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 April 30, 2015 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 December 1, 2015.

 

 

 



Table of Contents

 

MVC Capital, Inc.

(A Delaware Corporation)

Index

 

 

 

Page

 

 

 

Part I. Consolidated Financial Information

 

 

 

 

Item 1.

Consolidated Financial Statements

 

 

Consolidated Balance Sheets

 

 

-                         April 30, 2015 and October 31, 2014

3

 

Consolidated Statements of Operations

 

 

-                         For the Six Month Period November 1, 2014 to April 30, 2015 and

 

 

-                         For the Six Month Period November 1, 2013 to April 30, 2014

4

 

Consolidated Statements of Operations

 

 

-                         For the Quarter February 1, 2015 to April 30, 2015 and

 

 

-                         For the Quarter February 1, 2014 to April 30, 2014

5

 

Consolidated Statements of Cash Flows

 

 

-                         For the Six Month Period November 1, 2014 to April 30, 2015 and

 

 

-                         For the Six Month Period November 1, 2013 to April 30, 2014

6

 

Consolidated Statements of Changes in Net Assets

 

 

-                         For the Six Month Period November 1, 2014 to April 30, 2015,

 

 

-                         For the Six Month Period November 1, 2013 to April 30, 2014 and

 

 

-                         For the Year ended October 31, 2014

7

 

Consolidated Selected Per Share Data and Ratios

 

 

-                         For the Six Month Period November 1, 2014 to April 30, 2015,

 

 

-                         For the Six Month Period November 1, 2013 to April 30, 2014 and

 

 

-                         For the Year ended October 31, 2014

8

 

Consolidated Schedules of Investments

 

 

-                         April 30, 2015

9

 

-                         October 31, 2014

11

 

Notes to Consolidated Financial Statements

13

 

 

 

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

43

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

73

 

 

Item 4. Controls and Procedures

86

 

 

Part II. Other Information

87

 

 

SIGNATURE

89

 

 

Exhibits

 

 



Table of Contents

 

Part I. Consolidated Financial Information

 

Item 1. Consolidated Financial Statements

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

April 30,

 

October 31,

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash

 

$

5,756,676

 

$

8,781,375

 

Restricted cash equivalents (cost $6,077,260 and $6,265,500)

 

6,077,260

 

6,265,500

 

Cash equivalents (cost $3,317,751 and $8,391,089)

 

3,317,751

 

8,391,089

 

Investments at fair value

 

 

 

 

 

Short-term investments (cost $0 and $99,999,629)

 

 

99,897,404

 

Non-control/Non-affiliated investments (cost $160,668,051 and $150,682,873)

 

133,919,823

 

126,303,048

 

Affiliate investments (cost $115,083,581 and $115,021,554)

 

168,460,548

 

173,682,927

 

Control investments (cost $173,877,631 and $174,266,037)

 

131,941,134

 

147,644,189

 

Total investments at fair value (cost $449,629,263 and $539,970,093)

 

434,321,505

 

547,527,568

 

Receivable on sale of short-term investments

 

95,061,588

 

 

Deferred financing fees

 

2,812,874

 

2,972,864

 

Dividends and interest receivables, net of reserves

 

2,747,247

 

1,188,398

 

Fee and other receivables

 

1,281,380

 

1,939,827

 

Prepaid expenses

 

609,859

 

646,801

 

Total assets

 

$

551,986,140

 

$

577,713,422

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes

 

$

114,408,750

 

$

114,408,750

 

Revolving credit facility

 

95,000,000

 

100,000,000

 

Bridge Loan

 

12,382,481

 

 

Provision for incentive compensation (Note 11)

 

9,152,087

 

14,733,887

 

Management fee payable

 

1,518,517

 

1,474,223

 

Professional fees payable

 

1,206,253

 

1,309,085

 

Interest payable

 

425,915

 

374,875

 

Accrued expenses and liabilities

 

412,232

 

456,148

 

