UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 814-01035
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NEWTEK BUSINESS SERVICES CORP.
(Exact name of registrant as specified in its charter)
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Maryland | 46-3755188 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
212 West 35th Street, 2nd Floor New York, New York | 10001 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (212) 356-9500
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange | |
Title of Each Class | on Which Registered |
Common Stock, par value $0.02 per share | NASDAQ Global Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 past 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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (all as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer | ¨ | Accelerated filer | x | ||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | ||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $144,379,000 as of the last business day of the registrant’s second fiscal quarter of 2015, based on a closing price on that date of $17.72 on the NASDAQ Capital Market. For the purposes of calculating this amount only, all directors and executive officers of the Registrant have been treated as affiliates.
As of March 10, 2016 there were 14,522,368 shares issued and outstanding of the registrant’s Common Stock, par value $0.02 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to the registrant’s 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Item | Page | |
PART I
On November 12, 2014, Newtek Business Services, Inc. merged with and into Newtek Business Services Corp., a newly-formed Maryland corporation, for the purpose of reincorporating in Maryland (the “Merger”), and thereafter filed an election to be regulated as a business development company ( “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”) (referred to herein as the “Conversion” or “BDC Conversion”). All subsidiaries and controlled portfolio companies (as defined below) became the property of Newtek Business Services Corp. as part of the Merger. Except as otherwise noted, the terms “we,” “us,” “our,” “Company” and “Newtek” refer to Newtek Business Services, Inc. prior to the Conversion and its successor, Newtek Business Services Corp. following the Conversion.
On October 22, 2014, we effectuated the 1-for-5 reverse stock split (the “Reverse Stock Split”). On November 18, 2014 we completed an offering of 2,530,000 shares of our common stock at an offering price of $12.50 per share for total gross proceeds of $31,625,000. Unless otherwise indicated, the disclosures in this annual report on Form 10-K give effect to the Conversion and Reverse Stock Split.
ITEM 1. BUSINESS.
We are an internally managed non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. We also intend to elect to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”) for U.S. federal income tax purposes, beginning with our 2015 tax year. We were formed to continue and expand the business of Newtek Business Services, Inc. We expect that our investments will typically be similar to the investments we made prior to our reincorporation.
As a BDC, our investment objective is to generate both current income and capital appreciation primarily through loans originated by our small business finance platform and our equity investments in certain portfolio companies that we control.
Our Business
We are an internally managed BDC that is a leading national non-bank lender that provides, together with our controlled portfolio companies, a wide range of business services and financial products under the Newtek brand to the small- and medium-sized business (“SMB”) market. Newtek’s products and services include: Business Lending including U.S. Small Business Administration (“SBA”) 7(a) lending, Electronic Payment Processing, Managed Technology Solutions (Cloud Computing), eCommerce, Accounts Receivable Financing, The Secure Gateway, The Newtek Advantage®, personal and commercial Insurance Services, Web Services, Data Backup, Storage and Retrieval and Payroll Solutions to over 100,000 SMB accounts, across all industries. We have an established and reliable platform that is not limited by client size, industry type or location. As a result, we believe we have a strong and diversified client base across every state in the U.S. and across a variety of different industries. In addition, we have developed a financial and technology based business model that enables us and our controlled portfolio companies to acquire and process our SMB clients in a very cost effective manner. This capability is supported in large part by NewTracker®, our patented prospect management technology software which is similar to but we believe is better than the system popularized by Salesforce.com. We believe that this technology and low cost business model distinguishes us from our competitors.
We focus on serving the SMB market, which we estimate to be over 27 million businesses in the U.S. These businesses have historically been underserved by traditional financial institutions and typically lack the capital resources to build a competitive business and marketing infrastructure on their own. Further, in today’s economic climate, SMBs have particular difficulty obtaining capital from traditional lending sources. While we do not compete directly with alternative online lenders such as The Lending Club, Prosper.com, OnDeck Capital, Inc. and Kabbage Inc., we do provide financing solutions as an alternative to traditional lending. We believe there is significant demand for such alternative financing among SMBs. Our lending solutions and our controlled portfolio companies’ outsourced business solutions help clients manage and grow their businesses and compete effectively in today’s marketplace. We obtain our customers through referrals from various business partners, such as banks, insurance companies, credit unions and other affinity groups, as well as through our own direct sales force and advertising campaigns. We source, acquire and process SMB customers in a cost effective manner without reliance on high cost sales staff and time consuming application processes.
In lending, we believe we are a leading capital provider to SMBs based on our loan volume. We originate loans through a variety of sourcing channels and, through a disciplined underwriting process, seek to achieve attractive risk-weighted returns. Our multi-faceted relationships with certain borrowers allows us to closely monitor their credit profile and take an active role in managing our investment. Further, our lending capabilities coupled with the broad outsourced business solutions of our controlled portfolio companies creates attractive cross-selling opportunities within our client base. We believe our business model creates powerful network effects which will help drive growth and operating leverage in our business. In addition, our
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SBA loans are structured so that the government guaranteed portion can be rapidly sold, which, based on our historic ability to securitize the unguaranteed portions and assuming the continuation of current market conditions, allows us to quickly recover our principal and earn excess capital on each loan, usually in less than a year. We may in the future determine to retain the government guaranteed or unguaranteed portions of loans pending deployment of excess capital. From 2012 through December 31, 2015, we have consistently been the largest non-bank lender and currently are the seventh largest SBA 7(a) lender in the U.S. based on dollar lending volume.
Our proprietary and patented technology platform which we make available to our controlled portfolio companies enables them to provide our clients with a real-time management solution that organizes all of a business’s critical transaction and economic, eCommerce and website traffic data on a smartphone, tablet, laptop or personal computer. This technology provides critical consumer and marketing intelligence, including data mining, and provides a range of differentiated solutions and analytical tools that may be easily customized and integrated within their clients’ existing business processes. It also provides clients with seamless connectivity to a payment and managed technology infrastructure that is secure, fully compliant and regularly updated with the latest capabilities, services and functionalities. The platform is scalable to facilitate growth and meet the needs of new clients and consists solely of cloud-based offerings.
Newtek and its controlled portfolio companies all use NewTracker®, our patented and proprietary technology for receiving, processing and monitoring prospective customers. This enables all operations to acquire SMB customers in a cost effective manner as it is all accomplished by skilled staff using state of the art technology without the need for high cost sales staff or applications processors. It also permits our referral partners to have a real time window into the back office processing of their referrals given. The software automatically pre-populates any necessary forms or applications so the processing is efficient and also cost effective. Finally, it also identifies opportunities for the cross-sale of other Newtek branded products or services.
Small Business Finance
Our portfolio consists of guaranteed and unguaranteed non-affiliate loan investments that were made through our small business finance platform, comprised of Newtek Small Business Finance, LLC (“NSBF”), a nationally licensed SBA lender. NSBF originates, sells and services SBA 7(a) loans made to qualifying SMBs, which are partially guaranteed by the SBA. The small business finance platform also includes CDS Business Services, Inc. d/b/a Newtek Business Credit Solutions (“NBC”), a portfolio company, which provides receivables financing, including inventory financing and health care receivables financing, and management services to SMBs, which may obtain $10,000 to $2,000,000 per month through the sale of their trade receivables. In addition, NBC funds SBA 504 loans which provide financing of fixed assets such as real estate or equipment. An additional wholly-owned portfolio company, Small Business Lending, Inc. d/b/a Newtek Small Business Lending (“SBL”), engages in third party loan servicing for SBA and non-SBA loans.
We intend to continue to expand our small business finance platform primarily by expanding senior secured lending through NSBF. NSBF is one of 14 SBA licensed Small Business Lending Companies that provide loans nationwide under the SBA 7(a) loan program. NSBF has received Preferred Lenders Program (“PLP”) status, a designation whereby the SBA authorizes SBA lenders, based on their record with the SBA and proficiency in processing and servicing SBA-guaranteed loans, to place SBA guarantees on loans without seeking prior SBA review and approval. PLP status allows NSBF to serve its clients in an expedited manner since it is not required to present applications to the SBA for concurrent review and approval. We believe NSBF's SBA license, combined with NSBF's PLP designation, provides us with a distinct competitive advantage over other SMB lenders that have not overcome these significant barriers-to-entry in our primary loan market. NSBF originated approximately $202,300,000 of SBA 7(a) loans during 2014 and approximately $242,496,000 in 2015. We believe that we will continue to be introduced to a variety of high-quality investment opportunities through our existing loan sourcing channels and our controlled portfolio companies’ relationships with their clients, and our status as a BDC which helps fuel the growth of our loan portfolio by providing us with better access to lower-cost capital.
The SBA is an independent government agency that facilitates one of the nation’s largest source of SMB financing by providing credit guarantees for its loan programs. Under the SBA’s 7(a) lending program, a bank or other lender such as NSBF underwrites a loan between $50,000 and $5,000,000 for a variety of general business purposes based on the SBA’s guidelines and the SBA provides a partial guarantee on the loan. Depending on the loan size, the SBA typically guarantees between 75% and 90% of the principal and interest due. The recoveries and expenses on the unguaranteed portions of these loans are shared pari passu between the SBA and the lender, which substantially reduces the loss severity on the unguaranteed portion of a loan for SBA 7(a) loan investors. SBA 7(a) loans are typically between five and 25 years in maturity, are four to five years in duration and bear interest at the prime rate plus a spread from 2.25% to 2.75%. Since the guaranteed portions of SBA 7(a) loans carry the full faith and credit of the U.S. government, lenders may, and frequently do, sell the guaranteed portion of SBA 7(a) loans in the capital markets, hold the unguaranteed portion and retain all loan servicing rights.
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NSBF has a dedicated capital markets team that sells or securitizes the guaranteed and the unguaranteed portions of its SBA 7(a) loans. Historically, NSBF has sold the guaranteed portion of its originated SBA 7(a) loans within two weeks of origination and retained the unguaranteed portion until accumulating sufficient loans for a securitization. Since inception, NSBF has sold SBA guaranteed portions of SBA 7(a) loans at premiums ranging from 106% to 120% of par value and typically any portion of the premium that was above 110% of par value was shared equally between NSBF and the SBA. Since December 2010, NSBF has maintained its securitization program for unguaranteed portions of its SBA 7(a) loans and has successfully completed six securitization transactions with Standard & Poor’s AA or A ratings and attractive advance rates of approximately 70% of par value. NSBF intends to complete additional securitizations in the future which may be on comparable although not necessarily identical terms and conditions. We may determine to retain the government guaranteed or unguaranteed portions of loans pending deployment of excess capital.
NSBF’s senior lending team has focused on making smaller loans, approximately $1,000,000 or less, in order to maintain a diversified pool of loans that are dispersed both geographically and among industries, which limits NSBF’s exposure to regional and industry-specific economic downturns. Specifically, as of December 31, 2015, NSBF’s loan portfolio consisted of 947 loans originated across 50 states in 71 different industries as defined by the North American Industry Classification System (“NAICS”). The following charts summarize NSBF’s mix of investment concentrations by industry and geography as of December 31, 2015 (in thousands):
Distribution by NAICS Code Description
NAICS Code Description | Number of Loans | Aggregate Balance ($) | Average Balance ($) | Percentage of Balance | ||||||||||
Food Services and Drinking Places | 119 | $ | 14,955 | $ | 126 | 9.0 | % | |||||||
Amusement, Gambling, and Recreation Industries | 40 | 12,733 | 318 | 7.6 | % | |||||||||
Repair and Maintenance | 53 | 9,441 | 178 | 5.7 | % | |||||||||
Ambulatory Health Care Services | 61 | 8,814 | 144 | 5.3 | % | |||||||||
Specialty Trade Contractors | 49 | 8,492 | 173 | 5.1 | % | |||||||||
Professional, Scientific, and Technical Services | 49 | 7,378 | 151 | 4.4 | % | |||||||||
Accommodation | 33 | 6,940 | 210 | 4.2 | % | |||||||||
Merchant Wholesalers, Durable Goods | 22 | 6,726 | 306 | 4.0 | % | |||||||||
Truck Transportation | 23 | 6,142 | 267 | 3.7 | % | |||||||||
Food Manufacturing | 14 | 5,386 | 385 | 3.2 | % | |||||||||
Other | 484 | 79,713 | 165 | 47.8 | % | |||||||||
Total | 947 | $ | 166,720 | $ | 176 | 100.0 | % | |||||||
Distribution by State
State | Number of Loans | Aggregate Balance ($) | Average Balance ($) | Percentage of Balance | ||||||||||
FL | 114 | $ | 22,289 | $ | 196 | 13.4 | % | |||||||
NY | 113 | 20,116 | 178 | 12.1 | % | |||||||||
CT | 59 | 10,850 | 184 | 6.5 | % | |||||||||
TX | 51 | 9,567 | 188 | 5.7 | % | |||||||||
NJ | 65 | 9,391 | 144 | 5.6 | % | |||||||||
GA | 46 | 8,427 | 183 | 5.1 | % | |||||||||
PA | 53 | 7,757 | 146 | 4.7 | % | |||||||||
CA | 50 | 6,973 | 139 | 4.2 | % | |||||||||
IL | 30 | 6,323 | 211 | 3.8 | % | |||||||||
OH | 29 | 5,373 | 185 | 3.2 | % | |||||||||
Other | 337 | 59,654 | 177 | 35.7 | % | |||||||||
Total | 947 | $ | 166,720 | $ | 176 | 100.0 | % | |||||||
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NSBF evaluates the credit quality of its loan portfolio by employing a risk rating system that is similar to the Uniform Classification System, which is the asset classification system adopted by the Federal Financial Institution Examinations Council. NSBF’s risk rating system is granular with multiple risk ratings in both the Acceptable and Substandard categories. Assignment of the ratings are predicated upon numerous factors, including credit risk scores, collateral type, loan to value ratios, industry, financial health of the business, payment history, other internal metrics/analysis, and qualitative assessments. Risk ratings are refreshed as appropriate based upon considerations such as market conditions, loan characteristics, and portfolio trends. NSBF’s gross SBA loans by credit quality indicator are as follows:
Risk Rating
Portfolio | Number of Loans | Aggregate Balance ($) | Average Balance ($) | Percentage of Balance | ||||||||||
Risk Rating 1 - 4 | 865 | $ | 153,700 | $ | 178 | 92.2 | % | |||||||
Risk Rating 5 | 11 | 2,258 | 205 | 1.4 | % | |||||||||
Risk Rating 6 | 60 | 9,997 | 167 | 6.0 | % | |||||||||
Risk Rating 6/7 and 7 | 11 | 765 | 70 | 0.4 | % | |||||||||
Total | 947 | $ | 166,720 | $ | 176 | 100.0 | % | |||||||
The weighted average term to maturity and weighted average interest rate of NSBF’s loan portfolio as of December 31, 2015 was 16.5 years and 6.00%, respectively.
Certified Capital Companies (Capcos)
Our Capcos have historically invested in SMBs and, in addition to interest income and investment returns, have generated non-cash income from tax credits and non-cash interest and insurance expenses in addition to cash management fees and expenses. We have de-emphasized our Capco business in favor of growing our controlled portfolio companies and do not anticipate creating any new Capcos. While observing all requirements of the Capco programs and, in particular, financing qualified businesses meeting applicable state requirements as to limitations on the proportion of ownership of qualified businesses, we believe the growth of our controlled portfolio companies produces a strategic focus on providing goods and services to SMBs such as those in which our Capcos invest. We continue to invest in and lend to SMBs through our existing Capcos and intend to meet the goals of the Capco programs.
As the Capcos reach 100% investment we will seek to decertify them as Capcos, liquidate their remaining assets and thereby reduce their operational costs, particularly the legal and accounting costs associated with compliance. Six of our original sixteen Capcos have reached this stage.
Controlled Portfolio Companies
In addition to our debt investments in portfolio companies, either directly or through our small business finance platform, we also hold controlling interests in certain portfolio companies that, as of December 31, 2015, represented approximately 39% of our total investment portfolio. Specifically, we hold a controlling interest in SBL, NBC, Universal Processing Services of Wisconsin, LLC d/b/a Newtek Merchant Solutions (“NMS” or “UPS”), Premier Payments LLC d/b/a Newtek Payment Solutions (“Premier”), CrystalTech Web Hosting, Inc. d/b/a Newtek Technology Solutions (“NTS”), PMTWorks Payroll, LLC d/b/a Newtek Payroll and Benefit Solutions (“NPS”) and Newtek Insurance Agency, LLC d/b/a Newtek Insurance Solutions (“NIA”). We refer to these entities (among others), collectively, as our “controlled portfolio companies.” Our controlled portfolio companies provide us with an extensive network of business relationships that supplement our referral sources and that we believe will help us to maintain a robust pipeline of lending opportunities and expand our small business finance platform.
The revenues that our controlled portfolio companies generate, after deducting operational expenses, may be distributed to us. As a BDC, our board of directors (the “Board”) will determine quarterly the fair value of our controlled portfolio companies in a similar manner as our other investments. In particular, our investments in our controlled portfolio companies are valued using a valuation methodology that incorporates both the market approach (guideline public company method) and the income approach (discounted cash flow analysis). In following these approaches, factors that we may take into account in determining the fair value of our investments include, as relevant: available current market data, including relevant and applicable market trading comparables, the portfolio company’s earnings and discounted cash flows, comparisons of financial ratios of peer
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companies that are public, and enterprise values, among other factors. In addition, the Company has engaged third party valuation firms to provide valuation consulting services for the valuation of certain of our controlled portfolio companies.
Newtek Merchant Solutions and Newtek Payment Solutions
NMS and Premier market credit and debit card processing services, check approval services and ancillary processing equipment and software to merchants who accept credit cards, debit cards, checks and other non-cash forms of payment. It utilizes a multi-pronged sales approach of both direct and indirect sales. NMS’s primary sales efforts focus on direct sales through our The Small Business Authority® brand. Its indirect sales channels consist of alliance partners, principally financial institutions (banks, credit unions, insurance companies and other related businesses), and independent sales agents across the U.S. These referring organizations and associations are typically paid a percentage of the processing revenue derived from the respective merchants that they successfully refer to NMS. In 2015, NMS processed merchant transactions with a sales volume of over $4.6 billion.
NMS has a number of competitive advantages which we believe will enable them to exceed industry growth averages. These are:
• | They rely on non-traditional business generation: referral relationships, wholesale solicitations and financial institutions rather than independent agents; |
• | They are a market leader in the implementation of technology in the payment processing business; |
• | They own the rights, through one of our Capco investments, to a payment processing gateway; |
• | They maintain their own staff of trained and skilled customer service representatives; and |
• | They are in the process of launching the latest in point-of-sale technology hardware, implementation of the EMV system (Europay, MasterCard, Visa inter-operative integrated circuit cards) and continuous cyber-security services. |
NMS maintains its principal customer service and sales support offices in Milwaukee, Wisconsin and Brownsville, Texas with additional specialists located in Phoenix, Arizona and New York. NMS’s personnel at these locations assist merchants with initial installation of equipment and on-going service, as well as any other special processing needs that they may have.
NMS’s development and growth are focused on selling its services to internally generated referrals, merchant referrals identified for NMS by Newtek alliance partners, and, with increasing emphasis since January 2013, by Newtek independent sales representatives. NMS is still different than most electronic payment processing companies who acquire their clients primarily through independent agents. NMS believes that its business model provides it with a competitive advantage by enabling it to acquire new electronic payment processing merchants at a lower cost level for third-party commissions than the industry average. NMS’s business model allows it to own the customer as well as the stream of residual payments, as opposed to models which rely more heavily on independent sales agents.
On July 23, 2015, we acquired Premier, one of the Country’s leading electronic payment processing independent sales organizations, which powers billions of dollars of credit card and debit card transactions on an annual basis. We anticipate that this acquisition will continue to expand our controlled portfolio companies' presence in the merchant processing space.
Newtek Technology Solutions
NTS provides website hosting, dedicated server hosting, cloud hosting, web design and development, internet marketing, eCommerce, data storage and backup, and other related services to more than 103,000 customer accounts in 106 countries and manages over 62,000 domain names. While there are many competitors in this space, we believe that NTS is the only technology company with the exclusive focus on the SMB market with products tailored to the specific needs of these business customers.
NTS provides a full suite of outsourced IT infrastructure services, including shared server hosting, dedicated server hosting, and cloud server (virtual) instances under the Newtek Technology Solutions®, Newtek Technology Services®, Newtek Web Services®, Newtek Web Hosting®, and CrystalTech® brands, for which it receives recurring monthly fees, as well as other fees such as set-up fees, consulting fees, domain name registration, among others. Approximately 90% of all fees are paid in advance by credit card.
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NTS has recognized the continuing decline in Microsoft being utilized in the design of web sites and the market shift to Linux, Nginx and a proliferation of Word Press sites being built on non-Microsoft based platforms. This decline has caused a marked downward trend in the historical site count of NTS Microsoft hosted sites. NTS has responded by launching Linux Apache and Linux Nginx platforms within its environment and created associated control panels, service/support and billing to participate more fully in 100% of the market as compared to the present 33% of the new web design growth represented by Microsoft. All platforms are available within NTS’s cloud and non-cloud environment and are fully managed offerings as compared to NTS’s competitors. In addition, Newtek has created a proprietary platform and filed an associated patent for Newtek Advantage which leverages NTS’s underlying technologies to deliver real time information and actionable business intelligence to its existing and new customer base.
NTS has launched a complete line of cloud based business and eCommerce packages and Cloud Spaces to streamline the decision process for business owners and accommodate designers and developers that wish to build sites in both Microsoft and Linux environments. Included with this service offering is their standard, full customer service with a real human interface available on a 24/7/365 basis, which we believe further distinguishes them from their competitors since they usually offer co-location hosting without the support needed for the SMB market customer.
NTS’s cloud offerings provide for a consumption-based hosting model that allows customers to pay only for the resources they need, which not only saves them money compared to traditional server hosting, but also enables them to scale larger or smaller on demand.
NTS currently operates five data centers in Scottsdale, Arizona, Phoenix, Arizona, Edison, New Jersey, Denver, Colorado and Slough, England.
NTS delivers services not just to customers seeking hosting, but also to wholesalers, resellers, and web developers by offering a range of tools for them to build, resell, and deliver their web content. NTS primarily uses the Microsoft Windows® 2008 R2 platform to power its technology. Microsoft has described NTS as one of the largest hosting services in the world providing Microsoft Windows hosting. Its primary data center is a 5,000 square foot military-strength data center located in Scottsdale, Arizona. All of NTS’ facilities utilize redundant networking, electrical and back-up systems, affording customers what management believes to be a state-of-the-art level of performance and security. NTS is PCI certified, and Service Organization Control 1 (“SOC 1”) audited, all of which mean that it meets the highest industry standards for data security.
Throughout its affiliation with Newtek, over 70% of new NTS customers have come as a result of internal and external referrals without material expenditures by NTS for marketing or advertising. Many of NTS’s competitors are very price sensitive, offering minimal services at cut-rate pricing. While being cost competitive with most Linux-and Windows-based web hosting services, NTS has emphasized higher quality uptime, service and support as well as multiple control panel environments for the designer and developer community.
NTS has diversified its product offerings to SMBs under different brands, all under Newtek Technology Solutions, including Newtek Hosting, Newtek Web Services, Newtek Data Storage® and Newtek Web Design and Development®. NTS focuses specifically on select markets such as restaurants, financial institutions, medical practices, law firms, accountants, retail and technology service providers for channel business and reselling.
NTS has also launched a turnkey hosting service to meet financial institution needs for dedicated servers, hosting and/or data storage, enabling these entities to comply with their strict regulatory requirements that demand very high security protocols and practices be in place.
Newtek Insurance Solutions
NIA, which is licensed in 50 states, offers SMB insurance products and services. NIA serves as a retail and wholesale brokerage insurance agency specializing in the sale of personal, commercial and health/benefits lines insurance products to customers of all of the Newtek portfolio companies as well as Newtek alliance partners. NIA offers insurance products from multiple insurance carriers providing a wide range of choice for its customers. NIA has formed strategic alliances with AIG, E-Insure, Credit Union National Association, Navy Federal Credit Union, the Commercial Transportation Association of America, Pershing and others to provide agent services to SMB clients referred by them. NIA is continuing its efforts to implement programs with alliance partners to market commercial and personal insurance. In December 2012, NIA, working with another Newtek subsidiary, acquired a portfolio of insurance business from a health care insurance agency based in the New York City area. This has added approximately 340 group health insurance policies that NIA is servicing and forms the basis on which NIA is growing this aspect of the insurance business. We also expect that recent health care legislation will increase the demand for
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these services among SMBs. A major sales channel for NIA is the SMB customer base of our lending platform and the other controlled portfolio companies which allow for many opportunities for cross sales between business lines.
Newtek Payroll and Benefits Solutions
NPS offers an array of industry standard and very competitively priced payroll management, benefit, payment and tax reporting services to SMBs. These payroll and benefit solutions are marketed through all of Newtek’s available channels including the alliance partnerships and direct marketing campaigns. NPS also benefits by the access to the SMB customer base of the lending platform and the other controlled portfolio companies.
NPS provides full service payroll and benefit solutions across all industries, processing payroll via SaaS or phone solutions. They have an established and reliable platform that is not limited by client size, industry type or delivery interface. NPS assists clients in managing their payroll processing needs by calculating, collecting and disbursing their payroll funds, remitting payroll taxes and preparing and filing all associated tax returns. In addition, NPS offers clients a range of ancillary service offerings, including workers’ compensation insurance, time and attendance, 401(k) administration, pay cards, employee benefit plans, employee background screening, COBRA services, tax credit recovery, Section 125 and flexible benefits spending plans and expense management services.
Newtek Branding
We have developed our branded line of products and services to offer a full service suite of business and financial solutions for the U.S. SMB market. Newtek reaches potential customers through its integrated multi-channel approach featuring direct, indirect and direct outbound solicitation efforts. Although we continue to utilize and grow our primary marketing channel of strategic alliance partners, more recently, and consistent with our BDC Conversion, we have initiated a direct marketing strategy to SMB customers through our new “go to market” brand, The Small Business Authority®. Through a coordinated radio and television advertising campaign built around this brand, and our web presence, www.thesba.com, we believe we are establishing ourselves as a preferred “go-to” provider for SMB financing and the services offered by our controlled portfolio companies. In addition, we supplement these efforts with extensive efforts to present the Company as the authority on small businesses.
We market services through referrals from our strategic alliance partners such as AIG, Amalgamated Bank, Credit Union National Association, E-Insure, ENT Federal Credit Union, Iberia Bank, The Hartford, Legacy Bank, Morgan Stanley Smith Barney, Navy Federal Credit Union, New York Community Bank, Lending Tree, LLC, Randolph Brooks Federal Credit Union and UBS Bank, among others, (using our patented NewTracker® referral management system) as well as direct referrals from our web presence, www.thesba.com. Our NewTracker® referral system has a software application patent covering the systems and methods for tracking, reporting and performing processing activities and transactions in association with referral data and related information for a variety of product and service offerings in a business-to-business environment. The NewTracker® system provides for security and transparency between referring parties and has been material in our ability to obtain referrals from a wide variety of sources. This patented system allows us and our alliance partners to review in real time the status of any referral as well as to provide real time compliance oversight by the respective alliance partner, which we believe creates confidence among the referred business client, the referring alliance partner and us. We own the NewTracker® patent, as well as all trademarks and other patented intellectual property used by us or our controlled portfolio companies.
Additional referrals are obtained from individual professionals in geographic markets that have signed up to provide referrals and earn commissions through our BizExec and TechExec Programs. Our BizExecs and TechExecs are traditionally information technology professionals, CPAs, independent insurance agents and sales and/or marketing professionals. In addition, electronic payment processing services are marketed through independent sales agents, and web technology and eCommerce services are marketed through internet-based marketing and third-party resellers. A common thread across all business lines of our controlled portfolio companies relates to acquiring customers at low cost and making strategic alliances primarily where we pay fees only for successful referrals. We seek to bundle our marketing efforts through our brand, our portal, our patented NewTracker® referral system, our web presence as The Small Business Authority® and one easy entry point of contact. We expect that this approach will allow us to continue to cross-sell the financing services of our small business finance platform to customers of our controlled portfolio companies and build upon our extensive deal sourcing infrastructure. The compensation which we pay for referrals is consistent with industry practices.
Senior Lending Team and Executive Committee
The key members of our senior lending team most of which have worked together for more than ten years each have over 25 years of experience in finance-related fields. These investment professionals have worked together to screen opportunities,
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underwrite new investments and manage a portfolio of investments in SMBs through two recessions, a credit crunch, the dot-com boom and bust and a historic, leverage-fueled asset valuation bubble. Each member brings a complementary component to a team well-rounded in finance, accounting, operations, strategy, business law and executive management.
Because we are internally managed by our executive officers, which include Barry Sloane, Peter Downs, Jennifer C. Eddelson, Michael A. Schwartz, Dean Choksi and John Raven (our “executive committee”), under the supervision of our Board, and do not depend on a third party investment advisor, we do not pay investment advisory fees and all of our income is available to pay our operating costs and to make distributions to our stockholders. While our portfolio companies are independently managed, our executive committee also oversees our controlled portfolio companies and, to the extent that we may make additional equity investments in the future, the executive committee will also have primary responsibility for the identification, screening, review and completion of such investments. We do not expect to focus our resources on investing in additional stand-alone equity investments, but may elect to do so from time to time on an opportunistic basis, if such opportunities arise. Messrs. Sloane and Downs have been involved together in the structuring and management of equity investments for the past ten years.
Market Opportunity
We believe that the limited amount of capital and financial products available to SMBs, coupled with the desire of these companies for flexible and partnership-oriented sources of capital and other financial products, creates an attractive investment environment for us to further expand our small business finance platform and overall brand. We believe the following factors will continue to provide us with opportunities to grow and deliver attractive returns to stockholders.
The SMB market represents a large, underserved market. We estimate the SMB market to include over 27 million businesses in the U.S. We believe that SMBs, most of which are privately-held, are relatively underserved by traditional capital providers such as commercial banks, finance companies, hedge funds and collateralized loan obligation funds. Further, we believe that such companies generally possess conservative capital structures with significant enterprise value cushions, as compared to larger companies with more financing options. While the largest originators of SBA 7(a) loans have traditionally been regional and national banks, from 2012 through December 31, 2015, NSBF was the largest non-bank originator of SBA 7(a) loans by dollar volume and is currently the seventh largest SBA 7(a) lender in the U.S. As a result, we believe we and our controlled portfolio companies are well positioned to provide financing to the types of SMBs that we have historically targeted and we have the technology and infrastructure in place presently to do it cost effectively in all 50 states and across many industries.
Recent credit market dislocation for SMBs has created an opportunity for attractive risk-weighted returns. We believe the credit crisis that began in 2007 and the subsequent exit of traditional capital sources, such as commercial banks, finance companies, hedge funds and collateralized loan obligation funds, has resulted in an increase in opportunities for alternative funding sources such as our SMB lending platform. We believe that the reduced competition in our market and an increased opportunity for attractive risk-weighted returns positions us well for future growth. The remaining lenders and investors in the current environment are requiring lower amounts of senior and total leverage, increased equity commitments and more comprehensive covenant packages than was customary in the years leading up to the credit crisis. We do not expect a reversal of these conditions in the foreseeable future.
Future refinancing activity is expected to create additional investment opportunities. A high volume of financings completed between 2005 and 2008 will mature in the coming years. We believe this supply of opportunities coupled with limited financing providers focused on SMBs will continue to offer investment opportunities with attractive risk-weighted returns.
The increased capital requirements and other regulations placed on banks may reduce lending by traditional large financial institutions and community banks. While many SMBs were previously able to raise debt financing through traditional large financial institutions, we believe this approach to financing will continue to be constrained for several years as continued implementation of U.S. and international financial reforms, such as Basel III, phase in and rules and regulations are promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act. We believe that these regulations will increase capital requirements and have the effect of further limiting the capacity of traditional financial institutions to hold non-investment grade loans on their balance sheets. As a result, we believe that many of these financial institutions have de-emphasized their service and product offerings to SMBs, which we believe will make a higher volume of deal flow available to us.
Increased demand for comprehensive, business-critical SMB solutions. Increased competition and rapid technological innovation are creating an increasingly competitive business environment that requires SMBs to fundamentally change the way they manage critical business processes. This environment is characterized by greater focus on increased quality, lower costs, faster turnaround and heightened regulatory scrutiny. To make necessary changes and adequately address these needs, we
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believe that companies are focusing on their core competencies and utilizing cost-effective outsourced solutions to improve productivity, lower costs and manage operations more efficiently. Our controlled portfolio companies provide critical business solutions such as electronic payment processing, managed IT solutions, personal and commercial insurance services and full-service payroll and benefit solutions, receivables financing and funding of SBA 504 loans which provide financing of fixed assets such as real estate or equipment. We believe that each of these market segments are underserved for SMBs and since we are able to provide comprehensive solutions under one platform, we are well positioned to continue to realize growth from these product offerings.
Competitive Advantages
We believe that we are well positioned to take advantage of investment opportunities in SMBs due to the following competitive advantages:
Internally Managed Structure and Significant Management Resources. We are internally managed by our executive officers under the supervision of our Board and do not depend on an external investment advisor. As a result, we do not pay investment advisory fees and all of our income is available to pay our operating costs, which include employing investment and portfolio management professionals, and to make distributions to our stockholders. We believe that our internally managed structure provides us with a lower cost operating expense structure, when compared to other publicly traded and privately-held investment firms which are externally managed, and allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio. Our senior lending team has developed one of the largest independent loan origination and servicing platforms that focuses exclusively on SMBs.
Business Model Enables Attractive Risk-Weighted Return on Investment in SBA Lending. Our loans are structured so as to permit rapid sale of the U.S. government guaranteed portions, often within weeks of origination, and the unguaranteed portions have been successfully securitized and sold, usually within a year of origination. The return of principal and premium may result in an advantageous risk-weighted return on our original investment in each loan. We may determine to retain the government guaranteed or unguaranteed portions of loans pending deployment of excess capital.
State of the Art Technology. Our patented NewTracker® software enables us to board a SMB customer, process the application or inquiry, assemble necessary documents, complete the transaction and create a daily reporting system that is sufficiently unique as to receive a U.S. patent. This system enables us to identify a transaction, similar to a merchandise barcode or the customer management system used by SalesForce.com, then process a business transaction and generate internal reports used by management and external reports for strategic referral partners. It allows our referral partners to have digital access into our back office and follow on a real time, 24/7 basis the processing of their referred customers. This technology has been made applicable to all of the service and product offerings we make directly or through our controlled portfolio companies.
Established Direct Origination Platform with Extensive Deal Sourcing Infrastructure. We have established a direct origination pipeline for investment opportunities without the necessity for investment banks or brokers as well as broad marketing channels that allow for highly selective underwriting. The combination of our brand, our portal, our patented NewTracker® technology, and our web presence as The Small Business Authority® have created an extensive deal sourcing infrastructure. Although we pay fees for loan originations that are referred to us by our alliance partners, our non-commissioned investment team works directly with the borrower to assemble and underwrite loans. We rarely invest in pre-assembled loans that are sold by investment banks or brokers. As a result, we believe that our unique national origination platform allows us to originate attractive credits at a low cost. In 2015 we funded $242,496,000 of SBA 7(a) loans during the year, based on the large volume of loan proposals we received in 2015. We anticipate that our principal source of investment opportunities will continue to be in the same types of SMBs to which we currently provide financing. Our executive committee and senior lending team will also seek to leverage their extensive network of additional referral sources, including law firms, accounting firms, financial, operational and strategic consultants and financial institutions, with whom we have completed investments. We believe our current infrastructure and expansive relationships will continue to enable us to review a significant amount of high quality, direct (or non-brokered) investment opportunities.
Experienced Senior Lending Team with Proven Track Record. We believe that our senior lending team is one of the leading capital providers to SMBs. Our senior lending team has expertise in managing the SBA process and has managed a diverse portfolio of investments with a broad geographic and industry mix. While the primary focus of NSBF is to expand its debt financing activities in SBA 7(a) loans, our executive committee also has substantial experience in making debt and equity investments through our Capcos.
Flexible, Customized Financing Solutions for Seasoned, Smaller Businesses. While NSBF's primary focus is to expand its lending by activities by providing SBA 7(a) loans to SMBs, we also seek to offer SMBs a variety of attractive financing
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structures, as well as cost effective and efficient business services, to meet their capital needs through our subsidiaries and controlled portfolio companies. In particular, through our subsidiaries and controlled portfolio companies, we will seek to offer larger loans, between $5,000,000 and $10,000,000, greater than loans available with the SBA guarantee, but with a higher interest rate to compensate for the increased risk. Unlike many of our competitors, we believe we have the platform to provide a complete package of service and financing options for SMBs, which allows for cross-selling opportunities and improved client retention. We expect that a large portion of our capital will be loaned to companies that need growth capital, acquisition financing or funding to recapitalize or refinance existing debt facilities. Our lending will continue to focus on making loans to SMBs that:
• | have 3 to 10 years of operational history; |
• | significant experience in management; |
• | credit worthy owners who provide a personal guarantee for our investment; |
• | show a strong balance sheet to collateralize our investments; and |
• | show sufficient cash flow to be able to service the payments on our investments comfortably. |
Although we may make investments in start-up businesses, we generally seek to avoid investing in high-risk, early-stage enterprises that are only beginning to develop their market share or build their management and operational infrastructure with limited collateral.
Disciplined Underwriting Policies and Rigorous Portfolio Management. We pursue rigorous due diligence of all prospective investments originated through our platform. Our senior lending team has developed an extensive underwriting due diligence process, which includes a review of the operational, financial, legal and industry performance and outlook for the prospective investment, including quantitative and qualitative stress tests, review of industry data and consultation with outside experts regarding the creditworthiness of the borrower. These processes continue during the portfolio monitoring process, when we will conduct field examinations, review all compliance certificates and covenants and regularly assess the financial and business conditions and prospects of portfolio companies. In addition, SBL is a Standard & Poor’s rated servicer for commercial loans and our exceptional servicing capabilities with a compact timeline for loan resolutions and dispositions has attracted various third-party portfolios to this controlled portfolio company.
Business Development Company Conversion
On October 22, 2014, we effectuated the Reverse Stock Split. In conjunction with the completion of a public offering, we merged with and into Newtek Business Services Corp., a newly-formed Maryland corporation, for the purpose of reincorporating in Maryland and we elected to be regulated as a BDC under the 1940 Act in the BDC Conversion. In connection with our intention to elect RIC status in 2015, on October 1, 2015 our Board declared a special dividend of $2.69 per share which was paid partially in cash and partially in our common shares on December 31, 2015.
As a BDC, we are required to meet regulatory tests, including the requirement to invest at least 70% of our gross assets in “qualifying assets.” Qualifying assets generally include debt or equity securities of private or thinly traded public U.S. companies and cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, as a BDC, we are not be permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our total assets). See “Regulation.”
In connection with our election to be regulated as a BDC, we intend to elect to be treated for U.S. federal income tax purposes, beginning with our 2015 tax year, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders. To obtain and maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.
Investments
We engage in various investment strategies from time to time in order to achieve our overall investment objectives.
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Portfolio Company Characteristics
We have and will continue to target investments in future portfolio companies that generate both current income and capital appreciation. In each case, the following criteria and guidelines are applied to the review of a potential investment however, not all criteria are met in every single investment, nor do we guarantee that all criteria will be met in the investments we will make in the future. We have and will continue to limit our investments to the SMB market.
Experienced Senior Investment Teams with Meaningful Investment. We seek to invest in companies in which senior or key managers have significant company-or industry-level experience and have significant equity ownership. It has been our experience that these senior investment teams are more committed to the portfolio company’s success and more likely to manage the company in a manner that protects our debt and equity investments.
Significant Invested Capital. We believe that the existence of an appropriate amount of equity beneath our debt capital provides valuable support for our investment. In addition, the degree to which the particular investment is a meaningful one for the portfolio company’s owners (and their ability and willingness to invest additional equity capital as and to the extent necessary) are also important considerations.
Appropriate Capital Structures. We seek to invest in portfolio companies that are appropriately capitalized. First, we examine the amount of equity that is being invested by the company’s equity owners to determine whether there is a sufficient capital cushion beneath our invested capital. We also analyze the amount of leverage, and the characteristics of senior debt with lien priority over our senior subordinated debt. A key consideration is a strong balance sheet and sufficient free cash flow to service any debt we may invest.
Strong Competitive Position. We invest in portfolio companies that have developed strong, defensible product or service offerings within their respective market segment(s). These companies should be well positioned to capitalize on organic and strategic growth opportunities, and should compete in industries with strong fundamentals and meaningful barriers to entry. We further analyze prospective portfolio investments in order to identify competitive advantages within their industry, which may result in superior operating margins or industry-leading growth.
Customer and Supplier Diversification. We expect to invest in portfolio companies with sufficiently diverse customer and supplier bases. We believe these companies will be better able to endure industry consolidation, economic contraction and increased competition than those that are not sufficiently diversified. However, we also recognize that from time to time, an attractive investment opportunity with some concentration among its customer base or supply chain will present itself. We believe that concentration issues can be evaluated and, in some instances (whether due to supplier or customer product or platform diversification, the existence and quality of long-term agreements with such customers or suppliers or other select factors), mitigated, thus presenting a superior risk-weighted pricing scenario.
Investment Objectives
Debt Investments
We target our debt investments, which are principally made through our small business finance platform under the SBA 7(a) program, to produce a coupon rate of prime plus 2.75% which enables us to generate rapid sales of loans in the secondary market historically producing gains and with a yield on investment in excess of 30%. We typically structure our debt investments with the maximum seniority and collateral along with personal guarantees from portfolio company owners, in many cases collateralized by other assets including real estate. In most cases, our debt investment will be collateralized by a first lien on the assets of the portfolio company and a first or second lien on assets of guarantors, in both cases primarily real estate. All SBA loans are made with personal guarantees from any owner(s) of 20% or more of the portfolio company’s equity. As of December 31, 2015, substantially all of our SBA 7(a) portfolio at fair value consisted of debt investments that were secured by first or second priority liens on the assets of the portfolio company.
• | First Lien Loans. Our first lien loans generally have terms of one to twenty-five years, provide for a variable interest rate, contain no prepayment penalties (however, the SBA will charge the borrower a prepayment fee if the loan has a maturity of 15 or more years and is prepaid during the first three year) and are secured by a first priority security interest in all existing and future assets of the borrower. Our first lien loans may take many forms, including revolving lines of credit, term loans and acquisition lines of credit. |
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• | Second Lien Loans. Our second lien loans generally have terms of five to twenty five years, also primarily provide for a variable interest rate, contain no prepayment penalties (however, the SBA will charge the borrower a prepayment fee if the loan has a maturity of 15 or more years and is prepaid during the first three year) and are secured by a second priority security interest in all existing and future assets of the borrower. We typically only take second lien positions on additional collateral where we also have first lien positions on business assets. |
• | Unsecured Loans. We make few unsecured investments, primarily to our controlled portfolio companies, which because of our equity ownership are deemed to be more secure. Typically, these loans are to meet short-term funding needs and are repaid within 6 to 12 months. |
We typically structure our debt investments to include non-financial covenants that seek to minimize our risk of capital loss such as lien protection and prohibitions against change of control. Our debt investments have strong protections, including default penalties, information rights and, in some cases, board observation rights and affirmative, negative and financial covenants. Debt investments in portfolio companies, including the controlled portfolio companies, have historically and are expected to continue to comprise in excess of 95% of our overall investments in number and dollar volume.
Equity Investments
While the vast majority of our investments have been structured as debt, we have in the past and expect in the future to make selective equity investments primarily as either strategic investments to enhance the integrated operating platform or, to a lesser degree, under the Capco programs. For investments in our controlled portfolio companies, we focus more on tailoring them to the long term growth needs of the companies than to immediate return. Our objective with these companies is to foster the development of the businesses as a part of the integrated operational platform of serving the SMB market, so we may reduce the burden on these companies to enable them to grow faster than they would otherwise as another means of supporting their development and that of the integrated whole.
In Capco investments, we often make debt investments in conjunction with being granted equity in the company in the same class of security as the business owner receives upon funding. We generally seek to structure our equity investments to provide us with minority rights provisions and event-driven put rights. We also seek to obtain limited registration rights in connection with these investments, which may include “piggyback” registration rights.
Investment Process
The members of our senior lending team and our executive committee are responsible for all aspects of our investment selection process. The discussion below describes our investment procedures. The stages of our investment selection process are as follows:
Loan and Deal Generation/Origination
We believe that the combination of our brand, our portal, our patented NewTracker® technology, and our web presence as The Small Business Authority® have created an extensive loan and deal sourcing infrastructure. This is maximized through long-standing and extensive relationships with industry contacts, brokers, commercial and investment bankers, entrepreneurs, services providers (such as lawyers and accountants), as well as current and former clients, portfolio companies and our extensive network of strategic alliance partners. We supplement our relationships by the selective use of radio and television advertising aimed primarily at lending to the SMB market. We believe we have developed a reputation as a knowledgeable and reliable source of capital, providing value-added advice, prompt processing, and management and operations support to our portfolio companies.
We market our loan and investment products and services, and those of our controlled portfolio companies, through referrals from our alliance partners such as AIG, Amalgamated Bank, Credit Union National Association, E-Insure, ENT Federal Credit Union, Iberia Bank, The Hartford, Legacy Bank, Morgan Stanley Smith Barney, Navy Federal Credit Union, New York Community Bank, Lending Tree, LLC, Randolph Brooks Federal Credit Union and UBS Bank using our patented NewTracker® referral system as well as direct referrals from our web presence, www.thesba.com. The patent for our NewTracker® referral system is a software application patent covering the systems and methods for tracking, reporting and performing processing activities and transactions in association with referral data and related information for a variety of product and service offerings in a business-to-business environment providing further for security and transparency between referring parties. This system allows us and our alliance partners to review in real time the status of any referral as well as to provide real time compliance oversight by the respective alliance partner, which we believe creates confidence between the referred business client, the referring alliance partner and us.
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Additional deal sourcing and referrals are obtained from individual professionals in geographic markets that have signed up to provide referrals and earn commissions through our BizExec and TechExec Programs. The BizExecs and TechExecs are traditionally information technology professionals, CPAs, independent insurance agents and sales and/or marketing professionals. In addition, electronic payment processing services are marketed through independent sales representatives and web technology and eCommerce services are marketed through internet-based marketing and third-party resellers. A common thread across all business lines of our subsidiaries and controlled portfolio companies relates to acquiring customers at low cost. We seek to bundle our marketing efforts through our brand, our portal, our patented NewTracker® referral system, our new web presence as The Small Business Authority® and one easy entry point of contact. We expect that this approach will allow us to continue to cross-sell the financing services of our small business finance platform to our customers and customers of our controlled portfolio companies, and to build upon our extensive deal sourcing infrastructure.
Screening
We screen all potential debt or equity investment proposals that we receive for suitability and consistency with our investment criteria (see “Portfolio Company Characteristics,” above). In screening potential investments, our senior lending team and our executive committee utilize a value-oriented investment philosophy and commit resources to managing downside exposure. If a potential investment meets our basic investment criteria, a business service specialist or other member of our team is assigned to perform preliminary due diligence.
SBA Lending Procedures
We originate loans under the SBA 7(a) Program in accordance with our credit and underwriting policy, which incorporates by reference the SBA Rules and Regulations as they relate to the financing of such loans, including the U.S. Small Business Administration Standard Operating Procedures, Policies and Procedures for Financing (“SOP 50 10”).
During the initial application process for a loan originated under the SBA 7(a) Program, a business service specialist assists and guides the applicant through the application process, which begins with the submission of an online form. The online loan processing system collects required information and ensures that all necessary forms are provided to the applicant and filled out. The system conducts two early automatic screenings focused primarily on whether (i) the requested loan is for an eligible purpose, (ii) the requested loan is for an eligible amount and (iii) the applicant is an eligible borrower. If the applicant is eligible to fill out the entire application, the online system pre-qualifies the applicant based on preset credit parameters that meet the standards of Newtek and the SBA.
Once the online form and the application materials have been completed, our underwriting department (the “Underwriting Department”) becomes primarily responsible for reviewing and analyzing the application in order to accurately assess the level of risk being undertaken in making a loan. The Underwriting Department is responsible for assuring that all information necessary to prudently analyze the risk associated with a loan application has been obtained and has been analyzed. Credit files are developed and maintained with the documentation received during the application process in such a manner as to facilitate file review during subsequent developments during the life of the loan.
Required Information
For a loan originated under the SBA 7(a) Program, the primary application document is SBA Form 1919 (Borrower Information Form) (“Form 1919”). Among other things, Form 1919 requires identifying information about the applicant, loan request, indebtedness, information about the principals, information about current or previous government financing, and certain other disclosures.
In addition to Form 1919, the following additional information is required:
• | an SBA Form 912 (Statement of Personal History), if question 1, 2, or 3 of Form 1919 is answered affirmatively; |
• | an SBA Form 413 (Personal Financial Statement), for all owners of 20% or more (including the assets of the owner’s spouse and any minor children), and proposed guarantors; |
• | business financial statements dated within 180 days prior to submission to SBA, consisting of (a) year-end balance sheets for the last three years, including detailed debt schedule, (b) year-end profit & loss (P&L) statements for the last three years, (c) reconciliation of net worth, (d) interim balance sheet, and (e) interim P&L statements; |
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• | a list of names and addresses of any subsidiaries and affiliates, including concerns in which the applicant holds a controlling interest and other concerns that may be affiliated by stock ownership, franchise, proposed merger or otherwise with the applicant, and business financial statements meeting the same requirements as above of such subsidiaries and affiliates; |
• | the applicant’s original business license or certificate of doing business; |
• | records of any loans the applicant may have applied for in the past; |
• | signed personal and business federal income tax returns of the principals of the applicant’s business for previous three years; |
• | personal résumés for each principal; |
• | a brief history of the business and its challenges, including an explanation of why the SBA loan is needed and how it will help the business; |
• | a copy of the applicant’s business lease, or note from the applicant’s landlord, giving terms of proposed lease; and |
• | if purchasing an existing business, (a) current balance sheet and P&L statement of business to be purchased, (b) previous two years federal income tax returns of the business, (c) proposed Bill of Sale including Terms of Sale, and (d) asking price with schedule of inventory, machinery and equipment, furniture and fixtures. |
We view current financial information as the foundation of sound credit analysis. To that end, we verify all business income tax returns with the Internal Revenue Service and generally request that financial statements be submitted on an annual basis after the loan closes. For business entities or business guarantors, we request federal income tax returns for each fiscal year-end to meet the prior three-year submission requirement. For interim periods, we will accept management-prepared financial statements. The most recent financial information may not be more than 180 days old at the time of the approval of the loan, but we generally request that the most recent financial information not be older than 90 days in order to provide time for underwriting and submission to SBA for guaranty approval. For individuals or personal guarantors, we require a personal financial statement dated within 180 days of the application (sixty days is preferred) and personal income tax returns for the prior three years. In connection with each yearly update of business financial information, the personal financial information of each principal must also be updated. Spouses are required to sign all personal financial statements in order for the Underwriting Department to verify compliance with the SBA’s personal resource test. In addition, the Underwriting Department will ensure that there has been no adverse impact on financial condition of the applicant or its principals since the approval of the loan. If closing does not occur within ninety days of the date on which the loan is approved, updated business and personal financial statements must be obtained and any adverse change must be addressed before the proceeds of the loan may be disbursed. If closing does not occur within six months of the date on which the loan is approved, the applicant is generally required to reapply for the loan.
