MVC Capital, Inc.
MVC CAPITAL, INC. (Form: 10-Q/A, Received: 04/24/2018 16:33:01)

Table of Contents

 

 

 

FORM 10-Q/A

 

(Amendment No. 1)

 

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 January 31, 2018 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
(Address of principal
executive offices)

 

10577
(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   x   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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  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 18,820,528 shares of the registrant’s common stock, $.01 par value, outstanding as of March 12, 2018.

 

 

 



Table of Contents

 

Explanatory Note

 

The sole purpose of this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2018 (the “Original Filing”) for MVC Capital Inc. (the “Company”), which was filed with the Securities and Exchange Commission on March 12, 2018, is to amend Note 15 “Significant Subsidiaries” of Item 1 — Consolidated Financial Statements of the Original Filing to include financial information relating to the fourth quarter of 2017 for Equus Total Return, Inc. (“Equus”), which was a significant subsidiary of the Company for the January 31, 2017 period. As disclosed in the Original Filing, the financial information for Equus was not included in the Original Filing because Equus had not yet filed its Form 10-K for the December 31, 2017 period. (Equus’ Form 10-K has now been filed.) In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, this Amendment No. 1 includes currently dated certifications from the Registrant’s Chief Executive Officer and Chief Financial Officer. No other items of the Original Filing and no other disclosures under Item 1  are being amended hereby (except for updating Note 16 for subsequent events since the date of the Original Filing).

 



Table of Contents

 

MVC Capital, Inc.

(A Delaware Corporation)

Inde x

 

 

 

Page

Part I.

Consolidated Financial Information

 

 

 

 

Item 1.

Consolidated Financial Statements

 

 

 

Consolidated Balance Sheets

 

 

 

-

January 31, 2018 (Unaudited) and October 31, 2017

3

 

 

Consolidated Statements of Operations

 

 

 

-

For the Quarter Ended January 31, 2018 (Unaudited) and

 

 

 

-

For the Quarter Ended January 31, 2017 (Unaudited)

4

 

 

Consolidated Statements of Cash Flows

 

 

 

-

For the Quarter Ended January 31, 2018 (Unaudited) and

 

 

 

-

For the Quarter Ended January 31, 2017 (Unaudited)

5

 

 

Consolidated Statements of Changes in Net Assets

 

 

 

-

For the Quarter Ended January 31, 2018 (Unaudited),

 

 

 

-

For the Quarter Ended January 31, 2017 (Unaudited) and

 

 

 

-

For the Year ended October 31, 2017

6

 

 

Consolidated Selected Per Share Data and Ratios

 

 

 

-

For the Quarter Ended January 31, 2018 (Unaudited),

 

 

 

-

For the Quarter Ended January 31, 2017 (Unaudited) and

 

 

 

-

For the Year ended October 31, 2017

7

 

 

Consolidated Schedules of Investments

 

 

 

-

January 31, 2018 (Unaudited)

 

 

 

-

October 31, 2017

8

 

 

Notes to Consolidated Financial Statements

12

 

 

 

SIGNATURE

42

 

 

Exhibits

 

 

2



Table of Contents

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

January 31,

 

October 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash

 

$

54,989,062

 

$

100,354,340

 

Restricted cash (cost $5,300,405 and $5,300,329)

 

5,300,405

 

5,300,329

 

Cash equivalents (cost $1,212,638 and $1,019,899)

 

1,212,638

 

1,019,899

 

Investments at fair value

 

 

 

 

 

Non-control/Non-affiliated investments (cost $178,610,265 and $164,581,094)

 

159,305,526

 

149,246,812

 

Affiliate investments (cost $114,313,172 and $114,158,346)

 

86,316,736

 

81,908,631

 

Control investments (cost $84,503,275 and $84,478,275)

 

62,410,794

 

61,370,030

 

Total investments at fair value (cost $377,426,712 and $363,217,715)

 

308,033,056

 

292,525,473

 

Dividends and interest receivables, net of reserves

 

1,844,785

 

1,806,335

 

Deferred financing fees

 

461,824

 

600,379

 

Fee and other receivables

 

1,675,373

 

1,483,793

 

Prepaid expenses

 

246,974

 

318,847

 

 

 

 

 

 

 

Total assets

 

$

373,764,117

 

$

403,409,395

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes II

 

$

111,492,375

 

$

 

Senior notes

 

 

112,626,045

 

Provision for incentive compensation (Note 11)

 

2,327,581

 

2,060,992

 

Incentive compensation payable

 

2,502,961

 

4,387,266

 

Professional fees payable

 

164,337

 

118,403

 

Management fee payable

 

1,048,210

 

1,001,770

 

Accrued expenses and liabilities

 

535,014

 

562,473

 

Interest payable

 

319,444

 

345,612

 

Management fee payable - Asset Management

 

88,688

 

89,192

 

Consulting fees payable

 

159,891

 

347,863

 

Portfolio fees payable - Asset Management

 

507,549

 

458,566

 