Foreign currency forward contract

 

347,440

 

 

Management fee payable - Asset Management

 

296,812

 

296,812

 

Portfolio fees payable - Asset Management

 

250,351

 

436,791

 

Liability for share exchange

 

225,137

 

221,424

 

Consulting fees payable

 

145,825

 

97,250

 

Taxes payable

 

977

 

1,219

 

 

 

 

 

 

 

Total liabilities

 

235,772,777

 

233,810,464

 

 

 

 

 

 

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 28,304,448 shares issued and 22,702,821 and 22,702,821 shares outstanding, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

421,034,012

 

421,037,726

 

Accumulated earnings

 

87,791,551

 

83,996,734

 

Dividends paid to stockholders

 

(122,883,140

)

(116,753,378

)

Accumulated net realized loss

 

576,895

 

2,697,840

 

Net unrealized (depreciation) appreciation

 

(15,292,793

)

7,937,198

 

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

 

(55,296,206

)

(55,296,206

)

 

 

 

 

 

 

Total shareholders’ equity

 

316,213,363

 

343,902,958

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

551,986,140

 

$

577,713,422

 

 

 

 

 

 

 

Net asset value per share

 

$

13.93

 

$

15.15

 

 

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 Six Month Period

 

For the Six Month Period

 

 

 

November 1, 2014 to

 

November 1, 2013 to

 

 

 

April 30, 2015

 

April 30, 2014

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

445

 

$

69,580

 

Affiliate investments

 

 

71,590

 

Total dividend income

 

445

 

141,170

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

 

143,182

 

Total payment-in-kind dividend income

 

 

143,182

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

6,139,784

 

2,692,651

 

Affiliate investments

 

644,948

 

2,406,842

 

Control investments

 

171,414

 

191,798

 

Total interest income

 

6,956,146

 

5,291,291

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

1,979,617

 

1,634,473

 

Affiliate investments

 

61,896

 

498,657

 

Control investments

 

77,265

 

77,264

 

Total payment-in-kind interest income

 

2,118,778

 

2,210,394

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

 

300,991

 

Affiliate investments

 

362,666

 

460,001

 

Control investments

 

161,501

 

161,499

 

Total fee income

 

524,167

 

922,491

 

 

 

 

 

 

 

Fee income - Asset Management (1)

 

 

 

 

 

Portfolio fees

 

521,100

 

595,827

 

Management fees

 

8,684

 

617,485

 

Total fee income - Asset Management

 

529,784

 

1,213,312

 

 

 

 

 

 

 

Other income

 

 

553,769

 

 

 

 

 

 

 

Total operating income

 

10,129,320

 

10,475,609

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

5,070,830

 

4,660,899

 

Management fee

 

4,045,747

 

4,416,533

 

Legal fees

 

817,000

 

290,000

 

Other expenses

 

463,899

 

103,797

 

Portfolio fees - Asset Management (1)

 

390,825

 

446,870

 

Audit & tax preparation fees

 

338,000

 

324,100

 

Consulting fees

 

226,902

 

259,402

 

Directors’ fees

 

210,000

 

206,250

 

Insurance

 

171,840

 

173,400

 

Administration

 

120,873

 

126,123

 

Public relations fees

 

92,000

 

102,000

 

Printing and postage

 

44,911

 

49,889

 

Management fee - Asset Management (1)

 

(2,402

)

463,114

 

Net Incentive compensation (Note 11)

 

(5,581,800

)

(2,978,955

)

 

 

 

 

 

 

Total operating expenses

 

6,408,625

 

8,643,422

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser (2)

 

(75,000

)

(75,000

)

 

 

 

 

 

 

Total waivers

 

(75,000

)

(75,000

)

 

 

 

 

 

 

Net operating income before taxes

 

3,795,695

 

1,907,187

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

878

 

877

 

 

 

 

 

 

 

Total tax expense

 

878

 

877

 

 

 

 

 

 

 