Stress Test
The standard underwriting process requires a stress test on the applicant’s interest rate to gauge the amount of increase that can be withstood by the applicant’s cash flow and still provide sufficient cash to service debt. The applicant’s cash flow is tested up to a 2% increase in interest rate. If the applicant’s debt service coverage ratio decreases to 1:1 or less than 1:1, the loan may only be made as an exception to our Underwriting Guidelines and would require the approval of our credit committee.
Required Site Visit
No loan will be funded without an authorized representative of Newtek first making a site visit to the business premises. We generally use a contracted vendor to make the required site visit but may from time to time send our own employees to perform this function. Each site visit will generate a narrative of the business property as well as photographs of the business property. Additional site visits will be made when a physical on-site inspection is warranted.
Credit Assessment of Applicant
Loan requests are assessed primarily based upon an analysis of the character, cash flow, capital, liquidity and collateral involved in the transaction.
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Character: We require a personal credit report to be obtained on any principal or guarantor involved in a loan transaction. Emphasis is placed upon the importance of individual credit histories, as this is a primary indicator of an individual’s willingness and ability to repay debt. Any material negative credit information must be explained in writing by the principal, and must be attached to the personal credit report in the credit file. No loan will be made where an individual’s credit history calls into question the repayment ability of the business operation. A loan request from an applicant who has declared bankruptcy within the ten years preceding the loan application will require special consideration. A thorough review of the facts behind the bankruptcy and impact on creditors will be undertaken in determining whether the principal has demonstrated the necessary willingness and ability to repay debts. In addition, we will examine whether the applicant and its principals and guarantors have abided by the laws of their community. Any situation where a serious question concerning a principal’s character exists will be reviewed on a case-by-case basis. Unresolved character issues are grounds for declining a loan request regardless of the applicant’s financial condition or performance.
Cash Flow: We recognize that cash flow is the primary and desired source of repayment on any loan, and therefore is the primary focus of the credit decision. Any transaction in which the repayment is not reasonably assured through cash flow will be declined, regardless of other possible credit strengths. At a minimum, combined EBITDA will be used to evaluate repayment ability. Other financial analysis techniques will be employed as needed to establish the reasonableness of repayment. Where repayment is based on past experience, the applicant must demonstrate minimum combined cash flow coverage of 1.2 times based upon the most recent fiscal year-end financial statement. A determination of the ability to repay will not be based solely upon interim operating results. Where repayment ability is not evident from historical combined earnings (including new businesses and changes of ownership), projections will be analyzed to determine whether repayment ability is reasonably assured. For changes in ownership, monthly cash flow forecasts will be analyzed to determine adequacy to meet all of the borrower’s needs.
For business acquisition applications, the applicant will be required to submit projections and support such projections by detailed assumptions made for all major revenue and expense categories and an explanation of how the projections will be met. Analysis must include comparisons with relevant Risk Management Association (“RMA”) industry averages. EBITDA must be reasonably forecast to exceed debt service requirements by at least 1.2 times, after accounting for the initial phase of operations. For change of ownership applications, projections will also be measured against the actual historical financial results of the seller of the business concern. Projections must demonstrate repayment ability of not less than 1.2 times.
Capital: Capital is a strong traditional indicator of the financial health of a business. For going concern entities, the pro-forma leverage position, as measured by the debt to tangible net worth ratio, may not exceed the RMA industry median or 4 to 1, whichever is greater. For change of ownership transactions, generally 25% of total project costs should be contributed as equity resulting in debt to tangible net worth ratio of 3 to 1.
For a change of ownership transaction where a substantial portion of intangibles are included within the transaction, adequacy of capital will be determined based upon an evaluation of the business value and level of injection. In determining the legitimacy of the business value, the loan underwriter must utilize two SBA approved valuation methods, as outlined in SBA SOP 50 10. If the business value is found to be acceptable, and the equity injection into the project is within our requirements as outlined herein, then the capital position will be considered satisfactory.
As a general rule, stockholder and affiliate loans may be added back to net worth only if such loans will be subordinated for the life of the SBA loan, with no principal or interest payments to be made. Financing by the seller of the business may also be considered as equity if the loan will be placed on full standby for the life of the SBA loan. Adjustments to net worth to account for the difference between the book value and appraised value of fixed assets may be made only when supported by a current appraisal. Appraisals on a “subject to” basis are not acceptable.
Liquidity: Liquidity, as measured by the current ratio, must be in line with the RMA industry average. An assessment of the adequacy of working capital is required. An assessment of the liquidity of a business is essential in determining the ability to meet future obligations. Lending to cash businesses such as hotels and restaurants requires less analysis of the liquidity of the business due to the timing of cash receipts. Industries with large receivables, payables, and inventory accounts require thorough review of the cash cycle of the business and evaluation of the applicant’s ability to manage these accounts. The current and quick ratios and turnover of receivables, payables and inventory are measured against the RMA industry median in determining the adequacy of these liquidity measures.
Collateral. We are required to reasonably secure each loan transaction with all worthwhile and available assets. Pursuant to SBA SOP 50 10, we may not (and will not) decline a loan if the only weakness in the application is the value of collateral in relation to the loan amount, provided that all assets available to the business and its principals have been pledged. As set forth in SBA SOP 50 10, the SBA considers a loan to be fully secured if the lender has taken a security interest in all available fixed
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assets with a combined “net book value” adjusted up to the loan amounts below. For 7(a) loans, “fixed assets” means real estate, including land and structures and machinery and equipment owned by the business. “Net book value” is defined as an asset’s original price minus depreciation and amortization.
We attempt to secure each loan transaction with as much real estate and liquid asset collateral as necessary; however, all fixed assets must be evaluated. Fixed assets are evaluated on the basis of the net book value to determine the realizable value among collateral types. Valuation factors are applied as follows:
• | Commercial real estate — 75% |
• | Residential real estate — 80% |
• | Vacant land — 50% |
• | Machinery & Equipment — 40% |
• | Furniture & Fixtures — 10% |
• | Accounts receivable & inventory — 20% |
• | Leasehold improvements — 5% |
• | Certificate of Deposit — 100% |
• | Regulated Licenses — will vary dependent upon type of license and geographic area. The liquidation rate used must be fully justified. |
In addition to an assessment of the criteria specified above, there are certain special industry-specific requirements that will be considered in the loan application decision.
Change of Ownership: The minimum equity injection required in a change of ownership transaction is generally 20% but may be lower for specific industries such as medical and dental practices, gas stations and convenience stores, flag hotels and “strong” non-lodging franchises.
In the event of financing from the seller of the business, the applicant must inject not less than 10% of the project cost; the seller of the business may provide the balance on a complete standby basis for the life of the SBA loan. Exceptions to the equity requirement are reviewed on a case-by-case basis.
For a change of ownership transaction, the application must be accompanied by a business plan including reasonable financial projections. The financial performance of the seller of the business must be evaluated based upon three years of corporate income tax returns and a current interim financial statement. Projections for the applicant must be in line with the historical financial performance at the business location. In cases where financial performance of the seller of the business is poor, a satisfactory explanation must be provided to detail the circumstances of performance. Projections for the applicant must be accompanied by detailed assumptions and be supported by information contained in the business plan.
Management must have related experience in the industry and demonstrate the ability to successfully operate the business. In the absence of satisfactory related experience, an assessment of management’s experience and capabilities, given the complexity and nature of the business, will be made. In the case of a franchise, we will generally take into account the reputation of a franchisor for providing worthwhile management assistance to its franchisees.
We carefully review change of ownership transactions. The loan underwriter will review the contract for sale, which will be included in the credit file. The contract for sale must include a complete breakdown of the purchase price, which must be justified through either a third party appraisal or directly by the loan underwriter through an approved valuation method specified in SBA SOP 50 10. The contract of sale must evidence an arm’s length transaction (but transactions between related parties are permitted so long as they are on an arm’s-length basis) which will preserve the existence of the small business or promote its sound development. In addition, a satisfactory reason for the sale of the business must be provided. The seller of the business must provide the prior three years of business tax returns and a current interim financial statement, as applicable.
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Also in connection with a change of ownership transaction, the Loan Processing area of the Underwriting Department will order Uniform Commercial Code searches on the seller of the existing business. If such a search identifies any adverse information, the Loan Processor will advise the Underwriting Manager or Operations Manager so a prudent decision may be made with respect to the application.
Real Estate Transactions: Loan proceeds for the acquisition or refinancing of land or an existing building or for renovation or reconstruction of an existing building must meet the following criteria:
• | the property must be at least 60% owner-occupied pursuant to SBA policies; and |
• | loan proceeds may not be used to remodel or convert any rental space in the property. |
Loan proceeds for construction or refinancing of construction of a new building must meet the following criteria:
• | the property must be at least 51% owner-occupied pursuant to SBA policies; and |
• | if the building is larger than current requirements of the applicant, projections must demonstrate that the applicant will need additional space within three years, and will use all of the additional space within ten years. |
Commercial real estate appraisals are required on all primary collateral prior to the loan closing. In general, appraisals will be required as follows:
• | for loans up to $100,000 — a formal opinion of value prepared by a real estate professional with knowledge of the local market area; |
• | for loans from $100,000 to $500,000 — a limited summary appraisal completed by a state certified appraiser; |
• | for loans from $500,000 to $1 million — a limited summary appraisal by a Member of the Appraisal Institute (“MAI”) appraiser; and |
• | for loans over $1 million — a complete self-contained appraisal by a MAI appraiser. |
Environmental screenings and an environmental questionnaire are required for all commercial real estate taken as collateral.
In general, environmental reports are required as follows:
• | for real estate valued up to $500,000 — a transaction screen including a records review; |
• | for real estate valued in excess of $500,000 — a Phase I Environmental Report; and |
• | for the following types of property, a Phase I Environmental Report will be required regardless of property value: gasoline service stations, car washes, dry cleaners and any other business known to be in environmentally polluting industries. |
In all cases for commercial real estate taken as collateral:
• | if further testing is recommended, the recommended level of testing will be performed prior to the loan closing; and |
• | if the report indicates remedial action to be taken by the business, such actions must be completed prior to the loan closing and a closure letter must be provided prior to funding. |
Medical Professionals: In connection with a loan application relating to the financing of a medical business, all medical licenses will be verified, with the loss or non-renewal of license constituting grounds for denial of the application. In addition, medical professionals must provide evidence of malpractice liability insurance of at least $2,000,000 or the loan amount, whichever is higher. Malpractice insurance must be maintained for the life of the loan.
Franchise Lending: All franchise loan applications will be evaluated as to eligibility by accessing SBA’s Franchise Registry. If the franchise is listed in the registry and the current franchise agreement is the same as the agreement listed in the registry,
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Newtek will not review the franchise agreement. However, the franchise agreement will be reviewed for eligibility by the loan underwriter when either of the following applies: (i) the franchise is not listed on the SBA’s Franchise Registry or (ii) the franchise is on the registry, but the franchisor has not provided a “Certification of No Change on Behalf of a Registered Franchisor” or a “Certification of Changes on Behalf of a Registered Franchisor.”
Credit Package
For each loan application, the loan underwriter will prepare a credit package (the “Credit Package”). All credit and collateral issues are addressed in the Credit Package, including but not limited to, the terms and conditions of the loan request, use of proceeds, collateral adequacy, financial condition of the applicant and business, management strength, repayment ability and conditions precedent. The Underwriting Department will recommend approval, denial or modification of the loan application. The Credit Package is submitted to our credit committee for further review and final decision regarding the loan application.
Other than rejections for ineligibility of the applicant, the type of business or the loan purpose, NSBF may decline a loan application for the following reasons:
• | after taking into consideration prior liens and considered along with other credit factors, the net value of the collateral offered as security is not sufficient to protect the interest of the U.S. Government; |
• | lack of reasonable assurance of ability to repay loan (and other obligations) from earnings; |
• | lack of reasonable assurance that the business can be operated at a rate of profit sufficient to repay the loan (and other obligations) from earnings; |
• | disproportion of loan requested and of debts to tangible net worth before and after the loan; |
• | inadequate working capital after the disbursement of the loan; |
• | the result of granting the financial assistance requested would be to replenish funds distributed to the owners, partners, or shareholders; |
• | lack of satisfactory evidence that the funds required are not obtainable without undue hardship through utilization of personal credit or resources of the owner, partners or shareholders; |
• | the major portion of the loan requested would be to refinance existing indebtedness presently financed through normal lending channels; |
• | credit commensurate with applicant’s tangible net worth is already being provided on terms considered reasonable; |
• | gross disproportion between owner’s actual investment and the loan requested; |
• | lack of reasonable assurance that applicant will comply with the terms of the loan agreement; |
• | unsatisfactory experience on an existing loan; or |
• | economic or physical injury not substantiated. |
If a loan application is accepted, we will issue a commitment letter to the applicant. After approval, the SBA and NSBF enter into a Loan Authorization Agreement which sets forth the terms and conditions for the SBA’s guaranty on the loan. The closing of a loan is handled by an internal attorney, whose primary responsibility is closing the loan in accordance with the related Loan Authorization in a manner consistent with prudent commercial loan closing procedures, to ensure that the SBA will not repudiate its guaranty due to ineligibility, noncompliance with SBA Rules and Regulations or defective documentation. Before loan proceeds are disbursed, the closing attorney will verify the applicant’s required capital injection, ensure that proceeds are being used for a permitted purpose and ensure that other requirements of the Loan Authorization Agreement (including, but not limited to, required insurance and lien positions and environmental considerations) and SBA Rules and Regulations (including the use of proper SBA forms) have been met.
Maintenance of Credit Files
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A credit file is developed on each borrowing account. Credit files, in either hard copy format or electronic copy, are maintained by the Underwriting Department and organized according to a specified format. The file contains all documentation necessary to show: (a) the basis of the loan, (b) purpose, compliance with policy, conditions, rate, terms of repayment, collateral, and (c) the authority for granting the loan. The credit file is subject to review or audit by the SBA at any time. Upon final action being taken on a loan application, information necessary for closing and servicing will be copied and maintained, while information not considered necessary will be transferred to off-site storage. Once a loan has been disbursed in full, credit files containing all documentation will be transferred to the file room or other electronic storage media and maintained under the authority of the administration staff. Any individual needing an existing credit file must obtain it from the administration staff member having responsibility for safeguarding all credit files or access it by a prearranged electronic file process. Removal of any information from the file will compromise the credit file and is prohibited.
Other, Primarily Equity Investments
Due Diligence and Underwriting
In making loans or equity investments other than SBA 7(a) loans or similar conventional loans to SMBs, our executive committee will take a direct role in screening potential loans or investments, in supervising the due diligence process, in the preparation of deal documentation and the completion of the transactions. The members of the executive committee complete due diligence and analyze the relationships among the prospective portfolio company’s business plan, operations and expected financial performance. Due diligence addresses some or all of the following depending on the size and nature of the proposed investment:
• | on-site visits with management and relevant key employees; |
• | in-depth review of historical and projected financial statements, including covenant calculation work sheets; |
• | interviews with customers and suppliers; |
• | management background checks; |
• | review reports by third-party accountants, outside counsel and other industry, operational or financial experts; and |
• | review material contracts. |
During the underwriting process, significant, ongoing attention is devoted to sensitivity analyses regarding whether a company might bear a significant “downside” case and remain profitable and in compliance with assumed financial covenants. These “downside” scenarios typically involve assumptions regarding the loss of key customers and/or suppliers, an economic downturn, adverse regulatory changes and other relevant stressors that we attempt to simulate in our quantitative and qualitative analyses. Further, we continually examine the effect of these scenarios on financial ratios and other metrics.
Approval, Documentation and Closing
Upon the completion of the due diligence process, the executive committee will review the results and determine if the transaction should proceed to approval. If approved by our senior lending team and executive committee, the underwriting professionals heretofore involved proceed to documentation.
As and to the extent necessary, key documentation challenges are brought before our senior lending team and executive committee for prompt discussion and resolution. Upon the completion of satisfactory documentation and the satisfaction of closing conditions, final approval is sought from our executive committee before closing and funding.
Ongoing Relationships with Portfolio Companies
Monitoring, Managerial Assistance
We have and will continue to monitor our portfolio companies on an ongoing basis. We monitor the financial trends of each portfolio company to determine if it is meeting its business plan and to assess the appropriate course of action for each company. We generally require our portfolio companies to provide annual audits, quarterly unaudited financial statements with management discussion and analysis and covenant compliance certificates, and monthly unaudited financial statements. Using these monthly financial statements, we calculate and evaluate all financial covenants and additional financial coverage ratios
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that might not be part of our covenant package in the loan documents. For purposes of analyzing a portfolio company’s financial performance, we sometimes adjust their financial statements to reflect pro-forma results in the event of a recent change of control, sale, acquisition or anticipated cost savings. Additionally, we believe that, through our integrated marketing and sale of each service line of NSBF and our controlled portfolio companies to our controlled portfolio companies (including electronic payment processing services through NMS and Premier, technology solutions through NTS, and payroll and benefits services through NPS) and non-affiliate portfolio companies, we have in place extensive and robust monitoring capabilities.
We have several methods of evaluating and monitoring the performance and fair value of our investments, including the following:
• | assessment of success in adhering to each portfolio company’s business plan and compliance with covenants; |
• | periodic and regular contact with portfolio company management to discuss financial position, requirements and accomplishments; |
• | comparisons to our other portfolio companies in the industry, if any; |
• | attendance at and participation in board meetings; and |
• | review of monthly and quarterly financial statements and financial projections for portfolio companies. |
As part of our valuation procedures, we risk rate all of our investments including loans. In general, our rating system uses a scale of 1 to 8, with 1 being the lowest probability of default and principal loss. Our internal rating is not an exact system, but is used internally to estimate the probability of: (i) default on our debt securities and (ii) loss of our debt or investment principal, in the event of a default. In general, our internal rating system may also assist our valuation team in its determination of the estimated fair value of equity securities or equity-like securities. Our internal risk rating system generally encompasses both qualitative and quantitative aspects of our portfolio companies.
Our internal loan and investment risk rating system incorporates the following eight categories:
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Rating | Summary Description | |
1 | Acceptable — Highest Quality — Loans or investments that exhibit strong financial condition and repayment capacity supported by adequate financial information. Generally, as loans these credits are well secured by marketable collateral. These credits are current and have not demonstrated a history of late-pay or delinquency. There are no or few credit administration weaknesses. This score represents a combination of a strong acceptable credit and adequate or better credit administration. Newly underwritten loans or investments may be rated in this category if they clearly possess above-average attributes in all of the above areas. In general, as investments these credits are performing within our internal expectations, and potential risks to the applicable investment are considered to be neutral or favorable compared to any potential risks at the time of the original investment. | |
2 | Acceptable — Average Quality — These loans or investments are supported by financial condition and repayment strengths that offset marginal weaknesses. Generally, as loans these credits are secured but may be less than fully secured. These loans are current or less than 30 days past due and may or may not have a history of late payments. They may contain non-material credit administration weaknesses or errors in verifying that do not put the guaranty at risk or cause wrong or poor credit decisions to be made. This risk rating should also be used to assign an initial risk rating to loans or investments that are recommended for approval by underwriting. Without a performance history and/or identified credit administration deficiencies, emphasis should be placed on meeting or exceeding underwriting standards collateral protection, industry experience, and guarantor strength. It is expected that most of our underwritten loans will be of this quality. | |
3 | Acceptable — Below Average — These loans or investments are the low-end range of acceptable. Loans would be less than fully secured and probably have a history of late pay and/or delinquency, though not severe. They contain one or more credit administration weaknesses that do not put the guaranty at risk or cause wrong or poor credit decisions to be made. This risk rating may also be used to identify new loans or investments that may not meet or exceed all underwriting standards, but are approved because of offsetting strengths in other areas. These credits, while of acceptable quality, typically do not possess the same strengths as those in the 1 or 2 categories. In general, the investment may be performing below internal expectations and quantitative or qualitative risks may have increased materially since the date of the investment. | |
4 | Other Assets Especially Mentioned (OAEM or Special Mention) — Strong — These loans or investments are currently protected by sound worth and cash flow or other paying capacity, but exhibit a potentially higher risk situation than acceptable credits. While there is an undue or unwarranted credit risk, it is not yet to the point of justifying a substandard classification. Generally, these loans demonstrate some delinquency history and contain credit administration weaknesses. Performance may show signs of slippage, but can still be corrected. Credit does not require a specific allowance at this point but a risk of loss is present. | |
5 | Substandard — Workout — These assets contain well defined weaknesses and are inadequately protected by the current sound worth and paying capacity of the borrower. Generally, loan collateral protects to a significant extent. There is a possibility of loss if the deficiencies are not corrected and secondary sources may have to be used to repay credit. Credit administration can range from very good to adequate indicating one or more oversights, errors, or omissions which are considered significant but not seriously misleading or causing an error in the loan decision. Performance has slipped and there are well-defined weaknesses. A specific allowance is in order or risk of loss is present. | |
6 | Substandard — Liquidation — These assets contain well defined weaknesses and are inadequately protected by the current sound worth and paying capacity of the borrower or investee. In addition, the weaknesses are so severe that resurrection of the credit is unlikely. For loans, secondary sources will have to be used for repayment. Credits in this category would be severely stressed, nonperforming, and the business may be non-viable. There could be character and significant credit administration issues as well. A specific allowance should be established or the lack of one clearly justified. | |
7 | Doubtful — This classification contains all of the weaknesses inherent in a substandard classification but with the added characteristic that the weaknesses make collection or repayment of principal in full, on the basis of existing facts, conditions and values, highly questionable and improbable. The probability of loss is very high, but the exact amount may not be estimable at the current point in time. Loans in this category are severely stressed, generally non-performing and/or involve a non-viable operation. Collateral may be difficult to value because of limited salability, no ready and available market, or unknown location or condition of the collateral. Credit administration weaknesses can range from few to severe and may jeopardize the credit as well as the guaranty. All such loans or investments should have a specific allowance. | |
8 | Loss — Loans or investments classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is no longer warranted. This classification does not mean that the credit has no recovery or salvage value but, rather, it is not practical to defer writing off this asset. It is also possible that the credit decision cannot be supported by the credit administration process. Documents and verification are lacking; analysis is poor or undocumented, there is no assurance that the loan is eligible or that a correct credit decision was made. Loss loans are loans where a loss total can be clearly estimated. Losses should be taken during the period in which they are identified. | |
We will monitor and, when appropriate, change the investment ratings assigned to each loan or investment in our portfolio. In connection with our valuation process, our management will review these investment ratings on a quarterly basis, and our
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Board will affirm such ratings. The investment rating of a particular investment should not, however, be deemed to be a guarantee of the investment’s future performance.
Historically, we have provided significant operating and managerial assistance to our portfolio companies and our controlled portfolio companies. As a BDC, we will continue to offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance will typically involve, among other things, monitoring the operations and financial performance of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial assistance. We may sometimes receive fees for these services.
Valuation Procedures
We conduct the valuation of our assets, pursuant to which our net asset value shall be determined, at all times consistent with U.S. generally accepted accounting principles (“GAAP” ) and the 1940 Act. Our valuation procedures are set forth in more detail below:
Securities for which market quotations are readily available on an exchange shall be valued at such price as of the closing price on the day of valuation. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we will determine whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, we will use the quote obtained. We also employ independent third party valuation firms for certain of our investments for which there is not a readily available market value.
Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of our Board, does not represent fair value, which we expect will represent a substantial majority of the investments in our portfolio, shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior lending team and executive committee; (iii) independent third-party valuation firms engaged by, or on behalf of, the Board will conduct independent appraisals, review management’s preliminary valuations and prepare separate preliminary valuation conclusions on a selected basis; (iv) the audit committee of the Board reviews the preliminary valuation of our senior lending team and executive committee and/or that of the third party valuation firm and responds to the valuation recommendation with comments, if any; and (v) the Board will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the audit committee.
Determination of the fair value involves subjective judgments and estimates not susceptible to substantiation by auditing procedures. Accordingly, under current auditing standards, the notes to our financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
The recommendation of fair value will generally be based on the following factors, as relevant:
• | the nature and realizable value of any collateral; |
• | adherence to the portfolio company’s business plan and compliance with covenants; |
• | periodic and regular contact with the portfolio company’s management to discuss financial position, requirements and accomplishments; |
• | comparison to portfolio companies in the same industry, if any; |
• | the portfolio company’s ability to make payments; |
• | the portfolio company’s earnings and discounted cash flow; |
• | the markets in which the issuer does business; and |
• | comparisons to publicly traded securities. |
Securities for which market quotations are not readily available or for which a pricing source is not sufficient may include, but are not limited to, the following:
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• | private placements and restricted securities that do not have an active trading market; |
• | securities whose trading has been suspended or for which market quotes are no longer available; |
• | debt securities that have recently gone into default and for which there is no current market; |
• | securities whose prices are stale; |
• | securities affected by significant events; and |
• | securities that our investment professionals believe were priced incorrectly. |
Competition
We compete for SBA 7(a) and other SMB loans with other financial institutions and various SMB lenders, as well as other sources of funding. Additionally, competition for investment opportunities has emerged among alternative investment vehicles, such as collateralized loan obligations (“CLOs”), some of which are sponsored by other alternative asset investors, as these entities have begun to focus on making investments in SMBs. As a result of these new entrants, competition for our investment opportunities may intensify. Many of these entities have greater financial and managerial resources than we do but we believe that they invariably lack the ability to process loans as quickly as we can and do not have the depth of our customer service capabilities. We believe we will be able to compete with these entities primarily on the basis of our financial technology infrastructure, our experience and reputation, our deep industry knowledge and ability to provide customized business solutions, our willingness to make smaller investments than other specialty finance companies, the breadth of our contacts, our responsive and efficient investment analysis and decision-making processes, and the investment terms we offer.
We and our controlled portfolio companies compete in a large number of markets for the sale of financial and other services to SMBs. Each of our controlled portfolio companies competes not only against suppliers in its particular state or region of the country but also against suppliers operating on a national or even a multi-national scale. None of the markets in which our controlled portfolio companies compete are dominated by a small number of companies that could materially alter the terms of the competition.
Our electronic payment processing portfolio companies compete with entities including Heartland Payment Systems, First National Bank of Omaha and Paymentech, L.P. Our managed technology solutions portfolio company competes with 1&1,Hosting.com, Discount ASP, Maxum ASP, GoDaddy®, Yahoo!®, BlueHost®, iPowerWeb® and Microsoft Live among others.
Our small business finance platform competes with regional and national banks and non-bank lenders. Intuit® is bundling electronic payment processing, web hosting and payroll services similar to ours in offerings that compete in the same small-to midsize-business market.
In many cases, we believe that our competitors are not as able as we are to take advantage of changes in business practices due to technological developments and, for those with a larger size, are unable to offer the personalized service that many SMB owners and operators desire.
While we compete with many different providers in our various businesses, we have been unable to identify any direct and comprehensive competitors that deliver the same broad suite of services focused on the needs of the SMB market with the same marketing strategy as we do. Some of the competitive advantages of our platform include:
• | compatible products such as our e-commerce offerings that we are able to bundle to increase sales, reduce costs and reduce risks for our customers and enable us to sell two, three, or four products at the same time; |
• | the patented NewTracker® referral system, which allows us and our portfolio companies to process new business utilizing a web-based, centralized processing point and provides back end scalability, and allows our alliance partners to offer a centralized access point for their SMB clients as part of their larger strategic approach to marketing, thus demonstrating their focus on providing a suite of services to the SMB market in addition to their core service; |
• | the focus on developing and marketing business services and financial products and services aimed at the SMB market; |
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• | scalability, which allows us to size our business services capabilities very quickly to meet customer and market needs; |
• | the ability to offer personalized service and competitive rates; |
• | a strategy of multiple channel distribution, which gives us maximum exposure in the marketplace; |
• | high quality customer service 24/7/365 across all business lines, with a focus primarily on absolute customer service and; |
• | a telephonic interview process, as opposed to requiring handwritten or data-typing processes, which allows us to offer high levels of customer service and satisfaction, particularly for SMB owners who do not get this service from our competitors |
Revenues by Geographic Area
During the years ended December 31, 2015, 2014 and 2013, virtually all of our revenue was derived from customers in the United States, although our controlled portfolio company, NTS, which was a consolidated subsidiary for the year ended December 31, 2013 and for the period January 1, 2014 through November 11, 2014, provided pre-paid web site hosting services to customers in approximately 162 countries.
Employees
As of December 31, 2015, we had a total of 123 employees of which 104 and 19 were exempt and non-exempt, respectively.
Available Information
We are subject to the informational requirements of the Securities Exchange Commission (the “SEC”) and in accordance with those requirements file reports, proxy statements and other information with the SEC. You may read and copy the reports, proxy statements and other information that we file with the SEC under the informational requirements of the Securities Exchange Act at the SEC’s Public Reference Room at 450 Fifth Street N.W., Washington, DC 20549. Please call 1-800-SEC-0339 for information about the SEC’s Public Reference Room. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC’s web site is http://www.sec.gov. Our principal offices are located at 212 West 35th Street, 2nd Floor, New York, NY, 10001 and our telephone number is (212) 356-9500. Our website may be directly accessed at http://www.thesba.com. We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These documents may be directly accessed at http://investor.newtekbusinessservices.com. Information contained on our website is not a part of this report.
Regulation
We have elected to be regulated as a BDC under the 1940 Act and intend to elect to be treated, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code, beginning with our 2015 taxable year. As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act also requires that a majority of the directors of the BDC be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities” as defined in the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company’s outstanding voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present and represented by proxy or (ii) more than 50% of the outstanding shares of such company. Our bylaws provide for the calling of a special meeting of stockholders at which such action could be considered upon written notice of not less than ten or more than sixty days before the date of such meeting.
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We may also purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in connection with acquisition financing or other investments. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. As of December 31, 2015, we held no investments in publicly traded securities. As a BDC, we are generally required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our gross assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 200% after each issuance of senior securities.
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board who are not interested persons and, in some cases, prior approval by the SEC. For example, under the 1940 Act, absent receipt of exemptive relief from the SEC, we and our affiliates may be precluded from co-investing in private placements of securities. As a result of one or more of these situations, we may not be able to invest as much as we otherwise would in certain investments or may not be able to liquidate a position as quickly.
NSBF is licensed by the SBA as a small business lending company (“SBLC”) that originates loans through the SBA 7(a) Program. In order to operate as an SBLC, NSBF is required to maintain a minimum regulatory capital (as defined by SBA regulations) of the greater of (1) 10% of its outstanding loans receivable and other investments or (2) $1.0 million. In addition, an SBLC is subject to certain other regulatory restrictions. Among other things, SBLCs also are required to submit to the SBA for review a credit policy that demonstrates the SBLC’s compliance with the applicable regulations and the SBA’s Standard Operating Procedures for origination, servicing and liquidation of 7(a) loans; submit to the SBA for review and approval annual validation, with supporting documentation and methodologies, demonstrating that any scoring model used by the SBLC is predictive of loan performance; obtain SBA approval for loan securitization and borrowings; and adopt and fully implement an internal control policy which provides adequate direction for effective control over and accountability for operations, programs, and resources.
Pursuant to the SBA’s regulations, the SBA is released from liability on its guaranty of a 7(a) loan and may, in its sole discretion, refuse to honor a guaranty purchase request in full or in part, or recover all or part of the funds already paid in connection with a guaranty purchase, if the lender failed to comply materially with a program requirement; failed to make, close, service or liquidate the loan in a prudent manner; placed the SBA at risk through improper action or inaction; failed to disclose a material fact to the SBA in a timely manner; or misrepresented a material fact to the SBA regarding the loan. In certain instances, the SBA may require a specific dollar amount be deducted from the funds the SBA pays on the lender's guaranty in order to fully compensate for an actual or anticipated loss caused by the lender’s actions or omissions. Such repair does not reduce the percent of the loan guaranteed by SBA or SBA’s pro-rata share of expenses or recoveries.
The SBA also restricts the ability of an SBLC to lend money to any of its officers, directors and employees or to invest in associates thereof. The SBA also prohibits, without prior SBA approval, a “change of control” of an SBLC. A “change of control” is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of a SBLC, whether through ownership, contractual arrangements or otherwise. SBLCs are periodically examined and audited by the SBA to determine compliance with SBA regulations.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company's total assets. The principal categories of qualifying assets relevant to our business are any of the following:
(1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company (as defined below), or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. |
(2) | Securities of any eligible portfolio company that we control. |
(3) | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
(4) | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. |
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(5) | Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities. |
(6) | Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. |
In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.
An eligible portfolio company is defined in the 1940 Act as any issuer which:
(a) | is organized under the laws of, and has its principal place of business in, the United States; |
(b) | is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and |
(c) | satisfies any of the following: |
(i) | does not have any class of securities that is traded on a national securities exchange or has a class of securities listed on a national securities exchange but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million; |
(ii) | is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or |
(iii) | is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million. |
Control, as defined by the 1940 Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company.
We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any investment company (as defined in the 1940 Act), invest more than 5% of the value of our total assets in the securities of one such investment company or invest more than 10% of the value of our total assets in the securities of such investment companies in the aggregate. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of our investment policies are fundamental and any may be changed without stockholder approval.
Significant Managerial Assistance
A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. For example:
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• | pursuant to Rule 13a-14 of the 1934 Act, our Chief Executive Officer and Chief Accounting Officer must certify the accuracy of the consolidated financial statements contained in our periodic reports; |
• | pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; |
• | pursuant to Rule 13a-15 of the 1934 Act, our management must prepare a report regarding its assessment of our internal controls over financial reporting; and |
• | pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the 1934 Act, our periodic reports must disclose whether there were significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.
Issuance of Additional Shares
We are not generally able to issue and sell our common stock at a price below net asset value, or NAV. We may, however, issue and sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the current NAV of the common stock if our Board determines that such sale is in our best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months. We did not seek stockholder authorization to sell shares of our common stock at a price below the then current NAV per share at our 2015 annual meeting of stockholders but may seek such approval in the future. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board, closely approximates the market value of such securities.
In addition, under the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase shares of capital stock that it may have outstanding at any time. In particular, the amount of capital stock that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase capital stock cannot exceed 25% of the BDC’s total outstanding shares of capital stock. This amount is reduced to 20% of the BDC’s total outstanding shares of capital stock if the amount of warrants, options or rights issued pursuant to an executive compensation plan would exceed 15% of the BDC’s total outstanding shares of capital stock.
In April 2015, we filed a request with the SEC for exemptive relief to allow us to (i) issue restricted stock awards to our officers, employees and directors and (ii) issue stock options to our nonemployee directors. This exemptive application is still pending, and there can be no assurance that we will receive such exemptive relief from the SEC.
Temporary Investments
Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests imposed on us by the Code in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
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Senior Securities; Coverage Ratio
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, we may not be permitted to declare any cash dividend or other distribution on our outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 200% after deducting the amount of such dividend, distribution, or purchase price. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes. For a discussion of the risks associated with the resulting leverage, see “Risk Factors - Risks Related to Our Business And Structure - Because we borrow money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us.”
Code of Ethics
We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain transactions by our personnel. Our code of ethics generally will not permit investments by our employees in securities that may be purchased or held by us. You may read and copy our code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the code of ethics is published and available on the Company’s website at www.thesba.com and on the EDGAR database on the SEC website at www.sec.gov.
Proxy Voting Policies and Procedures
We vote proxies relating to our portfolio securities in a manner in which we believe is in the best interest of our stockholders. We review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by us. Although we generally vote against proposals that may have a negative impact on our portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons to do so.
Our proxy voting decisions are made by our senior lending team and our executive committee, which are responsible for monitoring each of our investments. To ensure that our vote is not the product of a conflict of interest, we require that: (i) anyone involved in the decision making process disclose to our chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.
Stockholders may obtain information regarding how we voted proxies with respect to our portfolio securities by making a written request for information to: Chief Compliance Officer, 212 West 35th Street, 2nd Floor, New York, New York 10001.
Other
We will be periodically examined by the SEC for compliance with the Exchange Act and the 1940 Act.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
We have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We have designated Michael Schwartz, the Company's Chief Legal Officer, to be our chief compliance officer, and to be responsible for administering these policies and procedures.
Privacy Principles
We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information
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about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third-party administrator).We will maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.
NASDAQ Capital Market Requirements
We have adopted certain policies and procedures intended to comply with the NASDAQ Capital Market’s corporate governance rules. We will continue to monitor our compliance with all future listing standards that are approved by the SEC and will take actions necessary to ensure that we are in compliance therewith.
Election to be Taxed as a RIC
As a BDC, we intend to elect to be treated, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code, beginning with our 2015 taxable year. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC tax treatment we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the “Annual Distribution Requirement”).
Taxation as a Regulated Investment Company
For any taxable year in which we:
• | qualify as a RIC; and |
• | satisfy the Annual Distribution Requirement, |
We generally will not be subject to U.S. federal income tax on the portion of our income we distribute to our stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.
We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years and on which we paid no corporate-level income tax (the “Excise Tax Avoidance Requirement”). We generally will endeavor in each taxable year to make sufficient distributions to our stockholders to avoid any U.S. federal excise tax on our earnings.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
• | continue to qualify as a BDC under the 1940 Act at all times during each taxable year; |
• | derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and |
• | diversify our holdings so that at the end of each quarter of the taxable year: |
• | at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and |
• | no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships” (the “Diversification Tests”). |
Qualified earnings may exclude such income as management fees received in connection with our subsidiaries or other potential outside managed funds and certain other fees.
In accordance with certain applicable Treasury regulations and private letter rulings issued by the IRS, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed
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to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. In connection with our intended election to be treated as a RIC for tax purposes, on December 31, 2015, we paid a special dividend to distribute the earnings and profits that we accumulated before our 2015 tax year. That dividend was paid 27% in cash and 73% in shares of our common stock. We have no current intention of paying dividends in shares of our stock in accordance with these Treasury regulations or private letter rulings.
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as PIK interest, deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock, or certain income with respect to equity investments in foreign corporations. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy applicable distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. If we are prohibited from making distributions or are unable to obtain cash from other sources to make the distributions, we may fail to qualify as a RIC, which would result in us becoming subject to corporate-level federal income tax.
In addition, we will be partially dependent on our subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Some of our subsidiaries may be limited by the Small Business Investment Act of 1958, as amended and SBA regulations, from making certain distributions to us that may be necessary to maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for our subsidiaries to make certain distributions to maintain our RIC status. We cannot assure you that the SBA will grant such waiver. If our subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may cause us to fail to qualify as a RIC, which would result in us becoming subject to corporate-level federal income tax.
The remainder of this discussion assumes that we will qualify as a RIC and will have satisfied the Annual Distribution Requirement for the year ended December 31, 2015.
Any transactions in options, futures contracts, constructive sales, hedging, straddle, conversion or similar transactions, and forward contracts will be subject to special tax rules, the effect of which may be to accelerate income to us, defer losses, cause adjustments to the holding periods of our investments, convert long-term capital gains into short-term capital gains, convert short-term capital losses into long-term capital losses or have other tax consequences. These rules could affect the amount, timing and character of distributions to stockholders. We do not currently intend to engage in these types of transactions.
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income.” If our expenses in a given year exceed gross taxable income (e.g., as the result of large amounts of equity-based compensation), we would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain. Due to these limits on the deductibility of expenses, we may, for tax purposes, have aggregate taxable income for several years that we are required to distribute and that is taxable to our stockholders even if such income is greater than the aggregate net income we actually earned during those years. Such required distributions may be made from our cash assets or by liquidation
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of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net capital gains from such transactions, you may receive a larger capital gain distribution than you would have received in the absence of such transactions.
Investment income received from sources within foreign countries, or capital gains earned by investing in securities of foreign issuers, may be subject to foreign income taxes withheld at the source. In this regard, withholding tax rates in countries with which the United States does not have a tax treaty are often as high as 35% or more. The United States has entered into tax treaties with many foreign countries that may entitle us to a reduced rate of tax or exemption from tax on this related income and gains. The effective rate of foreign tax cannot be determined at this time since the amount of our assets to be invested within various countries is not now known. Additionally, we do not anticipate being eligible for the special election that allows a RIC to treat foreign income taxes paid by such RIC as paid by its stockholders.
If we acquire stock in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, rents, royalties or capital gain) or hold at least 50% of their total assets in investments producing such passive income (“passive foreign investment companies”), we could be subject to federal income tax and additional interest charges on “excess distributions” received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by us is timely distributed to our stockholders. We would not be able to pass through to our stockholders any credit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election requires us to recognize taxable income or gain without the concurrent receipt of cash. We intend to limit and/or manage our holdings in passive foreign investment companies to minimize our tax liability.
Foreign exchange gains and losses realized by us in connection with certain transactions involving non-dollar debt securities, certain foreign currency futures contracts, foreign currency option contracts, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Code provisions that generally treat such gains and losses as ordinary income and losses and may affect the amount, timing and character of distributions to our stockholders. Any such transactions that are not directly related to our investment in securities (possibly including speculative currency positions or currency derivatives not used for hedging purposes) could, under future Treasury regulations, produce income not among the types of “qualifying income” from which a RIC must derive at least 90% of its annual gross income.
Failure to Qualify as a RIC
If we fail to satisfy the Annual Distribution Requirement or fail to qualify as a RIC in any taxable year, assuming we do not qualify for or take advantage of certain remedial provisions, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our stockholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing the amount available to be distributed to our stockholders. In contrast, assuming we qualify as a RIC, our corporate-level federal income tax liability should be substantially reduced or eliminated. See “Election to be Taxed as a RIC” above.
If we are unable to maintain our status as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions would generally be taxable to our stockholders as ordinary distribution income eligible for reduced maximum tax rates to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, dividends paid by us to corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis in our common stock, and any remaining distributions would be treated as a capital gain.
ITEM 1A. RISK FACTORS
The following is a summary of the risk factors that we believe are most relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ significantly from anticipated or historical results. If any of the following risks occur, our business, financial condition and results of operations could be materially and adversely affected. In that case, the value of our common stock could decline and stockholders may lose all or part of their investment. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law.
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
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Throughout our 18 year history we have never operated as a BDC until we converted on November 12, 2014
Although Newtek has operated since 1998, we have limited operating history as a BDC. As a result, we can offer no assurance that we will achieve our investment objective and that the value of any investment in our Company will not decline substantially. As a BDC, we will be subject to the regulatory requirements of the SEC, in addition to the specific regulatory requirements applicable to BDCs under the 1940 Act and RICs under the Code. Prior to our BDC Conversion, our management did not have any prior experience operating under this BDC regulatory framework, and we may incur substantial additional costs, and expend significant time or other resources, to do so. In addition, we may be unable to generate sufficient revenue from our operations to make or sustain distributions to our stockholders.
Our investment portfolio is recorded at fair value, with our board of directors having final responsibility for overseeing, reviewing and approving, in good faith, its estimate of fair value and, as a result, there is uncertainty as to the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by us, with our Board having final responsibility for overseeing, reviewing and approving, in good faith, our estimate of fair value. Typically, there is not a public market for the securities of the privately held companies in which we invest. As a result, we value these securities annually and quarterly at fair value based on various inputs, including management, third-party valuation firms and our audit committee, and with the oversight, review and approval of our Board.
The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree, subjective and dependent on a valuation process approved by our Board. Certain factors that may be considered in determining the fair value of our investments include external events, such as private mergers, sales and acquisitions involving comparable companies. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. Our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result, investors purchasing our common stock based on an overstated net asset value would pay a higher price than the value of our investments might warrant. Conversely, investors selling stock during a period in which the net asset value understates the value of our investments will receive a lower price for their stock than the value of our investments might warrant.
Our financial condition and results of operations will depend on our ability to manage and deploy capital effectively.
Our ability to achieve our investment objective will depend on our ability to manage and deploy capital, which will depend, in turn, on our management’s ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our investment criteria.
Accomplishing our investment objective on a cost-effective basis will largely be a function of our management’s handling of the investment process, its ability to provide competent, attentive and efficient services and our access to investments offering acceptable terms. In addition to monitoring the performance of our existing investments, our senior lending team and our executive committee is called upon, from time to time, to provide managerial assistance to some of our portfolio companies.
These demands on their time may distract them or slow the rate of investment. Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described herein, it could negatively impact our ability to pay dividends.
We are dependent upon our senior lending team and our executive committee for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our senior lending team or our executive committee our ability to achieve our investment objective could be significantly harmed.
We depend on our senior lending team and executive committee as well as other key personnel for the identification, final selection, structuring, closing and monitoring of our investments. These executive officers and employees have critical industry experience and relationships that we rely on to implement our business plan. Our future success depends on the continued service of our senior lending team and our executive committee and the replacement of any departing individuals with others of comparable skills and experience. The departure of any of the members of our senior lending team, our executive committee or
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a significant number of our senior personnel could have a material adverse effect on our ability to achieve our investment objective. As a result, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer.
We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.
We will compete for investments with other financial institutions and various SMB lenders, as well as other sources of funding. Additionally, competition for investment opportunities has emerged among alternative investment vehicles, such as CLOs, some of which are sponsored by other alternative asset investors, as these entities have begun to focus on making investments in SMBs. As a result of these new entrants, competition for our investment opportunities may intensify. Many of our competitors will be substantially larger and have considerably greater financial, technical and marketing resources than us. For example, some competitors may have a lower cost of capital and access to funding sources that will not be available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we will have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we will be able to offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we are forced to match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. Furthermore, many of our competitors will have greater experience operating under, or will not be subject to, the regulatory restrictions that the 1940 Act will impose on us as a BDC, or the source-of-income, asset diversification, and distribution requirements we must satisfy to qualify for and maintain our intended status as a RIC.
If we are unable to source investments effectively, we may be unable to achieve our investment objective.
Our ability to achieve our investment objective depends on our senior lending team’s and our executive committee’s ability to identify, evaluate and invest in suitable companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our marketing capabilities, our management of the investment process, our ability to provide efficient services and our access to financing sources on acceptable terms. In addition to monitoring the performance of our existing investments, members of our senior lending team, our executive committee and our other investment professionals may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow the rate of investment. To grow, we need to continue to hire, train, supervise and manage new employees and to implement computer and other systems capable of effectively accommodating our growth. However, we cannot provide assurance that any such employees will contribute to the success of our business or that we will implement such systems effectively. Failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.
Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or further develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.
We expect that members of our senior lending team and our executive committee will maintain their relationships with intermediaries, financial institutions, investment bankers, commercial bankers, financial advisors, attorneys, accountants, consultants, alliance partners, and other individuals within their networks, and we will rely, to a significant extent, upon these relationships to provide us with potential investment opportunities. If our senior lending team and our executive committee fail to maintain its existing relationships or develop new relationships with sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom members of our senior lending team and our executive committee have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.
Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70% of their gross assets in specified types of securities, primarily in private companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we may be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business.
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Regulations governing our operation as a BDC affect our ability to raise additional capital and the way in which we do so. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we will be permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Continuing to expand our debt financing activities in SBA 7(a) loans will require us to raise additional capital. The failure to continue to generate such loans on a consistent basis could have a material impact on our results of operations, and accordingly, our ability to make distributions to our stockholders.
We generally may not issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our Board determines that such sale is in our best interests and in the best interests of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and you may experience dilution.
Because we intend to distribute substantially all of our income to our stockholders to maintain our status as a RIC, we will continue to need additional capital to finance our growth, and regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital and make distributions.
As a RIC, we generally will be required to distribute substantially all of our ordinary income to meet the Annual Distribution Requirement and the Excise Tax Avoidance Requirement, which consequently increases the need to raise additional debt and equity capital. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest.
Because we borrow money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us.
Borrowings, also known as leverage, magnify the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. Leverage is generally considered a speculative investment technique.
Illustration: The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below:
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Assumed Return on Our Portfolio (1) (net of expenses) | |||||
(10)% | (5)% | 0% | 5% | 10% | |
Corresponding net return to stockholders (2) | (20.08)% | (11.36)% | (2.65)% | 6.07% | 14.78% |
(1) Assumes $355,485,000 in total assets, $134,816,000 in debt outstanding, $203,949,000 in net assets as of December 31, 2015, and an average cost of funds of 4.00%. Actual interest payments may be different.
(2) In order for us to cover our annual interest payments on indebtedness, we must achieve annuals returns on our December 31, 2015 total assets of at least 1.52%.
Our ability to achieve our investment objective may depend in part on our ability to access additional leverage on favorable terms, and there can be no assurance that such additional leverage can in fact be achieved.
To the extent we borrow money to finance our investments, changes in interest rates will affect our cost of capital and net investment income.
To the extent we borrow money to finance investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we borrow money to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and/or long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. If we do not implement these techniques properly, we could experience losses on our hedging positions, which could be material.
We may experience fluctuations in our quarterly and annual results.
We may experience fluctuations in our quarterly and annual operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the default rate of such securities, the level of portfolio dividend and fee income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.
Although we must obtain shareholder approval to cease to be, or withdraw our election as, a BDC, our Board will have the authority to modify or waive our investment objective, current operating policies, investment criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to make distributions and cause stockholders to lose all or part of their investment.
We will be subject to corporate-level income tax if we are unable to qualify as a RIC.
Although we intend to elect to be treated as a RIC commencing with our tax year ending December 31, 2015, no assurance can be given that we will be able to qualify for and maintain our qualification as a RIC in the future. To obtain and maintain our qualification as a RIC, we must meet certain source-of-asset diversification, and distribution requirements.
The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.
The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of our qualification as a RIC. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in
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substantial losses. The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses, if any. Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify as a RIC.
