213

 

Professional fees payable

 

1,133,054

 

742,859

 

Interest payable

 

371,789

 

371,817

 

Accrued expenses and liabilities

 

342,183

 

655,615

 

Management fee payable - Asset Management

 

261,223

 

606,766

 

Portfolio fees payable - Asset Management

 

197,706

 

140,347

 

Consulting fees payable

 

125,229

 

167,968

 

Taxes payable

 

780

 

 

 

 

 

 

 

 

Total liabilities

 

236,817,410

 

193,274,444

 

 

 

 

 

 

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 22,702,821 and 22,617,688 shares outstanding, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

421,115,554

 

420,165,045

 

Accumulated earnings

 

70,108,536

 

66,030,475

 

Dividends paid to stockholders

 

(113,688,497

)

(104,537,479

)

Accumulated net realized loss

 

955,008

 

(2,201,455

)

Net unrealized appreciation

 

36,646,631

 

68,255,894

 

Treasury stock, at cost, 5,601,627 and 5,686,760 shares held, respectively

 

(55,296,206

)

(54,442,452

)

Total shareholders’ equity

 

360,124,070

 

393,553,072

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

596,941,480

 

$

586,827,516

 

 

 

 

 

 

 

Net asset value per share

 

$

15.86

 

$

17.40

 

 

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, 2013 to

 

November 1, 2012 to

 

 

 

July 31, 2014

 

July 31, 2013

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

69,767

 

$

1,804

 

Affiliate investments

 

808,463

 

7,817,470

 

Control investments

 

 

426,300

 

Total dividend income

 

878,230

 

8,245,574

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

216,928

 

200,408

 

Total payment-in-kind dividend income

 

216,928

 

200,408

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

4,755,577

 

1,785,285

 

Affiliate investments

 

2,493,429

 

2,673,283

 

Control investments

 

236,111

 

1,157,569

 

Total interest income

 

7,485,117

 

5,616,137

 

 

 

 

 

 

 

Payment-in-kind interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

2,461,572

 

899,068

 

Affiliate investments

 

582,191

 

726,483

 

Control investments

 

168,559

 

581,774

 

Total payment-in-kind interest income

 

3,212,322

 

2,207,325

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

301,495

 

686,095

 

Affiliate investments

 

700,835

 

707,308

 

Control investments

 

242,250

 

988,159

 

Total fee income

 

1,244,580

 

2,381,562

 

 

 

 

 

 

 

Fee income - Asset Management(1)

 

 

 

 

 

Portfolio fees

 

799,563

 

416,618

 

Management Fees

 

693,033

 

928,471

 

Total fee income - Asset Management

 

1,492,596

 

1,345,089

 

 

 

 

 

 

 

Other income

 

962,252

 

298,096

 

 

 

 

 

 

 

Total operating income

 

15,492,025

 

20,294,191

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

7,087,004

 

4,470,464

 

Management fee

 

6,772,485

 

6,045,866

 

Legal fees

 

616,000

 

408,000

 

Portfolio fees - Asset Management(1)

 

599,672

 

312,464

 

Management fee - Asset Management(1)

 

479,522

 

696,350

 

Audit fees

 

478,200

 

473,700

 

Consulting fees

 

398,653

 

427,753

 

Directors fees

 

302,625

 

309,375

 

Other expenses

 

264,536

 

407,999

 

Insurance

 

260,100

 

248,310

 

Administration

 

198,121

 

190,166

 

Public relations fees

 

153,000

 

145,500

 

Printing and postage

 

60,216

 

76,647

 

Net Incentive compensation (Note 11)

 

(6,144,986

)

6,143,940

 

 

 

 

 

 

 

Total operating expenses

 

11,525,148

 

20,356,534

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser(2)

 

(112,500

)

(112,500

)

 

 

 

 

 

 

Total waivers

 

(112,500

)

(112,500

)

 

 

 

 

 

 

Net operating income before taxes

 

4,079,377

 

50,157

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

1,316

 

2,700

 

 

 

 

 

 

 

Total tax expense

 

1,316

 

2,700

 

 

 

 

 

 

 

Net operating income

 