Guarantees/Letters of Credit

 

665,800

 

551,349

 

Transaction fees payable

 

1,368,742

 

1,368,742

 

Taxes payable

 

2,534

 

2,054

 

 

 

 

 

 

 

Total liabilities

 

121,183,126

 

123,920,327

 

 

 

 

 

 

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 28,304,448 shares issued and 18,820,528 and 21,114,105 shares outstanding as of January 31, 2018 and October 31, 2017, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

418,173,353

 

418,208,458

 

Accumulated earnings

 

119,965,307

 

122,455,573

 

Distributions paid to stockholders

 

(160,237,684

)

(157,414,605

)

Accumulated net realized (loss) gain

 

38,437,380

 

38,434,807

 

Net unrealized depreciation

 

(67,527,475

)

(70,965,264

)

Treasury stock, at cost, 9,483,920 and 7,190,343 shares held, respectively

 

(96,512,934

)

(71,512,945

)

 

 

 

 

 

 

Total shareholders’ equity

 

252,580,991

 

279,489,068

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

373,764,117

 

$

403,409,395

 

 

 

 

 

 

 

Net asset value per share

 

$

13.42

 

$

13.24

 

 

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 Quarter Ended

 

For the Quarter Ended

 

 

 

January 31, 2018

 

January 31, 2017

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

538,652

 

$

 

 

 

 

 

 

 

Total dividend income

 

538,652

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

3,524,682

 

1,507,102

 

Affiliate investments

 

10,878

 

585,319

 

Control investments

 

74,234

 

133,473

 

 

 

 

 

 

 

Total interest income

 

3,609,794

 

2,225,894

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

625,831

 

302,961

 

Affiliate investments

 

54,854

 

179,704

 

Control investments

 

25,212

 

61,958

 

 

 

 

 

 

 

Total payment-in-kind/Deferred interest income

 

705,897

 

544,623

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

67,419

 

72,897

 

Affiliate investments

 

 

180,000

 

Control investments

 

 

37,500

 

 

 

 

 

 

 

Total fee income

 

67,419

 

290,397

 

 

 

 

 

 

 

Fee income - Asset Management 1

 

 

 

 

 

Portfolio fees

 

196,102

 

235,864

 

Management fees

 

88,673

 

83,222

 

 

 

 

 

 

 

Total fee income - Asset Management

 

284,775

 

319,086

 

 

 

 

 

 

 

Total operating income

 

5,206,537

 

3,380,000

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

3,117,024

 

2,538,096

 

Loss on extinguishment of debt

 

1,782,705

 

 

Management fee

 

1,411,008

 

1,813,915

 

Net Incentive compensation (Note 11)

 

266,589

 

759,774

 

Audit & tax preparation fees

 

435,000

 

455,000

 

Legal fees

 

228,020

 

78,525

 

Consulting fees

 

209,000

 

275,555

 

Other expenses

 

181,260

 

367,446

 

Portfolio fees - Asset Management 1

 

147,077

 

176,898

 

Directors’ fees

 

79,000

 

106,514

 

Insurance

 

67,086

 

72,219

 

Management fee - Asset Management 1

 

66,505

 

62,417

 

Administration

 

42,816

 

50,646

 

Public relations fees

 

38,100

 

47,000

 

Printing and postage

 

15,385

 

21,007

 

 

 

 

 

 

 

Total operating expenses

 

8,086,575

 

6,825,012

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser 2

 

(37,500

)

(37,500

)

Less: Voluntary Management Fee Waiver by Adviser 3

 

(352,752

)

(453,479

)

 

 

 

 

 

 

Total waivers

 

(390,252

)

(490,979

)

 

 

 

 

 

 

Net operating (loss) before taxes

 

(2,489,786

)

(2,954,033

)

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

480

 

480

 

 

 

 

 

 

 

Total tax expense

 

480

 

480

 

 

 

 

 

 

 

Net operating (loss)

 

(2,490,266

)

(2,954,513

)

 

 

 

 

 

 

Net Realized and Unrealized (Loss) Gain on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short term investments

 

 

97,184

 

Control investments

 

 

10,923,023

 

Foreign currency

 

2,573

 

4,549

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

2,573

 

11,024,756

 

 

 

 

 

 

 

Net unrealized appreciation (depreciation)  on investments

 

3,437,789

 

(3,692,821

)

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

3,440,362

 

7,331,935

 

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

950,096

 

$

4,377,422

 

 

 

 

 

 

 

Net increase in net assets per share resulting from operations

 

$

0.05

 

$

0.19

 

 

 

 

 

 

 

Dividends declared per share 4

 

$

0.150

 

$

0.135

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

20,191,688

 

22,556,412

 

 


1 These items are related to the management of the MVC Private Equity Fund, L.P. (“PE Fund”).  Please see Note 4 “Management” for more information.

 

2 Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2018 and 2017 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 the quarterly portion of the TTG Advisers’ voluntary waiver of the management fee for the 2018 and 2017 fiscal years. Please see Note 10 “Management” for more information.