Net operating income

 

3,794,817

 

1,906,310

 

 

 

 

 

 

 

Net Realized and Unrealized (Loss) Gain on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized (loss) gain on investments

 

 

 

 

 

Short-term investments

 

44,433

 

176,515

 

Non-control/Non-affiliated investments

 

(2,165,378

)

308,196

 

 

 

 

 

 

 

Total net realized (loss) gain on investments

 

(2,120,945

)

484,711

 

 

 

 

 

 

 

Net unrealized depreciation on investments

 

(23,229,991

)

(13,356,836

)

 

 

 

 

 

 

Net realized and unrealized loss on investments

 

(25,350,936

)

(12,872,125

)

 

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

(21,556,119

)

$

(10,965,815

)

 

 

 

 

 

 

Net decrease in net assets per share resulting from operations

 

$

(0.95

)

$

(0.49

)

 

 

 

 

 

 

Dividends declared per share

 

$

0.270

 

$

0.270

 

 

 

 

 

 

 

Weighted average number of shares outstanding(3)

 

22,702,821

 

22,574,010

 

 

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

 


(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 six month portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2015 and 2014 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

 

 

 

February 1, 2015 to

 

February 1, 2014 to

 

 

 

April 30, 2015

 

April 30, 2014

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

185

 

$

69,390

 

Affiliate investments

 

 

36,149

 

Total dividend income

 

185

 

105,539

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

 

72,300

 

Total payment-in-kind dividend income

 

 

72,300

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

3,172,113

 

1,389,257

 

Affiliate investments

 

317,519

 

1,330,673

 

Control investments

 

84,286

 

96,493

 

Total interest income

 

3,573,918

 

2,816,423

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

1,145,893

 

852,407

 

Affiliate investments

 

30,591

 

251,784

 

Control investments

 

37,993

 

37,992

 

Total payment-in-kind interest income

 

1,214,477

 

1,142,183

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

 

300,487

 

Affiliate investments

 

179,666

 

230,001

 

Control investments

 

80,751

 

80,749

 

Total fee income

 

260,417

 

611,237

 

 

 

 

 

 

 

Fee income - Asset Management (1)

 

 

 

 

 

Portfolio fees

 

249,625

 

308,710

 

Management fees

 

(24,945

)

454,392

 

Total fee income - Asset Management

 

224,680

 

763,102

 

 

 

 

 

 

 

Other income

 

 

351,571

 

 

 

 

 

 

 

Total operating income

 

5,273,677

 

5,862,355

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

2,615,820

 

2,405,389

 

Management fee

 

2,065,942

 

2,227,455

 

Legal fees

 

408,000

 

152,000

 

Other expenses

 

313,827

 

(36,941

)

Portfolio fees - Asset Management (1)

 

187,219

 

340,794

 

Audit & tax preparation fees

 

176,000

 

161,700

 

Consulting fees

 

111,051

 

124,251

 

Directors’ fees

 

105,000

 

103,125

 

Insurance

 

85,920

 

86,700

 

Administration

 

59,260

 

61,448

 

Public relations fees

 

45,500

 

51,000

 

Printing and postage

 

22,480

 

24,083

 

Management fee - Asset Management (1)

 

(18,709

)

231,533

 

Net Incentive compensation (Note 11)

 

(3,462,232

)

(3,413,806

)

 

 

 

 

 

 

Total operating expenses

 

2,715,078

 

2,518,731

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser (2)

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Total waivers

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Net operating income before taxes

 

2,596,099

 

3,381,124

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

439

 

(23

)

 

 

 

 

 

 

Total tax expense

 

439

 

(23

)

 

 

 

 

 

 

Net operating income

 

2,595,660

 

3,381,147

 

 

 

 

 

 

 

Net Realized and Unrealized (Loss) Gain on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized (loss) gain on investments

 

 

 

 

 

Short-term investments

 

182,187

 

338,448

 

Non-control/Non-affiliated investments

 