4,078,061

 

47,457

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short-term investments

 

(131,418

)

 

Non-control/Non-affiliated investments

 

308,196

 

(6,276,271

)

Affiliate investments

 

2,979,685

 

82,512

 

Control investments

 

 

49,655,826

 

 

 

 

 

 

 

Total net realized gain on investments

 

3,156,463

 

43,462,067

 

 

 

 

 

 

 

Net change in unrealized depreciation on investments

 

(31,609,263

)

(10,627,052

)

 

 

 

 

 

 

Net realized and unrealized (loss) gain on investments

 

(28,452,800

)

32,835,015

 

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(24,374,739

)

$

32,882,472

 

 

 

 

 

 

 

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

 

$

(1.08

)

$

1.41

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.405

 

$

0.405

 

 

 

 

 

 

 

Weighted average number of shares outstanding (3)

 

22,611,513

 

23,549,370

 

 


(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 2014 and 2013 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.

 

4



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Quarter

 

For the Quarter

 

 

 

May 1, 2014 to

 

May 1, 2013 to

 

 

 

July 31, 2014

 

July 31, 2013

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

187

 

$

253

 

Affiliate investments

 

736,873

 

2,975,320

 

 

 

 

 

 

 

Total dividend income

 

737,060

 

2,975,573

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

73,746

 

68,130

 

Total payment-in-kind dividend income

 

73,746

 

68,130

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

2,062,925

 

705,487

 

Affiliate investments

 

86,587

 

732,361

 

Control investments

 

44,313

 

264,850

 

 

 

 

 

 

 

Total interest income

 

2,193,825

 

1,702,698

 

 

 

 

 

 

 

Payment-in-kind interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

827,099

 

613,370

 

Affiliate investments

 

83,534

 

245,048

 

Control investments

 

91,295

 

84,643

 

Total payment-in-kind interest income

 

1,001,928

 

943,061

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

504

 

285,504

 

Affiliate investments

 

240,834

 

234,179

 

Control investments

 

80,751

 

449,861

 

 

 

 

 

 

 

Total fee income

 

322,089

 

969,544

 

 

 

 

 

 

 

Fee income - Asset Management(1)

 

 

 

 

 

Portfolio fees

 

203,736

 

310,343

 

Management fees

 

75,548

 

138,026

 

 

 

 

 

 

 

Total fee income - Asset Management

 

279,284

 

448,369

 

 

 

 

 

 

 

Other income

 

408,483

 

137,899

 

 

 

 

 

 

 

Total operating income

 

5,016,415

 

7,245,274

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

2,426,105

 

2,115,603

 

Management fee

 

2,162,573

 

2,100,496

 

Legal fees

 

326,000

 

132,000

 

Other expenses

 

160,738

 

133,708

 

Audit fees

 

154,100

 

157,300

 

Portfolio fees - Asset Management(1)

 

152,802

 

103,520

 

Consulting fees

 

139,251

 

159,251

 

Directors’ fees

 

96,375

 

103,125

 

Insurance

 

86,700

 

82,770

 

Administration

 

71,998

 

63,979

 

Public relations fees

 

51,000

 

48,000

 

Management fee - Asset Management(1)

 

16,408

 

232,758

 

Printing and postage

 

10,327

 

15,529

 

Net Incentive compensation (Note 11)

 

(1,831,130

)

3,960,795

 

 

 

 

 

 

 

Total operating expenses

 

4,023,247

 

9,408,834

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser (2)

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Total waivers

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Net operating income (Loss) before taxes

 

1,030,668

 

(2,126,060

)

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

439

 

900

 

 

 

 

 

 

 

Total tax expense

 

439

 

900

 

 

 

 

 

 

 

Net operating income (Loss)

 

1,030,229

 

(2,126,960

)

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short-term investments

 

(307,933

)

 

Non-control/Non-affiliated investments

 

 

164,945

 

Affiliate investments

 

2,979,685

 

 

Control investments

 

 

82,512

 

Total net realized gain on investments

 

2,671,752

 

247,457

 

 

 

 

 

 

 

Net unrealized (depreciation) appreciation on investments

 

(11,577,923

)