If we fail to qualify for RIC tax treatment for any reason and remain or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our
distributions. Although we intend to elect to be treated as a RIC commencing with our tax year ending December 31, 2015, no assurance can be given that we will be able to qualify for and maintain our qualification as a RIC in the future.
We may not be able to pay distributions to our stockholders, our distributions may not grow over time and a portion of our distributions may be a return of capital.
We intend to pay distributions to our stockholders out of assets legally available for distribution. We cannot assure investors that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described in this prospectus. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC can limit our ability to pay distributions. All distributions will be paid at the discretion of our Board and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time. We cannot assure investors that we will pay distributions to our stockholders in the future.
When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of an investor’s basis in our stock and, assuming that an investor holds our stock as a capital asset, thereafter as a capital gain. Generally, a non-taxable return of capital will reduce an investor’s basis in our stock for federal tax purposes, which will result in higher tax liability when the stock is sold. Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For U.S. federal income tax purposes, we are required to include in our taxable income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the origination of a loan or possibly in other circumstances, or PIK interest. Such original issue discount or increases in loan balances as a result of contractual PIK arrangements will be included in our taxable income before we receive any corresponding cash payments. We also may be required to include in our taxable income certain other amounts that we will not receive in cash.
Since, in certain cases, we may recognize taxable income before or without receiving corresponding cash payments, we may have difficulty meeting the annual distribution requirement necessary to maintain our tax treatment as a RIC. Accordingly, to satisfy our RIC distribution requirements, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities. If we are not able to obtain cash from other sources, we may fail to qualify for tax treatment as a RIC and thus become subject to corporate-level income tax.
We may in the future choose to pay dividends in our own stock, in which case investors may be required to pay tax in excess of the cash they receive.
We may distribute taxable dividends that are payable in part in our stock. In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling the RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the
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amount of cash that could have been received instead of stock. Taxable stockholders receiving such dividends will be required to include the amount of the dividends as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.
Internal control deficiencies could impact the accuracy of our financial results or prevent the detection of fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Any failure by us to identify future deficiencies in our internal control over financial reporting in a timely manner or remediate any such deficiencies, could prevent us from accurately and timely reporting our financial results. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
We are required to disclose changes made in our internal control and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. In the event that we are unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, the market price of our common stock may be adversely affected.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
We and our portfolio companies will be subject to applicable local, state and federal laws and regulations, including, without limitation, federal immigration laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect. Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences to the strategies and plans set forth herein and may result in our investment focus shifting from the areas of expertise of our senior lending team and our executive committee to other types of investments in which our senior lending team and our executive committee may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
We have specific risks associated with SBA loans.
We have generally sold the guaranteed portion of SBA loans in the secondary market. Such sales have resulted in our earning premiums and creating a stream of servicing income. There can be no assurance that we will be able to continue originating these loans, or that a secondary market will exist for, or that we will continue to realize premiums upon the sale of the guaranteed portions of the SBA 7(a) loans.
Since we sell the guaranteed portion of substantially all of our SBA 7(a) loan portfolio, we retain credit risk on the non-guaranteed portion of the SBA loans. We share pro rata with the SBA in any recoveries. In the event of default on an SBA loan, our pursuit of remedies against a borrower is subject to SBA approval, and where the SBA establishes that its loss is attributable to deficiencies in the manner in which the loan application has been prepared, submitted and approved, the SBA may decline to honor its guarantee with respect to our SBA loans or it may seek the recovery of damages from us. If we should experience significant problems with our underwriting of SBA loans, such failure to honor a guarantee or the cost to correct the problems could have a material adverse effect on us.
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Curtailment of the government-guaranteed loan programs could adversely affect our results of operations.
Although the program has been in existence since 1953, there can be no assurance that the federal government will maintain the SBA 7(a) loan program, or that it will continue to guarantee loans at current levels. If we cannot continue originating and selling government-guaranteed loans, we will generate fewer origination fees and our ability to generate gains on the sale of loans will decrease. From time-to-time, the government agencies that guarantee these loans reach their internal budgeted limits and cease to guarantee loans for a stated time period. In addition, these agencies may change their rules for extending loans. Also, Congress may adopt legislation that would have the effect of discontinuing or changing the SBA's programs. Non-governmental programs could replace government programs for some borrowers, but the terms might not be equally acceptable. If these changes occur, the volume of loans to SMBs and industrial borrowers of the types that now qualify for government-guaranteed loans could decline, as could the profitability of these loans.
Curtailment of our ability to utilize the SBA 7(a) Loan Program by the Federal government could adversely affect our results of operations.
We are dependent upon the federal government to maintain the SBA 7(a) Program. There can be no assurance that the program will be maintained or that loans will continue to be guaranteed at current levels. In addition, there can be no assurance that NSBF will be able to maintain its status as a PLP or that NSBF can maintain its SBA 7(a) license. If NSBF cannot continue originating and selling government guaranteed loans at current levels, we could experience a decrease in future servicing spreads and earned premiums. From time-to-time the SBA has reached its internal budgeted limits and ceased to guarantee loans for a stated period of time. In addition, the SBA may change its rules regarding loans or Congress may adopt legislation or fail to approve a budget that would have the effect of discontinuing, reducing availability of funds for, or changing loan programs. Non-governmental programs could replace government programs for some borrowers, but the terms might not be equally acceptable. If these changes occur, the volume of loans to small businesses that now qualify for government guaranteed loans could decline, as could the profitability of these loans.
NSBF has been granted PLP status and originates, sells and services small business loans and is authorized to place SBA guarantees on loans without seeking prior SBA review and approval. Being a national lender, PLP status allows NSBF to expedite loans since NSBF is not required to present applications to the SBA for concurrent review and approval. The loss of PLP status could adversely impact our marketing efforts and ultimately loan origination volume which could negatively impact our results of operations.
Our loans under the Section 7(a) Loan Program involve a high risk of default and such default could adversely impact our results of operations.
Loans to small businesses involve a high risk of default. Such loans are generally not rated by any statistical rating organization. Small businesses usually have smaller product lines and market shares than larger companies and therefore may be more vulnerable to competition and general economic conditions. These businesses typically depend their success on the management talents and efforts of one person or a small group of persons whose death, disability or resignation would adversely affect the business. Because these businesses frequently have highly leveraged capital structures, reduced cash flow resulting from economic downturns can severely impact the businesses' ability to meet their obligations. The portions of Section 7(a) loans to be retained by the Company do not benefit directly from any SBA guarantees; in an event of default, however, the Company and the SBA typically cooperate in collateral foreclosure or other work-out efforts and share in any resulting collections.
If we fail to comply with certain of the SBA’s regulations in connection with the origination, servicing, or liquidation of an SBA 7(a) loan, the SBA may be released from liability on its guaranty of a 7(a) loan, and may refuse to honor a guaranty purchase request in full (referred to by SBA as a “denial”) or in part (referred to by SBA as a “repair”), or recover all or part of the funds already paid in connection with a guaranty purchase. In the event of a repair or denial, liability on the guaranty, in whole or part, would be transferred to NSBF. In addition, the growth in the number of loans made by NSBF, changes in SBA regulations and economic factors may adversely impact our current repair and denial rate, which has historically been very low.
The loans we make under the Section 7(a) Loan Program face competition.
There are several other non-bank lenders as well as a large number of banks that participate in the SBA Section 7(a) Loan Program. All of these participants compete for the business of eligible borrowers. In addition, pursuant to the 1940 Act, the Company is limited as to the amount of indebtedness it may have. Accordingly, the Company may be at a competitive disadvantage with regard to other lenders or financial institutions that may be able to achieve greater leverage at a lower cost.
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NSBF, our wholly-owned subsidiary, is subject to regulation by the SBA.
Our wholly-owned subsidiary, NSBF, is licensed by the SBA as an SBLC. In order to operate as an SBLC, a licensee is required to maintain a minimum regulatory capital (as defined by SBA regulations) of the greater of (1) 10% of its outstanding loans receivable and other investments or (2) $1.0 million. Moreover, before consenting to a securitization, NSBF and other securitizers must be considered well capitalized by the SBA. For NSBF and other SBLC securitizers, the SBA will consider it well capitalized if it maintains a minimum unencumbered paid in capital and paid in surplus equal to at least 10 percent of its assets, excluding the guaranteed portion of 7(a) loans. In addition, an SBLC is subject to certain other regulatory restrictions. Among other things, SBLCs are required to: establish, adopt, and maintain a formal written capital plan; submit to the SBA for review a credit policy that demonstrates the SBLC’s compliance with the applicable regulations and the SBA’s Standard Operating Procedures for origination, servicing and liquidation of 7(a) loans; submit to the SBA for review and approval annual validation, with supporting documentation and methodologies, demonstrating that any scoring model used by the SBLC is predictive of loan performance; obtain SBA approval for loan securitization and borrowings; and adopt and fully implement an internal control policy which provides adequate direction for effective control over and accountability for operations, programs, and resources.
Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that are costly and could adversely affect our business and financial results.
We are subject to changing rules and regulations of federal and state government as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC and the NASDAQ Capital Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress. On July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act, and the SEC has adopted, and will continue to adopt, additional rules and regulations that may impact us. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities.
In addition, our failure to keep pace with such rules, or for our management to appropriately address compliance with such rules fully and in a timely manner, exposes us to an increasing risk of inadvertent non-compliance. While our management team takes reasonable efforts to ensure that the Company is in full compliance with all laws applicable to its operations, the increasing rate and extent of regulatory change increases the risk of a failure to comply, which may result in our ability to operate our business in the ordinary course or may subject us to potential fines, regulatory findings or other matters that may materially impact our business.
If we cannot obtain additional capital because of either regulatory or market price constraints, we could be forced to curtail or cease our new lending and investment activities, our net asset value could decrease and our level of distributions and liquidity could be affected adversely.
Our ability to secure additional financing and satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, many of which are beyond our control. The prolonged continuation or worsening of current economic and capital market conditions could have a material adverse effect on our ability to secure financing on favorable terms, if at all.
If we are unable to obtain additional debt capital, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage to the extent that our investment strategy is successful and we may be limited in our ability to make new commitments or fundings to our portfolio companies.
Capital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditions could materially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on our business, financial condition and results of operations.
The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about the ability of certain nations to continue to service their sovereign debt obligations. Risks resulting from
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such debt crisis and any future debt crisis in Europe or any similar crisis elsewhere could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally. In July and August 2015, Greece reached agreements with its creditors for bailouts that provide aid in exchange for certain austerity measures. These and similar austerity measures may adversely affect world economic conditions and have an adverse impact on our business and that of our portfolio companies. In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued sell-off of shares trading in Chinese markets. In August 2015, Chinese authorities sharply devalued China’s currency. These market and economic disruptions adversely affected, and these and other similar market and economic disruptions may in the future affect, the U.S. capital markets, which could adversely affect our business and that of our portfolio companies. These market disruptions materially and adversely affected, and may in the future affect, the broader financial and credit markets and has reduced the availability of debt and equity capital for the market as a whole and to financial firms, in particular. At various times, these disruptions resulted in, and may in the future result in, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk. These conditions may reoccur for a prolonged period of time again or materially worsen in the future, including as a result of further downgrades to the U.S. government’s sovereign credit rating or the perceived credit worthiness of the United States or other large global economies. Unfavorable economic conditions, including future recessions, also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of loans we originate and/or fund, adversely affect the value of our portfolio investments or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our securities and our ability to make distributions to our stockholders.
Our business is highly dependent on our communications and information systems. Certain of these systems are provided to us by third party service providers. Any failure or interruption of such systems, including as a result of the termination of an agreement with any such third party service provider, could cause delays or other problems in our activities. This, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our securities and our ability to make distributions to our stockholders.
Terrorist attacks, acts of war or natural disasters may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition.
Terrorist acts, acts of war or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.
We face cyber-security risks.
Our business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, our information technology systems could become subject to cyber-attacks. Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition.
The failure in cyber-security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.
The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.
We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and
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electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.
RISKS RELATING TO OUR INVESTMENTS GENERALLY
Our investments are very risky and highly speculative.
We invest primarily in senior secured term loans and select equity investments issued by companies, some of which are highly leveraged. The majority of senior secured loans are SBA 7(a) loans and the majority of equity investments are comprised of controlled affiliate equity investments.
Senior Secured Loans. There is a risk that the collateral securing our loans, in most cases real estate, may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies. In some cases we may take second lien position on additional business or personal assets to secure further our first lien positions.
Equity Investments. We occasionally invest directly in the equity securities of portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in SMBs involves a number of significant risks, including:
• | these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; |
• | they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; |
• | they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; |
• | they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; |
• | they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity; and |
• | our executive officers and directors may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies. |
An investment strategy focused primarily on smaller privately held companies involves a high degree of risk and presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
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Our portfolio consists primarily of debt and equity investments in smaller privately-owned companies. Investing in these types of companies involves a number of significant risks. Typically, the debt in which we invest is not initially rated by any rating agency; however, we believe that if such investments were rated, they would be below investment grade. Below investment grade securities, which are often referred to as “high yield” or “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Compared to larger publicly-owned companies, these small companies may be in a weaker financial position and experience wider variations in their operating results, which may make them more vulnerable to economic downturns. Typically, these companies need more capital to compete; however, their access to capital is limited and their cost of capital is often higher than that of their competitors. Our portfolio companies often face intense competition from larger companies with greater financial, technical and marketing resources and their success typically depends on the managerial talents and efforts of an individual or a small group of persons. Therefore, any loss of its key employees could affect a portfolio company’s ability to compete effectively and harm its financial condition. Further, some of these companies conduct business in regulated industries that are susceptible to regulatory changes. These factors could impair the cash flow of our portfolio companies and result in other events, such as bankruptcy. These events could limit a portfolio company’s ability to repay its obligations to us, which may have an adverse effect on the return on, or the recovery of, our investment in these businesses. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the value of the loan’s collateral.
Generally, little public information exists about these companies, and we are required to rely on the ability of our senior lending team and our executive committee to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors. These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies.
Our investments in leveraged portfolio companies may be risky, and you could lose all or part of your investment.
Investment in leveraged companies involve a number of significant risks. Leveraged companies in which we invest may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that we hold. Such developments may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or in some cases senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have sufficient remaining assets to repay its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
Certain loans that we make are secured by a second priority security interest in the same collateral pledged by a portfolio company to secure senior first lien debt owed by the portfolio company to commercial banks or other traditional lenders. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lender’s consent. Prior to and as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged to the senior lender, the senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In many such cases, the senior lender will require us to enter into an “intercreditor agreement” prior to permitting the portfolio company to borrow from us. Typically the intercreditor agreements we will be requested to expressly subordinate our debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any
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collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement. Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans.
If we make subordinated investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
We may make subordinated investments that rank below other obligations of the obligor in right of payment. Subordinated investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or economic conditions in general. If we make a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations.
The disposition of our investments may result in contingent liabilities.
We currently expect that substantially all of our investments will involve loans and private securities. In connection with the disposition of an investment in loans and private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through our return of distributions previously made to us.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
Even though we may have structured certain of our investments as secured loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance or actions to compel and collect payments from the borrower outside the ordinary course of business.
Economic recessions could impair our portfolio companies and harm our operating results.
Certain of our portfolio companies may be susceptible to an economic downturn and may be unable to repay our loans during this period. Therefore, assets may become non-performing and the value of our portfolio may decrease during this period. The adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. A recession could lead to financial losses in our portfolio and a decrease in revenues, net income and the value of our assets.
The lack of liquidity in our investments may adversely affect our business.
We generally invest in companies whose securities are not publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. There is no established trading market for the securities in which we invest. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. Further, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have material non-public information regarding such portfolio company.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or a subsequent financing; or (3) attempt to
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preserve or enhance the value of our investment. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. We will have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we do not want to increase our concentration of risk, we prefer other opportunities, we are subject to BDC requirements that would prevent such follow-on investments, or the follow-on investment would affect our qualification as a RIC.
Our portfolio may lack diversification among portfolio companies which may subject us to a risk of significant loss if one or more of these companies default on its obligations under any of its debt instruments.
Our portfolio holds a limited number of controlled affiliate portfolio companies. Beyond the asset diversification requirements associated with our qualification as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments may be concentrated in relatively few companies. As our portfolio is less diversified than the portfolios of some larger funds, we are more susceptible to failure if a single loan fails. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers, which subjects us to a risk of significant loss if any of these
issuers defaults on its obligations under any of its debt instruments or as a result of a downturn in the particular industry.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers in a limited number of industries. As of December 31, 2015, our three largest investments, Newtek Merchant Solutions, Newtek Technology Solutions and Premier Payments LLC equaled approximately 15%, 6% and 5%, respectively, of the fair value of our total assets. Beyond the asset diversification requirements associated with our qualification as a RIC, we do not have fixed guidelines for diversification, and while we are not targeting any specific industries, relatively few industries may become significantly represented among our investments. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer, changes in fair value over time or a downturn in any particular industry. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.
Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.
Our portfolio may be concentrated in a limited number of industries. A downturn in any particular industry in which we are invested could significantly impact the aggregate returns we realize. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.
Because we may not hold controlling equity interests in certain of our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.
We do not currently hold controlling equity positions in the majority of our portfolio companies where our investments are in the form of debt, particularly SBA loans. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments.
Defaults by our portfolio companies will harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we hold. We
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may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. Any extension or restructuring of our loans could adversely affect our cash flows. In addition, if one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt holding and subordinate all or a portion of our claim to that of other creditors. If any of these occur, it could materially and adversely affect our operating results and cash flows.
If we and our portfolio companies are unable to protect our intellectual property rights, our business and prospects could be harmed, and if we and our portfolio companies are required to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced.
The proprietary software essential to our business and that of our controlled portfolio companies is owned by us and made available to them for their use. Our future success and competitive position will depend in part upon our ability to maintain and protect proprietary technology used in our products and services. We will rely, in part, on patent, trade secret and trademark law to protect that technology, but competitors may misappropriate our intellectual property, and disputes as to ownership of intellectual property may arise. We may, from time to time, be required to institute litigation to enforce the patents, copyrights or other intellectual property rights, protect trade secrets, determine the validity and scope of the proprietary rights of others or defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
We will be subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity; most of our SBA loans do not carry prepayment penalties. When this occurs, we will generally reinvest these proceeds in temporary investments or repay outstanding debt, depending on future investment in new portfolio companies. Temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our securities.
We may not realize gains from our equity investments.
Certain investments that we may make in the future include warrants or other equity securities. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We will often seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these puts rights for the consideration provided in our investment documents if the issuer is in financial distress.
We may expose ourselves to risks if we engage in hedging transactions.
If we engage in hedging transactions, we may expose ourselves to certain risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect
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correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.
An increase in non-performing assets would reduce our income and increase our expenses.
If our level of non-performing assets in our SBA lending business rises in the future, it could adversely affect our investment income and earnings. Non-performing assets are primarily loans on which borrowers are not making their required payments. Non-performing assets also include loans that have been restructured to permit the borrower to have smaller payments and real estate that has been acquired through foreclosure of unpaid loans. To the extent that our financial assets are non-performing, we will have less cash available for lending and other activities.
If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.
To attempt to mitigate credit risks, we will typically take a security interest in the available assets of our portfolio companies. There is no assurance that we will obtain or properly perfect our liens.
There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of a portfolio company to raise additional capital. In some circumstances, our lien could be subordinated to claims of other creditors. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or that we will be able to collect on the loan should we be forced to enforce our remedies.
In addition, because we may invest in technology-related companies, a substantial portion of the assets securing our investment may be in the form of intellectual property, if any, inventory and equipment and, to a lesser extent, cash and accounts receivable. Intellectual property, if any, that is securing our loan could lose value if, among other things, the company’s rights to the intellectual property are challenged or if the company’s license to the intellectual property is revoked or expires, the technology fails to achieve its intended results or a new technology makes the intellectual property functionally obsolete. Inventory may not be adequate to secure our loan if our valuation of the inventory at the time that we made the loan was not accurate or if there is a reduction in the demand for the inventory.
Similarly, any equipment securing our loan may not provide us with the anticipated security if there are changes in technology or advances in new equipment that render the particular equipment obsolete or of limited value, or if the company fails to adequately maintain or repair the equipment. Any one or more of the preceding factors could materially impair our ability to recover principal in a foreclosure.
We could be adversely affected by weakness in the residential housing and commercial real estate markets.
Continued weakness in residential home and commercial real estate values could impair our ability to collect on defaulted SBA loans as real estate is pledged in many of our SBA loans as part of the collateral package.
RISKS RELATING TO OUR CONTROLLED PORTFOLIO COMPANIES - NEWTEK MERCHANT SOLUTIONS (NMS)
We could be adversely affected if either of NMS’ two bank sponsors is terminated.
NMS relies on two bank sponsors, which have substantial discretion with respect to certain elements of our electronic payment processing business practices, in order to process bankcard transactions. If either of the sponsorships is terminated, and NMS is not able to secure or transfer the respective merchant portfolio to a new bank sponsor or sponsors, the business, financial condition, results of operations and cash flows of the electronic payment processing business could be materially adversely affected. If both sponsorships are terminated, and NMS is not able to secure or transfer the merchant portfolios to new bank sponsors, NMS will not be able to conduct its electronic payment processing business. NMS also relies on service providers who are critical to its business.
Because NMS is not a bank, it is unable to belong to and directly access the Visa® and MasterCard® bankcard associations. The Visa® and MasterCard® operating regulations require NMS to be sponsored by a bank in order to process bankcard transactions. NMS is currently sponsored by two banks. If both the sponsorships are terminated and NMS is unable to secure a bank sponsor for the merchant portfolios, it will not be able to process bankcard transactions for the affected portfolios. Consequently, the loss of both of NMS’ sponsorships would have a material adverse effect on our business. Furthermore, NMS’ agreement with sponsoring banks gives the sponsoring banks substantial discretion in approving certain elements of its
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business practices, including its solicitation, application and qualification procedures for merchants, the terms of their agreements with merchants, the processing fees that they charge, their customer service levels and its use of independent sales organizations and independent sales agents. We cannot guarantee that NMS’ sponsoring banks’ actions under these agreements will not be detrimental to us.
Other service providers, some of whom are NMS’ competitors, are necessary for the conduct of NMS’ business. The termination by service providers of these arrangements with NMS or their failure to perform these services efficiently and effectively may adversely affect NMS’ relationships with the merchants whose accounts it serves and may cause those merchants to terminate their processing agreements with NMS.
If NMS or its processors or bank sponsors fail to adhere to the standards of the Visa® and MasterCard® bankcard associations, its registrations with these associations could be terminated and it could be required to stop providing payment processing services for Visa® and MasterCard®.
Substantially all of the transactions NMS processes involve Visa® or MasterCard®. If NMS, its bank sponsors or its processors fail to comply with the applicable requirements of the Visa® and MasterCard® bankcard associations, Visa® or MasterCard® could suspend or terminate its registration. The termination of NMS’ registration or any changes in the Visa® or MasterCard® rules that would impair its registration could require it to stop providing payment processing services, which would have a material adverse effect on its business.
On occasion, NMS experiences increases in interchange and sponsorship fees. If it cannot pass along these increases to its merchants, its profit margins will be reduced.
Our electronic payment processing portfolio company pays interchange fees or assessments to bankcard associations for each transaction it processes using their credit, debit and gift cards. From time to time, the bankcard associations increase the interchange fees that they charge processors and the sponsoring banks, which generally pass on such increases to NMS. From time to time, the sponsoring banks increase their fees as well. If NMS is not able to pass these fee increases along to merchants through corresponding increases in its processing fees, its profit margins in this line of business will be reduced.
Unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and business losses.
Through NMS, we collect and store sensitive data about merchants and cardholders, and we maintain a database of cardholder data relating to specific transactions, including payment, card numbers and cardholder addresses, in order to process the transactions and for fraud prevention and other internal processes. If anyone penetrates our network security or otherwise misappropriates sensitive merchant or cardholder data, we could be subject to liability or business interruption. While we subject these systems to periodic independent testing and review, we cannot guarantee that our systems will not be penetrated in the future. If a breach of our system occurs, we may be subject to liability, including claims for unauthorized purchases with misappropriated card information, impersonation or other similar fraud claims. Similar risks exist with regard to the storage and transmission of such data by our processors. In the event of any such a breach, we may also be subject to a class action lawsuit. SMBs are less prepared for the complexities of safeguarding cardholder data than their larger counterparts. In the event of noncompliance by a customer of card industry rules, we could face fines from payment card networks. There can be no assurance that we would be able to recover any such fines from such customer.
NMS is liable if its processing merchants refuse or cannot reimburse charge-backs resolved in favor of their customers.
If a billing dispute between a merchant and a cardholder is not ultimately resolved in favor of the merchant, the disputed transaction is “charged back” to the merchant’s bank and credited to the account of the cardholder. If NMS or its processing banks are unable to collect the charge-back from the merchant’s account, or if the merchant refuses or is financially unable due to bankruptcy or other reasons to reimburse the merchant’s bank for the charge-back, NMS must bear the loss for the amount of the refund paid to the cardholder’s bank. Most of NMS’ merchants deliver products or services when purchased, so a contingent liability for charge-backs is unlikely to arise, and credits are issued on returned items. However, some of its merchants do not provide services until sometime after a purchase, which increases the potential for contingent liability and future charge backs. NMS and the sponsoring bank can require that merchants maintain cash reserves under its control to cover charge back liabilities but such reserves may not be sufficient to cover the liability or may not even be available to them in the event of a bankruptcy or other legal action.
NMS has potential liability for customer or merchant fraud.
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Credit card fraud occurs when a merchant’s customer uses a stolen card (or a stolen card number in a card-not-present transaction) to purchase merchandise or services. In a traditional card-present transaction, if the merchant swipes the card, receives authorization for the transaction from the card issuing bank and verifies the signature on the back of the card against the paper receipt signed by the customer, the card issuing bank remains liable for any loss. In a fraudulent card-not-present transaction, even if the merchant receives authorization for the transaction, the merchant is liable for any loss arising from the transaction. Many NMS customers are small and transact a substantial percentage of their sales over the Internet or by telephone or mail orders. Because their sales are card-not-present transactions, these merchants are more vulnerable to customer fraud than larger merchants, and NMS could experience charge-backs arising from cardholder fraud more frequently with these merchants.
Merchant fraud occurs when a merchant, rather than a customer, knowingly uses a stolen or counterfeit card or card number to record a false sales transaction or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. Anytime a merchant is unable to satisfy a charge-back, NMS is ultimately responsible for that charge-back unless it has required that a cash reserve be established. We cannot assure that the systems and procedures NMS has established to detect and reduce the impact of merchant fraud are or will be effective. Failure to effectively manage risk and prevent fraud could increase NMS charge-back liability and adversely affect its results of operations.
NMS payment processing systems may fail due to factors beyond its control, which could interrupt its business or cause it to lose business and likely increase costs.
NMS depends on the uninterrupted operations of our computer network systems, software and our processors’ data centers. Defects in these systems or damage to them due to factors beyond its control could cause severe disruption to NMS’ business and other material adverse effects on its payment processing businesses.
The electronic payment processing business is undergoing very rapid technological changes which may make it difficult or impossible for NMS or Premier Payments to compete effectively.
The introduction of new technologies, primarily mobile payment capabilities, and the entry into the payment processing market of new competitors, Apple, Inc., for example, could dramatically change the competitive environment and require significant changes and costs for NMS to remain competitive. There is no assurance that NMS or Premier will have the capability to stay competitive with such changes.
NMS and others in the payment processing industry have come under increasing pressures from various regulatory agencies seeking to use the leverage of the payment processing business to limit or modify the practices of merchants which could lead to increased costs.
Various agencies, particularly the Federal Trade Commission, have within the past few years attempted to pressure merchants to discontinue or modify various sales or other practices. As a part of the payment processing industry, processors such as NMS could experience pressure and/or litigation aimed at restricting access to credit card sales by such merchants. These efforts could cause an increase in the cost to NMS of doing business or otherwise make its business less profitable and may subject NMS and others to attempt to assess penalties for not taking actions deemed sufficiently aggressive to limit such practices.
Increased regulatory focus on the payments industry may result in costly new compliance burdens on NMS’ clients and on NMS itself, leading to increased costs and decreased payments volume and revenues.
Regulation of the payments industry has increased significantly in recent years. Complying with these and other regulations increases costs and can reduce revenue opportunities. Similarly, the impact of such regulations on clients may reduce the volume of payments processed. Moreover, such regulations can limit the types of products and services that are offered. Any of these occurrences can materially and adversely affect NMS’ business, prospects for future growth, financial condition and results of operations.
Examples include:
• | Data Protection and Information Security. Aspects of NMS’ operations and business are subject to privacy and data protection regulation. NMS’ financial institution clients are subject to similar requirements under the guidelines issued by the federal banking agencies. In addition, many individual states have enacted legislation requiring consumer notification in the event of a security breach. |
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• | Anti-Money Laundering and Anti-Terrorism Financing. The U.S.A. PATRIOT Act requires NMS to maintain an anti-money laundering program. Sanctions imposed by the U.S. Treasury Office of Foreign Assets Control, or OFAC, restrict NMS from dealing with certain parties considered to be connected with money laundering, terrorism or narcotics. NMS has controls in place designed to ensure OFAC compliance, but if those controls should fail, it could be subject to penalties, reputational damage and loss of business. |
• | Money Transfer Regulations. As NMS expands its product offerings, it may become subject to money transfer regulations, increasing regulatory oversight and costs of compliance. |
• | Formal Investigation. If NMS is suspected of violating government statutes, such as the Federal Trade Commission Act or the Telemarketing and Consumer Fraud and Abuse Prevention Act, governmental agencies may formally investigate NMS. As a result of such a formal investigation, criminal or civil charges could be filed against NMS and it could be required to pay significant fines or penalties in connection with such investigation or other governmental investigations. Any criminal or civil charges by a governmental agency, including any fines or penalties, could materially harm NMS’ business, results of operations, financial position and cash flows. Currently, NMS is subject to a complaint issued by the Federal Trade Commission. |
RISKS RELATING TO OUR CONTROLLED PORTFOLIO COMPANIES - NEWTEK TECHNOLOGY SOLUTIONS (NTS)
NTS operates in a highly competitive industry in which technological change can be rapid.
The information technology business and its related technology involve a broad range of rapidly changing technologies. NTS equipment and the technologies on which it is based may not remain competitive over time, and others may develop superior technologies that render its products non-competitive, without significant additional capital expenditures. Some of NTS’ competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing and other resources and experience than NTS. In the event that such a competitor expends significant sales and marketing resources in one or several markets, NTS may not be able to compete successfully in such markets. We believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect NTS gross margins if it is not able to reduce its costs commensurate with such price reductions. There can be no assurances that NTS will remain competitive.
NTS’ technology solutions business depends on the efficient and uninterrupted operation of its computer and communications hardware systems and infrastructure.
Despite precautions taken by NTS against possible failure of its systems, interruptions could result from natural disasters, power loss, the inability to acquire fuel for its backup generators, telecommunications failure, terrorist attacks and similar events. NTS also leases telecommunications lines from local, regional and national carriers whose service may be interrupted. NTS’ business, financial condition and results of operations could be harmed by any damage or failure that interrupts or delays its operations. There can be no assurance that NTS' insurance will cover all of the losses or compensate NTS for the possible loss of clients occurring during any period that NTS is unable to provide service.
NTS’ inability to maintain the integrity of its infrastructure and the privacy of confidential information would materially affect its business.
The NTS infrastructure is potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If its security measures are circumvented, it could jeopardize the security of confidential information stored on NTS’ systems, misappropriate proprietary information or cause interruptions in NTS’ operations. We may be required to make significant additional investments and efforts to protect against or remedy security breaches. Security breaches that result in access to confidential information could damage our reputation and expose us to a risk of loss or liability. The security services that NTS offers in connection with customers’ networks cannot assure complete protection from computer viruses, break-ins and other disruptive problems. The occurrence of these problems may result in claims against NTS or us or liability on our part. These claims, regardless of their ultimate outcome, could result in costly litigation and could harm our business and reputation and impair NTS’ ability to attract and retain customers.
NTS’ business depends on Microsoft Corporation and others for the licenses to use software as well as other intellectual property in the managed technology solutions business.
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NTS’ managed technology business is built on technological platforms relying on the Microsoft Windows® products and other intellectual property that NTS currently licenses. As a result, if NTS is unable to continue to have the benefit of those licensing arrangements or if the products upon which its platform is built become obsolete, its business could be materially and adversely affected.
RISKS RELATING TO OUR CONTROLLED PORTFOLIO COMPANIES - NEWTEK INSURANCE SOLUTIONS(NIA)
NIA depends on third parties, particularly property and casualty insurance companies, to supply the products marketed by its agents.
NIA contracts with property and casualty insurance companies typically provide that the contracts can be terminated by the supplier without cause. NIA’s inability to enter into satisfactory arrangements with these suppliers or the loss of these relationships for any reason would adversely affect the results of its the insurance business. Also, NIA’s inability to obtain these products at competitive prices could make it difficult for it to compete with larger and better capitalized providers of such insurance services.
If NIA fails to comply with government regulations, its insurance agency business would be adversely affected.
NIA insurance agency business is subject to comprehensive regulation in the various states in which it conducts business. NIA’s success will depend in part upon its ability to satisfy these regulations and to obtain and maintain all required licenses and permits. NIA’s failure to comply with any statutes and regulations could have a material adverse effect on it. Furthermore, the adoption of additional statutes and regulations, changes in the interpretation and enforcement of current statutes and regulations could have a material adverse effect on it.
NIA does not have any control over the commissions it earns on the sale of insurance products which are based on premiums and commission rates set by insurers and the conditions prevalent in the insurance market.
NIA earns commissions on the sale of insurance products. Commission rates and premiums can change based on the prevailing economic and competitive factors that affect insurance underwriters. In addition, the insurance industry has been characterized by periods of intense price competition due to excessive underwriting capacity and periods of favorable premium levels due to shortages of capacity. We cannot predict the timing or extent of future changes in commission rates or premiums or the effect any of these changes will have on the operations of NIA’s insurance agency.
RISKS RELATING TO OUR CONTROLLED PORTFOLIO COMPANIES - NEWTEK PAYROLL AND BENEFIT SOLUTIONS (NPS)
Unauthorized disclosure of employee data, whether through a cyber-security breach of our computer systems or otherwise, could expose NPS to liability and business losses.
NPS collects and stores sensitive data about individuals in order to process the transactions and for other internal processes. If anyone penetrates its network security or otherwise misappropriates sensitive individual data, NPS could be subject to liability or business interruption. NPS is subject to laws and rules issued by different agencies concerning safeguarding and maintaining the confidentiality of this information. Its activities have been, and will continue to be, subject to an increasing risk of cyber-attacks, the nature of which is continually evolving. Cyber-security risks include unauthorized access to privileged and sensitive customer information, including passwords and account information of NPS’ customers. While it subjects its data systems to periodic independent testing and review, NPS cannot guarantee that its systems will not be penetrated in the future. Experienced computer programmers and hackers may be able to penetrate NPS’ network security, and misappropriate or compromise our confidential information, create system disruptions, or cause shutdowns. As a result, NPS’ customers’ information may be lost, disclosed, accessed or taken without its customers’ consent. If a breach of NPS’ system occurs, it may be subject to liability, including claims for impersonation or other similar fraud claims. In the event of any such breach, NPS may also be subject to a class action lawsuit. Any significant violations of data privacy could result in the loss of business, litigation and regulatory investigations and penalties that could damage NPS’ reputation, and the growth of its business could be adversely affected.
NPS’ systems may be subject to disruptions that could adversely affect its business and reputation.
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NPS’ payroll business relies heavily on its payroll, financial, accounting and other data processing systems. If any of these systems or any of the vendors which supply them fails to operate properly or becomes disabled even for a brief period of time, NPS could suffer financial loss, a disruption of its business, liability to clients, regulatory intervention or damage to its reputation. NPS has disaster recovery plans in place to protect its businesses against natural disasters, security breaches, military or terrorist actions, power or communication failures or similar events. Despite NPS’ preparations, its disaster recovery plans may not be successful in preventing the loss of client data, service interruptions, and disruptions to its operations or damage to its important facilities.
If NPS fails to adapt its technology to meet client needs and preferences, the demand for its services may diminish.
NPS operates in industries that are subject to rapid technological advances and changing client needs and preferences. In order to remain competitive and responsive to client demands, NPS continually upgrades, enhances and expands its existing solutions and services. If NPS fails to respond successfully to technological challenges, the demand for its services may diminish.
NPS could incur unreimbursed costs or damages due to delays in processing inherent in the banking system.
NPS generally determines the availability of customer (employer) funds prior to making payments to employees or taxing authorities, and such employer funds are generally transferred in to its accounts prior to making payments out. Due to the structure of the banking system however, there are times when NPS may make payroll or tax payments and not immediately receive the funds to do so from the employer. There can be no assurance that the procedures NPS has in place to prevent these occurrences or mitigate the damages will be sufficient to prevent loss to its business.
RISKS RELATING TO OUR CONTROLLED PORTFOLIO COMPANIES - NEWTEK BUSINESS CREDIT SOLUTIONS (NBC)
An unexpected level of defaults in NBC’s accounts receivables portfolio would reduce its income and increase its expenses.
If NBC’s level of non-performing assets in its receivable financing business rises in the future, it could adversely affect its revenue, earnings and cash flow. Non-performing assets primarily consist of receivables for which the customer has not made timely payment. In certain situations, NBC may restructure the receivable to permit such a customer to have smaller payments over a longer period of time. Such a restructuring or non-payment by a receivables customer will result in lower revenue and less cash available for NBC’s operational activities.
NBC’s reserve for credit losses may not be sufficient to cover unexpected losses.
NBC’s business depends on the behavior of its customers. In addition to its credit practices and procedures, NBC maintains a reserve for credit losses on its accounts receivable portfolio, which it has judged to be adequate given the receivables it purchases. NBC periodically reviews its reserve for adequacy considering current economic conditions and trends, charge-off experience and levels of non-performing assets, and adjusts its reserve accordingly. However, because of recent unstable economic conditions, its reserves may prove inadequate, which could have a material adverse effect on its financial condition and results of operations.
NBC depends on outside financing to support its receivables financing business.
NBC’s receivables financing business depends on outside financing to support its acquisition of receivables. Termination of the credit lines for any reason would have a material adverse effect on its business, including but not limited to, the liquidation of its receivables portfolios to pay down the lines. If funds from such sale were insufficient to completely pay down the line of credit, NBC would be responsible for any short fall. In particular, NBC depends on a line of credit which matures in February 2017. Loss of this line and NBC’s inability to replace it would materially impact the business.
LEGAL PROCEEDINGS - PORTFOLIO COMPANIES
Our portfolio companies may, from time to time, be involved in various legal matters which may have an adverse effect on their operations.
On January 21, 2014, NCMIC Finance Corporation (“NCMIC”) filed a complaint against UPS, the Company’s merchant processing controlled portfolio company, in the United States District Court for the Southern District of Iowa. The complaint asserts claims against UPS for breach of the UPS and NCMIC agreement for the processing of credit card transactions, and
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seeks monetary relief. The Company believes that the claims asserted in the complaint are wholly without merit and intends to vigorously defend the action. Trial is currently set for March 2016.
On October 13, 2015, UPS filed an action against NCMIC and NCMIC related entities seeking, among other things, indemnification in connection with the claims asserted by NCMIC against UPS, as well as for monetary damages for breach of contract and fraud.
As previously disclosed, during the quarter ended June 30, 2013, the Federal Trade Commission (the “FTC”) amended an existing complaint in the matter Federal Trade Commission v. WV Universal Management, LLC et al., pending in the United States District Court for the Middle District of Florida (the “Court”), to add UPS as an additional defendant on one count of providing substantial assistance in violation of the Telemarketing Sales Rule. UPS and the FTC reached a settlement on the FTC’s motion for a permanent injunction. On May 19, 2015, the Court entered an equitable monetary judgment against UPS for approximately $1,735,000, which has been deposited with the Court pending the outcome of UPS’ appeal of the judgment.
UPS instituted an action against a former independent sales agent in Wisconsin state court for, among other things, breach of contract. The former sales agent answered the complaint and filed counterclaims against UPS. The case is set for trial in late 2016. UPS intends to vigorously pursue its claims against the former sales agent and defend the counterclaims asserted.
In October 2015, NTS was served with an amended complaint filed by a former customer of NTS alleging claims in connection with a server leased by the customer from NTS. NTS believes that the claims are covered by insurance and that the claims are without merit and intends to vigorously defend the action.
RISKS RELATING TO OUR CAPCO BUSINESS
The Capco programs and the tax credits they provide are created by state legislation and implemented through regulation, and such laws and rules are subject to possible action to repeal or retroactively revise the programs for political, economic or other reasons. Such an attempted repeal or revision would create substantial difficulty for the Capco programs and could, if ultimately successful, cause us material financial harm.
The tax credits associated with the Capco programs and provided to our Capcos’ investors are to be utilized by the investors over a period of time, which is typically ten years. Much can change during such a period and it is possible that one or more states may revise or eliminate the tax credits. Any such revision or repeal could have a material adverse economic impact on our Capcos, either directly or as a result of the Capco’s insurer’s actions. Any such final state action that jeopardizes the tax credits could result in the provider of our Capco insurance assuming partial or full control of the particular Capco in order to minimize its liability under the Capco insurance policies issued to our investors.
Because our Capcos are subject to requirements under state law, a failure of any of them to meet these requirements could subject the Capco and our stockholders to the loss of one or more Capcos.
Despite the fact that we have met all applicable minimum requirements of the Capco programs in which we still participate, each Capco remains subject to state regulation until it has invested 100% of its funds and otherwise remains in full legal compliance. There can be no assurance that we will continue to be able to do so. A major regulatory violation, while not fatal to our Capco business, would materially increase the cost of operating the Capcos.
We know of no other publicly-held company that sponsors and operates Capcos as a part of its business. As such, there are, to our knowledge, no other companies against which investors may compare our Capco business and its operations, results of operations and financial and accounting structures.
In the absence of any meaningful peer group comparisons for our Capco business, investors may have a difficult time understanding and judging the strength of our business. This, in turn, may have a depressing effect on the value of our stock.
RISKS RELATING TO OUR SECURITIES
As of December 31, 2015, two of our stockholders, one a current and one a former executive officer, each beneficially own approximately 7% of our common stock, and are able to exercise significant influence over the outcome of most stockholder actions.
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Although there is no agreement or understanding between them, because of their ownership of our stock, Barry Sloane, our Chairman, Chief Executive Officer and President, and Jeffrey G. Rubin, former president of the Company, will be able to exercise significant influence over actions requiring stockholder approval, including the election of directors, the adoption of amendments to the certificate of incorporation, approval of stock incentive plans and approval of major transactions such as a merger or sale of assets. This could delay or prevent a change in control of the Company, deprive our stockholders of an opportunity to receive a premium for their common stock as part of a change in control and have a negative effect on the market price of our common stock.
Our common stock price may be volatile and may decrease substantially.
The trading price of our common stock may fluctuate substantially. The price of our common stock may be higher or lower depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:
• | price and volume fluctuations in the overall stock market from time to time; |
• | investor demand for our stock; |
• | significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies; |
• | changes in regulatory policies or tax guidelines with respect to RICs, BDCs, or SBLCs; |
• | failure to qualify as a RIC, or the loss of RIC status; |
• | any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; |
• | changes, or perceived changes, in the value of our portfolio investments; |
• | departures of key Company personnel; |
• | operating performance of companies comparable to us; or |
• | general economic conditions and trends and other external factors. |
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price once a market for our stock is established, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
Future issuances of our common stock or other securities, including preferred shares, may dilute the per share book value of our common stock or have other adverse consequences to our common stockholders.
Our Board has the authority, without the action or vote of our stockholders, to issue all or part of the approximately 185,491,000 authorized but unissued shares of our common stock. Our business strategy relies upon investments in and acquisitions of businesses using the resources available to us, including our common stock. Additionally, we anticipate granting additional options or restricted stock awards to our employees and directors in the future. Absent exemptive relief, a BDC generally may not issue restricted stock to its directors, officers and employees. In April 2015, we filed a request with the SEC for exemptive relief to allow us to amend our equity compensation plan and make such grants and awards, although we cannot provide any assurance that we will receive such exemptive relief in a timely fashion or at all. We may also issue additional securities, through public or private offerings, in order to raise capital. Future issuances of our common stock will dilute the percentage of ownership interest of current stockholders and could decrease the per share book value of our common stock. In
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addition, option holders may exercise their options at a time when we would otherwise be able to obtain additional equity capital on more favorable terms.
Pursuant to our amended and restated charter, our Board is authorized to classify any unissued shares of stock and reclassify any previously classified but unissued shares of stock of any class or series from time to time, into one or more classes or series of stock, including preferred stock. If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest. We will not generally be able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then current net asset value per share of our common stock if our Board determines that such sale is in our best interests and in the best interests of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and you may experience dilution.
Our stockholders may experience dilution upon the repurchase of common shares.
The Company has a program which allows the Company to repurchase up to 150,000 of the Company’s outstanding common shares on the open market. Under the program, purchases may be made at management’s discretion from time to time in open-market transactions, in accordance with all applicable securities laws and regulations. Unless the program is extended or terminated by the Board, the Company expects the termination date of the Program to be June 3, 2016. The Company did not make any repurchases of its common stock during the year ended December 31, 2015. If we were to repurchase shares at a price above net asset value, such repurchases would result in an immediate dilution to existing common stockholders due to a reduction in the our earnings and assets due to the repurchase that is greater than the reduction in total shares outstanding.
The authorization and issuance of “blank check” preferred shares could have an anti-takeover effect detrimental to the interests of our stockholders.
Our certificate of incorporation allows our Board to issue preferred shares with rights and preferences set by the Board without further stockholder approval. The issuance of these “blank check” preferred shares could have an anti-takeover effect detrimental to the interests of our stockholders. For example, in the event of a hostile takeover attempt, it may be possible for management and the Board to impede the attempt by issuing the preferred shares, thereby diluting or impairing the voting power of the other outstanding common shares and increasing the potential costs to acquire control of us. Our Board has the right to issue any new shares, including preferred shares, without first offering them to the holders of common shares, as they have no preemptive rights.
Our business and operation could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.
Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
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The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of Newtek or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. Our Board has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our Board, including approval by a majority of our independent directors. If the resolution exempting business combinations is repealed or our Board does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such a transaction.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our Board in three classes serving staggered three-year terms and authorizing our Board to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, to amend our charter without stockholder approval and to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.
Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
All of the common stock held by our executive officers and directors, represents approximately 2,033,000 shares, or approximately 14% of our total outstanding shares as of December 31, 2015. Such shares are generally freely tradable in the public market. Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.
Your interest in the Company may be diluted if you do not fully exercise your subscription rights in any rights offering.
In the event we issue subscription rights to purchase shares of our common stock, stockholders who do not fully exercise their rights should expect that they will, at the completion of the offer, own a smaller proportional interest in the Company than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of the offer.
In addition, if the subscription price is less than our net asset value per share, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offer. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of the rights offering or what proportion of the shares will be purchased as a result of the offer. Such dilution could be substantial.
If we issue preferred stock, the net asset value and market value of our common stock will likely become more volatile.
We cannot assure you that the issuance of preferred stock would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock would likely cause the net asset value and market value of the common stock to become more volatile. If the dividend rate on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of common stock than if we had not issued preferred stock. Any decline in the net asset value of our investments would be borne entirely by the holders of common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of common stock than if we were not leveraged through the issuance of preferred stock. This greater net asset value decrease would also tend to cause a greater decline in the market price for the common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings, if any, on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher advisory fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.
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Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock.
The 1940 Act prohibits us from selling shares of our common stock at a price below the current net asset value per share of such stock, with certain exceptions. One such exception is prior stockholder approval of issuances below net asset value provided that our Board makes certain determinations. We did not seek stockholder authorization to sell shares of our common stock at a price below the then current net asset value per share at our 2015 annual meeting of stockholders. As such, we do not currently have such stockholder authorization. We may, however, seek such authorization at future annual or special meetings of stockholders. Our stockholders have previously approved a proposal to authorize us to issue securities to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. Any decision to sell shares of our common stock below the then current net asset value per share of our common stock or securities to subscribe to, convert to, or purchase shares of our common stock would be subject to the determination by our Board that such issuance is in our and our stockholders' best interests.
If we were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to the net asset value per share. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and a proportionately greater decrease in a stockholder's interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. In addition, if we issue securities to subscribe to, convert to or purchase shares of common stock, the exercise or conversion of such securities would increase the number of outstanding shares of our common stock. Any such exercise would be dilutive on the voting power of existing stockholders, and could be dilutive with regard to dividends and our net asset value, and other economic aspects of the common stock.
Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted; however, the example below illustrates the effect of dilution to existing stockholders resulting from the sale of common stock at prices below the net asset value of such shares.
Illustration: Example of Dilutive Effect of the Issuance of Shares Below Net Asset Value. Assume that Company XYZ has 1,000,000 total shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The net asset value per share of the common stock of Company XYZ is $10.00. The following table illustrates the reduction to net asset value, or NAV, and the dilution experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a price below its NAV per share.
Reduction to NAV | Prior to Sale Below NAV | Following Sale Below NAV | Percentage Change | ||||||||
Total Shares Outstanding | 1,000,000 | 1,040,000 | 4.0 | % | |||||||
NAV per share | $ | 10.00 | $ | 9.98 | (0.2 | )% | |||||
Dilution to Existing Stockholder | |||||||||||
Shares Held by Stockholder A | 10,000 | 10,000 | — | % | |||||||
Percentage Held by Stockholder A | 1.00 | % | 0.96 | % | (3.8 | )% | |||||
Total Interest of Stockholder A in NAV | $ | 100,000 | $ | 99,808 | (0.2 | )% | |||||
RISKS RELATING TO OUR NOTES DUE 2022
The 7.5% notes due 2022 (the “Notes”) are unsecured and therefore are effectively subordinated to any secured indebtedness we have outstanding or may incur in the future.
In September 2015, we issued $8,324,000, including the underwriter's partial exercise of their over-allotment option, in aggregate principal amount of the Notes. The Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have outstanding or may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security). In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the existing or future secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes.
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The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of the Company and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Notes.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors) and holders of preferred stock, if any, of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.
The indenture under which the Notes were issued contains limited protection for holders of the Notes.