 

4 Please see Note 6 “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 Cash Flows

(Unaudited)

 

 

 

For the Quarter Ended

 

For the Quarter Ended

 

 

 

January 31, 2018

 

January 31, 2017

 

Cash flows from Operating Activities:

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

950,096

 

$

4,377,422

 

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

 

 

 

 

 

Net realized gain (loss)

 

(2,573

)

(11,024,756

)

Net change in unrealized (appreciation) depreciation

 

(3,437,789

)

3,692,821

 

Amortization of premiums (discounts) and fees

 

(38,555

)

(63,474

)

Increase in accrued payment-in-kind dividends and interest

 

(715,324

)

(511,649

)

Amortization of deferred financing fees

 

272,777

 

259,286

 

Loss on extinguishment of debt

 

1,782,705

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Restricted cash

 

(76

)

(146

)

Dividends, interest and fees receivable

 

(38,450

)

2,910,816

 

Fee and other receivables

 

(191,580

)

(84,519

)

Escrow receivables, net of reserves

 

 

4,146,910

 

Prepaid expenses

 

71,873

 

(60,899

)

Net incentive compensation (Note 11)

 

(1,617,716

)

(336,306

)

Other liabilities

 

(100,267

)

(299,185

)

Purchases of equity investments

 

(400,847

)

(59,375

)

Purchases of debt instruments

 

(14,015,335

)

(909,743

)

Purchases of short-term investments

 

 

(24,995,573

)

Proceeds from equity investments (1)

 

 

13,643,783

 

Proceeds from debt instruments

 

3,200,000

 

30,000

 

Sales/maturities of short-term investments

 

 

35,095,887

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

(14,281,061

)

25,811,300

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Borrowings from senior notes II

 

115,000,000

 

 

Repayments on senior notes

 

(114,408,750

)

 

Borrowings from revolving credit facility

 

 

25,000,000

 

Repayments from revolving credit facility

 

 

(35,000,000

)

Repurchase of common stock

 

(25,035,094

)

 

 

Financing fees paid

 

(3,624,555

)

 

Distributions paid to shareholders

 

(2,739,906

)

(2,979,028

)

Repurchases of common stock under dividend reinvestment plan

 

(83,173

)

(66,088

)

 

 

 

 

 

 

Net cash used in financing activities

 

(30,891,478

)

(13,045,116

)

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

(45,172,539

)

12,766,184

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

101,374,239

 

$

10,214,160

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

56,201,700

 

$

22,980,344

 

 


(1) For the quarter ended January 31, 2017, proceeds from equity investments includes $0, in escrow receivables, net of reserves.

 

During the quarters ended January 31, 2018 and 2017 MVC Capital, Inc. paid $2,718,599 and $2,108,571 in interest expense, respectively.

 

During the quarters ended January 31, 2018 and 2017 MVC Capital, Inc. paid $0 and $0 in income taxes, respectively.

 

Non-cash activity:

During the quarters ended January 31, 2018 and 2017, MVC Capital, Inc. recorded payment in-kind dividend and interest of $715,324 and $511,649, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the quarters ended January 31, 2018 and 2017, the Company issued 7,670 and 7,676 shares of common stock to satisfy the dividend reinvestment plan.

 

On November 28, 2017, the Company restructured the Custom Alloy second lien loan and unsecured subordinated loan.  The second lien loan was restructured into a $3.5 million second lien loan with an interest rate of 10% and a maturity date of December 31, 2020, 6,500 shares of Series B Preferred Stock with a 10% PIK coupon and a maturity date of December 31, 2020 and 17,935 shares of Series C Preferred Stock.  The unsecured subordinated loan was restructured into 3,617 shares of Series A Preferred Stock with a 12% PIK coupon and a maturity date of April 30, 2020.

 

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

 

5



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Changes in Net Assets

 

 

 

For the Quarter Ended

 

For the Quarter Ended

 

For the Year Ended

 

 

 

January 31, 2018

 

January 31, 2017

 

October 31, 2017

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating loss

 

$

(2,490,266

)

$

(2,954,513

)

$

(5,598,822

)

Net realized (loss) gain on investments

 

2,573

 

11,024,756

 

89,895,631

 

Net change in appreciation (depreciation) unrealized appreciation on investments

 

3,437,789

 

(3,692,821

)

(56,972,810

)

 

 

 

 

 

 

 

 

Net increase in net assets from operations

 

950,096

 

4,377,422

 

27,323,999

 

 

 

 

 

 

 

 

 

Shareholder Distributions from:

 

 

 

 

 

 

 

Income

 

 

(3,045,116

)

(9,738,519

)

Return of capital

 

(2,823,079

)

 

(2,563,946

)

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(2,823,079

)

(3,045,116

)

(12,302,465

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Issuance of common stock under dividend reinvestment plan

 

83,173

 

66,088

 

283,120

 

Repurchase of common stock under dividend reinvestment plan

 

(83,173

)

(66,088

)

(283,120

)

Repurchase expenses

 

(35,105

)

 

(90,251

)

Repurchase of common stock

 

(24,999,989

)

 

(14,999,993

)

 

 

 

 

 

 

 

 

Net decrease in net assets from capital share transactions

 

(25,035,094

)

 

(15,090,244

)

 

 

 

 

 

 

 

 

Total increase (decrease) in net assets

 

(26,908,077

)

1,332,306

 

(68,710

)

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

279,489,068

 

279,557,778

 

279,557,778

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

252,580,991

 

$

280,890,084

 

$

279,489,068

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

18,820,528

 

22,556,412

 

21,114,105

 

 

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

 

6



Table of Contents

 

MVC Capital, Inc.