19,994,333

 

 

 

 

 

 

 

Net realized gain and net change in unrealized (depreciation) appreciation on investments

 

(8,906,171

)

20,241,790

 

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(7,875,942

)

$

18,114,830

 

 

 

 

 

 

 

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

 

$

(0.35

)

$

0.79

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.135

 

$

0.135

 

 

 

 

 

 

 

Weighted average number of shares outstanding (3)

 

22,699,020

 

22,859,939

 

 


(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 2014 and 2013 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, 2013

 

November 1, 2012

 

 

 

July 31, 2014

 

July 31, 2013

 

Cash flows from Operating Activities:

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(24,374,739

)

$

32,882,472

 

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

 

 

 

 

 

Net realized gain on investments

 

(3,156,463

)

(43,462,067

)

Net change in unrealized depreciation on investments

 

31,609,263

 

10,627,052

 

Amortization of discounts and fees

 

(957,541

)

(145,462

)

Increase in accrued payment-in-kind dividends and interest

 

(3,221,596

)

(2,301,361

)

Amortization of deferred financing fees

 

428,755

 

137,744

 

Allocation of flow through (income) loss

 

(485,973

)

(149,320

)

Changes in assets and liabilities:

 

 

 

 

 

Dividends, interest and fees receivable

 

2,242,470

 

410,552

 

Fee and other receivables

 

279,490

 

1,340,157

 

Escrow receivables, net of reserves

 

300,000

 

(4,921,186

)

Prepaid expenses

 

135,816

 

429,516

 

Prepaid taxes

 

336

 

255

 

Incentive compensation (Note 11)

 

(6,144,986

)

6,143,940

 

Other liabilities

 

(312,048

)

(299,454

)

Purchases of equity investments

 

(20,681,192

)

(28,993,574

)

Purchases of debt instruments

 

(40,927,323

)

(49,926,047

)

Purchases of short term investments

 

(299,323,968

)

(49,510,195

)

Proceeds from equity investments (1)

 

10,519,092

 

65,841,864

 

Proceeds from debt instruments

 

23,063,595

 

35,743,507

 

Sales/maturities of short term investments

 

349,133,991

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

18,126,979

 

(26,151,607

)

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Proceeds from senior notes

 

 

114,408,750

 

Proceeds from short term receivables

 

(99,698,193

)

 

Net proceeds from revolving credit facility

 

50,000,000

 

50,000,000

 

Repayments of revolving credit facility

 

 

(50,000,000

)

Offering expenses

 

(139,000

)

 

Repurchase of common stock

 

(4,114,967

)

(16,673,207

)

Financing fees paid

 

(250,278

)

(3,469,554

)

Distributions paid to shareholders

 

(9,151,018

)

(9,473,316

)

 

 

 

 

 

 

Net cash provided by financing activities

 

(63,353,456

)

84,792,673

 

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

(45,226,477

)

58,641,066

 

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, beginning of period

 

$

81,026,560

 

$

42,640,558

 

 

 

 

 

 

 

Unrestricted and restricted cash, cash equivalents and short-term Investments, end of period

 

$

35,800,083

 

$

101,281,624

 

 


(1) For the nine month period ended July 31, 2014, proceeds from equity investments includes $491,075 in escrow receivables, net of reserves.

 

During the nine month period ended July 31, 2014 and 2013 MVC Capital, Inc. paid $6,588,212 and $4,502,326 in interest expense, respectively.

 

During the nine month period ended July 31, 2014 and 2013 MVC Capital, Inc. paid $300 and $2,745 in  income taxes, respectively.

 

Non-cash activity:

 

During the nine month period ended July 31, 2014 and 2013, MVC Capital, Inc. recorded payment in-kind dividend and interest of $3,221,596 and $2,301,361, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the nine month period ended July 31, 2014 and 2013, MVC Capital, Inc. was allocated $962,053 and $298,096, respectively, in flow-through income from its equity investment in Octagon Credit Investors, LLC.  Of these amounts, $476,080 and $148,777, respectively, was received in cash and $485,973 and $149,320, respectively, was undistributed and therefore increased the cost of the investment.  The fair value then increased by $101,099 and $149,320, respectively, by the Company’s Valuation Committee.