The indenture under which the Notes were issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes do not place any restrictions on our or our subsidiaries’ ability to:
• | issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings; |
• | pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, giving effect to (i) any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain the BDC’s status as a RIC under Subchapter M of the Code (these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase); |
• | sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
• | enter into transactions with affiliates; |
• | create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
• | make investments; or |
• | create restrictions on the payment of dividends or other amounts to us from our subsidiaries. |
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In addition, the indenture does not require us to offer to purchase the Notes in connection with a change of control, asset sale or any other event.
Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.
The trading market or market value of our publicly traded debt securities may fluctuate
The Notes are a new issue of debt securities listed on the NASDAQ Global Market under the symbol “NEWTZ.” Although the Notes are listed on NASDAQ, we cannot assure you that a trading market for our publicly issued debt securities will be maintained. In addition to our creditworthiness, many factors may materially adversely affect the trading market for, and market value of, our publicly issued debt securities. These factors include, but are not limited to, the following:
• | the time remaining to the maturity of these debt instruments; |
• | the outstanding principal amount of debt securities with terms identical to these debt securities; |
• | the ratings assigned by the national statistical rating agencies; |
• | the general economic environment; |
• | the supply of debt securities trading in the secondary market, if any; |
• | the level, direction and volatility of market interest rates generally; and |
• | market rates of interest higher or lower than rates borne by the debt securities. |
You should be aware that there may be a limited number of buyers when you decide to sell your securities. This too may materially adversely affect the market value of the debt securities of the trading market for the debt securities.
If we default on our obligations to pay other indebtedness that we may incur in the future, we may not be able to make payments on the Notes.
In the future, we may enter into agreements to incur additional indebtedness, including a secured credit facility. A default under such agreements to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on such future additional indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing such future additional indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders of other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt. Because any future credit facilities likely will have customary cross-default provisions, if the indebtedness under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.
We may choose to redeem the Notes when prevailing interest rates are relatively low.
On or after September 23, 2018, we may choose to redeem the Notes from time to time, especially when prevailing interest rates are lower than the interest rate on the Notes. If prevailing rates are lower at the time of redemption, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes
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being redeemed. Our redemption right also may adversely impact your ability to sell the Notes as the optional redemption date or period approaches.
Pending legislation may allow us to incur additional leverage.
As a BDC, under the 1940 Act we generally are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). If legislation previously introduced in the U.S. House of Representatives is passed, or similar legislation is introduced, it would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us may increase.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
We conduct our principal business activities in facilities leased from unrelated parties at market rates. Our headquarters are located in New York, New York. Our operating subsidiaries have properties which are material to the conduct of their business as noted below. In addition, our Capcos maintain offices in each of the states in which they operate.
Below is a list of our leased offices and space as of December 31, 2015 which are material to the conduct of our business:
Location | Lease expiration | Purpose | Approximate square feet | ||||
212 West 35th Street New York, NY 10001 | October 2017 | Principal executive offices | 5,700 | ||||
4 Park Plaza Irvine, CA 92614 | March 2018 | NSBF office - lending operations | 3,300 | ||||
1981 Marcus Avenue Lake Success, NY 11042 | January 2027 | Newtek Business Services, NSBF, accounting, sales and human resources, NY Capco offices and portfolio companies offices | 36,000 | ||||
60 Hempstead Avenue West Hempstead, NY 11552 | April 2019 | Newtek Business Services, NSBF, accounting, sales and human resources and NY Capco offices | 22,000 | ||||
5901 Broken Sound Parkway NW Boca Raton, FL 33487 | August 2018 | NSBF lending operations | 3,800 | ||||
We believe that our leased facilities are adequate to meet our current needs and that additional facilities are available to meet our development and expansion needs in existing and projected target markets.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company and its wholly owned portfolio companies may from time to time be party to lawsuits and claims. The Company evaluates such matters on a case by case basis and its policy is to contest vigorously any claims it believes are without compelling merit. The Company is not currently involved in any litigation matters. For legal proceedings involving controlled portfolio companies, refer to “Risk Factors - Legal Proceedings - Portfolio Companies.”
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Price Range of Common Stock
Our common stock is traded on the NASDAQ Capital Market under the symbol “NEWT.” High and low prices for the common stock over the previous two years are set forth below, based on the highest and lowest intraday sales price per share during that period (adjusted for the 1-for-5 Reverse Stock Split).
Price Range | |||||||||||||||||
High | Low | NAV (1) | Premium (Discount) of High Sales price to NAV(2) | Premium (Discount) of Low Sales price to NAV(2) | |||||||||||||
2014 | |||||||||||||||||
First Quarter | $ | 17.15 | $ | 13.70 | $ | 11.07 | 55 | % | 24 | % | |||||||
Second Quarter | $ | 14.50 | $ | 12.55 | $ | 11.31 | 28 | % | 11 | % | |||||||
Third Quarter | $ | 14.70 | $ | 11.30 | $ | 10.91 | 35 | % | 4 | % | |||||||
Fourth Quarter | $ | 15.75 | $ | 12.61 | $ | 16.31 | (3 | )% | (23 | )% | |||||||
2015 | |||||||||||||||||
First Quarter | $ | 19.95 | $ | 14.06 | $ | 16.61 | 20 | % | (15 | )% | |||||||
Second Quarter | $ | 18.85 | $ | 16.42 | $ | 16.62 | 13 | % | (1 | )% | |||||||
Third Quarter | $ | 19.82 | $ | 14.66 | $ | 16.88 | 17 | % | (13 | )% | |||||||
Fourth Quarter | $ | 19.18 | $ | 12.80 | $ | 14.06 | 36 | % | (9 | )% | |||||||
(1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sales price. The values reflect stockholder's equity or net asset value per share, as applicable, and are based on outstanding shares at the end of each period.
(2) Calculated as the respective high or low sales price less net asset value or stockholders equity per share, as applicable, divided by net asset value or stockholders equity per share, as applicable.
The last reported price for our common stock on March 11, 2016 was $12.82 per share. As of March 11, 2016 there were approximately 125 stockholders of record.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value will decrease.
Sales of Unregistered Securities
During the year ended December 31, 2015, in connection with the investment in Premier Payments LLC, we issued 130,959 restricted common shares of the Company to Jeffrey Rubin, a related party, in a private transaction as a portion of the consideration.
We did not engage in any sales of unregistered securities during the years ended December 31, 2014 or 2013.
Distributions
We have not declared or paid regular quarterly dividends prior to 2015, in view of our focus on retaining earnings for growth.
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Beginning in the first quarter of 2015, and to the extent that we have income available, we intend to continue to make quarterly distributions to our stockholders out of assets legally available for distribution. Our quarterly distributions, if any, will be determined by our Board.
Any distribution to our stockholders are to be declared out of assets legally available for distribution. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of a stockholder's basis in our stock and, assuming that a stockholder holds our stock as a capital asset, thereafter as a capital gain. Generally, a non-taxable return of capital will reduce a stockholder’s basis in our stock for federal tax purposes, which will result in higher tax liability when the stock is sold.
We intend to elect to be treated, and intend to qualify annually thereafter, as a RIC under the Code, beginning with the 2015 tax year. To obtain and maintain RIC tax treatment, we must distribute at least 90% of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses, if any, to our stockholders. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of: (a) 98% of our net ordinary income for such calendar year; (b) 98.2% of our capital gain net income for the one-year period ending on October 31 of the calendar year; and (c) any net ordinary income and capital gain net income for preceding years that were not distributed during such years and on which we previously paid no U.S. federal income tax.
We currently intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment and elect to treat such gains as deemed distributions to you. If this happens, stockholders will be treated for U.S. federal income tax purposes as if they had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, stockholders would be eligible to claim a tax credit (or in certain circumstances a tax refund) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. We cannot assure stockholders that we will achieve results that will permit us to pay any cash distributions, and if we issue senior securities, we may be prohibited from making distributions if doing so would cause us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if such distributions are limited by the terms of any of our borrowings.
Unless stockholders elect to receive distributions in cash, we intend to make such distributions in additional shares of our common stock under our dividend reinvestment plan. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, investors participating in the dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.
The following table summarizes the Company's dividend declarations and distributions during the year ended December 31, 2015. There were no dividend declarations or distributions for the year ended December 31, 2014.
Declaration Date | Payment Date | Distribution Declared | ||||
March 30, 2015 | April 13, 2015 | $ | 0.39 | |||
June 15, 2015 | July 15, 2015 | $ | 0.47 | |||
October 1, 2015 | November 3, 2015 | $ | 0.50 | |||
October 1, 2015 (1) | December 31, 2015 | $ | 2.69 | |||
December 16, 2015 | January 7, 2016 | $ | 0.40 | |||
(1) The Special dividend was declared as a result of the Company’s intention to elect RIC status for tax year 2015 and represents the distribution of 100% of the Company's accumulated earnings and profits through December 31, 2014. Pursuant to applicable Treasury Regulation and IRS guidance, the dividend was payable up to 27% in cash and at least 73% in newly issued shares of our common stock.
Securities authorized for issuance under equity compensation plans as of December 31, 2015:
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Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
Equity compensation plans approved by security holders | None | None | 3,000,000 shares | |||
Equity compensation plans not approved by security holders | None | None | None | |||
Stock Performance Graph
The following graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index and the NASDAQ Composite Index, for the period from December 31, 2010 through December 31, 2015. The graph assumes that, on January 1, 2011, a person invested $100 in each of our common stock, the S&P 500 Index, and the NASDAQ Financial Services Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected statements of operations and balance sheet data have been derived from the audited financial statements for each of the five years ended December 31, 2015. The Consolidated Financial Statements for the year ended December 31, 2015, the period from November 12, 2014 to December 31, 2014, the period from January 1, 2014 to November 11, 2014 and the year ended December 31, 2013 have been audited by RSM US LLP. The Consolidated Financial Statements for the two years ended December 31, 2012 (not separately presented herein) have been audited by CohnReznick LLP. The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements, including the Notes thereto, available at www.sec.gov.
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As a Business Development Company | Prior to becoming a Business Development Company | |||||||||||||||||||||||
2015 | November 12, 2014 to December 31, 2014 | January 1, 2014 to November 11, 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||
Investment income | $ | 26,070 | $ | 1,976 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Operating revenues | — | — | 131,847 | 143,593 | 131,130 | 125,339 | ||||||||||||||||||
Expenses | 32,255 | 4,305 | 121,036 | 131,319 | 120,570 | 117,687 | ||||||||||||||||||
Net investment loss | (6,185 | ) | (2,523 | ) | — | — | — | — | ||||||||||||||||
Net increase in net assets | 35,736 | 681 | — | — | — | — | ||||||||||||||||||
Net income | — | — | 3,208 | 7,151 | 5,557 | 3,223 | ||||||||||||||||||
Net realized and unrealized gains (losses) | 41,921 | 3,204 | (3,668 | ) | (1,205 | ) | (1,121 | ) | (5,624 | ) | ||||||||||||||
Per Share Data: | ||||||||||||||||||||||||
Net investment loss | $ | (0.57 | ) | $ | (0.33 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||
Net increase in net assets | $ | 3.32 | $ | 0.09 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Basic earnings per share | $ | — | $ | — | $ | 0.45 | $ | 1.07 | $ | 0.79 | $ | 0.47 | ||||||||||||
Diluted earnings per share | $ | — | $ | — | $ | 0.45 | $ | 0.99 | $ | 0.77 | $ | 0.46 | ||||||||||||
Dividends declared | $ | 4.45 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Balance Sheet Data (at end of period): | ||||||||||||||||||||||||
Investments, at fair value | $ | 266,874 | $ | 233,462 | N/A | $ | 83,685 | $ | 43,951 | $ | 24,055 | |||||||||||||
Total assets | $ | 355,485 | $ | 301,832 | N/A | $ | 198,612 | $ | 152,742 | $ | 129,795 | |||||||||||||
Total debt | $ | 134,816 | $ | 122,543 | N/A | $ | 101,358 | $ | 61,862 | $ | 39,933 | |||||||||||||
Total liabilities | $ | 151,536 | $ | 135,414 | N/A | $ | 121,603 | $ | 83,840 | $ | 70,642 | |||||||||||||
Net assets/stockholders' equity | $ | 203,949 | $ | 166,418 | N/A | $ | 77,009 | $ | 68,902 | $ | 59,153 | |||||||||||||
Common shares outstanding at end of period | 14,509 | 10,206 | N/A | 7,077 | 7,036 | 7,140 | ||||||||||||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introduction and Certain Cautionary Statements
The following discussion and analysis of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiaries. This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes.
The statements in this Annual Report may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative developments and similar matters. We note that a variety of factors could cause our actual results to differ materially from the anticipated results expressed in the forward looking statements such as intensified competition and/or operating problems in its operating business projects and their impact on revenues and profit margins or additional factors as described under “Risk Factors” above.
The discussion and analysis of our results of operations for 2014 are discussed on a "pro forma" basis. As previously discussed, the Company completed its conversion to a BDC on November 12, 2014. As a result the Company will no longer have six reportable segments. Previously consolidated subsidiaries are now recorded as controlled portfolio companies for which the company records its investment at fair value. For purposes of the 2014 discussion and analysis below, the financial information is presented as if the conversion to a BDC had not occurred. We believe this provides the most useful comparison of our year over year results.
Executive Overview
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We are a leading national lender and own and control certain portfolio companies (our “controlled portfolio companies,” as defined below) that provide a wide range of business and financial products to SMBs. In particular, we and our controlled portfolio companies provide comprehensive lending, payment processing, managed technology, personal and commercial insurance and payroll solutions to over 100,000 SMB accounts, across all industries. We have an established and reliable platform that is not limited by client size, industry type or location. As a result, we have a strong and diversified client base across every state in the U.S and across a variety of different industries. In addition, we have developed a financial and technology based business model that enables us and our controlled portfolio companies to acquire and process our SMB clients in a very cost effective manner. This capability is supported in large part by NewTracker®, our patented prospect management technology software, which is similar to but better than the system popularized by Salesforce.com. We believe that this technology and business model distinguishes us from our competitors.
NSBF has been granted PLP status and originates, sells and services small business loans and is authorized to place SBA guarantees on loans without seeking prior SBA review and approval. Being a national lender, PLP status allows NSBF to expedite loans since NSBF is not required to present applications to the SBA for concurrent review and approval. The loss of PLP status could adversely impact our marketing efforts and ultimately loan origination volume which could negatively impact our results of operations.
We are an internally-managed, closed-end, investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes, we intend to elect to be treated as a RIC under the Code beginning in the 2015 tax year. As a BDC and a RIC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code. We converted to a BDC in November 2014. As a result, previously consolidated subsidiaries are now recorded as investments in controlled portfolio companies, at fair value. Newtek Small Business Finance, LLC is a consolidated subsidiary and originates loans under the SBA's 7(a) program.
Our shares are currently listed on The NASDAQ Global Market under the symbol “NEWT”.
We target our debt investments, which are principally made through our small business finance platform under the SBA 7(a) program, to produce a coupon rate of prime plus 2.75% which enables us to generate rapid sales of loans in the secondary market. We typically structure our debt investments with the maximum seniority and collateral along with personal guarantees from portfolio company owners, in many cases collateralized by other assets including real estate. In most cases, our debt investment will be collateralized by a first lien on the assets of the portfolio company and a first or second lien on assets of guarantors, in both cases primarily real estate. All SBA loans are made with personal guarantees from any owner(s) of 20% or more of the portfolio company’s equity.
We typically structure our debt investments to include non-financial covenants that seek to minimize our risk of capital loss such as lien protection and prohibitions against change of control. Our debt investments have strong protections, including default penalties, information rights and, in some cases, board observation rights and affirmative, negative and financial covenants. Debt investments in portfolio companies, including the controlled portfolio companies, have historically and are expected to continue to comprise the majority of our overall investments in number and dollar volume.
While the vast majority of our investments have been structured as debt, we have in the past and expect in the future to make selective equity investments primarily as either strategic investments to enhance the integrated operating platform or, to a lesser degree, under the Capco programs. For investments in our controlled portfolio companies, we focus more on tailoring them to the long term growth needs of the companies than to immediate return. Our objectives with these companies is to foster the development of the businesses as a part of the integrated operational platform of serving the SMB market, so we may reduce the burden on these companies to enable them to grow faster than they would otherwise and as another means of supporting their development.
On July 23, 2015, we acquired 100% of Premier which was owned 100% by Jeffrey Rubin, former President of Newtek. The total purchase price was approximately $16,483,000, of which $14,011,000 was paid in cash and $2,472,000 was paid in newly issued restricted shares of our common stock. A total of 130,959 shares were issued on the date of acquisition which may not be sold or transferred for six months from the acquisition date. The Board, including a majority of independent directors, approved the purchase.
Special Dividend
On October 1, 2015, we declared a one-time special dividend of approximately $34,055,000 payable on December 31, 2015 to stockholders of record as of November 18, 2015. This special dividend was declared as a result of our intention to elect RIC status for tax year 2015, as we must distribute 100% of our accumulated earnings and profits through December 31, 2014 in
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order to qualify as a RIC. The special dividend amount of approximately $34,055,000 was computed based on an earnings and profits analysis completed through December 31, 2014.
The dividend was paid in cash and shares of our common stock at the election of each stockholder. The total amount of cash distributed to all stockholders was limited to 27% or $9,195,000 of the total dividend . The remainder of the dividend was paid in the form of shares of our common stock. As a result approximately 1,844,000 shares of our common shares were issued.
In May 2015, Exponential of New York, LLC received notice from the State of New York that the Company's request to be decertified as a Capco had been granted. The State of New York acknowledged that the Company had met the required level of qualified investments and satisfied all investment obligations.
In June 2015, Wilshire Texas Partners I, LLC received notice from the State of Texas that the Company's request to be decertified as a Capco had been granted. The State of Texas acknowledged that the Company had met the required level of qualified investments and satisfied all investment obligations.
Revenues
We generate revenue in the form of interest, dividend, servicing and other fee income on debt and equity investments. Our debt investments typically have a term of 10 to 25 years and bear interest at prime plus a margin. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We receive servicing income related to the guaranteed portions of SBA investments which we sell into the secondary market. These recurring fees are earned daily and recorded when earned. In addition, we may generate revenue in the form of packaging, prepayment, legal and late fees. We record such fees related to loans as other income. Dividends are recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income is recorded at the time dividends are declared. Distributions of earnings from a portfolio companies are evaluated to determine if the distribution is income, return of capital or realized gain.
We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments and assets that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments or servicing assets, as appropriate, in the consolidated statements of operations.
Expenses
Our primary operating expenses are salaries and benefits, interest expense and other general and administrative fees, such as professional fees, marketing, loan related costs and rent. Since we are an internally-managed BDC with no outside adviser or management company, the BDC incurs all the related costs to operate the Company.
Loan Portfolio Asset Quality and Composition
The following table sets forth distribution by business type of the Company’s SBA 7(a) unguaranteed loan portfolio at December 31, 2015 (in thousands):
Distribution by Business Type | ||||||||||||||
Business Type | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Existing Business | 679 | $ | 130,692 | $ | 192 | 78.4 | % | |||||||
Business Acquisition | 144 | 26,763 | 186 | 16.0 | % | |||||||||
Start-Up Business | 125 | 9,297 | 74 | 5.6 | % | |||||||||
Total | 948 | $ | 166,752 | $ | 176 | 100.0 | % | |||||||
The following table sets forth distribution by borrower’s credit score of the Company’s SBA 7(a) unguaranteed loan portfolio at December 31, 2015 (in thousands):
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Distribution by Borrower Credit Score | ||||||||||||||
Credit Score | # of Loans | Aggregate Balance | Average Balance | % of Balance | ||||||||||
500 to 550 | 12 | $ | 1,085 | $ | 90 | 0.6 | % | |||||||
551 to 600 | 32 | 4,957 | 155 | 3.0 | % | |||||||||
601 to 650 | 113 | 22,597 | 200 | 13.6 | % | |||||||||
651 to 700 | 262 | 41,901 | 160 | 25.1 | % | |||||||||
701 to 750 | 291 | 57,101 | 196 | 34.2 | % | |||||||||
751 to 800 | 198 | 31,870 | 161 | 19.1 | % | |||||||||
801 to 850 | 34 | 4,942 | 145 | 3.0 | % | |||||||||
Not available | 6 | 2,299 | 383 | 1.4 | % | |||||||||
Total | 948 | $ | 166,752 | $ | 176 | 100.0 | % | |||||||
The following table sets forth distribution by primary collateral type of the Company’s SBA 7(a) unguaranteed loan portfolio at December 31, 2015 (in thousands):
Distribution by Primary Collateral Type | ||||||||||||||
Collateral Type | # of Loans | Aggregate Balance | Average Balance | % of Balance | ||||||||||
Commercial Real Estate | 444 | $ | 94,013 | $ | 212 | 56.5 | % | |||||||
Machinery and Equipment | 173 | 32,423 | 187 | 19.4 | % | |||||||||
Residential Real Estate | 197 | 15,545 | 79 | 9.3 | % | |||||||||
Other | 40 | 11,284 | 282 | 6.8 | % | |||||||||
Accounts Receivable and Inventory | 66 | 12,583 | 191 | 7.5 | % | |||||||||
Liquid Assets | 12 | 451 | 38 | 0.3 | % | |||||||||
Unsecured | 9 | 240 | 27 | 0.1 | % | |||||||||
Furniture and Fixtures | 7 | 213 | 30 | 0.1 | % | |||||||||
Total | 948 | $ | 166,752 | $ | 176 | 100.0 | % | |||||||
The following table sets forth distribution by days delinquent of the Company’s SBA 7(a) unguaranteed loan portfolio at December 31, 2015 (in thousands):
Distribution by Days Delinquent | ||||||||||||||
Delinquency Status | # of Loans | Aggregate Balance | Average Balance | % of Balance | ||||||||||
Current | 856 | $ | 151,950 | $ | 178 | 91.2 | % | |||||||
1 to 30 days | 23 | 3,525 | 153 | 2.1 | % | |||||||||
31 to 60 days | 10 | 2,190 | 219 | 1.3 | % | |||||||||
61 to 90 days | — | — | — | — | % | |||||||||
91 days or greater | 59 | 9,087 | 154 | 5.4 | % | |||||||||
Total | 948 | $ | 166,752 | $ | 176 | 100.0 | % | |||||||
Consolidated Results of Operations - Year Ended December 31, 2015 Compared to 2014
The discussion of consolidated results of operations below compare the year ended December 31, 2015 to the period November 12, 2014 to December 31, 2014 (as a BDC) and the period ended November 11, 2014 (prior to the BDC Conversion). Where applicable, we have combined the two periods ended December 31, 2014 for comparison to the year ended December 31, 2015 as we believe this provides the most useful comparison of our year over year results.
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Investment Income
Investment income for the year ended December 31, 2015 was $26,070,000 compared with total investment income of $1,976,000 for the period November 12, 2014 to December 31, 2014 and operating revenues of $131,847,000 for the period ended November 11, 2014. As a result of the BDC Conversion, there is no electronic payment processing revenue, web hosting and design revenue, servicing fee income from external portfolios, insurance commission revenue, and other income related to our payroll processing and accounts receivable financing and billing services included in the results for the year ended December 31, 2015.
Interest Income
Substantially all interest income for the year ended December 31, 2015 and combined periods ended December 31, 2014 was derived from SBA non-affiliate investments/loans. Interest income derived from SBA non-affiliate investments was $8,879,000 and $6,651,000 for the year ended December 31, 2015 and combined periods ended December 31, 2014, respectively. The increase in interest income is attributable to the average outstanding performing portfolio of SBA non-affiliate investments/loans increasing to $136,964,000 from $104,540,000 for the year ended December 31, 2015 and combined periods ended December 31, 2014, respectively. The increase in the average outstanding performing portfolio resulted from the origination of new SBA non-affiliate investments period over period.
NSBF Servicing Portfolio and Related Servicing Income
The following table represents NSBF originated servicing portfolio and servicing income earned for the year ended December 31, 2015 and combined periods ended December 31, 2014:
Year ended December 31, | Combined periods ended December 31, | |||||||||||||
(In thousands): | 2015 | 2014 | $ Change | % Change | ||||||||||
Total NSBF originated servicing portfolio (1) | $ | 768,588 | $ | 631,285 | $ | 137,303 | 22 | % | ||||||
Total servicing income earned | $ | 4,611 | $ | 3,673 | $ | 938 | 26 | % | ||||||
(1) Of this amount, the total average NSBF originated portfolio earning servicing income was $520,794,000 and $421,001,000 for the year ended December 31, 2015 and for the combined periods ended December 31, 2014, respectively.
Servicing fee income from the NSBF originated portfolio increased by $938,000 for the year ended December 31, 2015 compared to the combined periods ended December 31, 2014. The increase was attributable to the increase in total portfolio investments for which we earn servicing income. The portfolio increased $137,303,000 period over period. The increase was a direct result of increased investments in SBA non-affiliate investments from 2014 to 2015. There was no servicing fee income recognized for loans serviced for third parties for the year ended December 31, 2015. This third party servicing revenue, which was previously included in consolidated results, is recognized and earned by one of the Company's controlled portfolio companies, SBL. Total third party servicing fee income earned for the period ended November 11, 2014 was $6,142,000.
Dividend Income
Dividend income earned during the year ended December 31, 2015 was $10,218,000 and was earned from the following portfolio companies:
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Portfolio Company (in thousands) | Year ended December 31, 2015 | |||
Universal Processing Services of Wisconsin, LLC | $ | 6,590 | ||
CrystalTech Web Hosting, Inc. | 308 | |||
Small Business Lending, Inc. | 348 | |||
Premier Payments LLC | 600 | |||
Exponential Business Development Co., Inc. | 1,080 | |||
Secure Cybergateway Services, LLC | 52 | |||
First Bankcard Alliance of Alabama, LLC | 78 | |||
Summit Systems and Design, LLC | 1,162 | |||
Total Dividends | $ | 10,218 | ||
No dividend income was earned during the combined periods ended December 31, 2014.
Other Income
Other income of $2,040,000 for the year ended December 31, 2015 relates primarily to legal, packaging, prepayment, and late fees earned from SBA loans. Other income is not comparable period over period as 2014 amounts include revenue from certain controlled portfolio companies which were consolidated subsidiaries through November 11, 2014.
Adjusted Net Investment Income
We utilize adjusted net investment income as a measure of our current and future financial performance. Adjusted net investment income is a non-GAAP financial measure and is not intended as an alternative measure of investment income as determined in accordance with GAAP. In addition, our calculation of adjusted net investment income is not necessarily comparable to similar measures as calculated by other companies that do not use the same definition or implementation guidelines. The table below reconciles net investment loss to adjusted net investment income.
(in thousands) | Year ended December 31, 2015 | Period November 12, 2014 to December 31, 2014 | |||||
Net investment loss | $ | (6,185 | ) | $ | (2,523 | ) | |
Net realized gain on non-affiliate debt investments | 28,386 | 595 | |||||
Adjusted net investment income (loss) | $ | 22,201 | $ | (1,928 | ) | ||
For the period ended November 11, 2014, the Company did not operate as a BDC and therefore did not have net investment or adjusted net investment income. We believe this is a useful measure as it depicts the current income generated from our investment activities during the period. We include net realized gains on debt investments because they are recurring income related to the sale of SBA guaranteed non-affiliate investments in the secondary market.
Expenses
Total expenses decreased from $125,341,000 to $32,255,000 for the combined periods ended December 31, 2014 to the year ended December 31, 2015 as a result of the conversion to a BDC in November 2014. Electronic payment processing costs, salaries and benefits, depreciation and amortization, and other general and administrative expenses related to certain subsidiaries in 2014 are not included in 2015 results. As previously discussed, certain consolidated subsidiaries in 2014 are now reflected as investments in controlled portfolio companies and their results of operations are not included in 2015.
Interest Expense
Interest expense decreased by $1,412,000 for the year ended December 31, 2015 compared to the combined periods ended December 31, 2014. The following table highlights the components of interest expense for each period:
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(in thousands) | Year ended December 31, 2015 | Combined periods ended December 31, 2014 | Change | ||||||||
Securitization trust VIE (NSBF) | $ | 3,810 | $ | 3,081 | $ | 729 | |||||
Summit Partners Credit Advisors, L.P. (NBS) | — | 2,991 | (2,991 | ) | |||||||
Capital One lines of credit (NSBF) | 1,166 | 1,072 | 94 | ||||||||
Capital One term loan and line of credit (NBS) | 565 | 371 | 194 | ||||||||
Notes due 2022 | 192 | — | 192 | ||||||||
Related party note | 621 | — | 621 | ||||||||
Sterling line of credit (NBC) | — | 292 | (292 | ) | |||||||
Other | 125 | 84 | 41 | ||||||||
Total interest expense | $ | 6,479 | $ | 7,891 | $ | (1,412 | ) | ||||
Interest expense related to securitizations increased as a result of additional securitization transactions completed in December 2014 and September 2015. In June 2014, the Company entered into a four year $20,000,000 credit agreement with Capital One, consisting of a $10,000,000 term loan and a revolving line of credit of up to $10,000,000. The term loan was obtained to pay off the Summit Partners debt which carried a higher interest rate. The net reduction in interest expense was $2,797,000. In June 2015, the Company received $19,119,000 under an unsecured revolving line of credit extended by UPS and NTS and incurred $621,000 in interest expense for the year ended December 31, 2015. In addition, $192,000 of interest expense was incurred on the Notes Due 2022. For the year ended December 31, 2015, the Company did not incur interest expense related to the Sterling line of credit as it relates to Newtek Business Credit, a controlled portfolio company. Prior to the BDC Conversion, Newtek Business Credit was a consolidated subsidiary.
Net Realized Gains and Net Unrealized Appreciation and Depreciation
Net realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized and includes investments charged off during the period, net of recoveries. Realized gains for the year ended December 31, 2015 were approximately $35,047,000 offset by approximately $1,189,000 of realized losses. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Net Realized Gains on SBA Non-Affiliate Investments
Year ended December 31, 2015 | Combined periods ended December 31, 2014 | ||||||||||||
(In thousands) | # of Debt Investments | $ Amount | # of Debt Investments | $ Amount | |||||||||
SBA non-affiliate investments originated | 292 | $ | 242,496 | 193 | $ | 202,269 | |||||||
SBA guaranteed non-affiliate investments sold | 304 | $ | 211,089 | 163 | $ | 130,356 | |||||||
Realized gains recognized on sale of SBA guaranteed non-affiliate investments | — | $ | 29,575 | — | $ | 869 | |||||||
Premium income recognized | — | $ | — | — | $ | 18,623 | |||||||
Average sale price as a percent of principal balance (1) | — | 111.72 | % | — | 112.49 | % | |||||||
(1) Realized gains/premiums greater than 110.00% must be split 50/50 with the SBA in accordance with SBA regulations. The realized gains/premium income recognized above reflects amounts net of split with SBA.
Realized gains from the sale of SBA non-affiliate investments for the year ended December 31, 2015 were $29,575,000 compared to $869,000 for the period November 12, 2014 to December 31, 2014. Premium income for the period ended November 11, 2014 was $18,623,000. Realized gains are comparable to premium income. Premium income relates to income earned from the sale of SBA loans. Subsequent to the BDC Conversion, the income related to these sales are recorded as realized gains. The increase is attributed to the increase in SBA investments sold which was partially offset by a decrease in
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the average sale premium from 112.49% for the combined periods ended December 31, 2014 to 111.72% for the year ended December 31, 2015.
Net Realized Gains on Controlled Investments
For the year ended December 31, 2015, realized gains on controlled investments were $5,473,000 and represent distributions in excess of our cost basis from controlled affiliates. Included in the $5,473,000 is a distribution in excess of basis from UPS of approximately $4,892,000 and approximately $572,000 in a distribution in excess of basis from First Bankcard Alliance of Alabama, LLC.
Net Unrealized Appreciation (Depreciation) on Investments
Unrealized appreciation on SBA guaranteed non-affiliate investments for the year ended December 31, 2015 was $7,395,000. This appreciation relates to guaranteed portions of SBA investments made for which we sold into a secondary market. Unrealized depreciation of SBA guaranteed investments was $10,610,000 which represents the reversal of the unrealized appreciation of SBA guaranteed non-affiliate investments sold during the year. Net unrealized appreciation on SBA unguaranteed non-affiliate investments resulted from fair value adjustments on new investments.
Net unrealized appreciation on controlled investments was $12,250,000 for the year ended December 31, 2015. This consisted primarily of $6,948,000 of unrealized appreciation on our investment in UPS and $5,565,000 of unrealized appreciation on our investment in SBL which were offset by unrealized depreciation of approximately $966,000 on our investment in NBC. The primary driver of the increase in UPS was better than projected financial performance and an increase in multiples of comparable companies. The primary driver for the increase in SBL was the addition of a new third party servicing contract which provides a longer-term stable revenue stream.
Provision for Deferred Taxes on Unrealized Appreciation on Investments
Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the years ended December 31, 2015 and 2014, the Company recognized a provision for deferred tax on unrealized gains of $857,000 and $0 for consolidated subsidiaries, respectively.
Net Unrealized Depreciation on Servicing Assets
The unrealized depreciation on servicing assets was $1,268,000 and $120,000 for the year ended December 31, 2015 and the period November 12, 2014 to December 31, 2014, respectively. Until November 11, 2014, servicing assets were recorded using the amortization method. As a result of the BDC Conversion, servicing assets are recorded at fair value at December 31, 2015. Amortization expense related to servicing assets was $1,366,000 for the period ended November 11, 2014 and is included in depreciation and amortization expense in the consolidated statements of operations.
Pro-Forma Results of Operations - Year Ended December 31, 2014
The discussion and analysis of our results of operations for 2014 are discussed on a "pro forma" basis. As previously discussed, the Company completed its conversion to a BDC on November 12, 2014. As a result, the Company will no longer have six reportable segments. Previously consolidated subsidiaries are now recorded as controlled portfolio companies for which the company records its investment at fair value. For purposes of the 2014 discussion and analysis below, the financial information is presented as if the conversion to a BDC had not occurred. We believe this provides the most useful comparison of our year over year results.
Business Segment Results for 2014
The results of the Company’s reportable business segments presented for the full year on a pro forma basis are discussed below.
The tables below are presented to distinguish operating results for January 1, 2014 through November 11, 2014 (prior to BDC Conversion) and the period from November 12, 2014 to December 31, 2014 (post BDC Conversion). The combined results for 2014 are presented under the column "Pro Forma 2014 (Unaudited)" and represent the full year results for the segment. We believe this presentation provides the most useful comparison of our year over year results.
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Electronic Payment Processing (EPP)
(In thousands): | Pro Forma 2014 (Unaudited) | For the period November 12, 2014 through December 31, 2014 (Unaudited) | For the period January 1, 2014 through November 11, 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
Electronic payment processing | $ | 91,158 | $ | 11,631 | $ | 79,527 | $ | 89,651 | |||||||
Interest income | 2 | — | 2 | 4 | |||||||||||
Total revenue | 91,160 | 11,631 | 79,529 | 89,655 | |||||||||||
Expenses: | |||||||||||||||
Electronic payment processing costs | 76,620 | 9,659 | 66,961 | 75,761 | |||||||||||
Salaries and benefits | 4,001 | 536 | 3,465 | 3,485 | |||||||||||
Professional fees | 2,377 | 1,919 | 458 | 458 | |||||||||||
Depreciation and amortization | 261 | 35 | 226 | 358 | |||||||||||
Insurance expense – related party | 56 | 6 | 50 | 57 | |||||||||||
Other general and administrative costs | 1,117 | 114 | 1,003 | 1,232 | |||||||||||
Total expenses | 84,432 | 12,269 | 72,163 | 81,351 | |||||||||||
Income before income taxes | $ | 6,728 | $ | (638 | ) | $ | 7,366 | $ | 8,304 | ||||||
Comparison of the years ended December 31, 2014 (Pro forma) and December 31, 2013
EPP revenue increased $1,507,000 or 1.7% between years. Revenue increased primarily due to the implementation of a monthly non-compliance fee and annual compliance service fee, increase in discount fee rates to merchants and an increase in processing volume generated by an increase in the average monthly processing volume per merchant of 5.0% between periods. Offsetting this increase was a 3.3% decrease in the number of merchant transactions and a decrease in the average number of processing merchants of 3.5%, between periods. The decrease in merchants includes the expected attrition in previously acquired portfolios.
Processing revenues less electronic payment processing costs (“margin”) increased from 15.5% in 2013 to 15.9% in 2014. The increase in margin was primarily due to the implementation of a monthly non-compliance fee, implementation of an annual compliance service fee and an increase in rates to merchants. This increase was partially offset by an increase in the provision for chargeback losses attributable to a specific merchant that experienced a high level of chargebacks. Overall, the increase in margin dollars was $648,000 between years.
Salaries and benefits increased $516,000 or 14.8% between years. This increase is due to the Company hiring additional senior level staff, which resulted in overall higher salaries, payroll taxes, benefits and stock compensation for the year. Salaries and benefits in the current year also include a severance payment of approximately $120,000 to a former senior executive. Partially offsetting this increase was a reduction in health insurance costs of $48,000 and a $27,000 increase in capitalized salaries as compared to last year. Salary costs related to the development of internally developed software is capitalized and as a result decreases salary expense and increases depreciation and amortization expense over the future service period.
Professional fees increased $1,919,000 or 419.0% between years due to a reserve established in the amount of approximately $1,700,000 related to the FTC matter which is discussed in detail in Item 3. Legal Proceedings. Depreciation and amortization decreased $97,000 between periods as the result of previously acquired customer merchant portfolios becoming fully amortized between periods. Remaining costs decreased $115,000 or 9.3% between years largely due to a decrease in marketing expense of $212,000 as the result of the discontinuation of a marketing cost allocation in early 2014. This decrease was partially offset by an increase of $56,000 in travel expenses and $42,000 in office expense.
Income before income taxes decreased $1,576,000 or 19.0% to $6,728,000 in 2014 from $8,304,000 in 2013. The decrease in income before income taxes was due to the increase in margin of $648,000, offset by a net increase in other operating expense between years principally due to the $1,700,000 FTC reserve in the 2014 period.
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Small Business Finance - Segment Reporting
(In thousands): | Pro Forma 2014 (Unaudited) | For the period November 12, 2014 through December 31, 2014 (Unaudited) | For the period January 1, 2014 through November 11, 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
Premium on loan sales | $ | 19,493 | $ | 870 | $ | 18,623 | $ | 19,456 | |||||||
Servicing fee – NSBF Portfolio | 3,671 | 561 | 3,110 | 2,769 | |||||||||||
Servicing fee – External Portfolio | 6,524 | 382 | 6,142 | 3,796 | |||||||||||
Interest income | 6,729 | 1,079 | 5,650 | 4,802 | |||||||||||
Management fees – related party | 146 | 146 | — | — | |||||||||||
Other income | 3,142 | 241 | 2,901 | 3,289 | |||||||||||
Total revenue | 39,705 | 3,279 | 36,426 | 34,112 | |||||||||||
Net change in fair value of: | |||||||||||||||
Servicing Asset | (120 | ) | (120 | ) | — | — | |||||||||
SBA loans held for sale | 2,872 | 2,950 | (78 | ) | 403 | ||||||||||
SBA loans held for investment | (3,858 | ) | (273 | ) | (3,585 | ) | (1,629 | ) | |||||||
Warrants | — | — | — | — | |||||||||||
Total net change in fair value | (1,106 | ) | 2,557 | (3,663 | ) | (1,226 | ) | ||||||||
Expenses: | |||||||||||||||
Salaries and benefits | 10,101 | 1,486 | 8,615 | 7,649 | |||||||||||
Interest | 5,549 | 611 | 4,938 | 5,568 | |||||||||||
Professional fees | 1,395 | 488 | 907 | 1,011 | |||||||||||
Depreciation and amortization | 1,452 | 12 | 1,440 | 1,241 | |||||||||||
Goodwill impairment | 1,706 | — | 1,706 | — | |||||||||||
Provision for loan loss | (55 | ) | — | (55 | ) | 1,322 | |||||||||
Insurance expense-related party | 32 | — | 32 | 24 | |||||||||||
Other general and administrative costs | 7,251 | 1,161 | 6,090 | 5,928 | |||||||||||
Total expenses | 27,431 | 3,758 | 23,673 | 22,743 | |||||||||||
Income before income taxes | $ | 11,168 | $ | 2,078 | $ | 9,090 | $ | 10,143 | |||||||
Business Overview
The small business finance segment is comprised of NSBF which is a non-bank SBA lender that originates, sells and services loans for its own portfolio as well as portfolios of other institutions, and NBC which provides accounts receivable financing and billing services to businesses. Revenue is derived primarily from premium income generated by the sale of the guaranteed portions of SBA loans, interest income on SBA loans held for investment and held for sale, servicing fee income on the guaranteed portions of SBA loans sold, servicing income for loans originated by other lenders for which NSBF is the servicer, and financing and billing services, classified as other income above, provided by NBC. Most SBA loans originated by NSBF charge an interest rate equal to the Prime rate plus an additional percentage amount; the interest rate resets to the current Prime rate on a monthly or quarterly basis, which will result in changes to the amount of interest accrued for that month and going forward and a re-amortization of a loan’s payment amount until maturity.
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Small Business Finance Summary
For the Year ended December 31, | |||||||||||||
2014 | 2013 | ||||||||||||
(In thousands): | # Loans | $ Amount | # Loans | $ Amount | |||||||||
Guaranteed loans sold/transferred during the period | 163 | $ | 130,356 | 167 | $ | 131,733 | |||||||
Gross loans originated during the period | 193 | $ | 202,269 | 174 | $ | 177,941 | |||||||
Guaranteed loans that achieved sale status, originated in prior period | — | — | — | — | |||||||||
Premium income recognized (1) | — | $ | 19,493 | — | $ | 19,456 | |||||||
Average sale price as a percent of principal balance | 112.49 | % | 112.32 | % | |||||||||
(1) The premium income recognized and average sales price reflect that premiums greater than 110.00% must be split 50/50 with the SBA.
Comparison of the years ended December 31, 2014 (Pro forma) and December 31, 2013
For the year ended December 31, 2014, the Company recognized $19,493,000 of premium income from 163 guaranteed loans sold aggregating $130,356,000. During 2013, the Company recognized $19,456,000 of premium income from 167 guaranteed loans sold totaling $131,733,000. In December 2014, the Company made the decision to hold loans in the second half of the month in anticipation of better pricing in 2015. Had these loans been sold in 2014, they would have generated approximately $3,431,000 of premium income. Sale prices on guaranteed loan sales averaged 112.49% for the twelve months ended December 31, 2014 compared with 112.32% for the twelve months ended December 31, 2013.
Servicing Portfolios and related Servicing fee income of Loans Funded and Average Sales Price
Year ended December 31, | ||||||||||
(In thousands): | 2014 | 2013 | % Change | |||||||
Total NSBF originated servicing portfolio (1) | $ | 631,285 | $ | 488,800 | 29 | % | ||||
Third party servicing portfolio | 122,236 | 561,368 | (78 | )% | ||||||
Aggregate servicing portfolio | $ | 753,521 | $ | 1,050,168 | (28 | )% | ||||
Total servicing income earned NSBF portfolio | $ | 3,671 | $ | 2,769 | 33 | % | ||||
Total servicing income earned external portfolio | $ | 6,524 | $ | 3,796 | 72 | % | ||||
Total servicing income earned | $ | 10,195 | $ | 6,565 | 55 | % | ||||
(1) Of this amount, the total average NSBF originated portfolio earning servicing income was $421,001,000 and $314,486,000, for the years ended December 31, 2014 and 2013, respectively.
SBL is the contractor managing and servicing portfolios of SBA 7(a), USDA and other loans acquired by the FDIC from failed financial institutions, and assists the FDIC in the packaging of these loans for sale. SBL's existing servicing facilities and personnel perform these activities supplemented by contract workers as needed. The size of the portfolio SBL serviced for the FDIC, and thus the revenue earned, has varied over time and depends on the level of bank failures and the needs of the FDIC in managing portfolios acquired from those banks as well as the success of being able to sell such portfolios. In October 2014, the FDIC was successful in selling a significant group of loans with SBL's assistance, which resulted in the reduction in third-party servicing portfolio as of December 31, 2014.
Servicing fees received on the NSBF portfolio increased by $902,000 period over period and was attributable to the expansion of the NSBF portfolio in which we earn servicing income, which increased from an average of $314,486,000 for the twelve month period ending December 31, 2013 to an average of $421,001,000 for the same period in 2014. This increase was the direct result of increased loan originations throughout 2014. Third party servicing income increased by $2,728,000 and was attributable primarily to the increase in FDIC servicing income of $2,806,000 partially offset by a decline in other third party servicing in the amount of $78,000. The average FDIC serviced portfolio increased from $148,600,000 as of December 31, 2013 to $390,618,000 as of December 31, 2014.
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Interest income increased by $1,927,000 for the year ended December 31, 2014 as compared to the same period in 2013 as a result of the average outstanding performing portfolio of SBA loans held for investment increasing from $72,337,000 to $104,540,000 for the years ended December 31, 2013 and 2014, respectively.
Other income decreased by $147,000 for the year ended December 31, 2014 as compared to the same period in 2013. This decrease is mainly attributed to a decrease in NBC receivable income of $518,000 offset by net increases in NSBF and SBL fee related income of $416,000, consulting income of $119,000 and net realized losses on the loan portfolio of $166,000.
The change in the fair value loss of SBA loans held for investment of $2,229,000 is the result of an increase in loans originated held for investment partially offset by a decrease in the valuation adjustment applied to the loans held for investment portfolio. Loans originated held for investment aggregated $48,083,000 compared to $42,773,000 for the periods ended December 31, 2014 and 2013, respectively.
The period over period valuation adjustment of 7.5% remained unchanged from December 31, 2012 to September 30, 2013. As of December 31, 2013, a discounted cash flow methodology was applied resulting in a decrease in the valuation adjustment from 6.01% of total principal as of December 31, 2013, to 5.21% of total principal as of December 31, 2014.
The decrease in the change in fair value on SBA loans held for investment of $778,000 is the result of the increased amount of unguaranteed loans originated year over year, as well as a decrease in the valuation adjustment applied to our loans held for investment portfolio. During 2013, we adopted a discounted cash flow methodology resulting in a decrease in the valuation adjustment applied of 7.5% of total principal as of December 31, 2012, to 6.01% of total principal for the year ended December 31, 2013. Loans originated, held for investment aggregated $42,773,000 compared to $24,076,000 for the years ended December 31, 2013 and 2012, respectively.
The change in the valuation adjustment from 6.01% as of December 31, 2013 to 5.21% on performing loans as of December 31, 2014 is attributable primarily to increases in the weighted average remaining term of the retained loan portfolio from 16.55 years as December 31, 2013 to 16.81 years as of December 31, 2014 and the recovery rate from 65.84% as of December 31, 2013 to 67.45% as of December 31, 2014. The increase in the weighted average remaining term is attributable to an increase in the weighted average term of loans originated period over period, partially offset by normal portfolio amortization and prepayments of principal. The increase in the recovery rate is attributable primarily to the collateral composition of loans originated period over period secured by a greater percentage of real estate as an asset class, which typically yields more robust recovery rates as opposed to depreciable assets. For the periods ended December 31, 2014 and December 31, 2013, approximately 68.96% and 64.21% of the respective performing loan portfolio retained balances were principally secured by real estate.
Salaries and benefits increased by $2,452,000 primarily due to the addition of staff in all departments. Combined headcount increased by 26% from an average of 77 for the year ended December 31, 2013 to an average of 97 for the year ended December 31, 2014.
Interest expense decreased $19,000 for the period ended December 31, 2014 when compared to the year ended December 31, 2013. The execution of securitization transactions in December of 2014 and the end of December 2013 increased interest at NSBF by $970,000 and an additional $184,000 increase resulted from the Capital One line of credit which increased from an average outstanding balance of $16,587,000 for the year ended December 31, 2013 to $22,039,000 for the same period in 2014. These increases were offset by a decrease at NSBF of $1,053,000 due to the payoff of the Summit debt and a decrease of $119,000 at NBC due to a reduction in average outstanding borrowings under the Sterling line from $7,717,000 at December 31, 2013 to $5,482,000 at December 31, 2014.
During 2014, the Company concluded there was an impairment of goodwill at the NBC reporting unit. As such, an impairment charge of $1,706,000 was recorded.
Professional fees for the year ended December 31, 2014 increased by $384,000 when compared with the same period last year, primarily due to an increase in legal fees in connection with securing a line of credit of $404,000 and increased trustee fees of $84,000 for the loan portfolio securitization offset by a reduction in other consulting fees of $96,000.
The provision for loan losses decreased from $1,322,000 for the year ended December 31, 2013 to a net release of $55,000 for the same period in 2014, a decrease of $1,377,000 or 104.2%. In connection with the Company’s conversion to a BDC, and the related requirements to report all investments at fair value, the Company will no longer report loans on a cost basis.
In determining the net change in fair value of loans held for investment for the year ended December 31, 2014, the Company used
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a discounted cash flow model which incorporated a series of expected future cash flows for the performing SBA 7(a) loan portfolio, and discounts those cash flows at a market clearing yield of 5.38%. The key assumptions used in the model are considered unobservable inputs and include anticipated prepayment speeds, cumulative default rates, the cost of loan servicing, and Prime rate expectations. The Company used an assumed prepayment speed of 19% based on current market conditions and historical experience for the loan portfolio, against a prepayment curve developed from NSBF historical experience to calculate expected loan prepayments in a given year. Defaults are defined as any loan placed on non-accrual status as of December 31, 2014. The cumulative default rate, defined as the percent of loan balance that will enter final liquidation in a given year, was estimated to be 25%, and was derived from NSBF historical experience. The mix of NSBF’s loan portfolio continues to shift from start-up businesses, to predominately existing businesses. Our historical default and loss rates demonstrate that this particular segment (i.e. Existing Business) of our SBA loan portfolio continues to experience the lowest rate of defaults and ultimate losses over our twelve year history of originating loans. When computing the cumulative default rate to be applied to the performing portfolio loan balances, the Company excluded the last three years of originations as those loans have not seasoned yet. The discounted cash flow analysis resulted in a price equivalent of 94.80% of the par amount on our performing loans held for investment.
Other general and administrative costs increased by $1,323,000 when compared to the comparable period of the prior year. The increase was mainly attributed to increases in loan origination costs of $339,000, loan recovery and servicing expenses of $623,000 and additional marketing expense of $289,000 in connection with our television ad campaign for the year ended December 31, 2014.