Consolidated Selected Per Share Data and Ratios

 

 

 

For the

 

For the

 

For the

 

 

 

Quarter Ended

 

Quarter Ended

 

Year Ended

 

 

 

January 31, 2018

 

January 31, 2017

 

October 31, 2017

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

13.24

 

$

12.39

 

$

12.39

 

 

 

 

 

 

 

 

 

(Loss) Gain from operations:

 

 

 

 

 

 

 

Net operating (loss) gain

 

(0.12

)

(0.13

)

(0.25

)

Net realized and unrealized loss on investments

 

0.17

 

0.32

 

1.47

 

 

 

 

 

 

 

 

 

Total gain from investment operations

 

0.05

 

0.19

 

1.22

 

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

 

(0.13

)

(0.44

)

Return of capital

 

(0.15

)

 

(0.12

)

 

 

 

 

 

 

 

 

Total distributions

 

(0.15

)

(0.13

)

(0.56

)

 

 

 

 

 

 

 

 

Capital share transactions

 

 

 

 

 

 

 

Anti-dilutive effect of share repurchase program

 

0.28

 

 

0.19

 

 

 

 

 

 

 

 

 

Total capital share transactions

 

0.28

 

 

0.19

 

 

 

 

 

 

 

 

 

Net asset value, end of period/year

 

$

13.42

 

$

12.45

 

$

13.24

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

10.50

 

$

8.55

 

$

10.70

 

 

 

 

 

 

 

 

 

Market discount

 

(21.76

)%

(31.33

)%

(19.18

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

2.49

%

1.57

%

11.54

%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

(0.47

)%

(0.06

)%

30.39

%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

1.07

%

0.43

%

4.26

%

 

 

 

 

 

 

 

 

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

 

$

252,581

 

$

280,890

 

$

279,489

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses including tax expense

 

11.48

%(c)

8.94

%(c)

9.03

%

Expenses excluding tax expense

 

11.48

%(c)

8.94

%(c)

9.03

%

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

(3.71

)%(c)

(4.17

)%(c)

(1.97

)%

Net operating income after tax expense

 

(3.71

)%(c)

(4.17

)%(c)

(1.97

)%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses including tax expense

 

12.06

%(c)

9.64

%(c)

9.63

%

Expenses excluding tax expense

 

12.06

%(c)

9.64

%(c)

9.63

%

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

(4.30

)%(c)

(4.87

)%(c)

(2.57

)%

Net operating income after tax expense

 

(4.30

)%(c)

(4.87

)%(c)

(2.57

)%

 


(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

 

11.08

%(c)

7.87

%(c)

7.07

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.78

%(c)

4.29

%(c)

3.45

%

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(3.31

)%(c)

(3.10

)%(c)

%

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

 

3.99

%(c)

0.49

%(c)

3.62

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

11.66

%(c)

8.57

%(c)

7.67

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.35

%(c)

4.99

%(c)

4.05

%

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(3.90

)%(c)

(3.80

)%(c)

(0.60

)%

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

 

3.41

%(c)

(0.21

)%(c)

3.02

%

 

 

 

 

 

 

 

 

(c) Annualized.

 

 

 

 

 

 

 

 

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

 

7



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

January 31, 2018

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market 
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 63.07% (a, c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Black Diamond Equipment Rentals, LLC

 

Equipment Rental

 

Second Lien Loan 12.5000% Cash, 06/27/2022 (k, o)

 

$

7,500,000

 

$

6,960,895

 

$

7,107,697

 

 

 

 

 

Warrants (a, d, o)

 

1

 

400,847

 

400,847

 

 

 

 

 

 

 

 

 

7,361,742

 

7,508,544

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings and Forgings

 

Second Lien Loan 10.0000% Cash, 12/31/2020 (k, o)

 

3,533,055

 

3,093,270

 

3,165,118

 

 

 

 

 

Series  A Preferred Stock (3,617 shares) 12.0000% Cash, 04/30/2020 (d, o)

 

 

 

3,000,000

 

3,118,280

 

 

 

 

 

Series B Preferred Stock (6,500 shares) 10.0000% PIK, 12/31/2020 (b, d, o)

 

 

 

5,683,254

 

5,549,637

 

 

 

 

 

Covertible Series C Preferred Stock (17,935 shares) (d, o)

 

 

 

17,935,482

 

10,429,627

 

 

 

 

 

 

 

 

 

29,712,006

 

22,262,662

 

Dukane IAS,LLC

 

Welding Equipment Manufacturer

 

Second Lien Note 10.5000% Cash, 2.5000% PIK, 11/17/2020 (b, k, o)

 

4,295,229

 

4,212,821

 

4,338,176

 

Essner Manufacturing, LP

 

Defense/Aerospace Parts Manufacturing

 

First Lien Loan 11.5000% Cash, 12/20/2022 (k, o, p)

 

3,666,700

 

3,595,061

 

3,666,700

 

FDS, Inc.