 

On November 19, 2013, MVC Capital, Inc. converted the MVC Automotive Group B.V. bridge loan of approximately $1.6 million to addional common equity interest.

 

On May 1, 2014, the Company converted the JSC Tekers $12.0 million secured loan to preferred equity.  The cost and fair value assigned to the preferred equity was approximately $11.8 million, which was based on the fair value of the real estate using the CZK/USD exchange rate on May 1, 2014.  As a result of the loan conversion, the Company realized a loss of approximately $190,000.

 

On May 14, 2014, the Company signed a share exchange agreement with Equus, another publicly traded business development company, as part of a plan of reorganization adopted by the Equus Board of Directors. Pursuant to the share exchange agreement, the Company has received 2,112,000 common shares, with a fair value of approximately $4 million, of Equus in exchange for 395,839 common shares of the Company.

 

On June 30, 2014, the Company converted the SGDA $6.5 million term loan and accrued interest of approximately $1.9 million to additional common equity interest in SGDA Europe.

 

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, 2013 to

 

November 1, 2012 to

 

For the Year Ended

 

 

 

July 31, 2014

 

July 31, 2013

 

October 31, 2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating income (loss)

 

$

4,078,061

 

$

47,457

 

$

(3,445,195

)

Net realized gain on investments

 

3,156,463

 

43,462,067

 

43,664,918

 

Net change in unrealized depreciation on investments

 

(31,609,263

)

(10,627,052

)

(3,482,873

)

 

 

 

 

 

 

 

 

Net (decrease) increase in net assets from operations

 

(24,374,739

)

32,882,472

 

36,736,850

 

 

 

 

 

 

 

 

 

Shareholder Distributions:

 

 

 

 

 

 

 

Distributions to shareholders from income

 

 

(9,329,620

)

(5,837,868

)

Distributions to shareholders from return of capital

 

(9,151,018

)

(143,696

)

(6,688,836

)

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(9,151,018

)

(9,473,316

)

(12,526,704

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Reissuance of treasury stock for share exchange

 

4,350,722

 

 

 

Offering expenses

 

(139,000

)

 

 

Repurchase of common stock

 

(4,114,967

)

(16,673,207

)

(16,673,207

)

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets from capital share transactions

 

96,755

 

(16,673,207

)

(16,673,207

)

 

 

 

 

 

 

 

 

Total (decrease) increase in net assets

 

(33,429,002

)

6,735,949

 

7,536,939

 

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

393,553,072

 

386,016,133

 

386,016,133

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

360,124,070

 

$

392,752,082

 

$

393,553,072

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,702,821

 

22,617,688

 

22,617,688

 

 

 

 

 

 

 

 

 

Undistributed net operating income

 

$

 

$

 

$

 

 

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, 2013 to

 

November 1, 2012 to

 

Year Ended

 

 

 

July 31, 2014

 

July 31, 2013

 

October 31, 2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

17.40

 

$

16.14

 

$

16.14

 

 

 

 

 

 

 

 

 

Gain from operations:

 

 

 

 

 

 

 

Net operating income (loss)

 

0.18

 

 

(0.15

)

Net realized and unrealized (loss) gain on investments

 

(1.26

)

1.41

 

1.74

 

 

 

 

 

 

 

 

 

Total (loss) gain from investment operations

 

(1.08

)

1.41

 

1.59

 

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

 

(0.39

)

(0.25

)

Return of capital

 

(0.41

)

(0.01

)

(0.29

)

 

 

 

 

 

 

 

 

Total distributions

 

(0.41

)

(0.40

)

(0.54

)

 

 

 

 

 

 

 

 

Capital share transactions

 

 

 

 

 

 

 

Dilutive effect of share issuance

 

(0.10

)

 

 

Anti-dilutive effect of share repurchase program

 

0.05

 

0.21

 

0.21

 

 

 

 

 

 

 

 

 

Total capital share transactions

 

(0.05

)

0.21

 

0.21

 

 

 

 

 

 

 

 

 

Net asset value, end of period/year

 

$

15.86

 