(2,165,378

)

383,402

 

 

 

 

 

 

 

Total net realized (loss) gain on investments

 

(1,983,191

)

721,850

 

 

 

 

 

 

 

Net unrealized depreciation on investments

 

(12,425,387

)

(16,754,026

)

 

 

 

 

 

 

Net realized and unrealized loss on investments

 

(14,408,578

)

(16,032,176

)

 

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

(11,812,918

)

$

(12,651,029

)

 

 

 

 

 

 

Net decrease in net assets per share resulting from operations

 

$

(0.52

)

$

(0.57

)

 

 

 

 

 

 

Dividends declared per share

 

$

0.135

 

$

0.135

 

 

 

 

 

 

 

Weighted average number of shares outstanding(3)

 

22,702,821

 

22,541,251

 

 

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

 


(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 six month portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2015 and 2014 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 Six Month Period

 

For the Six Month Period

 

 

 

November 1, 2014 to

 

November 1, 2013 to

 

 

 

April 30, 2015

 

April 30, 2014

 

Cash flows from Operating Activities:

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

(21,556,119

)

$

(10,965,815

)

Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:

 

 

 

 

 

Net realized loss (gain)

 

2,120,945

 

(484,711

)

Net change in unrealized depreciation

 

23,229,991

 

13,356,836

 

Amortization of premiums (discounts) and fees

 

(67,281

)

(861,285

)

Increase in accrued payment-in-kind dividends and interest

 

(938,784

)

(2,127,458

)

Amortization of deferred financing fees, net of financing fees paid

 

159,990

 

213,660

 

Allocation of flow through income

 

 

(281,831

)

Changes in operating assets and liabilities:

 

 

 

 

 

Dividends, interest and fees receivable

 

(1,558,849

)

(707,738

)

Fee and other receivables

 

658,447

 

183,818

 

Short-term investments receivables

 

(95,061,588

)

(99,783,203

)

Escrow receivables, net of reserves

 

 

300,000

 

Prepaid expenses

 

36,942

 

26,196

 

Prepaid taxes

 

 

336

 

Incentive compensation (Note 11)

 

(5,581,800

)

(2,978,955

)

Other liabilities

 

(189,522

)

388,298

 

Purchases of equity investments

 

 

(12,818,418

)

Purchases of debt instruments

 

(39,851,907

)

(34,037,000

)

Purchases of short-term investments

 

(194,199,016

)

(199,323,373

)

Proceeds from equity investments (1)

 

388,406

 

491,075

 

Proceeds from debt instruments

 

28,630,651

 

7,200,000

 

Sales/maturities of short-term investments

 

294,244,212

 

249,435,798

 

 

 

 

 

 

 

Net cash used in operating activities

 

(9,535,282

)

(92,773,770

)

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Net proceeds from revolving credit facility

 

(5,000,000

)

50,000,000

 

Net proceeds from bridge loan

 

12,382,481

 

 

Share exchange

 

(3,714

)

 

Distributions paid to shareholders

 

(6,129,762

)

(6,086,138

)

Repurchase of common stock

 

 

(2,109,087

)

 

 

 

 

 

 

Net cash provided by financing activities

 

1,249,005

 

41,804,775

 

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

(8,286,277

)

(50,968,995

)

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, beginning of period

 

$

23,437,964

 

$

81,026,560

 

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, end of period

 

$

15,151,687

 

$

30,057,565

 

 


(1) For the six month period ended April 30, 2014, proceeds from equity investments includes $491,075 in escrow receivables, net of reserves.

 

During the six month period ended April 30, 2015 and 2014 MVC Capital, Inc. paid $4,557,783 and $4,348,623 in interest expense, respectively.

 

During the six month period ended April 30, 2015 and 2014 MVC Capital, Inc. paid $1,420 and $300 in income taxes, respectively.