 

Software

 

Senior Subordinated Debt 12.0000% Cash, 11/30/2018 (k, o)

 

2,353,156

 

2,353,156

 

2,353,156

 

FOLIOfn, Inc.

 

Technology Investment - Financial Services

 

Preferred Stock (5,802,259 shares) (d, I, o)

 

 

 

15,000,000

 

4,864,000

 

Highpoint Global LLC

 

Government Services

 

Second Lien Note 12.0000% Cash, 2.0000% PIK, 09/30/2022 (b, k, o)

 

5,020,556

 

4,926,304

 

5,020,556

 

HTI Technologies and Industries, Inc.

 

Electronic Component Manufacturing

 

Second Lien Note 12.0000% Cash, 2.0000% PIK, 06/21/2018 (b, k, o)

 

9,928,529

 

9,912,504

 

9,687,205

 

Initials, Inc.

 

Consumer Products

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 06/23/2020 (b, k, o)

 

5,345,192

 

5,345,192

 

4,882,772

 

Legal Solutions Holdings, Inc.

 

Business Services

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 09/12/2018 (b, k, o)

 

11,544,170

 

11,546,147

 

11,659,694

 

Morey’s Seafood International, LLC

 

Food Services

 

Second Lien Loan 10.0000% Cash, 4.0000% PIK, 08/12/2018 (b, k, o)

 

17,573,105

 

17,573,105

 

17,980,645

 

SGDA Europe B.V.

 

Environmental Services

 

First Lien Note 5.0000% Cash, PIK, 10/26/2024 (b, e, m)

 

1,197,244

 

1,197,244

 

1,197,244

 

Turf Products, LLC

 

Distributor - Landscaping and Irrigation Equipment

 

Senior Subordinated Debt 10.0000% Cash, 08/07/2020 (k, o)

 

7,717,056

 

7,717,056

 

7,462,002

 

 

 

 

 

Third Lien Loan 10.0000% Cash, 08/07/2020 (k, o)

 

1,400,000

 

1,400,000

 

1,364,253

 

 

 

 

 

 

 

 

 

9,117,056

 

8,826,255

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan, 9.5000% Cash, 07/05/2025 (l, k, o)

 

40,526,745

 

40,526,745

 

38,852,917

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d, o)

 

 

 

5,488,000

 

5,400,000

 

 

 

 

 

Secured Loan 12.0000% Cash, 04/30/2019 (k, o)

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

Senior Secured Loan 12.0000% Cash, 11/07/2020 (k, o)

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

8,488,000

 

8,400,000

 

United States Technologies, Inc.

 

Electronics Manufacturing and Repair

 

Senior Lien Loan 10.5000% Cash, 07/17/2020 (k, o)

 

5,500,000

 

5,493,182

 

5,555,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Second Lien Loan 12.0000% Cash, 08/21/2022 (k, o)

 

2,250,000

 

2,250,000

 

2,250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

$

178,610,265

 

$

159,305,526

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 34.17% (c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Advantage Insurance, Inc.

 

Insurance

 

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

 

 

 

7,500,000

 

8,753,502

 

Centile Holdings B.V.

 

Software

 

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

 

 

 

3,524,376

 

7,085,000

 

Crius Energy Trust

 

Energy Services

 

Equity Unit (3,282,982 shares) (e)

 

 

 

25,865,227

 

24,442,205

 

JSC Tekers Holdings

 

Real Estate Management

 

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

 

 

 

4,500

 

 

 

 

 

 

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

 

 

 

11,810,188

 

4,566,000

 

 

 

 

 

 

 

 

 

11,814,688

 

4,566,000

 

MVC Environmental, Inc.

 

Environmental Services

 

Senior Secured Loan 9.0000% PIK, 12/22/2020 (a, b, h, k, o)

 

6,869,353

 

6,869,353

 

4,380,146

 

 

 

 

 

Common Stock (980 shares) (a, d, o)

 

 

 

3,140,375

 

 

 

 

 

 

 

 

 

 

10,009,728

 

4,380,146

 

Security Holdings B.V.