$

17.36

 

$

17.40

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

12.39

 

$

12.72

 

$

13.83

 

 

 

 

 

 

 

 

 

Market discount

 

(21.88

)%

(26.73

)%

(20.52

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

(6.60

)%(d)

10.18

%(d)

11.30

%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

(7.63

)%(d)

6.25

%(d)

16.65

%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

7.18

%

20.35

%

24.40

%

 

 

 

 

 

 

 

 

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

 

$

360,125

 

$

392,753

 

$

393,553

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses including tax expense

 

3.99

%(c)

6.99

%(c)

7.26

%

Expenses excluding tax expense

 

3.99

%(c)

6.99

%(c)

7.26

%

 

 

 

 

 

 

 

 

Net operating income (loss) before tax expense

 

1.42

%(c)

0.02

%(c)

(0.89

)%

Net operating income (loss) after tax expense

 

1.42

%(c)

0.02

%(c)

(0.89

)%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses including tax expense

 

4.03

%(c)

7.03

%(c)

7.30

%

Expenses excluding tax expense

 

4.03

%(c)

7.03

%(c)

7.30

%

 

 

 

 

 

 

 

 

Net operating income (loss) before tax expense

 

1.38

%(c)

(0.02

)%(c)

(0.93

)%

Net operating income (loss) after tax expense

 

1.38

%(c)

(0.02

)%(c)

(0.93

)%

 


(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

 

6.13

%(c)

4.87

%(c)

5.12

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.66

%(c)

3.33

%(c)

3.39

%

 

 

 

 

 

 

 

 

Net operating (loss) income before incentive compensation

 

(0.72

)%(c)

2.14

%(c)

1.25

%

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

 

1.75

%(c)

3.68

%(c)

2.98

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

6.17

%(c)

4.91

%(c)

5.16

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.70

%(c)

3.37

%(c)

3.43

%

 

 

 

 

 

 

 

 

Net operating (loss) income before incentive compensation

 

(0.76

)%(c)

2.10

%(c)

1.21

%

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

 

1.71

%(c)

3.64

%(c)

2.94

%

 

(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, 2014 (Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair
Value/Market
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 25.94% (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)

 

$

5,193,858

 

5,193,858

 

$

5,193,858

 

 

 

 

 

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

 

4,674,473

 

4,674,473

 

4,949,473

 

 

 

 

 

 

 

 

 

9,868,331

 

10,143,331

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material and Composites

 

Bridge Loan 6.0000% Cash, 6.0000% PIK, 10/31/2014 (b)

 

3,779,328

 

3,722,291

 

3,754,561

 

 

 

 

 

Warrants (d)

 

3

 

397,677

 

240,250

 

 

 

 

 

 

 

 

 

4,119,968

 

3,994,811

 

FOLIOfn, Inc.

 

Technology Investment - Financial Services

 

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

 

 

 

15,000,000

 

5,909,000

 

Freshii USA, Inc.

 

Food Services

 

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

 

1,160,539

 

1,139,047

 

1,143,945

 

 

 

 

 

Warrants (d), (l)

 

1

 

33,873

 

41,785

 

 

 

 

 

 

 

 

 

1,172,920

 

1,185,730

 

G3K Display, Inc.

 

Retail Store Fixtures

 

Senior Lien Loan 13.0000% Cash, 4/11/2019 (h)

 

5,625,000

 

5,625,000

 

 

 

 

 

 

Warrants (d)

 

1

 

 

 

 

 

 

 

 

 

 

 

5,625,000

 

 

Inland Environmental & Remediation LP

 

Environmental Services

 

Senior Secured Loan 12.0000% Cash, 4/17/2019

 

15,000,000

 

14,328,390

 

14,328,390

 

 

 

 

 

Warrants (d)

 

1

 

713,000

 

713,000

 

 

 

 

 

 

 

 

 

15,041,390

 

15,041,390

 

MainStream Data, Inc.