 

Non-cash activity:

 

During the six month period ended April 30, 2015 and 2014, MVC Capital, Inc. recorded payment in-kind dividend and interest of $938,784 and $2,127,458, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the six month period ended April 30, 2014, MVC Capital, Inc. was allocated $553,769, in flow-through income from its equity investment in Octagon Credit Investors, LLC.  Of these amounts, $271,938,  was received in cash and the balance of $281,831, was undistributed and therefore increased the cost of the investment.  The fair value was then increased by $101,099, 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 April 20, 2015, Biovation Acquisition Corp., a newly formed entity by the Company, credit purchased the assets of Biovation Holdings, Inc. in exchange for the majority of the economic ownership.  The company received 90 shares of Class B non-voting common stock of Biovation Acquisition Corp.

 

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 Six Month Period

 

For the Six Month Period

 

 

 

 

 

November 1, 2014 to

 

November 1, 2013 to

 

For the Year Ended

 

 

 

April 30, 2015

 

April 30, 2014

 

October 31, 2014

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating gain

 

$

3,794,817

 

$

1,906,310

 

$

1,579,417

 

Net realized (loss) gain on investments

 

(2,120,945

)

484,711

 

16,519,778

 

Net change in unrealized depreciation on investments

 

(23,229,991

)

(13,356,836

)

(37,941,262

)

 

 

 

 

 

 

 

 

Net decrease in net assets from operations

 

(21,556,119

)

(10,965,815

)

(19,842,067

)

 

 

 

 

 

 

 

 

Shareholder Distributions from:

 

 

 

 

 

 

 

Income

 

(3,794,817

)

(1,906,310

)

(1,579,417

)

Realized gain

 

 

 

(10,636,482

)

Return of capital

 

(2,334,945

)

(4,179,828

)

 

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(6,129,762

)

(6,086,138

)

(12,215,899

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Reissuance of treasury stock for share exchange

 

 

 

4,350,722

 

Provision for share exchange

 

(3,714

)

 

(221,424

)

Offering expenses

 

 

 

(139,000

)

Repurchase of common stock

 

 

(2,109,087

)

(4,114,967

)

 

 

 

 

 

 

 

 

Net decrease in net assets from capital share transactions

 

(3,714

)

(2,109,087

)

(124,669

)

 

 

 

 

 

 

 

 

Total decrease in net assets

 

(27,689,595

)

(19,161,040

)

(32,182,635

)

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

343,902,958

 

376,085,593

 

376,085,593

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

316,213,363

 

$

356,924,553

 

$

343,902,958

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,702,821

 

22,464,814

 

22,702,821

 

 

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 Six Month Period

 

For the Six Month Period

 

For the

 

 

 

November 1, 2014 to

 

November 1, 2013 to

 

Year Ended

 

 

 

April 30, 2015

 

April 30, 2014

 

October 31, 2014

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

15.15

 

$

16.63

 

$

16.63

 

 

 

 

 

 

 

 

 

(Loss) Gain from operations:

 

 

 

 

 

 

 

Net operating gain

 

0.17

 

0.08

 

0.07

 

Net realized and unrealized loss on investments

 

(1.12

)

(0.57

)

(0.95

)

 

 

 

 

 

 

 

 

Total loss from investment operations

 

(0.95

)

(0.49

)

(0.88

)

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

(0.17

)

(0.08

)

(0.07

)

Realized gain

 

 

 

(0.47

)

Return of capital

 

(0.10

)

(0.19

)

 

 

 

 

 

 

 

 

 

Total distributions

 

(0.27

)

(0.27

)

(0.54

)

 

 

 

 

 

 

 

 

Capital share transactions

 

 

 

 

 

 

 

Dilutive effect of share issuance

 

 

 

(0.10

)

Anti-dilutive effect of share repurchase program

 

 

0.02

 

0.04

 

 

 

 

 

 

 

 

 

Total capital share transactions

 

 

0.02

 

(0.06

)

 

 

 

 

 

 

 

 

Net asset value, end of period/year

 