 

Electrical Engineering

 

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

 

 

 

51,204,270

 

32,695,000

 

 

 

 

 

Bridge Loan 5.0000% PIK, 12/31/2019 (a, b, e, k, o)

 

4,394,883

 

4,394,883

 

4,394,883

 

 

 

 

 

 

 

 

 

55,599,153

 

37,089,883

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

$

114,313,172

 

$

86,316,736

 

 

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

 

8



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments - (Continued)

January 31, 2018

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market
Value

 

Control investments - 24.71% (c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Registered Investment Company

 

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

 

 

 

$

10,030,272

 

$

10,844,931

 

MVC Automotive Group GmbH

 

Automotive Dealerships

 

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

 

 

 

51,185,015

 

19,227,972

 

 

 

 

 

Bridge Loan 6.0000% Cash, 06/30/2018 (a, e, k, o)

 

$

4,855,166

 

4,855,166

 

4,855,166

 

 

 

 

 

 

 

 

 

56,040,181

 

24,083,138

 

MVC Private Equity Fund LP

 

Private Equity

 

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

 

 

 

11,452,452

 

18,189,672

 

 

 

 

 

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

 

 

 

292,154

 

457,246

 

 

 

 

 

 

 

 

 

11,744,606

 

18,646,918

 

RuMe Inc.

 

Consumer Products

 

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

 

 

 

924,475

 

277,359

 

 

 

 

 

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

 

 

 

3,410,694

 

4,652,622

 

 

 

 

 

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

 

 

 

999,815

 

1,922,243

 

 

 

 

 

Subordinated Debt 10.0000% Cash, 9/22/2019 (a, k, n, o)

 

1,016,839

 

1,016,839

 

1,016,839

 

 

 

 

 

Warrants (a, d, o)

 

2

 

336,393

 

966,744

 

 

 

 

 

 

 

 

 

6,688,216

 

8,835,807

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

$

84,503,275

 

$

62,410,794

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 121.95% (f)

 

 

 

 

 

 

 

$

377,426,712

 

$

308,033,056

 

Cash equivalents - 0.48% (f, g)

 

Fidelity Institutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (1,116,787 shares)

 

 

 

$

1,116,787

 

$

1,116,787

 

Morgan Stanley Institutional Liquidity Government Portfolio

 

Money Market Fund

 

Beneficial Shares (95,851 shares)

 

 

 

95,851

 

95,851

 

Total Cash equivalents

 

 

 

 

 

 

 

1,212,638

 

1,212,638

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENT ASSETS - 122.43%

 

 

 

 

 

 

 

$

378,639,350

 

$

309,245,694

 

 


(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., JSC Tekers Holdings, Centile Holdings B.V., Equus Total Return Inc., and MVC Private Equity Fund L.P.

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, Canada, and Puerto Rico which represents approximately 29% of the total assets.  The remaining portfolio companies are located in United States which represents approximately 54% of the total assets.

 

(f) Percentages are based on net assets of $252,580,991 as of January 31, 2018.

 

(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, contract manufacturing, and industrial sectors.  The Company’s proportional share of Plymouth Rock Energy membership interest and loan, the Gibdock Limited equity interest, Advanced Oil Field Services, LLC common stock, preferred stock, and loan and Focus Pointe preferred stock is $7,257,919, $4,208,377, $2,907,039 and $3,286,550, respectively.  The Company’s partnership interests in the MVC Private Equity Fund, LP are not redeemable.

 

(k) All or a portion of these securities may serve as collateral for the Santander Credit Facility.

 

(l) U.S. Gas & Electric, Inc. is an indirect subsidiary of Crius Energy Trust.

 

(m) PIK toggle at borrower’s option

 

(n) 10% PIK through December 31, 2017, 10% Cash beginning January 1, 2018.

 

(o) These securities are valued using unobservable inputs.

 

(p) Variable rate between 10.5000% and 11.5000% cash.

 

PIK - Payment-in-kind

 

- Denotes zero cost or fair value.

 

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

 

9



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

October 31, 2017

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 53.40% (a, c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings and Forgings

 

Second Lien Loan 10.1000% Cash, 04/30/2020 (h, k, o)

 

$

24,425,298

 

24,425,298

 

$

18,471,704

 

 

 

 

 

Unsecured Subordinated Loan 12.0000% Cash, 03/31/2018 (h, k, o)

 

3,000,000

 

3,000,000

 

3,012,165

 

 

 

 

 

 

 

 

 

27,425,298

 

21,483,869

 

Dukane IAS,LLC

 

Welding Equipment Manufacturer

 

Second Lien Note 10.5000% Cash, 2.5000% PIK, 11/17/2020 (b, k, o)

 

7,255,747

 

7,165,971

 

7,328,296

 

FDS, Inc.

 

Software

 

Senior Subordinated Debt 12.0000% Cash, 11/30/2017 (k, o)

 

2,353,156

 

2,353,156

 

2,353,156

 

FOLIOfn, Inc.

 

Technology Investment - Financial Services

 

Preferred Stock (5,802,259 shares) (d, I, o)

 

 

 

15,000,000

 

5,407,000

 

Highpoint Global LLC

 

Government Services

 

Second Lien Note 12.0000% Cash, 2.0000% PIK, 09/30/2022 (b, k)

 

5,000,000

 

4,900,699

 

4,900,699

 

HTI Technologies and Industries, Inc.