The following tables set forth distribution by business type of the Company’s SBA 7(a) loan portfolio for the years ended December 31, 2014 and December 31, 2013, respectively:
As of December 31, 2014
Distribution by Business Type | ||||||||||||||
Business Type | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Existing Business | 529 | $ | 104,673 | $ | 198 | 79.9 | % | |||||||
Business Acquisition | 112 | 17,969 | 160 | 13.7 | % | |||||||||
Start-Up Business | 127 | 8,383 | 66 | 6.4 | % | |||||||||
Total | 768 | $ | 131,025 | $ | 171 | 100.0 | % | |||||||
As of December 31, 2013
Distribution by Business Type | ||||||||||||||
Business Type | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Existing Business | 451 | $ | 78,674 | $ | 174 | 80.9 | % | |||||||
Business Acquisition | 88 | 11,760 | 134 | 12.1 | % | |||||||||
Start-Up Business | 136 | 6,801 | 50 | 7.0 | % | |||||||||
Total | 675 | $ | 97,235 | $ | 144 | 100.0 | % | |||||||
The following tables set forth distribution by borrower’s credit score of the Company’s SBA 7(a) loan portfolio for the years ended December 31, 2014 and December 31, 2013, respectively
As of December 31, 2014
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Distribution by Borrower Credit Score | ||||||||||||||
Credit Score | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
500 to 550 | 11 | $ | 1,454 | $ | 132 | 1.1 | % | |||||||
551 to 600 | 27 | 3,336 | 124 | 2.5 | % | |||||||||
601 to 650 | 96 | 21,186 | 221 | 16.2 | % | |||||||||
651 to 700 | 201 | 34,324 | 171 | 26.2 | % | |||||||||
701 to 750 | 229 | 40,952 | 179 | 31.3 | % | |||||||||
751 to 800 | 169 | 25,003 | 148 | 19.1 | % | |||||||||
801 to 850 | 29 | 3,676 | 127 | 2.8 | % | |||||||||
Not available | 6 | 1,094 | 182 | 0.8 | % | |||||||||
Total | 768 | $ | 131,025 | $ | 171 | 100.0 | % | |||||||
As of December 31, 2013
Distribution by Borrower Credit Score | ||||||||||||||
Credit Score | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
500 to 550 | 7 | $ | 709 | $ | 101 | 0.7 | % | |||||||
551 to 600 | 23 | 2,583 | 112 | 2.7 | % | |||||||||
601 to 650 | 78 | 14,384 | 184 | 14.8 | % | |||||||||
651 to 700 | 172 | 24,170 | 141 | 24.9 | % | |||||||||
701 to 750 | 201 | 28,552 | 142 | 29.4 | % | |||||||||
751 to 800 | 160 | 22,438 | 140 | 23.1 | % | |||||||||
801 to 850 | 28 | 3,220 | 115 | 3.3 | % | |||||||||
Not available | 6 | 1,179 | 197 | 1.1 | % | |||||||||
Total | 675 | $ | 97,235 | $ | 144 | 100.0 | % | |||||||
The following tables set forth distribution by primary collateral type of the Company’s SBA 7(a) loan portfolio for the years ended December 31, 2014 and December 31, 2013, respectively:
As of December 31, 2014
Distribution by Primary Collateral Type | ||||||||||||||
Collateral Type | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Commercial Real Estate | 370 | $ | 76,796 | $ | 208 | 58.6 | % | |||||||
Machinery and Equipment | 136 | 25,446 | 187 | 19.4 | % | |||||||||
Residential Real Estate | 172 | 13,583 | 79 | 10.4 | % | |||||||||
Other | 34 | 8,458 | 249 | 6.5 | % | |||||||||
Accounts Receivable and Inventory | 38 | 5,691 | 150 | 4.3 | % | |||||||||
Liquid Assets | 11 | 838 | 76 | 0.6 | % | |||||||||
Furniture and Fixtures | 7 | 213 | 30 | 0.2 | % | |||||||||
Total | 768 | $ | 131,025 | $ | 171 | 100.0 | % | |||||||
As of December 31, 2013
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Distribution by Primary Collateral Type | ||||||||||||||
Collateral Type | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Commercial Real Estate | 294 | $ | 51,656 | $ | 176 | 53.1 | % | |||||||
Machinery and Equipment | 127 | 24,132 | 190 | 24.8 | % | |||||||||
Residential Real Estate | 181 | 11,426 | 63 | 11.8 | % | |||||||||
Other | 32 | 6,289 | 197 | 6.5 | % | |||||||||
Accounts Receivable and Inventory | 26 | 2,805 | 108 | 2.9 | % | |||||||||
Liquid Assets | 9 | 810 | 90 | 0.8 | % | |||||||||
Furniture and Fixtures | 6 | 117 | 20 | 0.1 | % | |||||||||
Total | 675 | $ | 97,235 | $ | 144 | 100.0 | % | |||||||
The following tables set forth distribution by days delinquent of the Company’s SBA 7(a) loan portfolio for the years ended December 31, 2014 and December 31, 2013, respectively:
As of December 31, 2014
Distribution by Days Delinquent | ||||||||||||||
Delinquency Status | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Current | 676 | $ | 117,517 | $ | 174 | 89.7 | % | |||||||
1 to 30 days | 24 | 3,002 | 125 | 2.3 | % | |||||||||
31 to 60 days | 15 | 2,127 | 142 | 1.6 | % | |||||||||
61 to 90 days | 1 | 8 | 8 | — | % | |||||||||
91 days or greater | 52 | 8,371 | 161 | 6.4 | % | |||||||||
Total | 768 | $ | 131,025 | $ | 171 | 100.0 | % | |||||||
As of December 31, 2013
Distribution by Days Delinquent | ||||||||||||||
Delinquency Status | # of Loans | Balance | Average Balance | % of Balance | ||||||||||
Current | 583 | $ | 85,031 | $ | 146 | 87.5 | % | |||||||
1 to 30 days | 29 | 2,558 | 88 | 2.6 | % | |||||||||
31 to 60 days | 12 | 2,704 | 225 | 2.8 | % | |||||||||
61 to 90 days | — | — | — | — | % | |||||||||
91 days or greater | 51 | 6,942 | 136 | 7.1 | % | |||||||||
Total | 675 | $ | 97,235 | $ | 144 | 100.0 | % | |||||||
Newtek Technology Solutions
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(In thousands): | Pro Forma 2014 (Unaudited) | For the period November 12, 2014 through December 31, 2014 (Unaudited) | For the period January 1, 2014 through November 11, 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
Web hosting and design | $ | 15,849 | $ | 1,852 | $ | 13,997 | $ | 17,576 | |||||||
Expenses: | |||||||||||||||
Salaries and benefits | 4,945 | 643 | 4,302 | 5,103 | |||||||||||
Interest | 44 | 3 | 41 | 94 | |||||||||||
Professional fees | 483 | 71 | 412 | 507 | |||||||||||
Depreciation and amortization | 1,324 | 159 | 1,165 | 1,316 | |||||||||||
Insurance expense – related party | 12 | — | 12 | 14 | |||||||||||
Other general and administrative costs | 5,960 | 713 | 5,247 | 6,978 | |||||||||||
Total expenses | 12,768 | 1,589 | 11,179 | 14,012 | |||||||||||
Income before income taxes | $ | 3,081 | $ | 263 | $ | 2,818 | $ | 3,564 | |||||||
Comparison of the years ended December 31, 2014 (Pro forma) and December 31, 2013
Revenue is derived from recurring fees from hosting websites, primarily from monthly contracts for shared hosting, dedicated servers and cloud instances (the “plans”). In addition, less than 3.0% of revenues are derived from contracted services to design web sites. Revenue between years decreased 9.8% to $15,849,000 in 2014. The decrease in web hosting revenue is the result of a decrease of 5,287 in the average number of monthly plans managed. While the average number of web hosting plans decreased by 11.6% to 40,132 in 2014 from 45,419 in 2013, the average monthly revenue per plan increased by 1.1% to $31.05 in 2014 from $30.72 in 2013.
The average monthly number of cloud server plans in 2014, which generate a higher monthly fee than dedicated and shared hosting plans, decreased by 54, or 8.0% in 2014 to an average of 623 from 677 in 2013. The average monthly number of dedicated server plans in 2014, which generate a higher monthly fee versus shared hosting plans, decreased by 222, or 18.3% in 2014 to an average of 991 from 1,213 in 2013. The average monthly number of shared hosting plans in 2014 decreased by 5,011, or 11.5%, to an average of 38,518 from 43,529 in 2013. Competition from other web hosting providers as well as alternative website services continues to have a negative effect on web hosting plan count and revenue growth.
It continues to be management’s intent to increase revenues and margin per plan through higher cost service offerings to customers, although this may result in a lower number of plans in place overall. Management has broadened the Company’s focus beyond the Microsoft web platform by now providing its platform capabilities to include open source web applications which have become increasingly attractive to web developers and resellers.
Total expenses of $12,768,000 in 2014 decreased 8.9% from $14,012,000 in 2013. Salaries and benefits decreased $158,000 or 3.1% between years to $4,945,000. The number of full time employees decreased by 11.8%; however the average salary per employee increased by 14.3% resulting in an overall increase in salary and payroll tax expenses of $58,000. This increase was offset by decreases in benefits, bonus expense and stock compensation of approximately $216,000. Depreciation and amortization increased $8,000 between years to $1,324,000 due to timing of capital expenditures of approximately $1,119,000 made during 2014 offset by assets that were fully depreciated during the year. Interest expense decreased by $50,000 or 53.2%, due to the payoff of the Capital One term note in June 2014.
Other general and administrative costs decreased $1,018,000 or 14.6% between years. The decrease relates primarily due to a decrease in licensing expenses of approximately $350,000 due to a reduction in Microsoft servers in use which is a result of a decrease in web hosting plans. In addition, bad debt expense decreased by $207,000, which mostly related to the Company’s successful collection efforts. The Company reduced their marketing efforts, which decreased expenses between years by $172,000. In addition, credit card processing fees decreased by $92,000 due to lower revenue between years. Finally, there was a decrease in telephone expenses in the amount of $62,000, maintenance and support in the amount of $55,000, office expenses in the amount of $47,000 and travel expenses in the amount of $36,000 between years. These expenses decreased mainly due to the Company’s cost reduction efforts. This was partially offset by an increase in building occupancy costs (rent and utility costs) of $86,000 between years. Rent increased by $134,000, which related to the Company entering into a five year lease extension for the Company’s data center, while utilities decreased by $48,000 between years.
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Income before income taxes decreased 13.6% or $483,000 to $3,081,000 in 2014 from $3,564,000 in 2013. The decrease in profitability was principally due to the decline in web hosting revenue between years, partially offset by the reduction in salaries and benefits, interest expense and other general and administrative costs between years.
All Other
(In thousands): | Pro Forma 2014 (Unaudited) | For the period November 12, 2014 through December 31, 2014 (Unaudited) | For the period January 1, 2014 through November 11, 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
Insurance commissions | $ | 1,667 | $ | 184 | $ | 1,483 | $ | 1,737 | |||||||
Insurance commissions – related party | 223 | 16 | 207 | 235 | |||||||||||
Other income | 620 | 101 | 519 | 516 | |||||||||||
Other income – related party | 78 | 10 | 68 | 80 | |||||||||||
Interest income | — | — | — | — | |||||||||||
Total revenue | 2,588 | 311 | 2,277 | 2,568 | |||||||||||
Expenses: | |||||||||||||||
Salaries and benefits | 2,332 | 259 | 2,073 | 2,511 | |||||||||||
Professional fees | 437 | 48 | 389 | 621 | |||||||||||
Depreciation and amortization | 209 | 29 | 180 | 203 | |||||||||||
Insurance expense – related party | 9 | — | 9 | 9 | |||||||||||
Other general and administrative costs | 882 | 103 | 779 | 830 | |||||||||||
Total expenses | 3,869 | 439 | 3,430 | 4,174 | |||||||||||
Loss before income taxes | $ | (1,281 | ) | $ | (128 | ) | $ | (1,153 | ) | $ | (1,606 | ) | |||
The All other segment includes revenues and expenses primarily from Newtek Insurance Agency, LLC (“NIA”), Newtek Payroll Services (“NPS”) and qualified businesses that received investments made through the Company’s Capcos which cannot be aggregated with other operating segments.
Comparison of the years ended December 31, 2014 (Pro forma) and December 31, 2013
Revenue increased by $20,000 for the year ended December 31, 2014 attributable primarily to a $102,000 increase in other income at NPS due to an increase in customers and total employees served. The increase was offset by a decrease of $82,000 combined insurance commission revenue. Insurance commissions decreased due to revenue decreases on health insurance policies, combined with decreases in related party commissions due to premium decreases on Newtek insurance policies.
Salaries and benefits decreased by $179,000 as a result of reduction in employee headcount at NIA, Summit Systems and Designs (“SUM”), and Advanced Cyber Security Systems (“ACS”). The $184,000 decrease in professional fees is mainly due to decreases in broker commissions as well as a decrease in legal expenses at NPS. The increase in other general and administrative costs was mainly related to a settlement of $162,000, increases in IT costs of $64,000 and referral fees of $10,000 at NPS. These increases were offset by a decrease of $177,000 in software licensing fees at ACS.
Corporate activities
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(In thousands): | Pro Forma 2014 (Unaudited) | For the period November 12, 2014 through December 31, 2014 (Unaudited) | For the period January 1, 2014 through November 11, 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
Management fees – related party | $ | 796 | $ | 100 | $ | 696 | $ | 896 | |||||||
Interest income | 5 | 2 | 3 | 2 | |||||||||||
Other income | 80 | 5 | 75 | 2 | |||||||||||
Total revenue | 881 | 107 | 774 | 900 | |||||||||||
Expenses: | |||||||||||||||
Salaries and benefits | 5,601 | 474 | 5,127 | 5,779 | |||||||||||
Interest expense | 2,372 | 106 | 2,266 | 27 | |||||||||||
Professional fees | 1,139 | 170 | 969 | 1,309 | |||||||||||
Depreciation and amortization | 146 | 17 | 129 | 161 | |||||||||||
Lease restructuring charges (amortization) | (291 | ) | (36 | ) | (255 | ) | (291 | ) | |||||||
Insurance expense – related party | 115 | 11 | 104 | 131 | |||||||||||
Other general and administrative costs | 2,621 | 308 | 2,313 | 1,786 | |||||||||||
Total expenses | 11,703 | 1,050 | 10,653 | 8,902 | |||||||||||
Loss before income taxes | $ | (10,822 | ) | $ | (943 | ) | $ | (9,879 | ) | $ | (8,002 | ) | |||
The Corporate activities segment implements business strategy, directs marketing, provides technology oversight and guidance, coordinates and integrates activities of the other segments, contracts with alliance partners, acquires customer opportunities, and owns our proprietary NewTracker® referral system and all other intellectual property rights. This segment includes revenue and expenses not allocated to other segments, including interest income, Capco management fee income, and corporate operating expenses. These operating expenses consist primarily of internal and external public accounting expenses, internal and external corporate legal expenses, corporate officer salaries, sales and marketing expenses and rent for the principal executive offices.
Comparison of the years ended December 31, 2014 (Pro forma) and December 31, 2013
Revenue is derived primarily from management fees earned from the Capcos. These related party management fees decreased by $100,000 year over year due to the decision to no longer charge management fees to one of the Capcos. Related party management fees, which are eliminated upon consolidation, are expected to decline in the future as the Capcos mature and utilize their cash. If a Capco does not have current or projected cash sufficient to pay management fees, then such fees are not accrued.
Total expenses increased by $2,801,000, or 31%, for the year ended December 31, 2014 as compared with the same period in 2013. The increases were primarily driven by an increase in interest expense of which $1,905,000 was related to the closing of the new term loan and line of credit with Capital One which was used to repay Summit and the outstanding on the MTS term notes. The $1,905,000 increase relates to the amortization of deferred financing costs and debt discount related to the Summit note. Interest expense also increased by $371,000 related to the new Capital One term loan and line of credit. Other general and administrative costs increased mainly due to an increase in marketing expense related to an increase in the purchase of air time for our television ad campaign.
These increases were partially offset by a $170,000 reduction in professional fees due to higher legal fees in the prior year as well as higher audit costs incurred in 2013.
The loss before income taxes increased by approximately $2,820,000 for the twelve months ended December 31, 2014 as compared to the prior year. The loss increase was primarily due to the increase in interest and advertising as previously discussed.
Capco
As described in Note 3 to the consolidated financial statements, effective January 1, 2008, the Company adopted fair value accounting for its financial assets and financial liabilities concurrent with its election of the fair value option for substantially all credits in lieu of cash, notes payable in credits in lieu of cash and prepaid insurance. These are the financial assets and liabilities associated with the Company’s Capco notes that are reported within the Company’s Capco segment. The tables below reflect the effects of the adoption of fair value measurement on the income and expense items (income from tax credits, interest
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expense and insurance expense) related to the revalued financial assets and liability for the years ended December 31, 2014, 2013 and 2012. In addition, the net change to the revalued financial assets and liability for the years ended December 31, 2014 and 2013 is reported in the line “Net change in fair market value of Credits in lieu of cash and Notes payable in credits in lieu of cash” on the consolidated statements of income.
The Company does not anticipate creating any new Capcos in the foreseeable future and the Capco segment will continue to incur losses going forward. The Capcos will continue to earn cash investment income on their cash balances and incur cash management fees and operating expenses. The amount of cash available for investment and to pay management fees will be primarily dependent upon future returns generated from investments in qualified businesses. Income from tax credits will consist solely of accretion of the discounted value of the declining dollar amount of tax credits the Capcos will receive in the future; the Capcos will continue to incur non-cash interest expense.
(In thousands): | Pro Forma 2014 (Unaudited) | For the period November 12, 2014 through December 31, 2014 (Unaudited) | For the period January 1, 2014 through November 11, 2014 | 2013 | |||||||||||
Revenue: | |||||||||||||||
Income from tax credits | $ | 61 | $ | 13 | $ | 48 | $ | 113 | |||||||
Interest income | 13 | 3 | 10 | 29 | |||||||||||
Dividend income – related party | 348 | 46 | 302 | 49 | |||||||||||
Other income | 9 | 5 | 4 | 22 | |||||||||||
Total revenue | 431 | 67 | 364 | 213 | |||||||||||
Net change in fair value of: Credits in lieu of cash and Notes payable in credits in lieu of cash | (8 | ) | (3 | ) | (5 | ) | 21 | ||||||||
Expenses: | |||||||||||||||
Interest expense | 92 | 14 | 78 | 174 | |||||||||||
Management fees – related party | 942 | 246 | 696 | 896 | |||||||||||
Professional fees | 266 | 47 | 219 | 296 | |||||||||||
Other general and administrative costs | 154 | 10 | 144 | 152 | |||||||||||
Total expenses | 1,454 | 317 | 1,137 | 1,518 | |||||||||||
Loss before income taxes | $ | (1,031 | ) | $ | (253 | ) | $ | (778 | ) | $ | (1,284 | ) | |||
Comparison of the years ended December 31, 2014 (Pro forma) and December 31, 2013
Revenue is derived primarily from non-cash income from tax credits, interest and dividend income. The decrease in tax credits for the year ended December 31, 2014 versus 2013 reflects the effect of the declining dollar amount of tax credits remaining in 2014. The amount of future income from tax credits revenue will fluctuate with future interest rates. However, over future periods through 2016, the amount of tax credits, and therefore the income the Company will recognize, will decrease to zero. Interest income decreased by $16,000 due to a reduction in the average cash balance during 2014. The increase in total revenue for the year ended December 31, 2014 compared to 2013 is primarily due to $296,000 in dividends received from a related party, earned by three of the Capcos on equity investments made in 2013 and $52,000 in dividends from a preferred interest in a related party, partially offset with income from previously written-off investments received in a prior period.
For the year ended December 31, 2014, interest expense decreased by $82,000 as a result of the declining amount of tax credits payable in 2014. Related party management fees for the year ended December 31, 2014 increased by $46,000 due to $146,000 of fees charged in 2014 that were not charged in 2013, offset by a $100,000 decrease in fees charged to another Capco. Management fees are expected to decline in the future as the Capcos mature and utilize their cash. Professional fees decreased by $30,000 due mainly to a decrease in audit fees.
Overall, the loss before income taxes in the Capco segment decreased by $253,000 in 2014, primarily due to an increase in dividend income and a decrease in interest expense.
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Liquidity and Capital Resources
Cash Flows
As a Business Development Company | Prior to becoming a Business Development Company | ||||||||||||||
For the Year Ended December 31, | For the Period November 12 to December 31, | For the Period January 1 to November 11, | For the Year Ended December 31, | ||||||||||||
2015 | 2014 | 2014 | 2013 | ||||||||||||
Net cash (used in) provided by operating activities | $ | (37,951 | ) | $ | (38,923 | ) | $ | 24,553 | $ | 4,974 | |||||
Net cash provided by (used in) investing activities | 302 | (20 | ) | (30,016 | ) | (36,121 | ) | ||||||||
Net cash provided by financing activities | 24,144 | 52,023 | 1,054 | 29,426 | |||||||||||
Net (decrease) increase in cash and cash equivalents | (13,505 | ) | 13,080 | (4,409 | ) | (1,721 | ) | ||||||||
Cash and cash equivalents, beginning of year/period | 17,813 | 4,733 | 12,508 | 14,229 | |||||||||||
Cash and cash equivalents, end of year/period | $ | 4,308 | $ | 17,813 | $ | 8,099 | $ | 12,508 | |||||||
2015
For the year ended December 31, 2015, we experienced a net decrease in cash and cash equivalents of $13,505,000 which is primarily the net result of $37,951,000 of cash used for operating activities and $24,144,000 provided by financing activities.
During the year we used $37,951,000 of cash for our operating activities consisting primarily of (i) new portfolio investments of $262,499,000, of which approximately $14,030,000 was used to purchase Premier Payments LLC, $2,200,000 was used to fund a new debt investment, Titanium Asset Management LLC, and approximately $242,496,000 was used to originate SBA 7(a) loan investments, (ii) increase in broker receivable and servicing assets of $32,083,000 and $4,827,000, respectively, (iii) increase in restricted cash of $12,665,000. The foregoing uses of cash were partially offset by (i) proceeds from the sale of investments of $240,663,000 (ii) principal received from portfolio company investments of $21,638,000 and (iii) distributions from portfolio companies deemed return of investment or capital gains of $9,218,000. In addition, financing activities provided cash of $24,144,000, consisting primarily of (i) net proceeds from a public offering of common stock of $35,290,000, (ii) proceeds from a public bond offering of $8,324,000, (iii) net borrowings from a related party of $5,647,000, (iv) issuance of additional senior notes of $32,029,000 partially offset by (i) cash dividends paid of $24,306,000 and (ii) total principal payments on debt of $33,916,000.
2014
Net cash flows from operating activities decreased $19,344,000 to $14,370,000 of cash used for the year ended December 31, 2014 compared to $4,974,000 of cash provided during the year ended December 31, 2013. This change primarily reflects the origination of SBA loans of $39,484,000 offset by payments received of $6,421,000 which are included in operating activities for the period November 12, 2014 through December 31, 2014. As discussed below, originations and repayments were included in investing activities through November 11, 2014 and in 2013. The decrease was offset by an increase in broker receivable in 2014. Broker receivables arise from loans traded but not settled before period end and represent the amount of cash due from the purchasing broker; the amount varies depending on loan origination volume and the timing of sales at year end.
Net cash used in investing activities primarily includes the originations and repayments of the unguaranteed portions of SBA loans through November 11, 2014. As a result of the BDC Conversion, originations and repayments of the unguaranteed portions of SBA loans are included in operating activities. Net cash used also includes the purchase of fixed assets and changes in restricted cash. Net cash used in investing activities decreased by $6,085,000 to cash used of $30,036,000 for the year ended December 31, 2014 compared to cash used of $36,121,000 for the year ended December 31, 2013. The decrease was due primarily to originations and repayments of SBA loans originated being included in operating activities subsequent to the Conversion. SBA loan originations, net of repayments were $28,933,000 from January 1, 2014 through November 11, 2014 compared to $35,476,000 in 2013.
Net cash provided by financing activities primarily includes the net borrowings and (repayments) on bank lines of credit and notes payable as well as securitization activities. Net cash provided by financing activities increased by $23,651,000 to cash provided of $53,077,000 for the year ended December 31, 2014, from cash provided of $29,426,000 for the year ended
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December 31, 2013. The increase in the current year is primarily attributed to the proceeds of $29,728,000, net of offering costs from the sale of shares during the year and net borrowings of $7,344,000 under bank lines of credit.
Capital Resources
As of December 31, 2015, we had $4,308,000 of cash and cash equivalents, $12,115,000 available from our Capital One facilities and $14,933,000 available under our related party revolving line of credit. As of December 31, 2015, our net asset value totaled $203,949,000 or $14.06 per share.
Public Offerings
On October 15, 2015 we completed a public offering of 2,000,000 shares of our common stock at a public offering price of $16.50 per share. We also sold an additional 300,000 shares of common stock at a public offering price of $16.50 per share pursuant to the underwriter's full exercise of the over-allotment option. Proceeds, net of offering costs and expenses were $35,290,000.
On November 18, 2014 we completed a public offering of 2,200,000 shares of our common stock at a public offering price of $12.50 per share. We also sold an additional 330,000 shares of common stock at a public offering price of $12.50 per share pursuant to the underwriter's full exercise of the over-allotment option. Proceeds, net of offering costs and expenses were $27,883,000.
In September 2015, we issued $8,324,000, including the underwriter's partial exercise of their over-allotment option, in aggregate principal amount of the 7.5% Notes due 2022. The Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future unsecured indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the Notes; (iii) effectively subordinated to all the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. The Notes will mature on September 30, 2022 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after September 23, 2018, at a redemption price of 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. Proceeds net of offering costs and expenses were $7,747,000.
Capital One Facilities
NSBF has a $50,000,000 million credit facility with Capital One. The facility provides for a 55% advance rate on the non-guaranteed portions of the SBA 7(a) loans it originates, and a 90% advance rate on the guaranteed portions of SBA 7(a) loans it originates. The interest rate on the portion of the facility, collateralized by the government guaranteed portion of SBA 7(a) loans, is set at Prime plus 1.00%, and there is a quarterly facility fee equal to 0.25% on the unused portion of the revolving credit calculated as of the end of each calendar quarter. The interest rate on the portion of the facility, collateralized by the non-guaranteed portion of SBA 7(a) loans, is set at Prime plus 1.875%, and there is a quarterly facility fee equal to 0.25% on the unused portion of the revolving credit calculated as of the end of each calendar quarter. In June 2015, we amended the existing facility to eliminate the fixed charge coverage ratio in exchange for a debt service ratio, new EBITDA minimums, the elimination of restrictions on the our ability to pay dividends to stockholders, as well as the release of the guarantees of our former subsidiaries (now treated as portfolio companies). In addition, the amendment extended the date on which the facility will convert to a term loan from May 16, 2016 to May 16, 2017 and extended the maturity date of the facility to May 16, 2019. At December 31, 2015 and 2014, we had $29,100,000 and $33,856,000 outstanding under the lines of credit. At December 31, 2015, we were in full compliance with all applicable loan covenants.
Related Party Notes Payable
In June 2015, we entered into an unsecured revolving line of credit agreement with UPS and NTS. Maximum borrowings under the line of credit are $38,000,000. The outstanding balance bears interest at a rate equal to (a) the greater of LIBOR or 50 basis points plus (b) 7% or at a rate equal to (y) the greater of the Prime Rate or 3.5%, plus (z) 6%. At December 31, 2015, the line of credit bears interest at a rate of 7.5%. The revolving line of credit has a maturity date of June 21, 2019. The outstanding borrowings at December 31, 2015 were $5,647,000.
Securitization Transactions
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In December 2010, we created a financing channel for the sale of the unguaranteed portions of SBA 7(a) loans held on our balance sheet. We transferred the unguaranteed portions of SBA loans of $19,615,000, and an additional $3,000,000 in loans issued subsequent to the transaction, to a special purpose entity created for this purpose, Newtek Small Business Loan Trust 2010-1 (the “Trust”), which in turn issued notes (the “securitization notes”) for the par amount of $16,000,000 against the assets in a private placement. The Trust is only permitted to purchase the unguaranteed portion of SBA 7(a) loans, issue asset-backed securities, and make payments on the securities. The Trust issued a single series of securitization notes to pay for the unguaranteed portions it acquired from us and will be dissolved when those securities have been paid in full. The primary source for repayment of the securitization notes is the cash flows generated from the unguaranteed portion of SBA 7(a) loans now owned by the Trust; principal on the securitization notes will be paid by cash flow in excess of that needed to pay various fees related to the operation of the Trust and interest on the debt. The securitization notes have an expected maturity of about five years based on the expected performance of the underlying collateral and structure of the debt and a legal maturity of 30 years from the date of issuance. The assets of the Trust are legally isolated and are not available to pay our creditors. We continue to retain rights to cash reserves and all residual interests in the Trust and will receive servicing income. Proceeds from this transaction were used to repay a Capital One loan and for general corporate and lending purposes. Because we determined we are the primary beneficiary of the Trust we needed to consolidate the Trust into our financial statements. We continue to recognize the securitization notes in Notes payable. The investors and the Trust have no recourse to any of our other assets for failure if the Trust has insufficient funds to pay its obligations when due; however, Newtek, has provided a limited guaranty to the investors in the Trust in an amount not to exceed 10% of the original issuance amount, to be used after all of the assets of the Trust have been exhausted. The notes were issued with an “AA” rating from S&P based on the underlying collateral.
In December 2011, we entered into a Supplemental Indenture by which the original $16,000,000 of securitization notes were amended to reflect a new principal amount of $12,880,000, as a result of principal payments made, and additional notes were issued in an initial principal amount of $14,899,000, so that the initial aggregate principal amount of all notes as of December 31, 2011 totaled $27,779,000. The notes are backed by approximately $40,500,000 of the unguaranteed portions of loans originated, and include an additional $5,000,000 to be originated and issued to the Trust by us under the SBA loan program. The notes retained their AA rating under S&P, and the final maturity date of the amended notes is March 22, 2037. The proceeds of the transaction have been and will be used to repay debt and originate new loans.
In March 2013, we transferred the unguaranteed portions of SBA loans of $23,569,000, and an additional $5,900,000 in loans issued subsequent to the transaction, to a special purpose entity Newtek Small Business Loan Trust 2013-1 (the “Trust”). The Trust in turn issued securitization notes for the par amount of $20,909,000 against the assets in a private placement. The notes received an “A” rating by S&P; and the final maturity date of the amended notes is June 25, 2038. The proceeds of the transaction have been and will be used to repay debt and originate new loans.
In December 2013, we completed an additional transaction whereby the unguaranteed portions of SBA loans of $23,947,000, and an additional $3,642,000 in loans issued subsequent to the transaction, was transferred to a Trust. The Trust in turn issued securitization notes for the par amount of $24,433,000 against the assets in a private placement. The notes received an “A” rating by S&P, and the final maturity date of the amended notes is April 25, 2039. The proceeds of the transaction have been and will be used to repay debt and originate new loans.
In December 2014, we completed an additional transaction which resulted in the transfer of $36,000,000 of unguaranteed portions of SBA loans and an additional $7,500,000 in loans which were issued subsequent to the transaction. The Trust in turn issued securitization notes for the par amount of $31,700,000 against the assets in a private placement. The notes received an “A” rating by S&P, and the final maturity date of the notes is April 2040. The proceeds of the transaction have been and will be used to repay debt and originate new loans.
In September 2015, we issued additional unguaranteed SBA 7(a) loan-backed notes as part of an upsizing of the Newtek Small Business Loan Trust, Series 2010-1. Note principal amounts of the original and exchanged notes were approximately $8,771,000 with additional notes which totaled approximately $32,028,000 as part of the upsizing. The initial aggregate amount of the senior notes issued by the Trust were approximately $40,800,000 on the closing date. The notes are collateralized by approximately $46,458,000 of SBA 7(a) unguaranteed portions and include a prefunded amount of $14,679,000 to be originated and transferred subsequently to the trust. The notes retained their AA rating under S&P, and the final maturity of the amended notes is February 25, 2041.
Tabular Disclosure of Contractual Obligations
The following table represents our obligations and commitments as of December 31, 2015 for future cash payments under debt, lease and employment agreements (in thousands):
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Payments due by period | |||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||
Bank notes payable (1) | $ | 29,100 | $ | 29,100 | $ | — | $ | — | $ | — | |||||||||
Securitization notes payable | 91,745 | — | — | — | 91,745 | ||||||||||||||
Notes due 2022 | 8,324 | — | — | — | 8,324 | ||||||||||||||
Note payable - related party | 5,647 | — | — | 5,647 | — | ||||||||||||||
Capital lease | 17 | 16 | 1 | — | — | ||||||||||||||
Operating leases | 14,736 | 1,252 | 3,481 | 2,426 | 7,577 | ||||||||||||||
Employment agreements | 240 | 240 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 149,809 | $ | 30,608 | $ | 3,482 | $ | 8,073 | $ | 107,646 | |||||||||
(1) Amounts owed under the line attributed to the guaranteed portion of SBA 7(a) loans. Bears interest at the prime rate plus 1.00%. Amounts are repaid upon settlement of the sale of guaranteed portions of SBA 7(a) loans.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
Fair Value Measurements
We value investments for which market quotations are readily available at their market quotations. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our Board under our valuation policy and process. We may seek pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments. We also employ independent third party valuation firms for certain of our investments for which there is not a readily available market value.
The application of our valuation methods may include comparisons of the portfolio companies to peer companies that are public, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, discounted cash flow, the markets in which the portfolio company does business and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from values that may ultimately be received or settled.
Our Board is ultimately and solely responsible for determining, in good faith, the fair value of investments that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels for disclosure purposes. The Company carries all investments at fair value. Additionally, the Company carries its credits in lieu of cash, notes payable in credits in lieu of cash, and servicing assets at fair value. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and gives the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of the significant input to its valuation. The levels of the fair value hierarchy are as follows:
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Level 1 | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts. | |
Valuation of Investments
Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms that have been engaged at the direction of the Board to assist in the valuation of certain portfolio investments without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process.
When determining fair value of Level 3 debt and equity investments, the Company may take into account the following factors, where relevant: the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons to publicly traded securities, and changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization (“EBITDA”) or revenue. The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, the Company will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, the Company uses a market interest rate yield analysis to determine fair value.
In addition, for certain debt investments, the Company may base its valuation on quotes provided by an independent third party broker.
Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company may realize significantly less than the value at which such investment had previously been recorded.
The Company’s investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.
Income Recognition
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Interest on loan investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid.
We receive servicing income related to the guaranteed portions of SBA loan investments which we sell into the secondary market. These recurring fees are earned daily and recorded when earned. Servicing income is earned for the full term of the loan or until the loan is repaid.
We receive a variety of fees from borrowers in the ordinary course of conducting our business, including packaging fees, late fees and prepayment fees. All other income is recorded when earned.
Dividend income is recorded at the time dividends are declared. Distributions of earnings from a portfolio companies are evaluated to determine if the distribution is income, return of capital or realized gain.
Income Taxes
We elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, we are required to meet certain source of income and asset diversification requirements, and timely distribute to our stockholders at least 90% of investment company taxable income, as defined by the Code, for each tax year. We have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal income taxes.
Depending on the level of taxable income earned in a tax year, we may choose to retain taxable income in excess of current year distributions into the next tax year in an amount less than what would trigger payments of federal income tax under Subchapter M of the Code. We would then pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income may exceed estimated current year distributions, we accrue excise tax, if any, on estimated excess taxable income as taxable income is earned.
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified within capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
New Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases”,which amends various aspects of existing accounting guidance for leases, including the recognition of a right of use asset and a lease liability for leases with a duration of greater than one year. The ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those periods. Early adoption is permitted. The Company has not completed its review of the new guidance; however, the Company anticipates that upon adoption of the standard it will recognize additional assets and corresponding liabilities related to leases on its consolidated statements of assets and liabilities.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which, among other things, requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU changes the disclosure requirements for financial instruments. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those periods, and early adoption is permitted for certain provisions. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and disclosures.
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-Period Adjustments.” The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update requires that the acquirer record in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition
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date. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods.The Company does not expect this update to have a material impact on its consolidated financial statements and disclosures.
In August 2015, the FASB issued ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” The update allows debt issuance costs related to a line-of-credit arrangement to be deferred as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As the Company currently presents such debt issuance costs in accordance with the update, the Company does not expect this update to have a material impact on its consolidated financial statements and disclosures.
In May 2015, the FASB issued ASU 2015-07 “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” The update changes the requirements for the presentation of certain investments using the net asset value, providing a practical expedient to exclude such investments from categorization within the fair value hierarchy and make a separate disclosure. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods. The Company does not expect this guidance to have a material impact on its consolidated financial statements and disclosures.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs.” This update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the debt liability. This ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact of this update to its consolidated financial statements and disclosures.
Subsequent Events
The Company has evaluated subsequent events through the time of filing these consolidated financial statements with the SEC.
Off Balance Sheet Arrangements
None.
Impact of Inflation
The impact of inflation and changing prices on our results of operations is not material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We consider the principal types of risk in our investing activities to be fluctuations in interest rates and loan portfolio valuations and the availability of the secondary market for our SBA loans held for sale. Risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.
NSBF primarily lends at an interest rate of prime, which resets on a quarterly basis, plus a fixed margin. The Capital One warehouse lines, securitization notes and related party debt are on a prime plus a fixed factor basis. As a result the Company believes it has matched its cost of funds to its interest income in its financing activities. However, because of the differential between the amount lent and the smaller amount financed a significant change in market interest rates will have a material effect on our income. In periods of sharply rising interest rates, our cost of funds will increase at a slower rate than the interest income earned on the loans we have made; this should improve our net investment income, holding all other factors constant. However, a reduction in interest rates, as has occurred since 2008, has and will result in the Company experiencing a reduction in investment income; that is interest income will decline more quickly than interest expense resulting in a net reduction of benefit to investment income.
NSBF depends on the availability of secondary market purchasers for the guaranteed portions of SBA loans and the premium received on such sales to support its lending operations. At this time the secondary market for the guaranteed portions of SBA loans is robust but during the 2008 and 2009 financial crisis the Company had difficulty selling its loans for a premium; although not expected at this time, if such conditions did recur, NSBF would most likely cease making new loans and could experience a substantial reduction in profitability.
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We do not have significant exposure to changing interest rates on invested cash which was approximately $27,212,000 at December 31, 2015. We do not purchase or hold derivative financial instruments for trading purposes. All of our transactions are conducted in U.S. dollars and we do not have any foreign currency or foreign exchange risk. We do not trade commodities or have any commodity price risk.
We believe that we have placed our demand deposits, cash investments and their equivalents with high credit-quality financial institutions. The Company invests cash not held in interest free checking accounts or bank money market accounts mainly in U.S. Treasury only money market instruments or funds and other investment-grade securities. As of December 31, 2015, cash deposits in excess of Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”) insurance totaled approximately $13,908,000.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements and related notes begin on Page F-1, which are included in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
As of December 31, 2015 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Accounting Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including our Chief Executive Officer and Chief Accounting Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
(b) Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2015. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 based upon criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2015 based on the criteria in Internal Control — Integrated Framework (2013) issued by COSO.
(c) Attestation Report of the Registered Public Accounting Firm.
RSM US LLP, our independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, as stated in its report, which is included under “Item 8. Consolidated Financial Statements and Supplementary Data” of this annual report on Form 10-K.
(d) Changes in Internal Control over Financial Reporting.
89
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
90
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) Financial Statements.
(a)(2) Exhibits.
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission.
Number | Description | |
1.1 | Form of Underwriting Agreement (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). | |
3.1 | Amended and Restated Articles of Incorporation of Newtek Business Services Corp. (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). | |
3.2 | Bylaws of Newtek Business Services Corp. (Incorporated by reference to Exhibit 99.2 to Registrant’s Registration Statement on Form N-14 (File No. 333-195998), filed September 24, 2014). | |
4.1 | Form of Common Stock Certificate (Incorporated by reference to Exhibit 99.5 to Registrant’s Registration Statement on Form N-14 (File No. 333-195998), filed September 24, 2014). | |
10.1 | Form of Dividend Reinvestment Plan (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). | |
10.2 | Employment Agreement with Barry Sloane, dated March 31, 2015 (Incorporated by reference to Exhibit 10.5 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed April 16, 2015). | |
10.3 | Employment Agreement with Craig J. Brunet, dated March 31, 2015 (Incorporated by reference to Exhibit 10.1 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed April 16, 2015). | |
10.4 | Employment Agreement with Jennifer C Eddelson, dated March 31, 2015 (Incorporated by reference to Exhibit 10.2 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed April 16, 2015). | |
10.5 | Employment Agreement with Michael A. Schwartz, dated March 31, 2015 (Incorporated by reference to Exhibit 10.3 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed April 16, 2015). | |
10.6 | Employment Agreement with Matthew G. Ash, dated March 31, 2015 (Incorporated by reference to Exhibit 10.4 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed April 16, 2015). | |
10.7 | Lease and Master Services Agreement dated March 15, 2007 between CrystalTech Web Hosting, Inc. and i/o Data Centers (Incorporated herein by reference to Exhibit 10.4 to Newtek Business Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-16123), filed May 15, 2007). | |
10.8.1 | Loan and Security Agreement, dated as of April 30, 2010, between CrystalTech Web Hosting, Inc., Newtek Small Business Finance, Inc. and Capital One, N.A. (Incorporated herein by reference to Exhibit 10.16.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed May 5, 2010). | |
10.8.2 | Guaranty of Payment and Performance, dated as of April 30, 2010, between Newtek Business Services, Inc. and Capital One Bank, N.A. (Incorporated herein by reference to Exhibit 10.16.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed May 5, 2010). | |
10.9 | Newtek Business Services Corp. 2014 Stock Incentive Plan (Incorporated herein by reference to Exhibit 8.6 to Registrant’s Registration Statement on Form N-14 (File No. 333-195998), filed September 24, 2014). | |
10.10.1 | Loan and Security Agreement, dated as of December 15, 2010, between Newtek Small Business Finance, Inc. and Capital One Bank, N.A. (Incorporated herein by reference to Exhibit 10.18.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed December 20, 2010, as amended on March 2, 2011). | |
92
10.10.2 | Guaranty Agreement, dated as of December 15, 2010, between Newtek Business Services, Inc. and Capital One Bank, N.A. (Incorporated herein by reference to Exhibit 10.18.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed December 20, 2010, as amended on March 2, 2011). | |
10.10.3 | Amended and Restated Loan and Security Agreement, dated as of June 16, 2011, by and between Newtek Small Business Finance, Inc. and Capital One, N.A. (Incorporated herein by reference to Exhibit 10.8.3 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed June 21, 2011). | |
10.10.4 | Amended and Restated Guaranty of Payment and Performance, dated as of June 16, 2011, by and between Newtek Business Services, Inc., and Capital One, N.A. (Incorporated herein by reference to Exhibit 10.8.4 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed June 21, 2011). | |
10.10.5 | Amendment to Loan Documents, dated October 6, 2011, by and among Newtek Small Business Finance, Inc., Capital One Bank, N.A. and each of the guarantors listed on the signature pages thereto (Incorporated herein by reference to Exhibit 10.8.5 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed October 11, 2011). | |
10.10.6 | Amended and Restated Loan and Security Agreement, dated as of July 16, 2013, by and between Newtek Small Business Finance, Inc. and Capital One, National Association (Incorporated herein by reference to Exhibit 10.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed July 19, 2013). | |
10.10.7 | Guaranty and Security Agreement Letter Amendment, dated as of July 16, 2013, by and between Capital One, National Association and Newtek Business Services, Inc. (Incorporated herein by reference to Exhibit 10.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed July 19, 2013). | |
10.10.8 | Amended and Restated Loan and Security Agreement, dated as of October 29, 2014, by and between Newtek Small Business Finance, Inc. and Capital One, National Association (Incorporated herein by reference to Exhibit 10.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed October 30, 2014). | |
10.10.9 | First Amendment to Loan Documents, dated June 18, 2015, by and among Capital One, North America, Newtek Small Business Finance, LLC, Newtek Business Services Corp. and the other guarantors party thereto (Incorporated by reference to Exhibit 10.1 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed June 24, 2015. | |
10.10.10 | Amended and Restated Guaranty of Payment and Performance, dated as of June 18, 2015, by and between Capital One, National Association and Newtek Business Services Corp. (Incorporated by reference to Exhibit 10.2 to Newtek Business Services Corp.'s Current Report on Form 8-K (File No. 814-01035), filed June 24, 2015. | |
10.10.11 | Guaranty and Security Agreement Letter Agreement, dated as of October 29, 2014, by and between Capital One, National Association and Newtek Business Services, Inc. (Incorporated herein by reference to Exhibit 10.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed October 30, 2014). | |
10.11.1 | Newtek Small Business Loan Trust Class A Notes, dated December 22, 2010 (Incorporated herein by reference to Exhibit 10.19.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed December 23, 2010). | |
10.11.2 | Amended Newtek Small Business Loan Trust Class A Notes, dated December 29, 2011 (Incorporated herein by reference to Exhibit 10.19.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed January 5, 2012). | |
10.11.3 | Additional Newtek Small Business Loan Trust Class A Notes, dated December 29, 2011 (Incorporated herein by reference to Exhibit 10.19.3 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed January 5, 2012). | |
10.12.1 | Loan and Security Agreement, dated as of February 28, 2011, by and between CDS Business Services, Inc. and Sterling National Bank (Incorporated herein by reference to Exhibit 10.10.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed March 3, 2011). | |
10.12.2 | Guaranty, dated as of February 28, 2011, by and between Newtek Business Services, Inc. and Sterling National Bank (Incorporated herein by reference to Exhibit 10.10.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed March 3, 2011). | |
10.12.3 | Amendment No. 1, dated December 5, 2012, to Loan and Security Agreement, dated as of February 28, 2011, by and between CDS Business Services, Inc. and Sterling National Bank (Incorporated herein by reference to Exhibit 10.9.3 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed December 11, 2012). | |
93
10.13 | Credit Agreement by and between Newtek Business Services, Inc. and Capital One, National Association, dated as of June 26, 2014 (Incorporated herein by reference to Exhibit 10.1 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed July 1, 2014). | |
10.14 | Form of Custodian Agreement (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499), filed on November 3, 2014, and incorporated by reference herein). | |
10.15 | Newtek Small Business Loan Trust 2014-1 Class A Notes, dated December 3, 2014 (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K (File No. 814-01035), filed on December 5, 2014). | |
10.16 | Amended and restated Form of Custody Agreement dated as of October 30, 2015 by and between Newtek Business Services Corp. and U.S. Bank National Association (Incorporated herein by reference to Exhibit 99.1 to Newtek Business Services Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 814-01035) filed on November 5, 2015. | |
10.17 | Membership Purchase Agreement, dated July 23, 2015, by and among Newtek Business Services Corp., Newtek Business Services Holdco1, Inc., Premier Payments LLC and Jeffrey Rubin (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K (File No. 814-01035), filed on July 29, 2015). | |
11 | Computation of Per Share Earnings (included in the notes to the consolidated financial statements in this report) | |
14.1 | Code of Ethics (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). | |
21.1 | Subsidiaries of the Registrant filed herewith. | |
31.1 | Certification by Principal Executive Officer required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, filed herewith. | |
31.2 | Certification by Principal Financial Officer required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, filed herewith. | |
32.1 | Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith. | |
32.2 | Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith. | |
99.1 | Financial Statements of Universal Processing Services of Wisconsin, LLC and Subsidiary as of and for the year ended December 31, 2015 (audited) (filed herewith). | |
99.2 | Financial Statements of Universal Processing Services of Wisconsin, LLC and Subsidiary as of December 31, 2014 and for the period November 12, 2014 to December 31, 2014 (unaudited) (filed herewith). | |
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEWTEK BUSINESS SERVICES CORP. | ||
Date: March 15, 2016 | By: | /S/ BARRY SLOANE |
Barry Sloane | ||
Chairman and Chief Executive Officer (Principal Executive Officer) | ||
Date: March 15, 2016 | By: | /S/ JENNIFER EDDELSON |
Jennifer Eddelson | ||
Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date |
/S/ BARRY SLOANE | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) | March 15, 2016 |
Barry Sloane | ||
/S/ JENNIFER EDDELSON | Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) | March 15, 2016 |
Jennifer Eddelson | ||
/S/ RICHARD SALUTE | Director | March 15, 2016 |
Richard Salute | ||
/S/ SALVATORE MULIA | Director | March 15, 2016 |
Salvatore Mulia | ||
/S/ SAMUEL KIRSCHNER | Director | March 15, 2016 |
Samuel Kirschner | ||
/S/ PETER DOWNS | Director | March 15, 2016 |
Peter Downs | ||
95
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
PAGE NO. | |
96
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Newtek Business Services Corp. and Subsidiaries
We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Newtek Business Services Corp. and Subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in net assets/stockholders’ equity, and cash flows for the year ended December 31, 2015, the period from November 12, 2014 to December 31, 2014, the period from January 1, 2014 to November 11, 2014 and the year ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2015 and 2014, by correspondence with the borrowers or by other appropriate auditing procedures where replies from the borrowers were not received and by other appropriate auditing procedures with respect to controlled investments. Our audits also involved performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Newtek Business Services Corp. and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the year ended December 31, 2015, the period from November 12, 2014 to December 31, 2014, the period from January 1, 2014 to November 11, 2014 and the year ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Newtek Business Services Corp. and Subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 15, 2016 expressed an unqualified opinion on the effectiveness of Newtek Business Services Corp. and Subsidiaries’ internal control over financial reporting.
/s/ RSM US LLP
New York, New York
March 15, 2016
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders
Newtek Business Services Corp.
We have audited Newtek Business Services Corp. and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Newtek Business Services Corp. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Newtek Business Services Corp. and Subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in net assets/stockholders’ equity, and cash flows for the year ended December 31, 2015, the period from November 12, 2014 to December 31, 2014, the period from January 1, 2014 to November 11, 2014 and the year ended December 31, 2013, and our report dated March 15, 2016 expressed an unqualified opinion.