$

13.93

 

$

15.89

 

$

15.15

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

9.70

 

$

13.04

 

$

11.27

 

 

 

 

 

 

 

 

 

Market discount

 

(30.37

)%

(17.94

)%

(25.61

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

(6.30

)%(d)

(2.85

)%(d)

(5.75

)%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

(11.49

)%(d)

(3.83

)%(d)

(14.97

)%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

6.54

%

1.77

%

14.16

%

 

 

 

 

 

 

 

 

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

 

$

316,213

 

$

356,925

 

$

343,903

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses including tax expense

 

3.87

%(c)

4.68

%(c)

5.04

%

Expenses excluding tax expense

 

3.87

%(c)

4.68

%(c)

5.04

%

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

2.32

%(c)

1.04

%(c)

0.44

%

Net operating income after tax expense

 

2.32

%(c)

1.04

%(c)

0.44

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses including tax expense

 

3.91

%(c)

4.72

%(c)

5.08

%

Expenses excluding tax expense

 

3.91

%(c)

4.72

%(c)

5.08

%

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

2.27

%(c)

1.00

%(c)

0.40

%

Net operating income after tax expense

 

2.27

%(c)

1.00

%(c)

0.40

%

 


(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

 

7.28

%(c)

6.31

%(c)

6.35

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.18

%(c)

3.76

%(c)

3.75

%

 

 

 

 

 

 

 

 

Net operating loss before incentive compensation

 

(1.09

)%(c)

(0.59

)%(c)

(0.87

)%

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

 

2.01

%(c)

1.96

%(c)

1.73

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

Expenses excluding incentive compensation

 

7.32

%(c)

6.35

%(c)

6.40

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.22

%(c)

3.80

%(c)

3.79

%

 

 

 

 

 

 

 

 

Net operating loss before incentive compensation

 

(1.14

)%(c)

(0.63

)%(c)

(0.92

)%

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

 

1.96

%(c)

1.92

%(c)

1.69

%

 

(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

April 30, 2015

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 42.35% (a), (c), (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Actelis Networks, Inc.

 

Technology Investment

 

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

 

 

 

$

 5,000,003

 

 

Agri-Carriers Group, Inc.

 

Transportation

 

Senior Subordinated Debt  12.0000% Cash, 3.0000% Deferred, 07/20/2017 (l), (m)

 

$

11,774,486

 

11,790,819

 

$

11,774,486

 

Biogenic Reagents

 

Renewable energy

 

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

 

5,353,593

 

5,353,593

 

5,353,593

 

 

 

 

 

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

 

4,818,233

 

4,818,233

 

4,881,620

 

 

 

 

 

Senior Note 12.0000% Cash, 4.0000% PIK, 09/30/2015 (b), (l)

 

4,081,751

 

4,081,751

 

4,081,751

 

 

 

 

 

Warrants (d)

 

1

 

 

1,122,027

 

 

 

 

 

 

 

 

 

14,253,577

 

15,438,991

 

Biovation Acquisition Co.

 

Manufacturer of Laminate Material and Composites

 

Common Stock (90 shares) (d)

 

 

 

534,622

 

534,622

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material and Composites

 

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

 

1,079,328

 

1,079,328

 

 

 

 

 

 

Warrants (d)

 

3

 

397,677

 

 

 

 

 

 

 

 

 

 

1,477,005

 

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings

 

Second Lien Loan, 7.3000% Cash, 3.7000% PIK, 04/30/2020 (b), (l)

 

23,359,311

 

23,359,311

 

23,264,436

 

 

 

 

 

Unsecured Subordinated Loan 12.0000% Cash, 09/04/2016 (l)

 

3,000,000

 

3,000,000

 

3,000,000

 

 

 

 

 

 

 

 

 

26,359,311

 

26,264,436

 

FOLIOfn, Inc.

 

Technology Investment - Financial Services

 

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

 

 

 

15,000,000

 

5,920,000

 

G3K Display, Inc.