 

Electronic Component Manufacturing

 

Second Lien Note 12.0000% Cash, 2.0000% PIK, 06/21/2018 (b, k, o)

 

9,878,042

 

9,849,998

 

9,766,317

 

Initials, Inc.

 

Consumer Products

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 06/23/2020 (b, k, o)

 

4,818,874

 

4,818,874

 

4,310,277

 

Legal Solutions Holdings, Inc.

 

Business Services

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 09/12/2018 (b, k, o)

 

11,456,144

 

11,459,396

 

11,570,745

 

Morey’s Seafood International, LLC

 

Food Services

 

Second Lien Loan 10.0000% Cash, 4.0000% PIK, 08/12/2018 (b, k, o)

 

17,236,157

 

17,236,157

 

17,800,661

 

SGDA Europe B.V.

 

Environmental Services

 

First Lien Note 5.0000% Cash, PIK, 10/26/2024 (a, b, e, m)

 

1,197,244

 

1,197,244

 

1,197,244

 

Turf Products, LLC

 

Distributor - Landscaping and Irrigation Equipment

 

Senior Subordinated Debt 10.0000% Cash, 08/07/2020 (k, o)

 

7,717,056

 

7,717,056

 

7,562,620

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan, 9.5000% Cash, 07/05/2025 (l, k, o)

 

40,526,745

 

40,526,745

 

40,526,745

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d, o)

 

 

 

5,488,000

 

5,534,183

 

 

 

 

 

Secured Loan 12.0000% Cash, 04/30/2019 (k, o)

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

7,034,183

 

United States Technologies, Inc.

 

Electronics Manufacturing and Repair

 

Senior Lien Loan 10.5000% Cash, 07/17/2020 (k, o)

 

5,500,000

 

5,492,500

 

5,555,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Second Lien Loan 12.0000% Cash, 08/21/2022 (k, o)

 

2,450,000

 

2,450,000

 

2,450,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

164,581,094

 

149,246,812

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 29.31% (c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Advantage Insurance, Inc.

 

Insurance

 

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

 

 

 

7,500,000

 

8,896,789

 

Centile Holdings B.V.

 

Software

 

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

 

 

 

3,524,376

 

6,790,000

 

Crius Energy Trust

 

Energy Services

 

Equity Unit (3,282,982 shares) (e)

 

 

 

25,865,227

 

21,024,145

 

JSC Tekers Holdings

 

Real Estate Management

 

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

 

 

 

4,500

 

 

 

 

 

 

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

 

 

 

11,810,188

 

4,196,000

 

 

 

 

 

 

 

 

 

11,814,688

 

4,196,000

 

MVC Environmental, Inc.

 

Environmental Services

 

Senior Secured Loan 9.0000% PIK, 12/22/2020 (a, b, h, k, o)

 

6,869,353

 

6,869,353

 

4,878,640

 

 

 

 

 

Common Stock (980 shares) (a, d, o)

 

 

 

3,140,375

 

 

 

 

 

 

 

 

 

 

10,009,728

 

4,878,640

 

Security Holdings B.V.

 

Electrical Engineering

 

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

 

 

 

51,204,270

 

31,883,000

 

 

 

 

 

Bridge Loan 5.0000% PIK, 12/31/2019 (a, b, e, k, o)

 

4,240,057

 

4,240,057

 

4,240,057

 

 

 

 

 

 

 

 

 

55,444,327

 

36,123,057

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

114,158,346

 

81,908,631

 

 

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

 

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Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments - (Continued)

October 31, 2017

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market
Value

 

Control investments - 21.96% (c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Registered Investment Company

 

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

 

 

 

$10,030,272

 

$10,844,931

 

MVC Automotive Group GmbH

 

Automotive Dealerships

 

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

 

 

 

51,185,015

 

17,395,000

 

 

 

 

 

Bridge Loan 6.0000% Cash, 06/30/2018 (a, e, k, o)

 

$4,855,166

 

4,855,166

 

4,855,166

 

 

 

 

 

 

 

 

 

56,040,181

 

22,250,166

 

MVC Private Equity Fund LP

 

Private Equity

 

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

 

 

 

11,452,452

 

17,804,933

 

 

 

 

 

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

 

 

 

292,154

 

447,790

 

 

 

 

 

 

 

 

 

11,744,606

 

18,252,723

 

RuMe Inc.