/s/ RSM US LLP
New York, New York
March 15, 2016
F-2
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES | |||||||
(In Thousands, except for Per Share Data) | |||||||
December 31, | |||||||
2015 | 2014 | ||||||
ASSETS | |||||||
Investments, at fair value | |||||||
SBA unguaranteed non-affiliate investments (cost of $166,752 and $131,093, respectively; includes $146,463 and $120,990, respectively, related to securitization trust VIE) | $ | 158,355 | $ | 121,477 | |||
Controlled investments (cost of $35,781 and $18,065, respectively) | 104,376 | 77,499 | |||||
SBA guaranteed non-affiliate investments (cost of $2,069 and $28,057, respectively) | 2,284 | 31,486 | |||||
Non-control/non-affiliate investments (cost of $1,847 and $0, respectively) | 1,824 | — | |||||
Investments in money market funds (cost of $35 and $3,000, respectively) | 35 | 3,000 | |||||
Total investments at fair value | 266,874 | 233,462 | |||||
Cash and cash equivalents | 4,308 | 17,813 | |||||
Restricted cash | 22,869 | 15,389 | |||||
Broker receivable | 32,083 | — | |||||
Other assets (includes $2,501 and $2,550, respectively, related to securitization trust VIE) | 12,393 | 20,266 | |||||
Due from related parties | 3,056 | 3,190 | |||||
Servicing assets, at fair value | 13,042 | 9,483 | |||||
Credits in lieu of cash, at fair value | 860 | 2,229 | |||||
Total assets | $ | 355,485 | $ | 301,832 | |||
LIABILITIES AND NET ASSETS | |||||||
Liabilities: | |||||||
Bank notes payable | $ | 29,100 | $ | 43,023 | |||
Note payable - related party | 5,647 | — | |||||
Notes due 2022 | 8,324 | — | |||||
Notes payable – Securitization trust VIE | 91,745 | 79,520 | |||||
Dividends payable | 5,802 | — | |||||
Due to related parties | 256 | 2,867 | |||||
Notes payable in credits in lieu of cash, at fair value | 860 | 2,229 | |||||
Deferred tax liability | 857 | — | |||||
Accounts payable, accrued expenses and other liabilities | 8,945 | 7,775 | |||||
Total liabilities | 151,536 | 135,414 | |||||
Commitments and contingencies (Note 11) | |||||||
Net Assets: | |||||||
Preferred stock (par value $0.02 per share; authorized 1,000 shares, no shares issued and outstanding) | — | — | |||||
Common stock (par value $0.02 per share; authorized 200,000 shares, 14,509 and 10,206 issued and outstanding, respectively, not including 17 shares held in escrow at December 31, 2014) | 290 | 205 | |||||
Additional paid-in capital | 189,031 | 165,532 | |||||
Undistributed net investment income (loss) | 4,437 | (2,523 | ) | ||||
Net unrealized appreciation, net of deferred taxes | 8,062 | 2,609 | |||||
Net realized gains | 2,129 | 595 | |||||
Total net assets | 203,949 | 166,418 | |||||
Total liabilities and net assets | $ | 355,485 | $ | 301,832 | |||
Number of common shares outstanding | 14,509 | 10,206 | |||||
Net asset value per common share | $ | 14.06 | $ | 16.31 | |||
F-3
See accompanying notes to these consolidated financial statements.
F-4
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(In Thousands, except for Per Share Data) | |||||||||||||||
As a Business Development Company | Prior to becoming a Business Development Company | ||||||||||||||
Year ended December 31, 2015 | November 12, 2014 to December 31, 2014 | January 1, 2014 to November 11, 2014 | Year ended December 31, 2013 | ||||||||||||
Investment income: | |||||||||||||||
From non-affiliate investments: | |||||||||||||||
Interest income | $ | 8,924 | $ | 1,076 | $ | — | $ | — | |||||||
Servicing income | 4,611 | 562 | — | — | |||||||||||
Other income | 1,929 | 270 | — | — | |||||||||||
Total investment income from non-affiliate investments | 15,464 | 1,908 | — | — | |||||||||||
From controlled investments: | |||||||||||||||
Interest income | 277 | 27 | — | — | |||||||||||
Dividend income | 10,218 | 37 | — | — | |||||||||||
Other income | 111 | 4 | — | — | |||||||||||
Total investment income from controlled investments | 10,606 | 68 | — | — | |||||||||||
Total investment income | 26,070 | 1,976 | — | — | |||||||||||
Operating revenues: | |||||||||||||||
Electronic payment processing | $ | — | $ | — | $ | 79,527 | $ | 89,651 | |||||||
Web hosting and design | — | — | 13,730 | 17,375 | |||||||||||
Premium income | — | — | 18,623 | 19,456 | |||||||||||
Interest income | — | — | 5,663 | 4,838 | |||||||||||
Servicing fee income – NSBF portfolio | — | — | 3,111 | 2,769 | |||||||||||
Servicing fee income – external portfolios | — | — | 6,142 | 3,796 | |||||||||||
Income from tax credits | — | — | 48 | 113 | |||||||||||
Insurance commissions | — | — | 1,480 | 1,737 | |||||||||||
Other income | — | — | 3,523 | 3,858 | |||||||||||
Total operating revenues | — | — | 131,847 | 143,593 | |||||||||||
Net change in fair value of: | |||||||||||||||
SBA loans | — | — | (3,663 | ) | (1,226 | ) | |||||||||
Credits in lieu of cash and notes payable in credits in lieu of cash | — | — | (5 | ) | 21 | ||||||||||
Total net change in fair value | — | — | (3,668 | ) | (1,205 | ) | |||||||||
Expenses: | |||||||||||||||
Electronic payment processing costs | — | — | 67,011 | 75,761 | |||||||||||
Salaries and benefits | 12,753 | 1,458 | 23,373 | 24,360 | |||||||||||
Interest | 6,479 | 568 | 7,323 | 5,863 | |||||||||||
Depreciation and amortization | 326 | 43 | 3,140 | 3,284 | |||||||||||
Goodwill impairment | — | — | 1,706 | — | |||||||||||
Provision for loan losses | — | — | (53 | ) | 1,322 | ||||||||||
Other general and administrative costs | 12,697 | 2,236 | 18,536 | 20,729 | |||||||||||
Total expenses | 32,255 | 4,305 | 121,036 | 131,319 | |||||||||||
Net investment loss before income tax | (6,185 | ) | (2,329 | ) | — | — | |||||||||
Provision for income tax - post BDC | — | 194 | — | — | |||||||||||
F-5
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(In Thousands, except for Per Share Data) | |||||||||||||||
As a Business Development Company | Prior to becoming a Business Development Company | ||||||||||||||
Year ended December 31, 2015 | November 12, 2014 to December 31, 2014 | January 1, 2014 to November 11, 2014 | Year ended December 31, 2013 | ||||||||||||
Net investment loss | (6,185 | ) | (2,523 | ) | — | — | |||||||||
Net realized and unrealized gains (losses): | |||||||||||||||
Net realized gains on non-affiliate investments | 28,386 | 595 | — | — | |||||||||||
Net realized gains on controlled investments | 5,473 | — | — | — | |||||||||||
Net unrealized (depreciation) appreciation on SBA guaranteed non-affiliate investments | (3,215 | ) | 3,007 | — | — | ||||||||||
Net unrealized appreciation (depreciation) on SBA unguaranteed non-affiliate investments | 1,183 | (274 | ) | — | — | ||||||||||
Net unrealized appreciation on controlled investments | 12,250 | — | — | — | |||||||||||
Change in provision for deferred taxes on unrealized gains on investments | (857 | ) | — | — | — | ||||||||||
Net unrealized depreciation on non-control/non-affiliate investments | (24 | ) | — | — | — | ||||||||||
Net unrealized depreciation on servicing assets | (1,268 | ) | (120 | ) | — | — | |||||||||
Net unrealized depreciation on credits in lieu of cash and notes payable in credits in lieu of cash | (7 | ) | (4 | ) | — | — | |||||||||
Net realized and unrealized gains | 41,921 | 3,204 | — | — | |||||||||||
Income before income taxes | — | — | 7,143 | 11,069 | |||||||||||
Net increase in net assets | $ | 35,736 | $ | 681 | $ | — | $ | — | |||||||
Provision for income taxes | — | — | 3,935 | 3,918 | |||||||||||
Net income | — | — | 3,208 | 7,151 | |||||||||||
Net loss attributable to non-controlling interests | — | — | 85 | 377 | |||||||||||
Net income attributable to Newtek Business Services Corp. | $ | — | $ | — | $ | 3,293 | $ | 7,528 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | — | — | 7,315 | 7,059 | |||||||||||
Diluted | — | — | 7,315 | 7,581 | |||||||||||
Basic income per share | $ | — | $ | — | $ | 0.45 | $ | 1.07 | |||||||
Diluted income per share | $ | — | $ | — | $ | 0.45 | $ | 0.99 | |||||||
Net increase in net assets per share | $ | 3.32 | $ | 0.09 | $ | — | $ | — | |||||||
Net investment loss per share | $ | (0.57 | ) | $ | (0.33 | ) | $ | — | $ | — | |||||
Dividends and distributions declared per share | $ | 4.45 | $ | — | $ | — | $ | — | |||||||
Weighted average shares outstanding | 10,770 | 7,620 | — | — | |||||||||||
See accompanying notes to these consolidated financial statements.
F-6
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS/STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||||||||
(In Thousands) | |||||||||||||||||||||||||||||||||||||||||||
Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Number of Shares of Treasury Stock | Treasury Stock | Non- controlling Interest | Accumulated Net Investment Loss | Net Unrealized Appreciation | Net Realized Gains | Total | |||||||||||||||||||||||||||||||||
Balance at December 31, 2012 | $ | 7,382 | $ | 148 | $ | 61,199 | $ | 7,008 | $ | 348 | $ | (1,508 | ) | $ | 2,055 | $ | — | $ | — | $ | — | 68,902 | |||||||||||||||||||||
Issuance of restricted stock | — | — | — | — | (3 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Grant of restricted stock awards | — | — | 800 | — | — | — | — | — | — | — | 800 | ||||||||||||||||||||||||||||||||
Forfeitures of restricted stock | — | — | (8 | ) | — | — | — | — | — | — | — | (8 | ) | ||||||||||||||||||||||||||||||
Issuance of treasury shares | — | — | 47 | — | (10 | ) | 59 | — | — | — | — | 106 | |||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 33 | — | (29 | ) | 170 | — | — | — | — | 203 | |||||||||||||||||||||||||||||||
Purchase of non-controlling interest | — | — | (132 | ) | — | — | — | (13 | ) | — | — | — | (145 | ) | |||||||||||||||||||||||||||||
Net income | — | — | — | 7,528 | — | — | (377 | ) | — | — | — | 7,151 | |||||||||||||||||||||||||||||||
Balance at December 31, 2013 | 7,382 | 148 | 61,939 | 14,536 | 306 | (1,279 | ) | 1,665 | — | — | — | 77,009 | |||||||||||||||||||||||||||||||
Issuance of restricted stock | 146 | 3 | (3 | ) | — | (53 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Grant of restricted stock awards | — | — | 865 | — | — | — | — | — | — | — | 865 | ||||||||||||||||||||||||||||||||
Issuance of treasury shares | 10 | — | 70 | — | — | 60 | — | — | — | — | 130 | ||||||||||||||||||||||||||||||||
Exercise of stock options | 45 | 1 | 259 | — | (9 | ) | (161 | ) | — | — | — | — | 99 | ||||||||||||||||||||||||||||||
Warrant exercise | 155 | 3 | (973 | ) | — | (182 | ) | 970 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Shares withheld in lieu of payroll taxes | — | — | (1,290 | ) | — | — | — | — | — | — | — | (1,290 | ) | ||||||||||||||||||||||||||||||
Tax benefit from exercise/vesting of share based awards | — | — | 563 | — | — | — | — | — | — | — | 563 | ||||||||||||||||||||||||||||||||
Share retirement | (62 | ) | (1 | ) | (409 | ) | — | (62 | ) | 410 | — | — | — | — | — | ||||||||||||||||||||||||||||
Distribution of non-controlling interest | — | — | — | — | — | — | (33 | ) | — | — | — | (33 | ) | ||||||||||||||||||||||||||||||
Net income | — | — | — | 3,293 | — | — | (85 | ) | — | — | — | 3,208 | |||||||||||||||||||||||||||||||
Balance at November 11, 2014 | 7,676 | $ | 154 | $ | 61,021 | $ | 17,829 | — | $ | — | $ | 1,547 | $ | — | $ | — | $ | — | 80,551 | ||||||||||||||||||||||||
Election to business development company (Note 2) | — | — | 76,679 | (17,829 | ) | — | — | (1,547 | ) | — | — | — | 57,303 | ||||||||||||||||||||||||||||||
Issuance of common stock, net of offering costs (Note 13) | 2,530 | 51 | 27,832 | — | — | — | — | — | — | — | 27,883 | ||||||||||||||||||||||||||||||||
F-7
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS/STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||||||||
(In Thousands) | |||||||||||||||||||||||||||||||||||||||||||
Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Number of Shares of Treasury Stock | Treasury Stock | Non- controlling Interest | Accumulated Net Investment Loss | Net Unrealized Appreciation | Net Realized Gains | Total | |||||||||||||||||||||||||||||||||
Net increase in net assets | — | — | — | — | — | — | — | (2,523 | ) | 2,609 | 595 | 681 | |||||||||||||||||||||||||||||||
Balance at December 31, 2014 | 10,206 | $ | 205 | $ | 165,532 | $ | — | — | $ | — | $ | — | $ | (2,523 | ) | $ | 2,609 | $ | 595 | $ | 166,418 | ||||||||||||||||||||||
F-8
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS | |||
(In Thousands) | |||
Year ended December 31, 2015 | |||
Increase in net assets: | |||
Net investment loss | $ | (6,185 | ) |
Net realized gain on investments | 33,859 | ||
Net change in unrealized appreciation on investments | 10,194 | ||
Change in provision for deferred taxes on unrealized gains on investments | (857 | ) | |
Net change in unrealized depreciation on servicing assets | (1,268 | ) | |
Net change in unrealized depreciation on credits in lieu of cash and notes payable in credits in lieu of cash | (7 | ) | |
Net increase in net assets | 35,736 | ||
Distributions to stockholders: | |||
Distributions to stockholders from net realized gains (Note 14) | (20,912 | ) | |
Special dividend (Note 14) | (9,195 | ) | |
Total distributions to stockholders | (30,107 | ) | |
Capital share transactions: | |||
Issuance of common stock under dividend reinvestment plan | 288 | ||
Issuance of common stock in connection with acquisition of Premier Payments LLC | 2,472 | ||
Issuance of common stock in connection with legal settlement | 215 | ||
Issuance of common stock, net of offering costs (Note 13) | 35,290 | ||
Net increase in net assets from capital share transactions | 38,265 | ||
Other transactions: | |||
Consolidation of The Texas Whitestone Group, LLC and CCC Real Estate Holdings, LLC | (33 | ) | |
Adjustment for 2014 offering costs | 17 | ||
Reversal of deferred tax asset | (2,870 | ) | |
Distribution to members of Exponential of New York, LLC | (2,677 | ) | |
Out of period adjustment related to BDC Conversion (Note 2) | (800 | ) | |
Net decrease in net assets from other transactions | (6,363 | ) | |
Total increase in net assets | 37,531 | ||
Net assets at beginning of year | 166,418 | ||
Net assets at end of year | $ | 203,949 | |
F-9
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS | |||
(In Thousands) | |||
Common shares outstanding at end of period | 14,509 | ||
Capital share activity: | |||
Shares issued under dividend reinvestment plan | 17 | ||
Shares issued in connection with acquisition of Premier Payments LLC | 131 | ||
Shares issued in connection with legal settlement | 11 | ||
Shares issued in connection with public offering | 2,300 | ||
Shares issued in connection with special dividend | 1,844 | ||
Net increase in capital activity | 4,303 | ||
See accompanying notes to these consolidated financial statements.
F-10
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||
(In Thousands) | |||||||||||||||
As a Business Development Company | Prior to becoming a Business Development Company | ||||||||||||||
December 31, 2015 | November 12, 2014 to December 31, 2014 | January 1, 2014 to November 11, 2014 | December 31, 2013 | ||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net increase in net assets/net income | $ | 35,736 | $ | 681 | $ | 3,208 | $ | 7,151 | |||||||
Adjustments to reconcile net increase in net assets/net income to net cash provided by (used in) operating activities: | |||||||||||||||
Income from tax credits | (32 | ) | (13 | ) | (48 | ) | (113 | ) | |||||||
Amortization of deferred financing costs and debt discount related to debt refinancing | — | — | 1,905 | — | |||||||||||
Accretion of interest expense | 25 | 9 | 18 | 135 | |||||||||||
Fair value adjustments on SBA loans | — | — | 3,663 | 1,226 | |||||||||||
Net unrealized appreciation on controlled investments | (12,250 | ) | — | — | — | ||||||||||
Net unrealized depreciation on non-affiliate investments | 2,056 | (2,733 | ) | — | — | ||||||||||
Net unrealized depreciation on servicing assets | 1,268 | 120 | — | — | |||||||||||
Realized gains on controlled investments | (5,473 | ) | — | — | — | ||||||||||
Realized gains on non-affiliate investments | (29,573 | ) | — | — | — | ||||||||||
Realized losses on non-affiliate investments | 1,189 | — | — | — | |||||||||||
Fair value adjustment of credits in lieu of cash and notes payable in credits in lieu of cash | 7 | 4 | 30 | (21 | ) | ||||||||||
Deferred income taxes | 857 | 16 | 328 | (1,289 | ) | ||||||||||
Depreciation and amortization | 326 | 43 | 3,140 | 3,284 | |||||||||||
Purchase of loan from SBA | (703 | ) | — | — | — | ||||||||||
Funding of controlled investments | (17,100 | ) | (2,400 | ) | — | — | |||||||||
Funding of non-control/non-affiliate investment | (2,200 | ) | — | — | — | ||||||||||
Originations of non-affiliate SBA loans | (185,443 | ) | (30,914 | ) | — | — | |||||||||
Proceeds from sale of non-affiliate SBA loans | 240,663 | 6,421 | — | — | |||||||||||
Non-affiliate SBA loans originated for investment | (57,053 | ) | (8,570 | ) | — | — | |||||||||
Distributions received from investments in excess of basis | 5,473 | — | — | — | |||||||||||
Principal received from non-control/non-affiliate investment | 353 | — | — | — | |||||||||||
Return of investment from controlled investments | 3,746 | — | — | — | |||||||||||
Principal received from controlled investments | 1,200 | — | — | — | |||||||||||
Principal received on SBA loans | 20,086 | 1,305 | — | — | |||||||||||
Goodwill impairment | — | — | 1,706 | — | |||||||||||
Accretion of discount | 189 | 18 | 1,553 | 515 | |||||||||||
Provision for loan losses | — | — | (53 | ) | 1,322 | ||||||||||
Provision for doubtful accounts | — | — | 559 | 547 | |||||||||||
Other, net | 941 | 302 | 384 | 1,382 | |||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Investment in money market funds | 2,965 | (3,000 | ) | — | — | ||||||||||
Originations of SBA loans held for sale | — | — | (123,284 | ) | (135,167 | ) | |||||||||
F-11
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||
(In Thousands) | |||||||||||||||
As a Business Development Company | Prior to becoming a Business Development Company | ||||||||||||||
December 31, 2015 | November 12, 2014 to December 31, 2014 | January 1, 2014 to November 11, 2014 | December 31, 2013 | ||||||||||||
Proceeds from sale of SBA loans held for sale | — | — | 123,935 | 131,733 | |||||||||||
Broker receivable | (32,083 | ) | 6,718 | 6,889 | 3,092 | ||||||||||
Due to/from related parties | (2,477 | ) | 829 | — | — | ||||||||||
Accounts receivable | 100 | 1,441 | (873 | ) | (1,278 | ) | |||||||||
Prepaid expenses, accrued interest receivable and other assets | 5,013 | (4,425 | ) | 4,607 | (7,450 | ) | |||||||||
Accounts payable, accrued expenses and other liabilities | 1,725 | (5,698 | ) | 3,480 | 3,717 | ||||||||||
Change in restricted cash | (12,655 | ) | 1,061 | (3,498 | ) | — | |||||||||
Capitalized servicing asset | (4,827 | ) | (138 | ) | (3,096 | ) | — | ||||||||
Other, net | — | — | — | (3,812 | ) | ||||||||||
Net cash (used in) provided by operating activities | (37,951 | ) | (38,923 | ) | 24,553 | 4,974 | |||||||||
Cash flows from investing activities: | |||||||||||||||
Investments in qualified businesses | — | — | (214 | ) | — | ||||||||||
Returns of investments in qualified businesses | — | — | — | 1,532 | |||||||||||
Purchase of fixed assets and customer accounts | (105 | ) | (20 | ) | (1,369 | ) | (2,032 | ) | |||||||
Proceeds from sale of intangible asset | 407 | — | — | — | |||||||||||
SBA loans originated for investment, net | — | — | (39,786 | ) | (42,885 | ) | |||||||||
Payments received on SBA loans | — | — | 10,853 | 7,409 | |||||||||||
Proceeds from sale of loan held for investment | — | — | 500 | — | |||||||||||
Purchase of non-controlling interest | — | — | — | (145 | ) | ||||||||||
Net cash provided by (used in) investing activities | 302 | (20 | ) | (30,016 | ) | (36,121 | ) | ||||||||
Cash flows from financing activities: | |||||||||||||||
Net borrowings on bank lines of credit | (4,756 | ) | (1,091 | ) | 8,435 | 1,450 | |||||||||
Proceeds from common shares sold, net of offering costs | 35,290 | 29,728 | — | — | |||||||||||
Proceeds from term loan | — | — | 10,000 | — | |||||||||||
Net borrowing from related party | 5,647 | — | — | — | |||||||||||
Payments on bank note payable | (9,167 | ) | (417 | ) | (11,007 | ) | (417 | ) | |||||||
Proceeds from Notes due 2022 | 8,324 | — | — | — | |||||||||||
Payments on senior notes | (19,993 | ) | (2,070 | ) | (10,527 | ) | (7,522 | ) | |||||||
Issuance of senior notes | 32,029 | 31,679 | — | 45,343 | |||||||||||
Dividends paid | (15,111 | ) | — | — | — | ||||||||||
Special dividend paid | (9,195 | ) | — | — | — | ||||||||||
Change in restricted cash related to securitization | 5,175 | (4,935 | ) | 6,441 | (7,769 | ) | |||||||||
Additions to deferred financing costs | (1,409 | ) | (869 | ) | (860 | ) | (1,867 | ) | |||||||
Exponential of New York, LLC distributions to members | (2,673 | ) | — | — | — | ||||||||||
Proceeds from exercise of stock options | — | — | 15 | 198 | |||||||||||
F-12
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||
(In Thousands) | |||||||||||||||
As a Business Development Company | Prior to becoming a Business Development Company | ||||||||||||||
December 31, 2015 | November 12, 2014 to December 31, 2014 | January 1, 2014 to November 11, 2014 | December 31, 2013 | ||||||||||||
Payments on behalf of employees for payroll tax liability exchanged for shares in connection with early vesting | — | — | (1,207 | ) | — | ||||||||||
Other, net | (17 | ) | (2 | ) | (236 | ) | 10 | ||||||||
Net cash provided by financing activities | 24,144 | 52,023 | 1,054 | 29,426 | |||||||||||
Net (decrease) increase in cash and cash equivalents | (13,505 | ) | 13,080 | (4,409 | ) | (1,721 | ) | ||||||||
Cash and cash equivalents—beginning of year/period | 17,813 | 4,733 | 12,508 | 14,229 | |||||||||||
Cash and cash equivalents—end of year/period | 4,308 | 17,813 | 8,099 | 12,508 | |||||||||||
Supplemental disclosure of cash flow activities: | |||||||||||||||
Cash paid for interest | 4,617 | 638 | 3,970 | 3,986 | |||||||||||
Cash paid for taxes | — | — | 6,187 | 5,783 | |||||||||||
Non-cash investing and financing activities: | |||||||||||||||
Reduction of credits in lieu of cash and notes payable in credits in lieu of cash balances due to delivery of tax credits to Certified Investors | $ | 1,394 | $ | 174 | $ | 1,287 | $ | 5,182 | |||||||
Additional paid-in capital, upon acquisition of subsidiaries non-controlling interests | $ | — | $ | — | $ | — | $ | 129 | |||||||
Foreclosed real estate acquired | $ | 1,130 | $ | — | $ | 136 | $ | 625 | |||||||
Dividends declared but not paid during the year | $ | 5,802 | $ | — | $ | — | $ | — | |||||||
Reversal of deferred tax asset | $ | 2,870 | $ | — | $ | — | $ | — | |||||||
Issuance of common shares in connection with investment in Premier Payments LLC | $ | 2,472 | $ | — | $ | — | $ | — | |||||||
Issuance of common shares in connection with legal settlement | $ | 215 | $ | — | $ | — | $ | — | |||||||
Issuance of common shares under dividend reinvestment plan | $ | 288 | $ | — | $ | — | $ | — | |||||||
Out of period adjustment in connection with BDC Conversion | $ | 800 | $ | — | $ | — | $ | — | |||||||
See accompanying notes to these consolidated financial statements.
F-13
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Performing SBA Unguaranteed Investments (1) | ||||||||||||||||||||||||
Bright Dialysis LLC and Ft Pierce Kidney Care LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/28/2025 | $ | 1,250.0 | $ | 1,250.0 | $ | 1,056.6 | 0.52 | % | ||||||||||||
Return to Excellence, Inc. dba The Waynesville Inn Golf & Spa | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/10/2039 | 1,250.0 | 1,233.3 | 1,252.8 | 0.61 | % | |||||||||||||||
Kingseal LLC dba Desoto Health and Rehab Center | Nursing and Residential Care Facilities | Term Loan | Prime plus 2.75% | 2/26/2040 | 1,250.0 | 1,233.3 | 1,253.1 | 0.61 | % | |||||||||||||||
The Camera House Inc | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 8/31/2025 | 1,250.0 | 1,226.7 | 1,116.1 | 0.55 | % | |||||||||||||||
KW Zion, LLC and Key West Gallery Inc | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 9/12/2039 | 1,250.0 | 1,223.7 | 1,207.8 | 0.59 | % | |||||||||||||||
Ohs Auto Body, Inc. dba Ohs Body Shop | Repair and Maintenance | Term Loan | 7.22% | 6/25/2040 | 1,207.5 | 1,205.1 | 1,151.0 | 0.56 | % | |||||||||||||||
Seven Peaks Mining Inc and Cornerstone Industrial Minerals Corporation | Mining (except Oil and Gas) | Term Loan | Prime plus 2.75% | 11/18/2038 | 1,250.0 | 1,204.1 | 1,168.9 | 0.57 | % | |||||||||||||||
Grey Light Realty, LLC (EPC) NH Precision Metal Fabricators Inc (OC) | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 8/21/2039 | 1,226.0 | 1,198.3 | 1,170.7 | 0.57 | % | |||||||||||||||
Bowlerama Inc | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/24/2039 | 1,202.5 | 1,184.5 | 1,202.6 | 0.59 | % | |||||||||||||||
Foresite Realty Partners LLC and Foresite Real Estate Holdings LLC | Real Estate | Term Loan | Prime plus 2.75% | 3/27/2025 | 1,238.3 | 1,176.0 | 977.4 | 0.48 | % | |||||||||||||||
The Jewelers Inc. dba The Jewelers of Las Vegas | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/19/2024 | 1,250.0 | 1,165.5 | 978.9 | 0.48 | % | |||||||||||||||
Werthan Packaging Inc. | Paper Manufacturing | Term Loan | Prime plus 2.75% | 10/14/2025 | 1,162.5 | 1,162.5 | 1,078.2 | 0.53 | % | |||||||||||||||
Shellhorn and Hill Inc dba Total Fleet Service | Nonstore Retailers | Term Loan | Prime plus 2.75% | 3/27/2040 | 1,040.3 | 1,028.0 | 945.0 | 0.46 | % | |||||||||||||||
G.W. Fitness Centers, LLC and J.G. Fitness LLC and NP Gym LLC and ANA | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/18/2040 | 1,025.0 | 1,025.0 | 1,044.6 | 0.51 | % | |||||||||||||||
Shweiki Media, Inc. dba Study Breaks Magazine | Publishing Industries (except Internet) | Term Loan | Prime plus 2.75% | 3/22/2027 | 1,178.8 | 976.2 | 991.8 | 0.49 | % | |||||||||||||||
Tortilla King, Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/14/2029 | 1,033.1 | 975.2 | 946.5 | 0.46 | % | |||||||||||||||
Yachting Solutions LLC | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 9/25/2040 | 962.5 | 959.7 | 912.7 | 0.45 | % | |||||||||||||||
R. A. Johnson, Inc. dba Rick Johnson Auto & Tire | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 5/29/2039 | 943.8 | 918.3 | 944.9 | 0.46 | % | |||||||||||||||
Twinsburg Hospitality Group LLC dba Comfort Suites | Accommodation | Term Loan | Prime plus 2.75% | 10/31/2038 | 945.0 | 910.1 | 907.5 | 0.44 | % | |||||||||||||||
F-14
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Calhoun Satellite Communications Inc and Transmission Solutions Group | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 2/27/2025 | 952.8 | 898.1 | 782.6 | 0.38 | % | |||||||||||||||
Nirvi Enterprises LLC dba Howard Johnson / Knights Inn | Accommodation | Term Loan | Prime plus 2.75% | 6/17/2039 | 920.3 | 896.6 | 922.6 | 0.45 | % | |||||||||||||||
West Experience,Inc/West Mountain Equipment Rental,Inc/Ski West Lodge | Amusement, Gambling, and Recreation Industries | Term Loan | 6% | 6/5/2026 | 1,333.0 | 885.1 | 909.0 | 0.45 | % | |||||||||||||||
P and D Enterprises Ind dba Wallaby's Liquor Warehouse | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 8/28/2040 | 888.9 | 885.0 | 865.8 | 0.42 | % | |||||||||||||||
Nutmeg North Associates LLC (OC) Steeltech Building Products Inc | Construction of Buildings | Term Loan | Prime plus 2.75% | 12/31/2038 | 897.8 | 883.1 | 876.8 | 0.43 | % | |||||||||||||||
Premier Athletic Center of Ohio Inc. and Gates Investments and Wade Ga | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/22/2028 | 882.0 | 882.0 | 885.3 | 0.43 | % | |||||||||||||||
Havana Central (NY) 5, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/29/2022 | 1,166.8 | 878.5 | 887.2 | 0.44 | % | |||||||||||||||
New York Home Health Care Equipment, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/16/2025 | 875.0 | 875.0 | 847.9 | 0.42 | % | |||||||||||||||
Elite Structures Inc | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 6/12/2038 | 932.8 | 873.5 | 907.2 | 0.44 | % | |||||||||||||||
Delta Aggregate LLC | Mining (except Oil and Gas) | Term Loan | Prime plus 2.75% | 8/28/2039 | 911.3 | 871.5 | 885.0 | 0.43 | % | |||||||||||||||
Honeyspot Investors LLP and Pace Motor Lines Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 6/30/2039 | 875.3 | 854.5 | 876.2 | 0.43 | % | |||||||||||||||
2161 Highway 6 Trail, LLC, (EPC) R. H. Hummer JR., Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 6/19/2026 | 1,250.0 | 842.8 | 858.4 | 0.42 | % | |||||||||||||||
Key Pix Productions Inc. dba Air Bud Entertainment | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 11/18/2040 | 839.8 | 839.8 | 855.8 | 0.42 | % | |||||||||||||||
Hotels of North Georgia LLC dba Comfort Inn and Suites | Accommodation | Term Loan | Prime plus 2.75% | 6/17/2039 | 837.5 | 816.0 | 838.7 | 0.41 | % | |||||||||||||||
Shepher Distr's and Sales Corp and The Lederer Industries Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/30/2023 | 1,050.0 | 801.8 | 805.3 | 0.39 | % | |||||||||||||||
Maxwell Place, LLC | Nursing and Residential Care Facilities | Term Loan | 6% | 2/28/2016 | 1,076.8 | 801.3 | 802.4 | 0.39 | % | |||||||||||||||
Carpet Exchange of North Texas Inc and Clyde E. Cumbie Jr | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 3/25/2040 | 810.0 | 800.4 | 804.9 | 0.39 | % | |||||||||||||||
Sovereign Communications LLC | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 2/7/2024 | 907.8 | 784.1 | 722.7 | 0.35 | % | |||||||||||||||
CBlakeslee Arpaia Chapman, Inc. dba Blakeslee Industrial Services | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 6/18/2028 | 875.0 | 780.5 | 797.9 | 0.39 | % | |||||||||||||||
F-15
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
T and B Boots Inc dba Takkens | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 3/31/2025 | 807.8 | 767.6 | 720.3 | 0.35 | % | |||||||||||||||
Recycling Consultants, Inc. and Prairie State Salvage and Recycling Inc | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/30/2027 | 767.5 | 760.1 | 680.7 | 0.33 | % | |||||||||||||||
Advance Case Parts RE Holdings LLC and Advance Case Parts Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/31/2040 | 758.3 | 751.5 | 695.2 | 0.34 | % | |||||||||||||||
D.C. Group, Inc. dba Unique Setting of New York | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/21/2025 | 750.0 | 750.0 | 665.7 | 0.33 | % | |||||||||||||||
Gabrielle Realty, LLC | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/27/2038 | 757.6 | 726.6 | 724.4 | 0.36 | % | |||||||||||||||
Keys Phase One LLC dba The Grand Guesthouse | Accommodation | Term Loan | Prime plus 2.75% | 9/26/2039 | 736.3 | 720.8 | 712.2 | 0.35 | % | |||||||||||||||
Top Cat Ready Mix, LLC, Ples Investments LLC, and Pappy's Sand and | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 10/28/2025 | 711.3 | 707.8 | 618.5 | 0.30 | % | |||||||||||||||
Willow Springs Golf Course, Inc. & JC Lindsey Family Limited Partners | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/29/2037 | 755.4 | 706.5 | 737.4 | 0.36 | % | |||||||||||||||
J&D Resources, LLC dba Aqua Science | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/21/2024 | 767.9 | 701.8 | 596.5 | 0.29 | % | |||||||||||||||
Almost Home Property LLC and Almost Home Daycare LLC | Social Assistance | Term Loan | Prime plus 2.75% | 8/7/2039 | 715.8 | 700.7 | 700.1 | 0.34 | % | |||||||||||||||
Contract Packaging Services Inc dba Superior Pack Group | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 6/21/2023 | 851.8 | 694.6 | 686.6 | 0.34 | % | |||||||||||||||
Big Apple Entertainment Partners, LLC dba Ripley's Believe it or Not | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/28/2021 | 1,070.0 | 692.9 | 689.2 | 0.34 | % | |||||||||||||||
ATI Jet, Inc. | Air Transportation | Term Loan | Prime plus 2.75% | 12/28/2026 | 852.8 | 688.4 | 700.6 | 0.34 | % | |||||||||||||||
Scent-Sation Inc | Textile Product Mills | Term Loan | Prime plus 2.75% | 9/18/2040 | 687.5 | 685.5 | 693.5 | 0.34 | % | |||||||||||||||
Empower Autism Academy | Social Assistance | Term Loan | Prime plus 2.75% | 9/4/2040 | 685.0 | 683.0 | 695.9 | 0.34 | % | |||||||||||||||
C & G Engines Corp. | Transportation Equipment Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2021 | 1,041.5 | 675.1 | 676.2 | 0.33 | % | |||||||||||||||
Accent Tag and Label Inc | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 12/18/2040 | 665.8 | 665.8 | 652.7 | 0.32 | % | |||||||||||||||
IIoka Inc dba New Cloud Networks | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/21/2025 | 665.0 | 658.9 | 554.7 | 0.27 | % | |||||||||||||||
Fieldstone Quick Stop LLC(OC) Barber Investments LLC (EPC) Thadius M B | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/30/2038 | 676.3 | 658.3 | 646.2 | 0.32 | % | |||||||||||||||
F-16
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Carl R. Bieber, Inc. dba Bieber Tourways/Bieber Transportation/Bieber | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 9/30/2027 | 712.5 | 655.6 | 662.7 | 0.32 | % | |||||||||||||||
Eagle Aggregate Transportation, LLC and Eagle Pneumatic Transport LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 3/31/2024 | 1,250.0 | 652.9 | 656.5 | 0.32 | % | |||||||||||||||
LA Diner Inc dba Loukas L A Diner | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/28/2037 | 677.5 | 641.2 | 666.2 | 0.33 | % | |||||||||||||||
Meridian Hotels LLC dba Best Western Jonesboro | Accommodation | Term Loan | Prime plus 2.75% | 10/29/2038 | 664.5 | 637.5 | 654.4 | 0.32 | % | |||||||||||||||
St Lawrence Hotel Corp and Oheka Catering Inc dba Quality Inn | Accommodation | Term Loan | Prime plus 2.75% | 9/24/2040 | 625.0 | 623.2 | 610.9 | 0.30 | % | |||||||||||||||
iFood, Inc. dba Steak N Shake | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2039 | 629.8 | 613.6 | 597.3 | 0.29 | % | |||||||||||||||
Colts V LLC and Nowatzke Service Center, Inc dba Nowatzke Truck & Trai | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/26/2039 | 601.8 | 589.1 | 579.5 | 0.28 | % | |||||||||||||||
Northeast Arkansas Pizza, Inc. dba Domino’s Pizza | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/23/2025 | 608.0 | 589.1 | 493.4 | 0.24 | % | |||||||||||||||
Indy East Smiles Youth Dentistry LLC dba Prime Smile East | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/11/2024 | 630.2 | 574.0 | 479.7 | 0.24 | % | |||||||||||||||
Master CNC Inc & Master Properties LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 10/31/2038 | 596.6 | 573.6 | 562.8 | 0.28 | % | |||||||||||||||
CLU Amboy, LLC (EPC) and Amboy Group, LLC (OC) dba Tommy Moloney's | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/27/2023 | 656.3 | 565.8 | 568.3 | 0.28 | % | |||||||||||||||
IlOKA Inc dba Microtech Tel and NewCloud Networks | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/30/2023 | 687.5 | 565.5 | 534.2 | 0.26 | % | |||||||||||||||
ACI Northwest Inc. | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 8/30/2023 | 906.3 | 560.8 | 548.7 | 0.27 | % | |||||||||||||||
Bisson Transportation, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 5/7/2037 | 588.1 | 557.0 | 577.2 | 0.28 | % | |||||||||||||||
Richards Plumbing and Heating Co., Inc. dba Richards Mechanical | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/23/2040 | 551.8 | 547.7 | 556.6 | 0.27 | % | |||||||||||||||
B and J Catering Inc dba Culinary Solutions | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/27/2040 | 547.5 | 547.5 | 523.5 | 0.26 | % | |||||||||||||||
CML RW Security, LLC | Construction of Buildings | Term Loan | Prime plus 2.75% | 3/20/2025 | 575.0 | 546.1 | 453.9 | 0.22 | % | |||||||||||||||
Sambella Holdings, LLC and Strike Zone Entertainment Center LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 11/23/2040 | 1,189.5 | 546.1 | 556.5 | 0.27 | % | |||||||||||||||
Route 130 SCPI Holdings LLC (EPC) Route 130 SCPI Operations LLC (OC) | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/30/2039 | 538.8 | 536.3 | 505.9 | 0.25 | % | |||||||||||||||
F-17
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
PLES Investements, LLC and John Redder, Pappy Sand & Gravel, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/19/2038 | 555.3 | 535.7 | 534.4 | 0.26 | % | |||||||||||||||
KRN Logistics, LLC,Newsome Trucking, Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 6/19/2025 | 543.5 | 526.6 | 473.2 | 0.23 | % | |||||||||||||||
PowerWash Plus, Inc. and CJR, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/30/2038 | 550.0 | 523.8 | 537.3 | 0.26 | % | |||||||||||||||
The Lodin Group LLC and Lodin Health Imaging Inc dba Highlands Breast | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/23/2039 | 530.3 | 521.6 | 480.7 | 0.24 | % | |||||||||||||||
The Grasso Companies LLC and Grasso Pavement Maintenance LLC Veranda | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 9/28/2025 | 518.8 | 512.4 | 503.8 | 0.25 | % | |||||||||||||||
SBR Technologies d/b/a Color Graphics | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/31/2021 | 806.2 | 512.0 | 517.0 | 0.25 | % | |||||||||||||||
American Diagnostic Imaging, Inc. dba St. Joseph Imaging Center | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/25/2038 | 537.5 | 510.2 | 522.8 | 0.26 | % | |||||||||||||||
The Woods at Bear Creek LLC and Bear Creek Entertainment LLC | Accommodation | Term Loan | Prime plus 2.75% | 9/29/2039 | 513.3 | 503.9 | 511.9 | 0.25 | % | |||||||||||||||
LC Blvd Holdings LLC and Mt Pleasant Wash & Wax LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/4/2040 | 502.5 | 502.5 | 497.9 | 0.24 | % | |||||||||||||||
Thermoplastic Services Inc and Paragon Plastic Sheet, Inc | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 12/23/2039 | 500.0 | 491.8 | 499.6 | 0.24 | % | |||||||||||||||
Polpo Realty LLC (EPC) & Polpo Restaurant LLC (OC) dba Polpo Restaurant | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/27/2037 | 517.5 | 489.4 | 508.7 | 0.25 | % | |||||||||||||||
740 Barry Street Realty LLC and Wild Edibles Inc | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 2/10/2040 | 492.5 | 485.9 | 493.7 | 0.24 | % | |||||||||||||||
200 North 8th Street Associates LLC and Enchanted Acres Farm | Food Manufacturing | Term Loan | Prime plus 2.75% | 5/4/2028 | 494.6 | 484.0 | 484.5 | 0.24 | % | |||||||||||||||
636 South Center Holdings, LLC and New Mansfield Brass and Aluminum Co | Primary Metal Manufacturing | Term Loan | Prime plus 2.75% | 3/20/2039 | 497.5 | 482.3 | 496.1 | 0.24 | % | |||||||||||||||
Macho LLC (EPC) Madelaine Chocolate Novelties Inc(OC) dba The Madelai | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/31/2037 | 500.0 | 474.5 | 493.2 | 0.24 | % | |||||||||||||||
401 JJS Corporation and G. Randazzo Corporation | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/23/2039 | 473.5 | 469.9 | 464.8 | 0.23 | % | |||||||||||||||
Heartland American Properties LLC and Skaggs RV Outlet LLC | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 10/31/2039 | 479.0 | 469.7 | 461.5 | 0.23 | % | |||||||||||||||
Nikobella Properties LLC and JPO Inc dba Village Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/25/2039 | 476.3 | 464.0 | 468.6 | 0.23 | % | |||||||||||||||
Firm Foundations Inc. David S Gaitan Jr and Christopher K Daigle | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/3/2023 | 545.8 | 463.8 | 442.9 | 0.22 | % | |||||||||||||||
Wired LLC and Moulison North Corporation | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/30/2024 | 500.0 | 463.4 | 441.2 | 0.22 | % | |||||||||||||||
F-18
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
J. Kinderman & Sons, Inc. dba Brite Star Manufacturing Company | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 12/22/2036 | 495.0 | 458.3 | 478.0 | 0.23 | % | |||||||||||||||
Capital Scrap Metal, LLC and Powerline Investment, LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 3/29/2038 | 500.0 | 452.8 | 470.8 | 0.23 | % | |||||||||||||||
River Club Golf Course Inc dba The River Club | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2038 | 475.2 | 450.2 | 463.2 | 0.23 | % | |||||||||||||||
Eastside Soccer Dome, Inc . | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/26/2038 | 463.8 | 444.8 | 457.3 | 0.22 | % | |||||||||||||||
Amboy Group, LLC dba Tommy's Moloney's | Food Manufacturing | Term Loan | Prime plus 2.75% | 6/24/2025 | 454.0 | 443.0 | 441.4 | 0.22 | % | |||||||||||||||
6 Price Avenue, LLC and Pauley Tree & Lawn Care, Inc | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/24/2039 | 452.5 | 443.0 | 402.5 | 0.20 | % | |||||||||||||||
Sandlot Ventures LLC and Sandbox Ventures LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/25/2040 | 442.5 | 441.2 | 420.4 | 0.21 | % | |||||||||||||||
ENI Inc, Event Networks Inc, ENI Worldwide LLC and Spot Shop Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 4/25/2024 | 500.0 | 438.7 | 400.8 | 0.20 | % | |||||||||||||||
Hodges Properties LLC and Echelon Enterprises Inc dba Treads Bicycle | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 3/31/2039 | 449.0 | 435.3 | 441.4 | 0.22 | % | |||||||||||||||
SDA Holdings LLC and Les Cheveux Salon Inc | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/15/2040 | 428.8 | 428.8 | 413.8 | 0.20 | % | |||||||||||||||
Flooring Liquidators Inc and Flooring Liquidators of Mt Kisco LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/17/2025 | 437.5 | 423.9 | 411.6 | 0.20 | % | |||||||||||||||
Mid-South Lumber Co. of Northwest Florida, Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 3/31/2040 | 428.8 | 423.7 | 389.5 | 0.19 | % | |||||||||||||||
S&P Holdings of Daytona LLC (EPC) S&P Corporation of Daytona Beach | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 8/15/2039 | 433.5 | 421.8 | 428.3 | 0.21 | % | |||||||||||||||
Tavern Properties LLC and Wildwood Tavern LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/15/2039 | 425.0 | 418.8 | 411.2 | 0.20 | % | |||||||||||||||
Sherill Universal City dba Golden Corral | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/28/2038 | 440.5 | 418.3 | 429.6 | 0.21 | % | |||||||||||||||
Wilban LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/28/2039 | 427.5 | 415.6 | 419.8 | 0.21 | % | |||||||||||||||
Sound Manufacturing, Inc. and Monster Power Equipment Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 3/15/2023 | 523.0 | 411.4 | 408.2 | 0.20 | % | |||||||||||||||
J&K Fitness, LLC dba Physiques Womens Fitness Center | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/8/2036 | 449.3 | 411.3 | 429.0 | 0.21 | % | |||||||||||||||
Import Car Connection Inc dba Car Connection | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 9/16/2040 | 407.5 | 406.3 | 407.6 | 0.20 | % | |||||||||||||||
F-19
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
R & R Boyal LLC dba Cap N Cat Clam Bar and Little Ease Tavern | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 2/28/2039 | 417.5 | 404.3 | 404.7 | 0.20 | % | |||||||||||||||
920 CHR Realty LLC (EPC) V. Garofalo Carting Inc (OC) | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 12/10/2038 | 418.1 | 403.4 | 414.8 | 0.20 | % | |||||||||||||||
Utek Corporation dba Arcade Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/22/2039 | 405.5 | 402.1 | 404.7 | 0.20 | % | |||||||||||||||
RIM Investments LLC and RIM Architects LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/28/2040 | 399.0 | 397.8 | 384.7 | 0.19 | % | |||||||||||||||
Zane Filippone Co Inc dba Culligan Water Conditioning | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/12/2022 | 558.2 | 397.1 | 400.0 | 0.20 | % | |||||||||||||||
SE Properties 39 Old Route 146, LLC (EPC) SmartEarly Clifton Park LLC | Social Assistance | Term Loan | Prime plus 2.75% | 3/14/2039 | 408.0 | 396.7 | 407.3 | 0.20 | % | |||||||||||||||
John Duffy Fuel Co., Inc. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/28/2022 | 513.8 | 393.9 | 398.2 | 0.20 | % | |||||||||||||||
Bisson Moving & Storage Company Bisson Transportation Inc and BTG Real Estate | Truck Transportation | Term Loan | Prime plus 2.75% | 5/7/2022 | 528.8 | 391.4 | 395.0 | 0.19 | % | |||||||||||||||
TAK Properties LLC and Kinderland Inc | Social Assistance | Term Loan | Prime plus 2.75% | 12/18/2038 | 405.0 | 390.8 | 391.2 | 0.19 | % | |||||||||||||||
Polymer Sciences, Inc. dba Polymer Sciences, Inc. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/28/2036 | 422.6 | 387.2 | 403.7 | 0.20 | % | |||||||||||||||
Kup's Auto Spa Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 11/15/2038 | 396.7 | 377.2 | 386.0 | 0.19 | % | |||||||||||||||
Jihan Inc dba ARCO AM/PM and Diana Inc dba Diana's Recycling | Gasoline Stations | Term Loan | Prime plus 2.75% | 6/26/2040 | 380.0 | 377.1 | 365.2 | 0.18 | % | |||||||||||||||
R.H. Hummer Jr., Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 9/30/2025 | 375.0 | 375.0 | 355.3 | 0.17 | % | |||||||||||||||
Tariq, LLC dba 76 Food Mart | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/2/2040 | 375.0 | 375.0 | 372.0 | 0.18 | % | |||||||||||||||
Swalm Sreet LLC and New York Home Health Care Equipment LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/16/2040 | 375.0 | 375.0 | 370.9 | 0.18 | % | |||||||||||||||
B&B Organics LLC | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 12/22/2040 | 375.0 | 375.0 | 382.2 | 0.19 | % | |||||||||||||||
All American Games, LLC and Sportslink - The Game, LLC | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/10/2024 | 400.0 | 372.1 | 329.1 | 0.16 | % | |||||||||||||||
3Fmanagement LLC and ATC Fitness Cape Coral, LLC dba Around the Clock | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 1/24/2024 | 425.0 | 364.2 | 342.2 | 0.17 | % | |||||||||||||||
AIG Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 9/4/2040 | 363.8 | 362.7 | 340.6 | 0.17 | % | |||||||||||||||
F-20
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
The Berlerro Group, LLC dba Sky Zone | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/12/2023 | 421.3 | 360.6 | 335.9 | 0.16 | % | |||||||||||||||
Gator Communications Group LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 8/31/2021 | 575.0 | 358.1 | 360.2 | 0.18 | % | |||||||||||||||
Fair Deal Food Mart Inc dba Neighbors Market | Gasoline Stations | Term Loan | Prime plus 2.75% | 5/3/2037 | 381.3 | 354.9 | 370.4 | 0.18 | % | |||||||||||||||
iFood, Inc. dba Steak N Shake | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/31/2024 | 379.1 | 353.5 | 317.9 | 0.16 | % | |||||||||||||||
Murrayville Donuts, Inc dba Dunkin' Donuts | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 7/15/2040 | 344.5 | 344.5 | 329.3 | 0.16 | % | |||||||||||||||
Michael J. Speeney & Joyce Speeney and R2 Tape, Inc. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/31/2037 | 367.5 | 344.4 | 357.7 | 0.18 | % | |||||||||||||||
Basista Family Limited Partnership and UPE, Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/14/2040 | 342.5 | 342.5 | 334.5 | 0.16 | % | |||||||||||||||