 

Retail Store Fixtures

 

Senior Lien Loan 13.0000% Cash, 04/11/2019 (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, 04/17/2019 (l)

 

15,000,000

 

14,434,989

 

13,000,000

 

 

 

 

 

Warrants (d)

 

1

 

713,000

 

 

 

 

 

 

 

 

 

 

15,147,989

 

13,000,000

 

Legal Solutions Holdings, Inc.

 

Business Services

 

Senior Subordinated Debt  12.0000% Cash, 2.0000% Deferred, 09/12/2018 (l), (m)

 

8,705,000

 

8,721,466

 

8,705,000

 

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), (l)

 

15,572,288

 

15,572,288

 

15,572,288

 

NPWT Corporation

 

Medical Device Manufacturer

 

Series B Common Stock (281 shares) (d)

 

 

 

1,231,638

 

2,000

 

 

 

 

 

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

 

 

 

 

33,000

 

 

 

 

 

 

 

 

 

1,231,638

 

35,000

 

Prepaid Legal Services, Inc.

 

Consumer Services

 

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

 

10,000,000

 

9,888,240

 

10,000,000

 

The Results Companies, LLC

 

Business Services

 

Senior Subordinated Debt  13.0000% Cash, 2.5000% Deferred, 07/01/2016 (l), (m)

 

9,000,000

 

9,014,637

 

9,000,000

 

RX Innovation, Inc.

 

Software

 

Senior Subordinated Debt  12.0000% Cash, 4.0000% Deferred, 03/01/2017 (l), (m)

 

10,300,000

 

10,313,456

 

10,300,000

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d)

 

 

 

5,488,000

 

5,875,000

 

 

 

 

 

Secured Loan 12.0000% Cash, 05/02/2019

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

7,375,000

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

160,668,051

 

133,919,823

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 53.27% (a), (c), (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Advantage Insurance Holdings LTD

 

Insurance

 

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

 

 

 

7,500,000

 

7,713,364

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d), (e)

 

 

 

3,274,376

 

4,358,000

 

JSC Tekers Holdings

 

Real Estate Management

 

Common Stock (3,201 shares) (d), (e)

 

 

 

4,500

 

4,200

 

 

 

 

 

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

 

 

 

11,810,188

 

5,563,800

 

 

 

 

 

 

 

 

 

11,814,688

 

5,568,000

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d), (e)

 

 

 

52,846,140

 

48,650,000

 

SGDA Europe B.V.

 

Environmental Services

 

Common Equity Interest (d), (e)

 

 

 

28,544,800

 

7,900,000

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan, 13.0000% Cash, 07/01/2019 (l)

 

7,500,000

 

7,500,000

 

7,500,000

 

 

 

 

 

Unsecured Loan 10.0000% Cash, 4.0000% PIK , 07/01/2018 (b), (l)

 

3,103,577

 

3,103,577

 

3,103,577

 

 

 

 

 

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

 

 

 

500,000

 

83,667,607

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

11,103,577

 

94,271,184

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

115,083,581

 

168,460,548

 

 

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

 

9



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments - (Continued)

April 30, 2015

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

Control Investments - 41.73% (c), (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Regulated Investment Company

 

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

 

 

 

$

10,030,272

 

$

8,622,609

 

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

 

15,900,000

 

MVC Private Equity Fund LP

 

Private Equity

 

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

 

 

 

13,838,539

 

19,824,316

 

 

 

 

 

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

 

 

 

353,024

 

500,007

 

 

 

 

 

 

 

 

 

14,191,563

 

20,324,323

 

Ohio Medical Corporation

 

Medical Device Manufacturer

 

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

 

 

 

15,763,637

 

 

 

 

 

 

Series A Convertible Preferred Stock 16.0000% PIK (31,346 shares) (a), (b)

 

 

 

30,000,000

 

13,300,000

 

 

 

 

 