 

Consumer Products

 

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

 

 

 

924,475

 

402,439

 

 

 

 

 

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

 

 

 

3,410,694

 

5,216,844

 

 

 

 

 

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

 

 

 

999,815

 

2,008,375

 

 

 

 

 

Subordinated Debt 10.0000% PIK, 9/22/2019 (a, b, k, n, o)

 

991,839

 

991,839

 

991,839

 

 

 

 

 

Warrants (a, d, o)

 

2

 

336,393

 

1,402,713

 

 

 

 

 

 

 

 

 

6,663,216

 

10,022,210

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

84,478,275

 

61,370,030

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 104.67% (f)

 

 

 

 

 

 

 

$ 363,217,715

 

$ 292,525,473

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents - 0.36% (f, g)

 

 

 

 

 

 

 

 

 

 

 

Fidelity Institutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (924,287 shares)

 

 

 

$924,287

 

$ 924,287

 

Morgan Stanley Institutional Liquidity Government Portfolio

 

Money Market Fund

 

Beneficial Shares (95,612 shares)

 

 

 

95,612

 

95,612

 

Total Cash equivalents

 

 

 

 

 

 

 

1,019,899

 

1,019,899

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENT ASSETS - 105.03%

 

 

 

 

 

 

 

$ 364,237,614

 

$ 293,545,372

 

 


(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., JSC Tekers Holdings, Centile Holdings 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, Canada, and Puerto Rico which represents approximately 25% of the total assets.  The remaining portfolio companies are located in United States which represents approximately 48% of the total assets.

 

(f) Percentages are based on net assets of $279,489,068 as of October 31, 2017.

 

(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, contract manufacturing, and industrial sectors.  The Company’s proportional share of Plymouth Rock Energy membership interest and loan, the Gibdock Limited equity interest and Focus Pointe preferred stock is $7,257,919, $4,499,681, $2,888,839, respectively. The Company’s partnership interests in the MVC Private Equity Fund, LP are not redeemable.

 

(k) All or a portion of these securities may serve as collateral for the Santander Credit Facility.

 

(l) U.S. Gas & Electric, Inc. is an indirect subsidiary of Crius Energy Trust.

 

(m) PIK toggle at borrower’s option

 

(n) 10% PIK through December 31, 2017, 10% Cash beginning January 1, 2018.

 

(o) These securities are valued using unobservable inputs.

 

PIK - Payment-in-kind

 

- Denotes zero cost or fair value.

 

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

 

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Table of Contents

 

MVC Capital, Inc. (the “Company”)

Notes to Consolidated Financial Statements

January 31, 2018

(Unaudited)

 

1. Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements.  Certain amounts, when applicable, have been reclassified to adjust to current period presentations.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included as required by Regulation S-X, Rule 10-01. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2017, filed with the U.S. Securities and Exchange Commission (the “SEC”).  As the Company is an investment company, (as defined by the Investment Company Act of 1940 (the “1940 Act”)), management follows investment company accounting and reporting guidance of Financial Accounting Standards Board (“FASB”) 946-Investment Companies, which is accounting principles generally accepted in the United States of America (“GAAP”).

 

2. Consolidation

 

On July 16, 2004, the Company formed a wholly-owned subsidiary, MVC Financial Services, Inc. (“MVCFS”).  MVCFS is incorporated in Delaware and its principal purpose is to provide advisory, administrative and other services to the Company, the Company’s portfolio companies and other entities.  MVCFS had opening equity of $1 (100 shares at $0.01 per share). The Company does not hold MVCFS for investment purposes and does not intend to sell MVCFS.

 

On October 14, 2011, the Company formed a wholly-owned subsidiary, MVC Cayman, an exempted company incorporated in the Cayman Islands, to hold certain of its investments and to make certain future investments.  The results of MVCFS and MVC Cayman are consolidated into the Company’s financial statements and all inter-company accounts have been eliminated in consolidation.  Of the $56.2 million in cash and cash equivalents on the Company’s Consolidated Balance Sheets as of January 31, 2018, approximately $1.1 million was held by MVC Cayman.

 

During fiscal year ended October 31, 2012 and thereafter, MVC Partners, LLC (“MVC Partners”) was consolidated with the operations of the Company as MVC Partners’ limited partnership interest in the MVC Private Equity Fund, L.P. (“PE Fund”) is a substantial portion of MVC Partners operations.  Previously, MVC Partners was presented as a portfolio company on the Consolidated Schedule of Investments.  The consolidation of MVC Partners has not had any material effect on the financial position or net results of operations of the Company.  There are additional disclosures resulting from this consolidation.

 

MVC GP II, LLC (“MVC GP II”), an indirect wholly-owned subsidiary of the Company, serves as the general partner of the PE Fund.  MVC GP II is wholly-owned by MVCFS, a subsidiary of the Company.  The results of MVC GP II are consolidated into MVCFS and ultimately the Company. All inter-company accounts have been eliminated in consolidation.

 

During fiscal year ended October 31, 2014, MVC Turf, Inc. (“MVC Turf”) was consolidated with the Company as MVC Turf was an MVC wholly-owned holding company. The consolidation of MVC Turf did not have any material effect on the financial position or net results of operations of the Company.  On March 7, 2017, the Company exchanged its shares of MVC Turf, the holding company that owned the Company’s LLC interest in Turf Products, for approximately $3.8 million of additional subordinated debt in Turf Products.  Prior to the exchange, the Company also received a distribution from M