Johnson Carwash LLC and Johnson Petroleum LLC | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/14/2040 | 340.0 | 340.0 | 345.1 | 0.17 | % | |||||||||||||||
Ezzo Properties, LLC and Great Lakes Cleaning, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/20/2027 | 389.6 | 338.3 | 335.0 | 0.16 | % | |||||||||||||||
Suncoast Aluminum Furniture, Inc | Furniture and Related Product Manufacturing | Term Loan | Prime plus 2.75% | 8/17/2037 | 360.0 | 337.5 | 350.3 | 0.17 | % | |||||||||||||||
Mirage Plastering Inc and Mpire LLC and Mpire II LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/12/2040 | 338.8 | 336.3 | 290.1 | 0.14 | % | |||||||||||||||
Cencon Properties LLC and Central Connecticut Warehousing Company, Inc | Warehousing and Storage | Term Loan | Prime plus 2.75% | 9/30/2038 | 344.5 | 331.0 | 339.2 | 0.17 | % | |||||||||||||||
Gator Communications Group LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 3/30/2022 | 466.3 | 330.4 | 331.0 | 0.16 | % | |||||||||||||||
Spectrum Development LLC and Solvit Inc & Solvit North, Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/2/2023 | 387.3 | 329.2 | 314.3 | 0.15 | % | |||||||||||||||
Advanced Skincare Medcenter Inc dba Advanced Skincare Surgery | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/29/2025 | 337.5 | 326.9 | 277.2 | 0.14 | % | |||||||||||||||
Hagerstown Muffler, Inc. and JMS Muffler, Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/24/2040 | 327.5 | 326.5 | 332.8 | 0.16 | % | |||||||||||||||
Mitchellville Family Dentistry, Dr. Octavia Simkins-Wiseman DDS PC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/27/2038 | 335.1 | 321.4 | 323.3 | 0.16 | % | |||||||||||||||
Lisle Lincoln II Limited Partnership dba Lisle Lanes LP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/29/2036 | 338.1 | 320.1 | 334.0 | 0.16 | % | |||||||||||||||
Orange County Insurance Brokerage Inc dba Beaty Insurance Agency | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 9/29/2039 | 325.1 | 319.3 | 324.3 | 0.16 | % | |||||||||||||||
F-21
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Nova Solutions Inc | Furniture and Related Product Manufacturing | Term Loan | Prime plus 2.75% | 9/22/2040 | 320.0 | 319.1 | 313.0 | 0.15 | % | |||||||||||||||
MRM Supermarkets Inc dba Constantins Breads; Dallas Gourmet Breads | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/29/2038 | 336.0 | 319.0 | 324.6 | 0.16 | % | |||||||||||||||
Taylor Transport, Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 12/8/2021 | 515.5 | 317.2 | 320.2 | 0.16 | % | |||||||||||||||
FHJE Ventures LLC and Eisenreich II Inc. dba Breakneck Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/27/2039 | 321.8 | 313.6 | 315.9 | 0.15 | % | |||||||||||||||
A & M Commerce, Inc. dba Cranberry Sunoco | Gasoline Stations | Term Loan | Prime plus 2.75% | 3/27/2038 | 330.3 | 313.3 | 323.5 | 0.16 | % | |||||||||||||||
Lenoir Business Partners LLC (EPC) LP Industries, Inc dba Childforms | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2038 | 322.7 | 311.2 | 313.7 | 0.15 | % | |||||||||||||||
Shane M. Howell and Buck Hardware and Garden Center, LLC | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 12/27/2038 | 322.5 | 311.1 | 307.8 | 0.15 | % | |||||||||||||||
Jumbomarkets Inc dba Rines Jumbomarkets | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 11/4/2025 | 306.3 | 306.3 | 294.4 | 0.14 | % | |||||||||||||||
BCD Holdings, LLC and H-MA, LLC d/b/a/ Hawaii Mainland Administrators | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 3/2/2022 | 451.3 | 305.1 | 304.3 | 0.15 | % | |||||||||||||||
Summit Beverage Group LLC | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 2/28/2024 | 350.6 | 302.9 | 292.2 | 0.14 | % | |||||||||||||||
Onofrios Enterprises LLC (EPC) Onofrios Fresh Cut, Inc | Food Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2038 | 312.5 | 301.0 | 304.4 | 0.15 | % | |||||||||||||||
Joyce Outdoor Advertising Chicago LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 12/22/2040 | 300.0 | 300.0 | 284.5 | 0.14 | % | |||||||||||||||
Sunset Marine Resort LLC and GoXpeditions LLC and Lavon Gomes and Trac | Accommodation | Term Loan | Prime plus 2.75% | 3/27/2040 | 301.8 | 298.2 | 303.0 | 0.15 | % | |||||||||||||||
510 ROK Realty LLC dba ROK Health and Fitness and Robert N. D'urso | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/19/2024 | 332.0 | 296.3 | 294.5 | 0.14 | % | |||||||||||||||
R A Johnson Inc dba Rick Johnson Auto and Tire | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/23/2039 | 301.3 | 294.9 | 299.5 | 0.15 | % | |||||||||||||||
American Campgrounds LLC dba Whit's End Campground | Accommodation | Term Loan | Prime plus 2.75% | 12/4/2040 | 293.0 | 293.0 | 290.9 | 0.14 | % | |||||||||||||||
Custom Software, Inc. a Colorado Corporation dba M-33 Access | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/17/2021 | 426.0 | 289.2 | 293.0 | 0.14 | % | |||||||||||||||
Anturio Marketing Inc dba Logic Consulting | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/12/2040 | 290.3 | 288.1 | 292.8 | 0.14 | % | |||||||||||||||
Summit Beverage Group LLC | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 8/29/2030 | 291.9 | 286.8 | 258.1 | 0.13 | % | |||||||||||||||
F-22
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Aegis Creative Communications, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/30/2022 | 387.5 | 286.2 | 277.3 | 0.14 | % | |||||||||||||||
The Smile Place LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/30/2040 | 283.9 | 282.2 | 276.4 | 0.14 | % | |||||||||||||||
KDP LLC and KDP Investment Advisors, Inc and KDP Asset Management, Inc | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/14/2023 | 343.8 | 278.0 | 270.9 | 0.13 | % | |||||||||||||||
New Image Building Services Inc. dba New Image Repair Services | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/29/2023 | 331.3 | 277.0 | 259.8 | 0.13 | % | |||||||||||||||
Anglin Cultured Stone Products LLC dba Anglin Construction | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/30/2025 | 281.8 | 273.0 | 238.1 | 0.12 | % | |||||||||||||||
Cheryle A Baptiste and Cheryle Baptiste DDS PLLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/30/2037 | 286.5 | 270.0 | 278.8 | 0.14 | % | |||||||||||||||
Central Tire, Inc. dba Cooper Tire & Auto Services | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/29/2037 | 288.5 | 269.1 | 279.5 | 0.14 | % | |||||||||||||||
First Prevention and Dialysis Center LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/30/2024 | 273.3 | 268.9 | 251.4 | 0.12 | % | |||||||||||||||
New Image Building Services, Inc. dba New Image Repair Services | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/23/2037 | 285.7 | 267.7 | 271.6 | 0.13 | % | |||||||||||||||
Christou Real Estate Holdings LLC dba Tops American Grill | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/17/2037 | 284.0 | 264.1 | 275.3 | 0.13 | % | |||||||||||||||
Faith Memorial Chapel LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/20/2038 | 268.4 | 258.1 | 259.5 | 0.13 | % | |||||||||||||||
Thrifty Market, Inc. dba Thrifty Foods | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 6/30/2030 | 262.5 | 257.9 | 227.2 | 0.11 | % | |||||||||||||||
15 McArdle LLC and No Other Impressions Inc | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 5/15/2040 | 257.1 | 254.9 | 238.4 | 0.12 | % | |||||||||||||||
Scent-Sation, Inc. d/b/a Scent-Sation, Inc. | Textile Product Mills | Term Loan | Prime plus 2.75% | 11/21/2021 | 337.5 | 253.9 | 257.1 | 0.13 | % | |||||||||||||||
Reidville Hydraulics & Mfg Inc dba Summit Farms LLC | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 11/2/2037 | 265.9 | 250.6 | 254.6 | 0.12 | % | |||||||||||||||
All-Tag Corporation | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 11/30/2025 | 250.4 | 250.4 | 218.0 | 0.11 | % | |||||||||||||||
Roccos LLC and Sullo Pantalone Inc dba Rocco's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/30/2039 | 255.8 | 250.4 | 237.3 | 0.12 | % | |||||||||||||||
JAG Unit 1, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/16/2025 | 250.0 | 250.0 | 210.6 | 0.10 | % | |||||||||||||||
V2 Tango LLC dba Palette 22 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/23/2025 | 250.0 | 250.0 | 217.1 | 0.11 | % | |||||||||||||||
F-23
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Animal Intrusion Prevention Systems Holding Company, LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/15/2024 | 272.5 | 248.2 | 219.7 | 0.11 | % | |||||||||||||||
HAVANA CENTRAL NJ1, LLC dba Havana Central | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/31/2025 | 250.0 | 245.1 | 238.9 | 0.12 | % | |||||||||||||||
Wolf Enviro Interests, LLC and Enviromax Services Inc | Administrative and Support Services | Term Loan | Prime plus 2.75% | 6/25/2040 | 246.5 | 244.7 | 223.7 | 0.11 | % | |||||||||||||||
CNYP 717 Irondequoit LLC and CNYP 2002 Ontario LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/20/2040 | 244.4 | 244.4 | 226.0 | 0.11 | % | |||||||||||||||
MJD Investments, LLC dba The Community Day School | Social Assistance | Term Loan | Prime plus 2.75% | 1/31/2038 | 258.3 | 244.3 | 250.6 | 0.12 | % | |||||||||||||||
RKP Service dba Rainbow Carwash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/31/2023 | 300.0 | 243.1 | 237.5 | 0.12 | % | |||||||||||||||
FHJE Ventures LLC and Eisenreich II Inc dba Breakneck Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/30/2039 | 245.5 | 242.9 | 225.8 | 0.11 | % | |||||||||||||||
JWB Industries, Inc. dba Carteret Die Casting | Primary Metal Manufacturing | Term Loan | Prime plus 2.75% | 2/11/2024 | 280.0 | 241.8 | 225.3 | 0.11 | % | |||||||||||||||
800 on the Trax LLC and Matrix Z LLC | Nonmetallic Mineral Product Manufacturing | Term Loan | Prime plus 2.75% | 12/23/2040 | 240.0 | 240.0 | 234.6 | 0.12 | % | |||||||||||||||
Xela Pack, Inc. and Aliseo and Catherine Gentile | Paper Manufacturing | Term Loan | Prime plus 2.75% | 3/27/2028 | 271.8 | 239.2 | 244.5 | 0.12 | % | |||||||||||||||
WI130, LLC (EPC) & Lakeland Group, Inc (OC) dba Lakeland Electrical | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/31/2028 | 271.5 | 239.0 | 238.1 | 0.12 | % | |||||||||||||||
LaSalle Market and Deli EOK Inc and Rugen Realty LLC dba LaSalle Market | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/21/2037 | 252.3 | 236.8 | 242.7 | 0.12 | % | |||||||||||||||
Clairvoyant Realty Corp. and Napoli Marble & Granite Design, Ltd | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 10/24/2038 | 246.3 | 236.8 | 234.5 | 0.11 | % | |||||||||||||||
Capitol Waste and Recycling Services LLC | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 10/10/2024 | 257.8 | 236.4 | 210.6 | 0.10 | % | |||||||||||||||
All About Smiles P A | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/30/2040 | 237.7 | 235.9 | 231.1 | 0.11 | % | |||||||||||||||
Joyce Outdoor Advertising LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/29/2040 | 234.8 | 234.8 | 235.3 | 0.12 | % | |||||||||||||||
Pierce Developments, Inc. dba Southside Granite | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 6/13/2036 | 256.1 | 233.3 | 242.6 | 0.12 | % | |||||||||||||||
Atlantis of Daytona LLC and Ocean Club Sportswear Inc | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/23/2039 | 240.0 | 233.1 | 236.7 | 0.12 | % | |||||||||||||||
Big Sky Plaza LLC and Strickland, Incorporated dba Livingston True Value | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 6/20/2039 | 233.4 | 227.4 | 229.0 | 0.11 | % | |||||||||||||||
F-24
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
M & H Pine Straw Inc and Harris L. Maloy | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 3/21/2023 | 288.8 | 227.1 | 227.0 | 0.11 | % | |||||||||||||||
MTV Bowl, Inc. dba Legend Lanes | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/30/2036 | 248.5 | 226.4 | 235.8 | 0.12 | % | |||||||||||||||
Meridian Hotels, LLC dba Best Western Jonesboro | Accommodation | Term Loan | Prime plus 2.75% | 11/25/2039 | 228.0 | 224.9 | 228.4 | 0.11 | % | |||||||||||||||
HJ & Edward Enterprises, LLC dba Sky Zone | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/26/2023 | 262.5 | 224.8 | 218.5 | 0.11 | % | |||||||||||||||
DuCharme Realty LLC and DuCharme Enterprises LLC dba Specialty | Wood Product Manufacturing | Term Loan | Prime plus 2.75% | 2/2/2040 | 225.1 | 222.1 | 208.0 | 0.10 | % | |||||||||||||||
Hemingway Custom Cabinetry LLC | Furniture and Related Product Manufacturing | Term Loan | Prime plus 2.75% | 9/25/2025 | 220.0 | 217.3 | 187.0 | 0.09 | % | |||||||||||||||
Bowl Mor, LLC dba Bowl Mor Lanes / Spare Lounge, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/13/2039 | 223.5 | 216.7 | 222.9 | 0.11 | % | |||||||||||||||
Homegrown For Good LLC | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 11/26/2024 | 230.0 | 215.5 | 195.5 | 0.10 | % | |||||||||||||||
Discount Wheel and Tire | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 9/30/2038 | 223.8 | 214.6 | 214.3 | 0.11 | % | |||||||||||||||
Newsome Trucking Inc and Kevin Newsome | Truck Transportation | Term Loan | Prime plus 2.75% | 9/2/2035 | 423.1 | 214.1 | 222.6 | 0.11 | % | |||||||||||||||
Schmaltz Holdings, LLC (EPC) and Schmaltz Operations, LLC dba Companio | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/4/2038 | 224.2 | 213.7 | 213.3 | 0.10 | % | |||||||||||||||
Mosley Auto Group LLC dba America's Automotive | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/20/2038 | 221.5 | 213.7 | 217.6 | 0.11 | % | |||||||||||||||
Tortilla King Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/14/2039 | 216.9 | 211.2 | 207.8 | 0.10 | % | |||||||||||||||
Daniel Gordon and Erin Gordon and Silver Lining Stables CT, LLC | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 11/28/2037 | 223.8 | 211.1 | 219.0 | 0.11 | % | |||||||||||||||
BJ's Tavern LLC and BJ's Cabana Bar Inc | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2040 | 212.5 | 210.9 | 205.9 | 0.10 | % | |||||||||||||||
Pioneer Windows Manufacturing Corp, Pioneer Windows | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 11/21/2022 | 275.0 | 209.8 | 207.4 | 0.10 | % | |||||||||||||||
Evans and Paul LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/30/2024 | 223.8 | 208.2 | 198.7 | 0.10 | % | |||||||||||||||
Faith Memorial Chapel LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 2/28/2039 | 214.2 | 207.9 | 206.4 | 0.10 | % | |||||||||||||||
Superior Disposal Service, Inc. | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 12/26/2023 | 240.5 | 204.4 | 200.8 | 0.10 | % | |||||||||||||||
F-25
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
952 Boston Post Road Realty, LLC and HNA LLC dba Styles International | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 2/28/2039 | 211.0 | 204.3 | 203.2 | 0.10 | % | |||||||||||||||
1 North Restaurant Corp dba 1 North Steakhouse | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 10/31/2038 | 212.5 | 204.3 | 207.8 | 0.10 | % | |||||||||||||||
Brandywine Picnic Park, Inc. and B.Ross Capps & Linda Capps | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/30/2031 | 231.5 | 204.2 | 210.9 | 0.10 | % | |||||||||||||||
Elan Realty, LLC and Albert Basse Asociates, Inc. | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 9/30/2035 | 228.2 | 203.7 | 212.6 | 0.10 | % | |||||||||||||||
Modern Manhattan LLC | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 11/25/2024 | 220.0 | 203.3 | 171.5 | 0.08 | % | |||||||||||||||
AMG Holding, LLC and Stetson Automotive, Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/30/2039 | 208.0 | 202.7 | 208.6 | 0.10 | % | |||||||||||||||
JEJE Realty LLC and La Familia Inc | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/10/2039 | 205.8 | 202.1 | 193.6 | 0.09 | % | |||||||||||||||
Gill Express Inc. dba American Eagle Truck Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 1/5/2027 | 286.9 | 200.4 | 206.1 | 0.10 | % | |||||||||||||||
Block and Grinder LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/30/2025 | 200.0 | 200.0 | 196.6 | 0.10 | % | |||||||||||||||
Water Works Laundromat, L.L.C. | Personal and Laundry Services | Term Loan | Prime plus 2.25% | 9/7/2027 | 267.3 | 194.8 | 195.3 | 0.10 | % | |||||||||||||||
Robert E. Caves, Sr. and American Plank dba Caves Enterprises | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/30/2021 | 302.5 | 194.7 | 197.2 | 0.10 | % | |||||||||||||||
Spire Investment Partners, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 9/28/2022 | 258.8 | 192.7 | 186.7 | 0.09 | % | |||||||||||||||
Douglas Printy Motorsports, Inc. dba Blackburn Trike | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 3/9/2040 | 191.8 | 189.5 | 180.5 | 0.09 | % | |||||||||||||||
8 Minute Oil Change of Springfield Corporation and John Nino | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/12/2038 | 196.8 | 188.0 | 191.7 | 0.09 | % | |||||||||||||||
Sapienzo Properties LLC (EPC) CNS Self-Storage Inc (OC) | Real Estate | Term Loan | Prime plus 2.75% | 3/27/2039 | 193.8 | 187.0 | 192.4 | 0.09 | % | |||||||||||||||
Greenbrier Technical Services, Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/24/2023 | 240.1 | 183.0 | 183.2 | 0.09 | % | |||||||||||||||
Brothers International Desserts | Food Manufacturing | Term Loan | Prime plus 2.75% | 4/26/2023 | 230.0 | 182.7 | 181.4 | 0.09 | % | |||||||||||||||
Majestic Contracting Services, Inc. dba Majestic Electric and Majestic Plumbing | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/26/2038 | 190.0 | 181.6 | 180.6 | 0.09 | % | |||||||||||||||
Danjam Enterprises, LLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/31/2035 | 204.0 | 180.7 | 188.4 | 0.09 | % | |||||||||||||||
F-26
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
(EPC) Absolute Desire LLC and Mark H. Szierer (OC) Sophisticated Smile | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/5/2038 | 188.3 | 180.0 | 183.6 | 0.09 | % | |||||||||||||||
(EPC) Willowbrook Properties LLC (OC) Grove Gardens Landscaping Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 6/5/2038 | 186.3 | 177.8 | 183.5 | 0.09 | % | |||||||||||||||
Trip Consultants U.S.A. Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 12/18/2025 | 175.0 | 175.0 | 147.4 | 0.07 | % | |||||||||||||||
Richmond Hill Mini Market, LLC | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 11/27/2037 | 185.3 | 174.7 | 180.2 | 0.09 | % | |||||||||||||||
Beale Street Blues Company-West Palm Beach, LLC dba Lafayette Music Hall | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/22/2024 | 187.5 | 174.5 | 153.2 | 0.08 | % | |||||||||||||||
KK International Trading Corporation | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/23/2028 | 190.0 | 174.0 | 172.1 | 0.08 | % | |||||||||||||||
Bryan Bantry Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 9/8/2021 | 400.0 | 174.0 | 173.0 | 0.08 | % | |||||||||||||||
Forno Italiano Di Nonna Randazzo, LLC dba Nonna Randazzo's Bakery | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 9/26/2037 | 183.8 | 173.9 | 178.5 | 0.09 | % | |||||||||||||||
Pioneer Window Holdings, Inc and Subsidiaries dba Pioneer Windows | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/20/2022 | 225.0 | 173.3 | 171.3 | 0.08 | % | |||||||||||||||
Douglas Posey and Sally Watkinson dba Audrey's Farmhouse | Accommodation | Term Loan | Prime plus 2.75% | 5/20/2040 | 174.1 | 172.6 | 170.5 | 0.08 | % | |||||||||||||||
Sound Manufacturing Inc | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 10/10/2024 | 187.5 | 172.3 | 150.6 | 0.07 | % | |||||||||||||||
Neyra Industries, Inc. and Edward Neyra | Nonmetallic Mineral Product Manufacturing | Term Loan | Prime plus 2.75% | 3/27/2023 | 217.5 | 171.2 | 173.2 | 0.08 | % | |||||||||||||||
Chickamauga Properties,Inc., MSW Enterprises, LLP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/22/2035 | 189.5 | 171.1 | 178.5 | 0.09 | % | |||||||||||||||
R2 Tape Inc dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/29/2025 | 176.3 | 170.8 | 160.6 | 0.08 | % | |||||||||||||||
Fran-Car Corporation dba Horizon Landscape Management | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/3/2028 | 407.8 | 170.5 | 175.8 | 0.09 | % | |||||||||||||||
BND Sebastian Limited Liability Company and Sebastian Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/16/2040 | 172.5 | 170.5 | 168.2 | 0.08 | % | |||||||||||||||
Silva Realty Holdings, LLC and MF-Silva Enterprises, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/11/2040 | 171.6 | 170.0 | 161.1 | 0.08 | % | |||||||||||||||
R & J Petroleum LLC (EPC) Manar USA, Inc. (OC) | Gasoline Stations | Term Loan | Prime plus 2.75% | 11/20/2037 | 180.0 | 169.5 | 175.4 | 0.09 | % | |||||||||||||||
15 Frederick Place LLC & Pioneer Windows Holdings Inc & Subs | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/16/2021 | 250.0 | 168.6 | 169.3 | 0.08 | % | |||||||||||||||
F-27
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
South Park Properties LLC and Midlothian Hardware LLC dba Grill | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 5/6/2040 | 170.5 | 167.9 | 170.0 | 0.08 | % | |||||||||||||||
Spectrum Radio Fairmont, LLC | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 8/30/2023 | 187.5 | 164.3 | 164.3 | 0.08 | % | |||||||||||||||
Wilshire Media Systems Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 4/17/2024 | 186.3 | 163.4 | 151.7 | 0.07 | % | |||||||||||||||
Pine Belt Wood Products LLC | Forestry and Logging | Term Loan | Prime plus 2.75% | 9/22/2040 | 163.8 | 163.3 | 147.9 | 0.07 | % | |||||||||||||||
Wise Forklift Inc | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 10/1/2020 | 296.9 | 162.9 | 164.7 | 0.08 | % | |||||||||||||||
Labmates LLC | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 12/18/2040 | 162.5 | 162.5 | 165.6 | 0.08 | % | |||||||||||||||
Gator Communications Group LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 4/25/2022 | 228.8 | 162.1 | 162.5 | 0.08 | % | |||||||||||||||
B & W Towing, LLC and Boychucks Fuel LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/17/2039 | 164.5 | 161.8 | 153.1 | 0.08 | % | |||||||||||||||
Hae M. and Jin S. Park dba Buford Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/15/2039 | 166.5 | 161.2 | 160.0 | 0.08 | % | |||||||||||||||
M & H Pinestraw, Inc. and Harris L. Maloy | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/15/2021 | 238.3 | 161.2 | 161.6 | 0.08 | % | |||||||||||||||
185 Summerfield Inc and Valcon Contracting Corp | Construction of Buildings | Term Loan | Prime plus 2.75% | 10/24/2039 | 162.3 | 159.1 | 157.6 | 0.08 | % | |||||||||||||||
MMS Realty, LLC and Molecular MS Diagnostics LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 3/18/2040 | 160.7 | 158.8 | 151.3 | 0.07 | % | |||||||||||||||
Carolina Flicks Inc dba The Howell Theater | Motion Picture and Sound Recording Industries | Term Loan | Prime plus 2.75% | 12/23/2032 | 163.3 | 158.5 | 149.5 | 0.07 | % | |||||||||||||||
Spire Investment Partners, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/22/2021 | 250.0 | 157.4 | 157.8 | 0.08 | % | |||||||||||||||
North Columbia LLC and Loop Liquor and Convenience Store LLC | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 9/24/2039 | 159.3 | 155.9 | 153.6 | 0.08 | % | |||||||||||||||
Ramard Inc and Advanced Health Sciences Inc | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/28/2023 | 187.5 | 154.3 | 140.5 | 0.07 | % | |||||||||||||||
South Florida Air Conditioning and Refrigeration Corp. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 3/27/2040 | 155.5 | 153.7 | 153.3 | 0.08 | % | |||||||||||||||
Golden Transaction Corporation dba Bleh Sunoco | Gasoline Stations | Term Loan | Prime plus 2.75% | 10/30/2039 | 156.7 | 153.6 | 152.9 | 0.07 | % | |||||||||||||||
F-28
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Avayaan2 LLC dba Island Cove | Gasoline Stations | Term Loan | Prime plus 2.75% | 3/7/2039 | 157.5 | 152.7 | 154.1 | 0.08 | % | |||||||||||||||
RDT Enterprises LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 9/15/2027 | 162.8 | 152.7 | 147.6 | 0.07 | % | |||||||||||||||
J3K LLC dba Ronan True Value Hardware | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 9/23/2025 | 152.5 | 150.6 | 126.8 | 0.06 | % | |||||||||||||||
RXSB, Inc dba Medicine Shoppe | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 5/30/2023 | 186.3 | 149.8 | 145.3 | 0.07 | % | |||||||||||||||
FirstVitals Health and Wellness Inc | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/15/2025 | 150.0 | 148.1 | 124.7 | 0.06 | % | |||||||||||||||
Barber Investments LLC and Fieldstone Quickstop LLC and Maine Dollar Deals | Gasoline Stations | Term Loan | Prime plus 2.75% | 8/15/2039 | 150.0 | 147.2 | 131.7 | 0.06 | % | |||||||||||||||
Honeyspot Investors LLP and Pace Motor Lines Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 7/24/2039 | 150.0 | 146.4 | 147.7 | 0.07 | % | |||||||||||||||
Alejandro Rico dba Rico Motors and Golden West Motel and Alrima Co Inc | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 11/25/2040 | 146.3 | 146.3 | 148.5 | 0.07 | % | |||||||||||||||
Teamnewman Enterprises LLC dba Newmans at 988 and John H. Newman | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/25/2039 | 148.8 | 146.1 | 139.8 | 0.07 | % | |||||||||||||||
Dantanna's Tavern LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2024 | 164.3 | 144.8 | 136.4 | 0.07 | % | |||||||||||||||
Cool Air Solutions, Inc. dba Graham Heating & Air Conditioning | Specialty Trade Contractors | Term Loan | Prime plus 2% | 12/27/2018 | 411.5 | 144.8 | 144.3 | 0.07 | % | |||||||||||||||
GDP Gourmet LLC dba Joe and John's Pizza Restaurant | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/19/2040 | 145.0 | 144.4 | 140.6 | 0.07 | % | |||||||||||||||
Vernon & Stephanie Scott and Little Stars Day Care Center, Inc. | Educational Services | Term Loan | Prime plus 2.75% | 4/18/2038 | 151.0 | 143.6 | 149.3 | 0.07 | % | |||||||||||||||
J. Kinderman & Sons Inc., dba BriteStar Inc. | Electrical Equipment, Appliance, and Component Manufacturing | Term Loan | Prime plus 2.75% | 3/20/2023 | 181.3 | 142.7 | 144.3 | 0.07 | % | |||||||||||||||
Barub Realty LLC and Barub LLC dba Woodlawn Cabinets | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 9/30/2040 | 143.0 | 142.6 | 144.3 | 0.07 | % | |||||||||||||||
Alpha Preparatory Academy LLC | Social Assistance | Term Loan | Prime plus 2.75% | 8/15/2039 | 145.2 | 142.5 | 144.7 | 0.07 | % | |||||||||||||||
Ryan Crick and Pamela J. Crick and Crick Enterprises Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/17/2039 | 145.5 | 142.4 | 144.6 | 0.07 | % | |||||||||||||||
Peter Thomas Roth Labs LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/26/2018 | 425.0 | 142.3 | 143.4 | 0.07 | % | |||||||||||||||
Knowledge First Inc dba Magic Years of Learning and Kimberly Knox | Social Assistance | Term Loan | Prime plus 2.75% | 3/21/2039 | 145.0 | 140.8 | 139.9 | 0.07 | % | |||||||||||||||
F-29
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
USI Properties LLC dba U Store It | Real Estate | Term Loan | Prime plus 2.75% | 5/23/2039 | 144.6 | 140.7 | 144.0 | 0.07 | % | |||||||||||||||
Wired LLC and Moulison North Corporation | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/3/2024 | 150.1 | 140.1 | 126.0 | 0.06 | % | |||||||||||||||
Gardner's Wharf Holdings LLC and Gardner's Wharf Seafood Inc | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 9/8/2040 | 140.0 | 139.6 | 142.2 | 0.07 | % | |||||||||||||||
Stormrider Inc dba Shirley's Stormrider, Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 11/25/2024 | 150.0 | 138.6 | 115.1 | 0.06 | % | |||||||||||||||
Big Apple Entertainment Partners, LLC d/b/a Ripley's Believe It or Not | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/26/2022 | 180.0 | 138.4 | 134.2 | 0.07 | % | |||||||||||||||
ATC Fitness LLC dba Around the Clock Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/28/2022 | 180.0 | 137.8 | 137.4 | 0.07 | % | |||||||||||||||
Choe Trade Group Inc dba Rapid Printers of Monterey | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 2/28/2024 | 159.3 | 137.6 | 137.4 | 0.07 | % | |||||||||||||||
Matchless Transportation LLC dba First Class Limo | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 8/3/2022 | 185.0 | 137.0 | 135.7 | 0.07 | % | |||||||||||||||
96 Mill Street LLC, Central Pizza LLC and Jason Bikakis George Bikaki | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/12/2039 | 141.3 | 137.0 | 140.9 | 0.07 | % | |||||||||||||||
3000 CSI Property LLC and Consulting Solutions Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/20/2040 | 137.5 | 136.9 | 137.1 | 0.07 | % | |||||||||||||||
Kemmer LLC and Apples Tree Top Liquors LLC | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/4/2039 | 138.4 | 136.1 | 126.9 | 0.06 | % | |||||||||||||||
Spectrumit, Inc, (OC) dba LANformation | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 5/31/2030 | 154.9 | 135.8 | 139.4 | 0.07 | % | |||||||||||||||
Grafio Inc dba Omega Learning Center-Acworth | Educational Services | Term Loan | Prime plus 2.75% | 9/13/2023 | 156.3 | 135.0 | 126.3 | 0.06 | % | |||||||||||||||
CEM Autobody LLC dba Dawn's Autobody | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/26/2040 | 135.5 | 134.5 | 128.6 | 0.06 | % | |||||||||||||||
C& D Medical of Naples, Inc and Forever & Always of Naples, Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 7/24/2040 | 135.0 | 134.2 | 124.0 | 0.06 | % | |||||||||||||||
Al-Mustafa Enterprise, Inc. and Al-Mustafa Enterprise Inc | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 9/18/2040 | 134.0 | 133.9 | 131.3 | 0.06 | % | |||||||||||||||
DKB Transport Corp | Truck Transportation | Term Loan | Prime plus 2.75% | 12/5/2038 | 138.8 | 133.9 | 137.6 | 0.07 | % | |||||||||||||||
West Cobb Enterprises, Inc and Advanced Eye Associates, L.L.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/12/2035 | 148.7 | 133.4 | 138.8 | 0.07 | % | |||||||||||||||
JPM Investments LLC and Carolina Family Foot Care P.A. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/26/2039 | 136.1 | 133.1 | 134.9 | 0.07 | % | |||||||||||||||
F-30
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
1899 Tavern & Tap LLC and Ale House Tavern & Tap LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/9/2039 | 137.5 | 132.6 | 134.6 | 0.07 | % | |||||||||||||||
Haven Hospitality Group Inc. dba Haven Gastropub | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/20/2025 | 132.5 | 132.5 | 113.7 | 0.06 | % | |||||||||||||||
Mid-Land Sheet Metal Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 10/31/2038 | 137.5 | 132.4 | 134.1 | 0.07 | % | |||||||||||||||
City Sign Service, Incorporated | Electrical Equipment, Appliance, and Component Manufacturing | Term Loan | Prime plus 2.75% | 11/30/2025 | 165.8 | 132.1 | 134.7 | 0.07 | % | |||||||||||||||
Bay State Funeral Services, LLC (EPC) and Riley Funeral Home Inc(OC) | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 5/21/2039 | 134.9 | 131.6 | 135.4 | 0.07 | % | |||||||||||||||
Jade Automotive d/b/a Sears Hometown Store | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 10/6/2035 | 146.6 | 131.5 | 137.3 | 0.07 | % | |||||||||||||||
J&M Concessions, Inc.dba A-1 Liquors | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/3/2039 | 135.6 | 131.3 | 129.2 | 0.06 | % | |||||||||||||||
Modern on the Mile, LLC dba Ligne Roset | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 5/25/2021 | 212.5 | 131.1 | 131.5 | 0.06 | % | |||||||||||||||
Access Staffing, LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/30/2022 | 187.5 | 131.1 | 130.5 | 0.06 | % | |||||||||||||||
Grand Blanc Lanes, Inc. and H, H and H, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/31/2039 | 133.0 | 131.0 | 131.1 | 0.06 | % | |||||||||||||||
RDT Enterprises, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/31/2028 | 141.2 | 130.6 | 132.4 | 0.06 | % | |||||||||||||||
Demand Printing Solutions, Inc | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 10/29/2034 | 147.5 | 128.7 | 133.9 | 0.07 | % | |||||||||||||||
Green Life Lawnscapes LLC dba Green Life Lawn Care | Administrative and Support Services | Term Loan | Prime plus 2.75% | 11/6/2025 | 127.3 | 127.3 | 122.4 | 0.06 | % | |||||||||||||||
R2 Tape, Inc. dba Presto Tape and Michael J.and Joyce Speeney | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 10/20/2020 | 224.4 | 126.6 | 127.6 | 0.06 | % | |||||||||||||||
Nelson Sargsyan dba HDA Trucking | Support Activities for Transportation | Term Loan | Prime plus 2.75% | 6/16/2025 | 130.5 | 126.4 | 105.1 | 0.05 | % | |||||||||||||||
PTK, Incorporated dba Night N Day 24 HR Convenience Store | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 9/30/2036 | 137.5 | 126.0 | 131.2 | 0.06 | % | |||||||||||||||
George S Cochran DDS Inc | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 5/7/2025 | 130.0 | 125.1 | 104.4 | 0.05 | % | |||||||||||||||
Music Mountain Water Company, LLC | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 4/25/2036 | 138.1 | 125.1 | 130.7 | 0.06 | % | |||||||||||||||
Sarah Sibadan dba Sibadan Agency | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 1/27/2039 | 129.4 | 125.0 | 127.4 | 0.06 | % | |||||||||||||||
F-31
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Japp Business Inc dba Pick and Eat and Japp Drink Corp. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/30/2025 | 125.0 | 125.0 | 110.6 | 0.05 | % | |||||||||||||||
Smokeyard Inc dba Smokeyard BBQ and Chop Shop | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/30/2025 | 125.0 | 125.0 | 107.6 | 0.05 | % | |||||||||||||||
Evans & Paul LLC and E&P Holdings I LLC | Nonmetallic Mineral Product Manufacturing | Term Loan | Prime plus 2.75% | 12/15/2025 | 125.0 | 125.0 | 110.9 | 0.05 | % | |||||||||||||||
Abitino's JFK LLC dba Abitino's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/16/2022 | 125.0 | 124.9 | 110.4 | 0.05 | % | |||||||||||||||
The LAX Shop Inc | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 12/22/2025 | 125.0 | 125.0 | 124.9 | 0.06 | % | |||||||||||||||
Hascher Gabelstapler Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/26/2024 | 143.3 | 124.6 | 121.0 | 0.06 | % | |||||||||||||||
Maxiflex LLC | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 6/28/2023 | 153.5 | 124.1 | 125.6 | 0.06 | % | |||||||||||||||
Michael Rey Jr. and Lynn J. Williams (EPC) and GIG Petcare | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/3/2039 | 126.9 | 123.6 | 122.1 | 0.06 | % | |||||||||||||||
Geo Los Angeles LLC dba Geo Film Group | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 3/26/2025 | 130.0 | 123.5 | 112.5 | 0.06 | % | |||||||||||||||
Naeem Khan LTD | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 9/17/2025 | 125.0 | 123.5 | 103.9 | 0.05 | % | |||||||||||||||
Naeem Khan LTD | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2025 | 125.0 | 123.5 | 104.0 | 0.05 | % | |||||||||||||||
Lake Area Autosound LLC and Ryan H. Whittington | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 7/28/2039 | 125.0 | 122.9 | 122.9 | 0.06 | % | |||||||||||||||
Food & Fuel Company LLC dba Lowery Food Mart | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/4/2040 | 122.5 | 122.5 | 124.3 | 0.06 | % | |||||||||||||||
Lamjam LLC (EPC) Goldsmith Lambros Inc (OC) | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 8/27/2024 | 133.8 | 122.2 | 121.6 | 0.06 | % | |||||||||||||||
Trademark Equipment Company Inc and David A. Daniel | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 8/19/2036 | 133.6 | 122.1 | 126.9 | 0.06 | % | |||||||||||||||
Supreme Screw Products, Inc. and Misha Migdal | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 4/17/2019 | 308.2 | 121.6 | 122.7 | 0.06 | % | |||||||||||||||
Atlas Mountain Construction, LLC | Construction of Buildings | Term Loan | Prime plus 2.75% | 5/13/2038 | 127.3 | 121.2 | 126.1 | 0.06 | % | |||||||||||||||
Medworxs LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/3/2025 | 125.0 | 121.1 | 101.6 | 0.05 | % | |||||||||||||||
LP Industries Inc dba Childforms | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 7/29/2025 | 125.0 | 120.9 | 112.3 | 0.06 | % | |||||||||||||||
F-32
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Bizzare Foods Inc dba Trooper Foods | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/12/2025 | 125.0 | 120.6 | 100.3 | 0.05 | % | |||||||||||||||
3 F Management LLC and ATC Port Charlotte LLC dba Around The Clock Fit | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/17/2024 | 131.3 | 120.4 | 106.2 | 0.05 | % | |||||||||||||||
JDR Industries Inc dba CST-The Composites Store, JetCat USA | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 1/21/2024 | 140.3 | 120.4 | 114.1 | 0.06 | % | |||||||||||||||
Prospect Kids Academy Inc | Educational Services | Term Loan | Prime plus 2.75% | 9/11/2038 | 124.3 | 119.2 | 120.5 | 0.06 | % | |||||||||||||||
Copper Beech Financial Group LLC | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 3/30/2025 | 125.0 | 118.7 | 107.2 | 0.05 | % | |||||||||||||||
Knits R Us, Inc. dba NYC Sports / Mingle | Textile Mills | Term Loan | Prime plus 2.75% | 2/11/2038 | 125.0 | 118.4 | 123.1 | 0.06 | % | |||||||||||||||
1258 Hartford TPKE, LLC (EPC) and Phelps and Sons, Inc (OC) | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 3/29/2038 | 124.6 | 118.3 | 120.9 | 0.06 | % | |||||||||||||||
Northwind Outdoor Recreation, Inc. dba Red Rock Wilderness Store | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/18/2036 | 129.5 | 117.9 | 123.2 | 0.06 | % | |||||||||||||||
DC Real LLC and DC Enterprises LTD dba Lakeview True Value | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/20/2039 | 119.4 | 117.8 | 116.3 | 0.06 | % | |||||||||||||||
Balthazar Management Virgin Islands LLC dba The Beach Cafe | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/27/2025 | 123.3 | 117.1 | 116.6 | 0.06 | % | |||||||||||||||
Profile Performance, Inc. and Eidak Real Estate, L.L.C. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/20/2036 | 127.5 | 115.7 | 120.8 | 0.06 | % | |||||||||||||||
Wilton Dental Care P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 5/29/2024 | 128.1 | 115.6 | 106.3 | 0.05 | % | |||||||||||||||
Top Properties LLC and LP Industries, Inc dba Childforms | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2038 | 120.0 | 115.5 | 118.8 | 0.06 | % | |||||||||||||||
JRA Holdings LLC (EPC) Jasper County Cleaners Inc dba Superior Cleaner | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/28/2038 | 121.0 | 115.5 | 120.1 | 0.06 | % | |||||||||||||||
Qycell Corporation | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 8/19/2021 | 187.5 | 114.2 | 114.2 | 0.06 | % | |||||||||||||||
Kemmer, LLC (EPC) and Pitts Package Store, Inc.(OC) | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/31/2039 | 117.5 | 114.1 | 109.9 | 0.05 | % | |||||||||||||||
AS Boyals LLC dba Towne Liquors | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 4/29/2039 | 117.5 | 114.1 | 117.4 | 0.06 | % | |||||||||||||||
R2 Tape Inc dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/31/2022 | 155.0 | 114.1 | 115.2 | 0.06 | % | |||||||||||||||
Modern Manhattan, LLC | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 9/20/2020 | 204.0 | 113.3 | 113.5 | 0.06 | % | |||||||||||||||
F-33
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
5091 LLC and TR/AL LLC d/b/a Cafe Africana | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/31/2037 | 121.3 | 113.2 | 117.8 | 0.06 | % | |||||||||||||||
Lemonberry Food Stores Inc dba Lemonberry Frozen Yogurt | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/29/2025 | 112.5 | 112.5 | 98.4 | 0.05 | % | |||||||||||||||
Katie Senior Care LLC dba Home Instead Senior Care | Social Assistance | Term Loan | Prime plus 2.75% | 8/15/2024 | 124.3 | 112.3 | 93.2 | 0.05 | % | |||||||||||||||
Shelton Incorporated dba Mrs. Winners | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/20/2040 | 112.5 | 111.2 | 112.1 | 0.05 | % | |||||||||||||||
Dosus Inc dba Perry's Pools | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 8/7/2025 | 112.5 | 110.9 | 95.2 | 0.05 | % | |||||||||||||||
Qycell Corporation | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 8/26/2024 | 121.0 | 109.5 | 98.8 | 0.05 | % | |||||||||||||||
Golden Gate Lodging LLC (OC) | Accommodation | Term Loan | Prime plus 2.75% | 3/12/2038 | 115.0 | 109.2 | 112.6 | 0.06 | % | |||||||||||||||
Rainbow Dry Cleaners | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/13/2024 | 122.5 | 109.1 | 102.8 | 0.05 | % | |||||||||||||||
S.B.B. Enterprises Inc dba Williamston Hardware | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/19/2040 | 108.8 | 108.8 | 100.8 | 0.05 | % | |||||||||||||||
Sushiya, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/8/2025 | 108.8 | 108.8 | 97.2 | 0.05 | % | |||||||||||||||
Westville Seafood LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/19/2038 | 112.3 | 107.7 | 107.6 | 0.05 | % | |||||||||||||||
Cormac Enterprises and Wyoming Valley Beverage Incorporated | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/20/2039 | 110.8 | 107.6 | 110.6 | 0.05 | % | |||||||||||||||
Excel RP Inc | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 8/30/2023 | 130.3 | 107.2 | 105.9 | 0.05 | % | |||||||||||||||
Wallace Holdings LLC (EPC) GFA International Inc (OC) | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.5% | 11/25/2023 | 125.0 | 105.2 | 96.5 | 0.05 | % | |||||||||||||||
Forever & Always of Naples Inc dba Island Animal Hospital | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 7/24/2025 | 107.5 | 104.7 | 94.8 | 0.05 | % | |||||||||||||||
Mustafa Inc dba Adiba Grocery | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/17/2025 | 103.8 | 103.8 | 103.7 | 0.05 | % | |||||||||||||||
Pooh's Corner Realty LLC and Pooh's Corner Inc | Social Assistance | Term Loan | Prime plus 2.75% | 7/23/2040 | 103.8 | 103.2 | 104.0 | 0.05 | % | |||||||||||||||
Ridge Road Equestrian LLC dba Ricochet Ridge Ranch Inc | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/23/2040 | 102.5 | 102.5 | 102.3 | 0.05 | % | |||||||||||||||
Seagate Group Holdings, Inc. dba Seagate Logistics, Inc. | Support Activities for Transportation | Term Loan | Prime plus 2.75% | 1/28/2036 | 113.4 | 102.1 | 106.6 | 0.05 | % | |||||||||||||||
F-34
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
WPI, LLC | Transportation Equipment Manufacturing | Term Loan | Prime plus 2.75% | 6/29/2024 | 129.5 | 101.3 | 102.2 | 0.05 | % | |||||||||||||||
B and A Friction Materials Inc | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/9/2025 | 102.5 | 101.2 | 85.2 | 0.04 | % | |||||||||||||||
Shorr Enterprises Inc dba New Design Furniture Manufacturers | Furniture and Related Product Manufacturing | Term Loan | Prime plus 2.75% | 3/27/2025 | 106.5 | 101.2 | 92.8 | 0.05 | % | |||||||||||||||
Island Wide Realty LLC and Long Island Partners, Inc. | Real Estate | Term Loan | Prime plus 2.75% | 4/22/2039 | 103.8 | 100.9 | 103.8 | 0.05 | % | |||||||||||||||
Nancy & Karl Schmidt(EPC) Moments to Remember USA, LLC | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 2/15/2038 | 106.3 | 100.7 | 103.9 | 0.05 | % | |||||||||||||||
Firm Foundations Inc David S Gaitan Jr and Christopher K Daigle | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/3/2038 | 104.3 | 100.5 | 97.9 | 0.05 | % | |||||||||||||||
State Painting and Decorating Co Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/25/2025 | 100.0 | 100.0 | 84.2 | 0.04 | % | |||||||||||||||
Delta Aggregate, LLC | Mining (except Oil and Gas) | Term Loan | Prime plus 2.75% | 11/30/2025 | 100.0 | 100.0 | 99.9 | 0.05 | % | |||||||||||||||
Custom Exteriors, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/9/2025 | 100.0 | 100.0 | 87.3 | 0.04 | % | |||||||||||||||
Matthew Taylor and Landon Farm LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 5/4/2040 | 100.0 | 99.8 | 88.7 | 0.04 | % | |||||||||||||||
DNT Storage and Properties LLC | Real Estate | Term Loan | Prime plus 2.75% | 10/10/2039 | 101.8 | 99.8 | 99.4 | 0.05 | % | |||||||||||||||
Little People's Village II LLC (OC) and Iliopoulos Realty LLC (EPC) | Social Assistance | Term Loan | Prime plus 2.75% | 3/31/2039 | 101.5 | 99.1 | 97.6 | 0.05 | % | |||||||||||||||
Bear Creek Entertainment, LLC dba The Woods at Bear Creek | Accommodation | Term Loan | Prime plus 2.75% | 12/30/2024 | 106.3 | 99.0 | 98.6 | 0.05 | % | |||||||||||||||
Zinger Hardware and General Merchant Inc | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 6/26/2024 | 110.5 | 98.4 | 94.9 | 0.05 | % | |||||||||||||||
Miss Cranston Diner II, LLC and Miss Cranston II Realty LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/17/2039 | 100.0 | 98.2 | 96.0 | 0.05 | % | |||||||||||||||
Keller Holdings LLC and David H Keller III and Carie C Keller | Scenic and Sightseeing Transportation | Term Loan | Prime plus 2.75% | 9/30/2039 | 100.0 | 97.9 | 98.5 | 0.05 | % | |||||||||||||||
Lefont Theaters, Inc. | Motion Picture and Sound Recording Industries | Term Loan | Prime plus 2.75% | 5/30/2022 | 137.0 | 97.9 | 98.4 | 0.05 | % | |||||||||||||||
G.M. Pop's, Inc. & S.D. Food, Inc. dba Popeyes Louisiana Kitchen | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/11/2022 | 127.1 | 97.6 | 95.4 | 0.05 | % | |||||||||||||||
New Paltz Dental Care, PLLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/19/2025 | 100.0 | 97.5 | 92.5 | 0.05 | % | |||||||||||||||
California College of Communications, Inc. | Educational Services | Term Loan | Prime plus 2.75% | 11/2/2020 | 172.5 | 97.2 | 97.3 | 0.05 | % | |||||||||||||||
F-35
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
986 Dixwell Avenue Holding Company, LLC(EPC) and Mughali Foods, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/7/2039 | 99.1 | 96.4 | 97.1 | 0.05 | % | |||||||||||||||
Anthony C Dinoto and Susan S P Dinoto and Anthony C Dinoto Funeral Home | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/26/2038 | 100.0 | 96.0 | 98.7 | 0.05 | % | |||||||||||||||
Custom Software, Inc. a Colorado Corporation dba M-33 Access | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 4/30/2022 | 125.0 | 94.3 | 95.6 | 0.05 | % | |||||||||||||||
J and K Fitness L.L.C. dba Physiques Womens Fitness Center | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2041 | 93.8 | 93.7 | 93.2 | 0.05 | % | |||||||||||||||
First Steps Real Estate Company, LLC (EPC) and First Steps Preschool | Social Assistance | Term Loan | Prime plus 2.75% | 9/30/2038 | 97.6 | 93.6 | 92.5 | 0.05 | % | |||||||||||||||
A & A Auto Care, LLC d/b/a A & A Auto Care, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/12/2036 | 101.0 | 93.4 | 97.3 | 0.05 | % | |||||||||||||||
GIA Realty LLC and VRAJ GIA LLC dba Lakeview Laundromat | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/28/2038 | 97.5 | 93.0 | 96.8 | 0.05 | % | |||||||||||||||