Series C Convertible Preferred Stock 16.0000% PIK (9,927shares) (a), (b)

 

 

 

22,618,466

 

30,028,930

 

 

 

 

 

 

 

 

 

68,382,103

 

43,328,930

 

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

 

5,643,890

 

 

 

 

 

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

 

 

 

999,815

 

1,431,635

 

 

 

 

 

 

 

 

 

5,334,984

 

8,000,000

 

SIA Tekers Invest

 

Port Facilities

 

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

 

 

 

2,300,000

 

1,034,000

 

Turf Products, LLC

 

Distributor - Landscaping and

 

Senior Subordinated Debt  7.0000% Cash, 4.0000% PIK, 11/01/2018 (a), (b), (l)

 

$

3,895,262

 

3,895,262

 

3,867,338

 

 

 

Irrigation Equipment

 

Limited Liability Company Interest (a), (d)

 

 

 

3,535,694

 

3,991,794

 

 

 

 

 

Guarantee (a), (d)

 

1

 

 

(66,860)

 

 

 

 

 

Warrants (a), (d)

 

150

 

 

 

 

 

 

 

 

 

 

 

7,430,956

 

7,792,272

 

Velocitius B.V.

 

Renewable Energy

 

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

 

 

 

11,395,315

 

9,439,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Senior Subordinated Debt 12.0000% Cash, 04/29/2016 (a), (l)

 

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

 

 

 

 

 

 

 

173,877,631

 

131,941,134

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 137.35% (f)

 

 

 

 

 

 

 

$

449,629,263

 

$

434,321,505

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents and Restricted Cash Equivalents - 2.97% (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Fidelity Institutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (1,894,835 shares)

 

 

 

1,894,835

 

1,894,835

 

JP Morgan Prime Money Market Fund

 

Money Market Fund

 

Beneficial Shares (7,500,176 shares)

 

 

 

7,500,176

 

7,500,176

 

Total Cash Equivalents and Restricted Cash Equivalents

 

 

 

 

 

 

 

9,395,011

 

9,395,011

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS - 140.32% (f)

 

 

 

 

 

 

 

$

459,024,274

 

$

443,716,516

 

 


(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., and Advantage Insurance LTD. 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 32% of the net assets.  The remaining portfolio companies are located in North America which represents approximately 106% of the net assets.

 

(f) Percentages are based on net assets of $316,213,363 as of April 30, 2015.

 

(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 five investments, four located in the United States and one in Gibraltar, the investments are in the energy, services, contract manufacturing, and industrial sectors.

 

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

 

(l) All or a portion of these securities may serve as collateral for the Firstrust Bank Bridge Loan.

 

(m) Deferred interest of $396,325, $148,661, $463,755 and $345,847 for Agri-Carriers Group, Legal Solutions Holdings, RXInnovation and The Results Companies, respectively, is shown as a receivable on the Consolidated Balance Sheet as of April 30, 2015.

 

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, 2014

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

Non-control/Non-affiliated investments- 36.73% (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)

 

$

5,246,951

 

5,246,951

 

$

5,246,951

 

 

 

 

 

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

 

4,722,256

 

4,722,256

 

5,027,257

 

 

 

 

 

Senior Note 12.0000% Cash, 4.0000% PIK, 09/30/2015 (b)

 

4,000,444

 

4,000,444

 

4,000,444

 

 

 

 

 

Warrants (d)

 

1

 

 

 

 

 

 

 

 

 

 

 

13,969,651

 

14,274,652

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material and Composites

 

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

 

3,779,321

 

3,779,321

 

3,391,663

 

 

 

 

 

Warrants (d)

 

3

 

397,677

 

 

 

 

 

 

 

 

 

 

4,176,998

 

3,391,663

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings

 

Second Lien Loan, 7.3% Cash, 3.7% PIK, 04/30/2020 (b)

 

23,000,000

 

23,000,000

 

23,000,000

 

 

 

 

 

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