 

Technology Investment

 

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

 

 

 

3,750,000

 

 

Morey’s Seafood International, LLC

 

Food Services

 

Second Lien Loan 10.0000% Cash, 3.0000% PIK, 08/12/2018 (b)

 

15,223,324

 

15,223,324

 

15,223,324

 

NPWT Corporation

 

Medical Device Manufacturer

 

Series B Common Stock (281 shares) (d)

 

 

 

1,231,638

 

6,000

 

 

 

 

 

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

 

 

 

 

101,000

 

 

 

 

 

 

 

 

 

1,231,638

 

107,000

 

Prepaid Legal Services, Inc.

 

Consumer Services

 

Second Lien Term Loan , 9.7500% Cash, 07/01/2020

 

10,000,000

 

9,872,080

 

10,100,000

 

Summit Research Labs, Inc.

 

Specialty Chemicals

 

Second Lien Loan 7.0000% Cash, 7.0000% PIK , 10/01/2018 (b)

 

24,706,013

 

24,706,013

 

24,706,013

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares)

 

 

 

5,488,000

 

5,488,000

 

 

 

 

 

Secured Loan 12.0000% Cash, 5/02/2019

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

6,988,000

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

117,598,667

 

93,398,599

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 55.72% (a), (c), (f), (g) 

 

 

 

 

 

 

 

 

 

Advantage Insurance Holdings LTD

 

Insurance

 

Preferred Stock (750,000 shares) (d), (e)

 

 

 

7,500,000

 

7,596,000

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d), (e)

 

 

 

3,274,376

 

4,829,000

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings

 

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

 

6,500,000

 

6,500,000

 

6,500,000

 

 

 

 

 

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

 

 

 

44,000

 

99,704

 

 

 

 

 

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

 

 

 

9,956,000

 

22,560,296

 

 

 

 

 

 

 

 

 

16,500,000

 

29,160,000

 

JSC Tekers Holdings

 

Real Estate Management

 

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

 

 

 

4,500

 

4,300

 

 

 

 

 

Preferred Stock (9,159,085 shares) (d),(e)

 

 

 

11,810,188

 

11,311,000

 

 

 

 

 

 

 

 

 

11,814,688

 

11,315,300

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d), (e)

 

 

 

40,186,620

 

35,812,000

 

 

 

 

 

Bridge Loan 5.0000% Cash, 2/15/2014 (e)

 

4,000,000

 

4,000,000

 

4,000,000

 

 

 

 

 

 

 

 

 

44,186,620

 

39,812,000

 

SGDA Europe B.V.

 

Environmental Services

 

Common Equity Interest (d), (e)

 

 

 

28,544,800

 

13,783,000

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan, 13.0000% Cash, 07/1/2019

 

7,500,000

 

7,500,000

 

7,500,000

 

 

 

 

 

Unsecured Loan 10.0000% Cash, 4.0000% PIK , 07/1/2018 (b)

 

3,010,669

 

3,010,669

 

3,010,669

 

 

 

 

 

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

 

 

 

500,000

 

83,667,607

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

11,010,669

 

94,178,276

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

122,831,153

 

200,673,576

 

 

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, 2014 (Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair
Value/Market
Value

 

Control Investments - 42.99% (c), (f), (g)

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Regulated Investment Company

 

Common Stock (4,444,644 shares) (d)

 

 

 

$

10,030,272

 

$

10,978,271

 

Harmony Health & Beauty, Inc.

 

Health & Beauty - Distributor

 

Common Stock (147,621 shares) (a), (d)

 

 

 

6,700,000

 

 

MVC Automotive Group GmbH

 

Automotive Dealerships

 

Common Equity Interest (a), (d), (e)

 

 

 

45,662,438

 

26,581,000

 

MVC Private Equity Fund LP

 

Private Equity

 

Limited Partnership Interest (a), (d), (j)

 

 

 

11,831,196

 

17,509,205

 

 

 

 

 

General Partnership Interest (a), (d), (j)

 

 

 

301,816

 

441,215

 

 

 

 

 

 

 

 

 

12,133,012

 

17,950,420

 

Ohio Medical Corporation

 

Medical Device Manufacturer

 

Common Stock (8,512 shares) (a), (d)

 

 

 

15,763,637

 

 

 

 

 

 

Series A Convertible Preferred Stock 16.0000% PIK (27,866 shares) (a), (b)

 

 

 

30,000,000

 

23,800,000

 

 

 

 

 

Series C Convertible Preferred Stock 16.0000% PIK (8,825 shares) (a), (b)

 

 

 

22,618,466

 

26,695,609

 

 

 

 

 

 

 

 

 

68,382,103

 

50,495,609

 

RuMe Inc.

 

Consumer Products

 

Common Stock (5,297,548 shares) (a), (d)

 

 

 

924,475

 

924,475

 

 

 

 

 

Series C Preferred Stock (23,896,634 shares) (a), (d)

 

 

 

3,410,694

 

3,485,525

 

 

 

 

 

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

 

 

 

999,815

 

1,090,000

 

 

 

 

 

 

 

 

 

5,334,984

 

5,500,000

 

SIA Tekers Invest 

 

Port Facilities

 

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

 

 

 

2,300,000

 

1,361,000

 

Turf Products, LLC

 

Distributor - Landscaping and

 

Senior Subordinated Debt  7.0000% Cash, 4.0000% PIK, 11/1/2018 (a), (b)

 

$

3,895,262

 

3,895,262

 

3,895,262

 

 

 

Irrigation Equipment

 

Limited Liability Company Interest (a), (d)

 

 

 

3,535,694

 

3,466,794

 

 

 

 

 

Guarantee (a)

 

1

 

 

(92,000

)

 

 

 

 

Warrants (a), (d)

 

150

 

 

 

 

 

 

 

 

 

 

 

7,430,956

 

7,270,056

 

Velocitius B.V. 

 

Renewable Energy

 

Common Equity Interest (a), (d), (e)

 

 

 

11,395,315

 

17,187,000

 

Vestal Manufacturing Enterprises, Inc. 

 

Iron Foundries

 

Senior Subordinated Debt 12.0000% Cash, 04/29/2015 (a)

 

600,000

 

600,000

 

600,000

 

 

 

 

 

Common Stock (81,000 shares) (a), (d)

 

 

 

1,850,000

 

16,900,000

 

 

 

 

 

 

 

 

 

2,450,000

 

17,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control Investments

 

 

 

 

 

 

 

171,819,080

 

154,823,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 124.65% (f) 

 

 

 

 

 

 

 

$

412,248,900

 

$

448,895,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents and Restricted Cash Equivalents - 5.04% (f) 

 

 

 

 

 

 

 

 

 

Fidelity Instirutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (10,649,921 shares)

 

 

 

$

10,649,921

 

$

10,649,921

 

JP Morgan Prime Money Market Fund

 

Money Market Fund

 

Beneficial Shares (7,499,731 shares)

 

 

 

7,499,731

 

7,499,731

 

Total Cash Equivalents and Restricted Cash Equivalents

 

 

 

 

 

18,149,652

 

18,149,652

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESMENTS - 129.69%

 

 

 

 

 

 

 

$

430,398,552

 

$

467,045,183

 

 


(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 GmbH, Security Holdings B.V., SGDA Europe B.V., SIA Tekers Invest, JSC Tekers Holdings, Centile Holdings B.V., Velocitius B.V., Equus Total Return, Inc., MVC Private Equity Fund L.P., Advantage Insurance LTD. 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 and Cayman Islands which represents approximately 21% of the total assets.  The remaining portfolio companies are located in North America which represents approximately 55% of the total assets.

 

(f) Percentages are based on net assets of $360,124,509 as of July 31, 2014.

 

(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 for.

 

(i) Legacy Investments.

 

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

and industrial sectors.

 

(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, 2013

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair
Value/Market
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments - 18.91% (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)

 

$

5,039,444

 

5,039,444

 

5,039,444

 

 

 

 

 

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

 

4,535,500

 

4,535,500

 

4,535,500

 

 

 

 

 

 

 

 

 

9,574,944

 

9,574,944

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material and Composites

 

Bridge Loan 6.0000% Cash, 6.0000% PIK, 08/31/2014 (b)

 

3,105,038

 

2,985,749

 

3,156,172

 

 

 

 

 

Warrants (d)

 

 

 

288,000