Key Products I&II, Inc. dba Dunkin' Donuts/Baskin-Robbins | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/10/2021 | 153.0 | 92.6 | 93.0 | 0.05 | % | |||||||||||||||
Metro Used Cars Inc. dba Metro Auto Center | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 1/14/2027 | 117.6 | 92.6 | 94.9 | 0.05 | % | |||||||||||||||
MRM Supermarkets, Inc. dba Constantin's Breads | Food Manufacturing | Term Loan | Prime plus 2.75% | 11/10/2021 | 137.5 | 91.9 | 92.5 | 0.05 | % | |||||||||||||||
Union 2 LLC dba The Standard | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/10/2025 | 91.5 | 91.5 | 83.7 | 0.04 | % | |||||||||||||||
E.S.F.P. LLC dba Volusia Van and Storage | Truck Transportation | Term Loan | Prime plus 2.75% | 11/11/2025 | 91.3 | 91.2 | 78.6 | 0.04 | % | |||||||||||||||
U & A Food and Fuel, Inc. dba Express Gas & Food Mart | Gasoline Stations | Term Loan | Prime plus 2.75% | 11/21/2037 | 96.3 | 90.7 | 94.3 | 0.05 | % | |||||||||||||||
Sico & Walsh Insurance Agency Inc and The AMS Trust | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 6/6/2039 | 250.0 | 90.6 | 93.3 | 0.05 | % | |||||||||||||||
Royal Crest Motors LLC | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 3/16/2040 | 91.3 | 90.1 | 87.5 | 0.04 | % | |||||||||||||||
Moochie's LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/13/2024 | 100.5 | 90.0 | 83.2 | 0.04 | % | |||||||||||||||
Video Vault & Tanning LLC and Mosaic Salon LLC | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 6/4/2040 | 90.5 | 89.9 | 91.2 | 0.04 | % | |||||||||||||||
Little People's Village II LLC (OC) and Iliopoulos Realty LLC (EPC) | Social Assistance | Term Loan | Prime plus 2.75% | 3/31/2039 | 92.1 | 89.9 | 88.5 | 0.04 | % | |||||||||||||||
Lisle Lincoln II Limited Partnership dba Lisle Lanes LP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/30/2024 | 100.0 | 89.2 | 89.2 | 0.04 | % | |||||||||||||||
Ronny Ramirez RX Corp dba Naturxheal Family Pharmacy | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 11/20/2025 | 89.0 | 89.0 | 76.4 | 0.04 | % | |||||||||||||||
F-36
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Angkor Restaurant Inc | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/19/2038 | 93.0 | 88.9 | 90.5 | 0.04 | % | |||||||||||||||
Music Mountain Water Company,LLC dba Music Mountain Water Co. | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 12/29/2019 | 185.4 | 88.9 | 89.8 | 0.04 | % | |||||||||||||||
Seelan Inc dba Candleridge Market | Gasoline Stations | Term Loan | Prime plus 2.75% | 10/27/2039 | 90.5 | 88.7 | 84.8 | 0.04 | % | |||||||||||||||
Delta Aggregate LLC | Mining (except Oil and Gas) | Term Loan | Prime plus 2.75% | 3/30/2025 | 90.0 | 88.2 | 87.9 | 0.04 | % | |||||||||||||||
Advanced Machine & Technology, Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 7/29/2025 | 90.3 | 88.0 | 80.6 | 0.04 | % | |||||||||||||||
The River Beas LLC and Punam Singh | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/8/2039 | 90.3 | 87.8 | 88.3 | 0.04 | % | |||||||||||||||
Manuel P. Barrera and Accura Electrical Contractor, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 3/23/2028 | 103.7 | 87.6 | 88.9 | 0.04 | % | |||||||||||||||
Navdeep B Martins and Busy Bubbles LLC dba Wishy Washy | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/24/2039 | 89.0 | 87.4 | 81.6 | 0.04 | % | |||||||||||||||
Greensward of Marco Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/28/2040 | 87.5 | 87.2 | 84.8 | 0.04 | % | |||||||||||||||
Kiddie Steps 4 You Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 9/25/2038 | 89.3 | 86.7 | 85.9 | 0.04 | % | |||||||||||||||
Tannehill Enterprises Inc dba Hobbytown USA Folsom | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 10/14/2025 | 87.4 | 86.5 | 72.9 | 0.04 | % | |||||||||||||||
AM PM Properties, LLC and AM PM Willington, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/17/2040 | 87.1 | 86.2 | 86.1 | 0.04 | % | |||||||||||||||
E-Z Box Storage, Inc. | Real Estate | Term Loan | Prime plus 2.75% | 5/11/2025 | 89.3 | 85.9 | 85.6 | 0.04 | % | |||||||||||||||
Animal Intrusion Prevention Systems Holding Company, LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/29/2024 | 126.5 | 85.7 | 87.2 | 0.04 | % | |||||||||||||||
Kurtis Sniezek dba Wolfe's Foreign Auto | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/20/2038 | 88.9 | 85.7 | 88.2 | 0.04 | % | |||||||||||||||
Bat Bridge Investments Inc dba Kalologie 360 Spa | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/30/2025 | 85.5 | 85.5 | 72.0 | 0.04 | % | |||||||||||||||
Sumad LLC dba BrightStar Care of Encinitas | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/2/2024 | 92.5 | 85.4 | 85.0 | 0.04 | % | |||||||||||||||
Doctors Express Management of Central Texas LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 10/8/2024 | 105.0 | 85.2 | 80.8 | 0.04 | % | |||||||||||||||
RDRhonehouse ENT. LLC dba Chill Skinz | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 4/29/2025 | 88.9 | 85.0 | 70.7 | 0.03 | % | |||||||||||||||
R & R Security and Investigations Inc dba Pardners Lake Buchanan | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/19/2040 | 85.4 | 84.4 | 85.8 | 0.04 | % | |||||||||||||||
F-37
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Tanner Optical Inc. dba Murphy Eye Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/22/2035 | 94.6 | 84.0 | 87.4 | 0.04 | % | |||||||||||||||
SKJ Inc dba Subway | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/13/2025 | 84.8 | 83.3 | 71.1 | 0.03 | % | |||||||||||||||
J&M Concessions Inc dba A 1 Liquors | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 2/27/2025 | 87.5 | 81.9 | 73.0 | 0.04 | % | |||||||||||||||
Osceola River Mill, LLC(EPC) Ironman Machine, Inc.(OC) | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 2/20/2038 | 86.3 | 81.6 | 84.2 | 0.04 | % | |||||||||||||||
Bakhtar Group LLC dba Malmaison | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/28/2023 | 103.8 | 81.7 | 79.2 | 0.04 | % | |||||||||||||||
Zephyr Seven Series LLC dba 18/8 Fine Men's Salon | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 8/28/2025 | 81.3 | 81.3 | 70.0 | 0.03 | % | |||||||||||||||
209 North 3rd Street, LLC (EPC) Yuster Insurance Group Inc (OC) | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 7/29/2038 | 83.9 | 80.2 | 80.9 | 0.04 | % | |||||||||||||||
LAN Doctors Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/28/2025 | 81.3 | 79.7 | 72.0 | 0.04 | % | |||||||||||||||
Peanut Butter & Co., Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 4/30/2023 | 100.0 | 79.4 | 77.3 | 0.04 | % | |||||||||||||||
Cares Inc dba Dumpling Grounds Day Care Center | Social Assistance | Term Loan | Prime plus 2.75% | 5/1/2040 | 81.9 | 78.8 | 80.1 | 0.04 | % | |||||||||||||||
Hofgard & Co., Inc. dba HofgardBenefits | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 7/27/2022 | 107.3 | 78.1 | 78.0 | 0.04 | % | |||||||||||||||
Limameno LLC dba Sal's Italian Ristorante | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/23/2025 | 83.3 | 78.0 | 66.9 | 0.03 | % | |||||||||||||||
Dean 1021 LLC dba Pure Pita | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/29/2025 | 80.0 | 77.5 | 65.6 | 0.03 | % | |||||||||||||||
Firm Foundations Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 3/13/2025 | 81.3 | 77.2 | 68.3 | 0.03 | % | |||||||||||||||
L.M. Jury Enterprises, Inc dba Midwest Monograms | Textile Product Mills | Term Loan | Prime plus 2.75% | 10/28/2025 | 77.0 | 76.5 | 65.8 | 0.03 | % | |||||||||||||||
39581 Garfield, LLC and Tri County Neurological Associates, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/30/2036 | 83.3 | 76.2 | 79.1 | 0.04 | % | |||||||||||||||
Holloway & CO. P.L.L.C. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/16/2025 | 75.0 | 75.0 | 74.9 | 0.04 | % | |||||||||||||||
Moments to Remember USA LLC dba Retain Loyalty | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 12/16/2025 | 75.0 | 75.0 | 68.2 | 0.03 | % | |||||||||||||||
M & H Pine Straw, Inc and Harris L. Maloy | Support Activities for Agriculture and Forestry | Term Loan | 6% | 4/30/2020 | 183.3 | 75.0 | 75.7 | 0.04 | % | |||||||||||||||
F-38
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Elegant Fireplace Mantels, Inc. dba Elegant Fireplace Mantels | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/31/2022 | 97.5 | 74.8 | 72.6 | 0.04 | % | |||||||||||||||
BVIP Limousine Service LTD | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 11/27/2038 | 76.5 | 73.7 | 74.7 | 0.04 | % | |||||||||||||||
Zog Inc. | Other Information Services | Term Loan | 6% | 3/17/2018 | 97.5 | 73.6 | 74.1 | 0.04 | % | |||||||||||||||
Kelly Auto Care LLC dba Shoreline Quick Lube and Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/18/2023 | 87.5 | 73.2 | 68.7 | 0.03 | % | |||||||||||||||
Faramarz Nikourazm dba Car Clinic Center | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/3/2040 | 73.8 | 72.9 | 70.4 | 0.03 | % | |||||||||||||||
B&P Diners LLC dba Engine House Restaurant | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/10/2024 | 80.0 | 72.9 | 60.5 | 0.03 | % | |||||||||||||||
Awesome Pets II Inc dba Mellisa's Pet Depot | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 2/7/2024 | 83.2 | 72.7 | 68.1 | 0.03 | % | |||||||||||||||
Jonathan E Nichols and Nichols Fire and Security LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 6/30/2025 | 75.0 | 72.7 | 68.2 | 0.03 | % | |||||||||||||||
Gerami Realty, LC (EPC) Sherrill Universal City Corral, LP | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/23/2027 | 78.8 | 72.0 | 72.3 | 0.04 | % | |||||||||||||||
Tri County Heating and Cooling Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/19/2023 | 87.8 | 71.6 | 70.8 | 0.03 | % | |||||||||||||||
Bliss Coffee and Wine Bar, LLC | Food Services and Drinking Places | Term Loan | 6% | 3/19/2018 | 87.5 | 71.4 | 71.8 | 0.04 | % | |||||||||||||||
SCJEN Management Inc dba Bowl of Heaven | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/30/2025 | 71.3 | 71.3 | 60.0 | 0.03 | % | |||||||||||||||
LaHoBa, LLC d/b/a Papa John's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/3/2036 | 77.5 | 70.4 | 73.4 | 0.04 | % | |||||||||||||||
Triangle Trash LLC dba Bin There Dump That | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 2/18/2025 | 74.4 | 70.1 | 62.8 | 0.03 | % | |||||||||||||||
R2 Tape Inc dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 4/10/2024 | 78.8 | 69.1 | 69.5 | 0.03 | % | |||||||||||||||
Gold Jet Corp dba The UPS Store | Couriers and Messengers | Term Loan | Prime plus 2.75% | 8/14/2025 | 68.3 | 68.3 | 61.7 | 0.03 | % | |||||||||||||||
Vortex Automotive LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/5/2035 | 76.6 | 67.6 | 70.4 | 0.03 | % | |||||||||||||||
Chickamauga Properties, Inc., MSW Enterprises, LLP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/22/2035 | 74.3 | 67.3 | 70.3 | 0.03 | % | |||||||||||||||
New Life Holdings, LLC and Certified Collision Services, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 7/29/2035 | 76.2 | 67.3 | 70.1 | 0.03 | % | |||||||||||||||
F-39
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Kantz LLC and Kantz Auto LLC dba Kantz's Hometown Auto | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 10/29/2039 | 68.1 | 66.9 | 65.5 | 0.03 | % | |||||||||||||||
RM Hawkins LLC dba Pure Water Tech West and Robert M Hawkins | Nonstore Retailers | Term Loan | Prime plus 2.75% | 8/26/2023 | 85.8 | 66.9 | 67.1 | 0.03 | % | |||||||||||||||
Stormrider Inc dba Shirley's Stormrider Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 9/23/2025 | 67.5 | 66.7 | 56.1 | 0.03 | % | |||||||||||||||
I-90 RV & Auto Supercenter | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 6/29/2035 | 74.9 | 66.5 | 69.4 | 0.03 | % | |||||||||||||||
Accent Homes Services LLC dba Benjamin Franklin Plumbing of Kansas City | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 9/30/2028 | 66.5 | 65.9 | 63.2 | 0.03 | % | |||||||||||||||
Shree Om Lodging, LLC dba Royal Inn | Accommodation | Term Loan | Prime plus 2.75% | 5/2/2030 | 333.3 | 65.6 | 67.9 | 0.03 | % | |||||||||||||||
NVR Corporation dba Discount Food Mart | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 6/11/2039 | 68.3 | 65.4 | 67.3 | 0.03 | % | |||||||||||||||
Onofrio's Fresh Cut Inc | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 3/6/2024 | 75.0 | 65.4 | 64.2 | 0.03 | % | |||||||||||||||
Orient Direct, Inc. dba Spracht, Celltek, ODI | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 2/12/2023 | 84.9 | 65.4 | 63.4 | 0.03 | % | |||||||||||||||
Kostekos Inc dba New York Style Pizza | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/6/2040 | 66.3 | 65.4 | 63.1 | 0.03 | % | |||||||||||||||
MLM Enterprises LLC and Demand Printing Solutions Inc | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 11/18/2024 | 70.5 | 65.1 | 60.3 | 0.03 | % | |||||||||||||||
Jenkins-Pavia Corporation dba Victory Lane Quick Oil Change | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/27/2037 | 69.8 | 65.0 | 67.7 | 0.03 | % | |||||||||||||||
Danjam Enterprises, LLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/29/2023 | 93.0 | 64.8 | 65.7 | 0.03 | % | |||||||||||||||
Beale Street Blues Company-West Palm Beach LLC dba Lafayette's-West Palm Beach | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 7/24/2025 | 66.3 | 64.6 | 56.5 | 0.03 | % | |||||||||||||||
SofRep, Inc dba Force 12 Media | Other Information Services | Term Loan | Prime plus 2.75% | 6/26/2025 | 66.3 | 64.2 | 53.4 | 0.03 | % | |||||||||||||||
Pauley Tree and Lawn Care Inc | Administrative and Support Services | Term Loan | Prime plus 2.75% | 7/28/2025 | 65.8 | 64.1 | 57.1 | 0.03 | % | |||||||||||||||
Michael A.and HeatherR. Welsch dba Art & FrameEtc. | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 3/22/2038 | 67.5 | 64.1 | 66.0 | 0.03 | % | |||||||||||||||
Kidrose, LLC dba Kidville Riverdale | Educational Services | Term Loan | Prime plus 2.75% | 4/22/2023 | 78.8 | 63.3 | 62.3 | 0.03 | % | |||||||||||||||
Yousef Khatib dba Y&M Enterprises | Wholesale Electronic Markets and Agents and Brokers | Term Loan | Prime plus 2.75% | 11/15/2023 | 75.0 | 63.2 | 58.7 | 0.03 | % | |||||||||||||||
F-40
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Free Ion Advisors LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 7/21/2025 | 64.3 | 62.7 | 52.8 | 0.03 | % | |||||||||||||||
Truth Technologies Inc dba Truth Technologies Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 3/21/2023 | 79.5 | 62.6 | 61.1 | 0.03 | % | |||||||||||||||
Guard Dogs MFS LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/8/2025 | 65.0 | 62.6 | 52.5 | 0.03 | % | |||||||||||||||
Joseph Nich and Tina M. Nich dba Vic's Greenhouses | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/4/2025 | 62.5 | 62.5 | 62.4 | 0.03 | % | |||||||||||||||
Sourceco Limited Liability Company | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/17/2025 | 62.5 | 62.5 | 54.5 | 0.03 | % | |||||||||||||||
Optima Health Care Inc | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/23/2025 | 62.5 | 62.5 | 62.4 | 0.03 | % | |||||||||||||||
Pace Motor Lines, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 2/26/2025 | 66.2 | 62.5 | 62.0 | 0.03 | % | |||||||||||||||
God is Good LLC dba BurgerFi | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/27/2025 | 67.3 | 62.4 | 56.0 | 0.03 | % | |||||||||||||||
Kup’s Auto Spa, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/23/2025 | 62.5 | 62.1 | 60.2 | 0.03 | % | |||||||||||||||
Rutledge Enterprises Inc dba BLC Property Management | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/23/2040 | 62.5 | 61.8 | 60.6 | 0.03 | % | |||||||||||||||
Almost Home Daycare LLC | Social Assistance | Term Loan | Prime plus 2.75% | 9/11/2025 | 62.5 | 61.7 | 60.1 | 0.03 | % | |||||||||||||||
O'Rourkes Diner LLC dba O'Rourke's Diner | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/19/2037 | 65.5 | 61.5 | 62.9 | 0.03 | % | |||||||||||||||
Kiddie Steps 4 You Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 2/19/2040 | 61.8 | 61.1 | 57.8 | 0.03 | % | |||||||||||||||
DTM Parts Supply Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 6/2/2025 | 62.8 | 60.8 | 50.6 | 0.02 | % | |||||||||||||||
Polpo Realty, LLC(EPC) Polpo Restaurant, LLC (OC) | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/6/2038 | 62.5 | 60.5 | 62.2 | 0.03 | % | |||||||||||||||
ViAr Visual Communications, Inc. dba Fastsigns 281701 | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 6/5/2025 | 62.0 | 60.1 | 51.2 | 0.03 | % | |||||||||||||||
Baystate Firearms and Training, LLC | Educational Services | Term Loan | Prime plus 2.75% | 2/27/2025 | 63.4 | 59.7 | 50.1 | 0.02 | % | |||||||||||||||
Inverted Healthcare Staffing of Florida LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/18/2025 | 61.3 | 59.3 | 49.3 | 0.02 | % | |||||||||||||||
Smith Spinal Care Center P.C. and James C. Smith | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 10/8/2039 | 60.0 | 58.8 | 57.5 | 0.03 | % | |||||||||||||||
F-41
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Home Again Restaurant LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2040 | 59.0 | 58.8 | 58.1 | 0.03 | % | |||||||||||||||
ALF, LLC (EPC) Mulit-Service Eagle Tires (OC) | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 5/31/2037 | 62.9 | 58.6 | 61.0 | 0.03 | % | |||||||||||||||
Emerald Ironworks Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/27/2023 | 72.0 | 58.5 | 57.3 | 0.03 | % | |||||||||||||||
Homegrown For Good LLC | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 5/8/2025 | 60.0 | 57.8 | 50.5 | 0.02 | % | |||||||||||||||
Metano IBC Services, Inc. and Stone Brook Leasing, LLC | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 8/17/2017 | 315.0 | 57.1 | 57.4 | 0.03 | % | |||||||||||||||
Eco-Green Reprocessing LLC and Denali Medical Concepts, LLC | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 11/27/2023 | 67.2 | 56.7 | 52.5 | 0.03 | % | |||||||||||||||
University Park Retreat, LLC dba Massage Heights | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/27/2022 | 76.0 | 56.5 | 57.1 | 0.03 | % | |||||||||||||||
Gordon E Rogers dba Stonehouse Motor Inn | Accommodation | Term Loan | Prime plus 2.75% | 9/26/2039 | 57.5 | 56.3 | 57.2 | 0.03 | % | |||||||||||||||
Eldredge Tavern LLC dba Gonyea's Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/8/2040 | 56.3 | 55.8 | 56.8 | 0.03 | % | |||||||||||||||
SuzyQue’s LLC dba Suzy Que’s | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/11/2036 | 61.0 | 55.3 | 57.7 | 0.03 | % | |||||||||||||||
Long Island Barber + Beauty LLC | Educational Services | Term Loan | Prime plus 2.75% | 6/2/2039 | 55.5 | 54.1 | 54.1 | 0.03 | % | |||||||||||||||
Global Educational Delivery Services LLC | Educational Services | Term Loan | Prime plus 2.75% | 6/16/2024 | 60.0 | 54.0 | 54.3 | 0.03 | % | |||||||||||||||
Danny V, LLC dba Hugo's Taproom | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2040 | 54.0 | 53.6 | 49.2 | 0.02 | % | |||||||||||||||
D & D's Divine Beauty School of Esther, LLC | Educational Services | Term Loan | 6% | 8/1/2031 | 57.7 | 53.5 | 55.5 | 0.03 | % | |||||||||||||||
Handy 6391 LLC dba The UPS Store #6391 | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/27/2023 | 62.5 | 53.4 | 53.6 | 0.03 | % | |||||||||||||||
Road to Sedona Inc dba Thirteen | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/27/2025 | 56.6 | 53.4 | 45.1 | 0.02 | % | |||||||||||||||
Joyce Outdoor Advertising NJ LLC and Joyce Outdoor Advertising LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 3/26/2040 | 54.0 | 53.4 | 53.3 | 0.03 | % | |||||||||||||||
Modern Leather Goods Repair Shop Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/17/2024 | 58.8 | 53.1 | 44.1 | 0.02 | % | |||||||||||||||
Jonesboro Health Food Center LLC | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 5/27/2024 | 60.0 | 52.9 | 48.6 | 0.02 | % | |||||||||||||||
B.S. Ventures LLC dba Dink's Market | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/19/2039 | 53.8 | 52.9 | 53.5 | 0.03 | % | |||||||||||||||
F-42
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
God Be Glorified Inc dba GBG Inc | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 8/20/2025 | 53.0 | 52.0 | 43.8 | 0.02 | % | |||||||||||||||
Real Help LLC dba Real Help Decorative Concrete | Administrative and Support Services | Term Loan | Prime plus 2.75% | 6/22/2025 | 53.1 | 51.5 | 49.6 | 0.02 | % | |||||||||||||||
Akshar Group, LLC | Accommodation | Term Loan | 6% | 11/5/2028 | 321.3 | 51.3 | 53.0 | 0.03 | % | |||||||||||||||
KMC RE, LLC & B&B Kennels | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/19/2034 | 58.3 | 51.0 | 53.1 | 0.03 | % | |||||||||||||||
The Red Pill Management, Inc. dba UFC Gym Matthews | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 11/26/2024 | 54.3 | 50.9 | 44.6 | 0.02 | % | |||||||||||||||
Gregory P Jellenek OD and Associates PC dba Gregory P Jellenek OD | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 5/28/2023 | 63.5 | 50.9 | 50.4 | 0.02 | % | |||||||||||||||
Success Express,Inc. dba Success Express | Couriers and Messengers | Term Loan | Prime plus 2.75% | 9/29/2020 | 91.8 | 50.6 | 50.6 | 0.02 | % | |||||||||||||||
D&G Capital LLC dba Miami Grill 277 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/16/2025 | 83.8 | 50.5 | 49.7 | 0.02 | % | |||||||||||||||
Martin L Hopp, MD PHD A Medical Corp (OC) dba Tower ENT | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/21/2022 | 66.3 | 50.5 | 49.7 | 0.02 | % | |||||||||||||||
Atlas Auto Body Inc dba Atlas Auto Sales | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/22/2039 | 51.6 | 50.4 | 48.3 | 0.02 | % | |||||||||||||||
Veliu LLC dba FASTSIGNS #15901 | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 9/10/2025 | 50.0 | 50.0 | 43.2 | 0.02 | % | |||||||||||||||
K's Salon, LLC d/b/a K's Salon | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/20/2021 | 73.6 | 49.8 | 49.5 | 0.02 | % | |||||||||||||||
Jacksonville Beauty Institute Inc. dba Beauty Institute's | Educational Services | Term Loan | Prime plus 2.75% | 10/23/2025 | 50.0 | 49.7 | 41.9 | 0.02 | % | |||||||||||||||
Sound Manufacturing Inc | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 9/12/2028 | 54.8 | 49.6 | 48.1 | 0.02 | % | |||||||||||||||
Sound Manufacturing Inc | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 9/21/2025 | 50.0 | 49.5 | 43.9 | 0.02 | % | |||||||||||||||
South Towne Dental Center, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/25/2025 | 50.0 | 49.4 | 49.3 | 0.02 | % | |||||||||||||||
Finish Strong Inc dba FASTSIGNS St Peters | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 9/23/2025 | 50.0 | 49.4 | 41.6 | 0.02 | % | |||||||||||||||
AGV Enterprises LLC dba Jet's Pizza #42 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/31/2024 | 54.8 | 49.2 | 42.0 | 0.02 | % | |||||||||||||||
Southeast Chicago Soccer, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/26/2038 | 51.3 | 49.1 | 50.5 | 0.02 | % | |||||||||||||||
Trading Group 3 Inc | Nonstore Retailers | Term Loan | Prime plus 2.75% | 8/28/2025 | 50.0 | 49.1 | 41.3 | 0.02 | % | |||||||||||||||
F-43
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Java Warung, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/19/2038 | 51.0 | 48.4 | 50.0 | 0.02 | % | |||||||||||||||
DRV Enterprise, Inc. dba Cici's Pizza # 339 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/26/2022 | 65.0 | 48.2 | 48.8 | 0.02 | % | |||||||||||||||
Ryan D. Thornton and Thornton & Associates LLC | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 5/24/2023 | 68.8 | 47.5 | 46.1 | 0.02 | % | |||||||||||||||
Highway Striping Inc | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 6/30/2024 | 53.1 | 47.3 | 44.4 | 0.02 | % | |||||||||||||||
Feel The World Inc dba Xero Shoes and Invisible Shoes | Leather and Allied Product Manufacturing | Term Loan | Prime plus 2.75% | 9/5/2024 | 51.9 | 47.3 | 40.4 | 0.02 | % | |||||||||||||||
CJR LLC (EPC) and PowerWash Plus, Inc. (OC) | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/30/2024 | 53.0 | 46.9 | 45.8 | 0.02 | % | |||||||||||||||
Alexandra Afentoulides dba Vi's Pizza Restaurant | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/11/2040 | 46.3 | 46.3 | 47.1 | 0.02 | % | |||||||||||||||
Screenmobile Management Inc | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 8/14/2025 | 47.0 | 46.1 | 39.2 | 0.02 | % | |||||||||||||||
Will Zac Management LLC dba Papa John's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/19/2024 | 48.8 | 46.1 | 45.9 | 0.02 | % | |||||||||||||||
Any Garment Cleaner-East Brunswick, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/18/2023 | 53.8 | 45.7 | 44.8 | 0.02 | % | |||||||||||||||
CBA D&A Pope, LLC dba Christian Brothers Automotive | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/14/2018 | 144.9 | 45.6 | 45.9 | 0.02 | % | |||||||||||||||
Chickamauga Properties, Inc. and MSW Enterprises, LLP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/19/2022 | 59.8 | 45.0 | 45.5 | 0.02 | % | |||||||||||||||
LABH, Inc. t/a Ramada Ltd. | Accommodation | Term Loan | Prime plus 2.25% | 9/27/2024 | 555.0 | 44.9 | 45.0 | 0.02 | % | |||||||||||||||
B for Brunette | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/10/2023 | 53.4 | 44.9 | 41.1 | 0.02 | % | |||||||||||||||
Delta Partners, LLC dba Delta Carwash | Repair and Maintenance | Term Loan | Prime plus 2.5% | 4/5/2029 | 280.9 | 44.8 | 45.7 | 0.02 | % | |||||||||||||||
Rudy & Louise Chavez dba Clyde's Auto and Furniture Upholstery | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/2/2035 | 50.1 | 44.7 | 46.6 | 0.02 | % | |||||||||||||||
Stellar Environmental LLC | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 3/18/2023 | 56.3 | 44.3 | 44.5 | 0.02 | % | |||||||||||||||
Alyssa Corp dba Knights Inn | Accommodation | Term Loan | Prime plus 2.25% | 9/30/2023 | 350.0 | 44.2 | 44.3 | 0.02 | % | |||||||||||||||
Jatcoia, LLC dba Plato's Closet | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 8/15/2023 | 65.0 | 44.2 | 44.3 | 0.02 | % | |||||||||||||||
MM and M Management Inc dba Pizza Artista | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/19/2025 | 46.3 | 44.0 | 37.4 | 0.02 | % | |||||||||||||||
F-44
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Morning Star Trucking LLC and Morning Star Equipment and Leasing LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 7/17/2023 | 53.8 | 43.8 | 39.9 | 0.02 | % | |||||||||||||||
Sound Coaching Inc | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 4/14/2025 | 44.4 | 42.5 | 35.3 | 0.02 | % | |||||||||||||||
Jaymie Hazard dba Indigo Hair Studio and Day Spa | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 3/20/2040 | 42.9 | 42.4 | 40.7 | 0.02 | % | |||||||||||||||
Thomas P. Scoville dba Scoville Plumbing & Heating, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/16/2021 | 62.5 | 41.6 | 42.2 | 0.02 | % | |||||||||||||||
Stephen Frank, Patricia Frank and Suds Express LLC dba Frank Chiropra | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 2/25/2023 | 63.0 | 41.0 | 41.7 | 0.02 | % | |||||||||||||||
Lavertue Properties LLP dba Lavertue Properties | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/29/2036 | 44.8 | 40.9 | 42.8 | 0.02 | % | |||||||||||||||
Equity National Capital LLC & Chadbourne Road Capital, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 9/26/2021 | 62.5 | 40.8 | 40.8 | 0.02 | % | |||||||||||||||
Excel RP, Inc./Kevin and Joann Foley | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 7/8/2028 | 50.0 | 40.1 | 41.2 | 0.02 | % | |||||||||||||||
Peanut Butter & Co., Inc. d/b/a Peanut Butter & Co. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/3/2021 | 65.5 | 39.8 | 40.0 | 0.02 | % | |||||||||||||||
Financial Network Recovery | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/26/2025 | 40.0 | 39.3 | 33.1 | 0.02 | % | |||||||||||||||
Jojan, Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.25% | 12/18/2031 | 204.8 | 39.2 | 39.4 | 0.02 | % | |||||||||||||||
All American Printing | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 10/26/2032 | 69.8 | 39.0 | 40.6 | 0.02 | % | |||||||||||||||
Play and Stay LLC dba Zoom Room Tinton Falls | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/18/2024 | 42.1 | 38.8 | 32.2 | 0.02 | % | |||||||||||||||
K9 Bytes, Inc & Epazz, Inc dba K9 Bytes, Inc | Publishing Industries (except Internet) | Term Loan | Prime plus 2.75% | 10/26/2021 | 58.8 | 38.8 | 38.7 | 0.02 | % | |||||||||||||||
Legacy Estate Planning Inc dba American Casket Enterprises | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/21/2024 | 42.0 | 38.8 | 32.2 | 0.02 | % | |||||||||||||||
Valiev Ballet Academy, Inc | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 8/12/2036 | 91.5 | 38.8 | 40.4 | 0.02 | % | |||||||||||||||
F-45
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Kids in Motion of Springfield LLC dba The Little Gym of Springfield IL | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 11/18/2023 | 45.0 | 38.7 | 35.8 | 0.02 | % | |||||||||||||||
Serious-Fun in Alpharetta, LLC dba The Little Gym of Alpharetta | Educational Services | Term Loan | Prime plus 2.75% | 9/20/2023 | 46.3 | 38.6 | 35.9 | 0.02 | % | |||||||||||||||
Scoville Plumbing & Heating Inc and Thomas P. Scoville | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/25/2022 | 50.0 | 38.3 | 38.7 | 0.02 | % | |||||||||||||||
Alma J. and William R. Walton (EPC) and Almas Child Day Care Center | Social Assistance | Term Loan | Prime plus 2.75% | 9/11/2038 | 39.5 | 37.9 | 39.0 | 0.02 | % | |||||||||||||||
Lahoba,LLC dba Papa John's Pizza | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/30/2034 | 42.5 | 37.3 | 39.0 | 0.02 | % | |||||||||||||||
Orange County Cleaning Inc | Administrative and Support Services | Term Loan | Prime plus 2.75% | 8/27/2024 | 41.3 | 37.3 | 31.0 | 0.02 | % | |||||||||||||||
Lodin Medical Imaging, LLC dba Watson Imaging Center | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/1/2020 | 66.4 | 37.3 | 37.7 | 0.02 | % | |||||||||||||||
Janice B. McShan and The Metropolitan Day School, LLC | Social Assistance | Term Loan | Prime plus 2.75% | 10/31/2023 | 42.8 | 36.9 | 36.8 | 0.02 | % | |||||||||||||||
Aiello's Pizzeria LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/18/2024 | 42.8 | 36.5 | 34.2 | 0.02 | % | |||||||||||||||
M & H Pine Straw, Inc.and Harris Maloy | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 7/10/2020 | 67.5 | 36.2 | 36.5 | 0.02 | % | |||||||||||||||
ENI Inc. dba ENI Group, Inc | Other Information Services | Term Loan | Prime plus 2.75% | 12/11/2025 | 36.0 | 36.0 | 31.8 | 0.02 | % | |||||||||||||||
Capital Scrap Metal LLC | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/18/2025 | 36.0 | 36.0 | 30.7 | 0.02 | % | |||||||||||||||
KIND-ER-ZZ Inc dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 6/15/2022 | 50.0 | 35.7 | 35.6 | 0.02 | % | |||||||||||||||
Gulfport Academy Child Care and Learning Center, Inc. and Jennifer Sis | Social Assistance | Term Loan | Prime plus 2.75% | 8/30/2023 | 43.3 | 35.6 | 35.1 | 0.02 | % | |||||||||||||||
Babie Bunnie Enterprises Inc dba Triangle Mothercare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/28/2027 | 46.3 | 35.4 | 34.7 | 0.02 | % | |||||||||||||||
Dave Kris, and MDK Ram Corp. | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 2/5/2026 | 221.0 | 35.0 | 35.9 | 0.02 | % | |||||||||||||||
Actknowledge,Inc dba Actknowledge | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 3/21/2021 | 57.3 | 34.7 | 35.1 | 0.02 | % | |||||||||||||||
401 JJS, Corp and G. Randazzo's Trattoria Corporation | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/1/2040 | 52.8 | 34.3 | 35.0 | 0.02 | % | |||||||||||||||
Andrene's LLC dba Andrene's Caribbean Soul Food Carry Out | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/23/2024 | 37.8 | 34.3 | 28.6 | 0.01 | % | |||||||||||||||
CPN Motel, L.L.C. dba American Motor Lodge | Accommodation | Term Loan | Prime plus 2.25% | 4/30/2024 | 379.0 | 34.0 | 34.1 | 0.02 | % | |||||||||||||||
F-46
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Smooth Grounds, Inc. | Food Services and Drinking Places | Term Loan | 7.75% | 10/11/2016 | 64.5 | 33.9 | 34.1 | 0.02 | % | |||||||||||||||
Naseeb Corporation | Accommodation | Term Loan | Prime plus 2.25% | 3/31/2024 | 402.5 | 33.1 | 33.1 | 0.02 | % | |||||||||||||||
Harbor Ventilation Inc and Estes Investment, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/19/2038 | 92.1 | 32.8 | 33.7 | 0.02 | % | |||||||||||||||
Kino Oil of Texas, LLC dba Kino Oil | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/27/2020 | 60.0 | 32.6 | 32.9 | 0.02 | % | |||||||||||||||
My Jewels, LLC dba The UPS Store #6712 | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/7/2025 | 56.3 | 32.4 | 27.3 | 0.01 | % | |||||||||||||||
Kinisi, Inc. dba The River North UPS Store | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/18/2024 | 41.3 | 32.2 | 31.2 | 0.02 | % | |||||||||||||||
Center-Mark Car Wash, Ltd | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 5/18/2024 | 221.3 | 30.7 | 31.4 | 0.02 | % | |||||||||||||||
Robert F. Schuler and Lori A. Schuler dba Bob’s Service Center | Repair and Maintenance | Term Loan | Prime plus 2.75% | 11/30/2035 | 34.0 | 30.5 | 31.8 | 0.02 | % | |||||||||||||||
Dream Envy, Ltd. d/b/a Massage Envy | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/9/2018 | 88.0 | 30.4 | 30.7 | 0.02 | % | |||||||||||||||
Deesha Corporation, Inc. dba Best Inn & Suites | Accommodation | Term Loan | Prime plus 2.25% | 2/14/2025 | 250.0 | 30.0 | 30.1 | 0.01 | % | |||||||||||||||
Twietmeyer Dentistry PA | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/30/2017 | 148.9 | 29.0 | 29.2 | 0.01 | % | |||||||||||||||
CMA Consulting dba Construction Management Associates | Construction of Buildings | Term Loan | Prime plus 2.75% | 12/11/2019 | 58.5 | 28.6 | 28.7 | 0.01 | % | |||||||||||||||
North Atlanta RV Rentals LLC | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 6/29/2025 | 144.3 | 28.2 | 23.5 | 0.01 | % | |||||||||||||||
Little People’s Village, LLC dba Little People’s Village | Social Assistance | Term Loan | Prime plus 2.75% | 1/31/2036 | 31.1 | 28.0 | 29.2 | 0.01 | % | |||||||||||||||
Maruti, Inc | Accommodation | Term Loan | Prime plus 2.25% | 11/25/2024 | 220.0 | 27.9 | 28.0 | 0.01 | % | |||||||||||||||
A & A Acquisition, Inc. dba A & A International | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 2/15/2018 | 100.0 | 26.8 | 27.0 | 0.01 | % | |||||||||||||||
ActKnowledge,Inc dba ActKnowledge | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/30/2020 | 50.0 | 26.5 | 26.9 | 0.01 | % | |||||||||||||||
Planet Verte, LLC dba Audio Unlimited of Oceanside | Administrative and Support Services | Term Loan | Prime plus 2.75% | 11/28/2019 | 57.0 | 26.5 | 26.6 | 0.01 | % | |||||||||||||||
Seven Stars Enterprises, Inc. dba Atlanta Bread Company | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2018 | 86.3 | 26.4 | 26.6 | 0.01 | % | |||||||||||||||
K & D Family and Associates, Inc. dba Philly Pretzel Factory | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 8/5/2018 | 81.3 | 26.3 | 26.5 | 0.01 | % | |||||||||||||||
F-47
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
39581 Garfield, LLC and Tricounty Neurological Associates, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/30/2036 | 28.5 | 25.9 | 26.9 | 0.01 | % | |||||||||||||||
Craig R Freehauf d/b/a Lincoln Theatre | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 5/31/2022 | 47.9 | 25.3 | 25.7 | 0.01 | % | |||||||||||||||
Shree OM Lodging, LLC dba Royal Inn | Accommodation | Term Loan | Prime plus 2.75% | 12/17/2035 | 27.7 | 24.9 | 25.9 | 0.01 | % | |||||||||||||||
Lincoln Park Physical Therapy | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 10/20/2020 | 43.5 | 24.4 | 24.7 | 0.01 | % | |||||||||||||||
Aldine Funeral Chapel, LLC dba Aldine Funeral Chapel | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 3/8/2038 | 73.8 | 24.0 | 24.9 | 0.01 | % | |||||||||||||||
Parties By Pat, Inc. and Jose M. Martinez Jr. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/11/2017 | 93.1 | 22.8 | 23.0 | 0.01 | % | |||||||||||||||
B & J Manufacturing Corporation and Benson Realty Trust | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2% | 3/30/2021 | 250.0 | 22.6 | 22.4 | 0.01 | % | |||||||||||||||
Gain Laxmi, Inc. dba Super 8 Motel | Accommodation | Term Loan | Prime plus 2.25% | 5/31/2023 | 202.5 | 22.5 | 22.5 | 0.01 | % | |||||||||||||||
RDT Enterprises, L.L.C. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/12/2025 | 22.5 | 22.5 | 20.9 | 0.01 | % | |||||||||||||||
Medeiros Holdings Inc dba Outdoor Lighting Perspectives of the Triad | Electrical Equipment, Appliance, and Component Manufacturing | Term Loan | Prime plus 2.75% | 11/25/2025 | 22.5 | 22.5 | 19.0 | 0.01 | % | |||||||||||||||
AGR Foodmart Inc dba Nashua Road Mobil | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/11/2025 | 22.5 | 22.5 | 21.1 | 0.01 | % | |||||||||||||||
DC Enterprises Ltd. dba Lakeview True Value | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 12/14/2025 | 22.5 | 22.5 | 21.2 | 0.01 | % | |||||||||||||||
ADMO Inc dba Mid States Equipment | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 10/8/2025 | 22.5 | 22.4 | 19.3 | 0.01 | % | |||||||||||||||
Insurance Fire & Water Restorations, LLC | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 10/23/2025 | 22.5 | 22.4 | 21.0 | 0.01 | % | |||||||||||||||
New Hampshire Precision Metal Fabricators, Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 10/23/2025 | 22.5 | 22.4 | 22.3 | 0.01 | % | |||||||||||||||
Bisson Transportation Inc dba I & R Associates and Document Secutiry | Truck Transportation | Term Loan | Prime plus 2.75% | 10/30/2025 | 22.5 | 22.4 | 20.8 | 0.01 | % | |||||||||||||||
Binky's Vapes LLC | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 9/30/2025 | 22.5 | 22.2 | 18.7 | 0.01 | % | |||||||||||||||
Planet Verte,LLC d/b/a Audio Unlimited | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/20/2020 | 40.0 | 22.0 | 22.0 | 0.01 | % | |||||||||||||||
575 Columbus Avenue Holding Company, LLC and LA-ZE LLC dba EST EST EST | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/30/2039 | 22.5 | 22.0 | 22.3 | 0.01 | % | |||||||||||||||
F-48
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Smart Artists Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 7/23/2025 | 22.5 | 21.9 | 18.5 | 0.01 | % | |||||||||||||||
Delray Scrap Recycling LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 8/31/2025 | 22.5 | 21.8 | 18.4 | 0.01 | % | |||||||||||||||
Square Deal Siding Company,LLC dba Square Deal Siding Company | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/18/2025 | 22.5 | 21.8 | 21.7 | 0.01 | % | |||||||||||||||
Evinger PA One, Inc. dba Postal Annex, Falcon | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 6/24/2025 | 22.5 | 21.8 | 19.3 | 0.01 | % | |||||||||||||||
E & G Enterprises LLC dba Comfort Keepers | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/26/2025 | 22.5 | 21.8 | 18.2 | 0.01 | % | |||||||||||||||
Members Only Software | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/30/2020 | 40.3 | 21.8 | 21.9 | 0.01 | % | |||||||||||||||
RJI Services, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/23/2025 | 22.5 | 21.6 | 18.0 | 0.01 | % | |||||||||||||||
KenBro Enterprises LLC dba Hearing Aids by Zounds-Cherry Hill | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 10/18/2023 | 25.8 | 21.5 | 20.9 | 0.01 | % | |||||||||||||||
Giacchino Maritime Consultants Inc | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 4/17/2025 | 22.5 | 21.5 | 17.9 | 0.01 | % | |||||||||||||||
Ragazza Restaurant Group, Inc. dba Bambolina | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/21/2025 | 22.5 | 21.5 | 18.8 | 0.01 | % | |||||||||||||||
Diamond Solutions LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 4/21/2025 | 22.5 | 21.5 | 17.9 | 0.01 | % | |||||||||||||||
Gurtej Singh and Ranjit Kaur dba Food Fair Market | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/18/2025 | 22.5 | 21.4 | 17.8 | 0.01 | % | |||||||||||||||
Zero-In Media Inc | Data Processing, Hosting, and Related Services | Term Loan | Prime plus 2.75% | 3/25/2025 | 22.5 | 21.4 | 17.8 | 0.01 | % | |||||||||||||||
Pen Tex Inc dba The UPS Store | Administrative and Support Services | Term Loan | Prime plus 2.75% | 5/20/2025 | 22.0 | 21.2 | 17.6 | 0.01 | % | |||||||||||||||
Trading Group 3, Inc. | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 11/26/2024 | 22.5 | 20.8 | 17.3 | 0.01 | % | |||||||||||||||
J.R. Wheeler Corporation dba Structurz Exhibits and Graphics | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 10/24/2025 | 21.0 | 20.7 | 20.7 | 0.01 | % | |||||||||||||||
Auto Shine Carwash Inc and AKM R. Hossain and Jessica F. Masud | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/26/2024 | 22.5 | 20.5 | 17.8 | 0.01 | % | |||||||||||||||
Jatcoia 60056, LLC dba Style Encore | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 3/31/2025 | 22.3 | 20.4 | 19.1 | 0.01 | % | |||||||||||||||
H.H. Leonards Trust and Potomac Fund LLC and The 2020 O Street Corporation | Accommodation | Term Loan | Prime plus 2.75% | 7/23/2020 | 62.0 | 20.3 | 20.5 | 0.01 | % | |||||||||||||||
F-49
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
TJU-DGT Inc dba The Lorenz Cafe | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/26/2029 | 20.6 | 20.2 | 20.0 | 0.01 | % | |||||||||||||||
L&S Insurance & Financial Services Inc | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 7/25/2024 | 22.5 | 20.2 | 17.1 | 0.01 | % | |||||||||||||||
Complete Body & Paint, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/23/2039 | 20.8 | 20.2 | 20.7 | 0.01 | % | |||||||||||||||
Any Garment Cleaner-East Brunswick, Inc dba Any Garment Cleaner | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/18/2020 | 42.5 | 20.2 | 20.4 | 0.01 | % | |||||||||||||||
Sujata Inc dba Stop N Save Food Mart and Dhruvesh Patel | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 6/3/2024 | 22.5 | 20.0 | 18.7 | 0.01 | % | |||||||||||||||
Pocono Coated Products, LLC | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 5/30/2024 | 22.5 | 19.9 | 19.5 | 0.01 | % | |||||||||||||||
Palmabak Inc dba Mami Nora's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/22/2025 | 21.5 | 19.7 | 19.5 | 0.01 | % | |||||||||||||||
Diag, LLC dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 6/21/2020 | 37.5 | 19.4 | 19.5 | 0.01 | % | |||||||||||||||
One Hour Jewelry Repair Inc | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/14/2024 | 20.6 | 18.9 | 15.7 | 0.01 | % | |||||||||||||||
MCF Forte LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/29/2025 | 18.8 | 18.8 | 16.0 | 0.01 | % | |||||||||||||||
Carolina Beefs, LLC dba Beef O'Brady's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/13/2025 | 19.5 | 18.6 | 15.5 | 0.01 | % | |||||||||||||||
Icore Enterprises Inc dba Air Flow Filters Inc | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 1/15/2024 | 21.8 | 18.6 | 18.7 | 0.01 | % | |||||||||||||||
Caribbean Concepts, Inc. dba Quick Bleach | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 8/12/2023 | 22.5 | 18.6 | 17.3 | 0.01 | % | |||||||||||||||
M and C Renovations Inc | Construction of Buildings | Term Loan | Prime plus 2.75% | 10/31/2024 | 20.3 | 18.6 | 15.5 | 0.01 | % | |||||||||||||||
Tammy's Bakery, Inc. dba Tammy's Bakery | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/10/2017 | 71.8 | 18.5 | 18.6 | 0.01 | % | |||||||||||||||
Min Hui Lin | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/30/2028 | 134.3 | 18.5 | 19.1 | 0.01 | % | |||||||||||||||
Major Queens Body & Fender Corp | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/10/2021 | 28.6 | 18.2 | 18.5 | 0.01 | % | |||||||||||||||
Shuttle Car Wash, Inc. dba Shuttle Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.25% | 11/10/2028 | 109.8 | 18.2 | 18.2 | 0.01 | % | |||||||||||||||
Gray Tree Service, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/18/2018 | 50.0 | 18.2 | 18.3 | 0.01 | % | |||||||||||||||
Hattingh Incorporated dba Prosthetic Care Facility | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/21/2025 | 18.0 | 18.0 | 16.0 | 0.01 | % | |||||||||||||||
F-50
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Hurshell Leon Dutton dba High Jump Party Rentals | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 11/30/2025 | 17.6 | 17.6 | 17.1 | 0.01 | % | |||||||||||||||
Boilermaker Industries LLC dba PostNet | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/9/2024 | 18.8 | 17.5 | 16.1 | 0.01 | % | |||||||||||||||
The Amendments Group LLC dba Brightstar | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/17/2022 | 22.5 | 17.2 | 17.4 | 0.01 | % | |||||||||||||||
EGM Food Services Inc dba Gold Star Chili | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/29/2024 | 19.2 | 17.0 | 15.9 | 0.01 | % | |||||||||||||||
Hi-Def Imaging, Inc. dba SpeedPro Imaging | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 11/9/2022 | 22.2 | 16.8 | 16.5 | 0.01 | % | |||||||||||||||
Tracey Vita-Morris dba Tracey Vita's School of Dance | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 5/10/2022 | 22.5 | 16.1 | 16.0 | 0.01 | % | |||||||||||||||
St Judes Physical Therapy P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/19/2022 | 21.0 | 15.9 | 16.1 | 0.01 | % | |||||||||||||||
Tri-State Remodeling & Investments, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/11/2025 | 15.9 | 15.9 | 15.2 | 0.01 | % | |||||||||||||||
Panditos LLC dba White Lotus Home | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 12/28/2025 | 15.9 | 15.9 | 13.4 | 0.01 | % | |||||||||||||||
Opes Campitor Corporation dba Frux Documents | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 5/20/2025 | 16.5 | 15.9 | 13.5 | 0.01 | % | |||||||||||||||
JSIL LLC dba Blackstones Hairdressing | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 8/16/2023 | 19.5 | 15.8 | 14.9 | 0.01 | % | |||||||||||||||
Nancy Carapelluci & A & M Seasonal Corner Inc. | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 3/1/2025 | 106.9 | 15.8 | 16.2 | 0.01 | % | |||||||||||||||
TOL LLC dba Wild Birds Unlimited | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 12/13/2023 | 18.0 | 15.8 | 15.0 | 0.01 | % | |||||||||||||||
Vanderhoof LLC dba Soxfords | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 9/18/2025 | 15.9 | 15.7 | 13.2 | 0.01 | % | |||||||||||||||
Vallmar Studios, LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/21/2025 | 15.8 | 15.6 | 13.1 | 0.01 | % | |||||||||||||||
Frozen Treats of Hollywood FL, LLC dba Sub Zero Ice Cream | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/22/2025 | 15.8 | 15.6 | 13.8 | 0.01 | % | |||||||||||||||
Chitalian Fratelli LLC dba Francesca Brick Oven Pizza and Pasta | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/5/2025 | 16.1 | 15.5 | 12.9 | 0.01 | % | |||||||||||||||
Myclean Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/29/2025 | 15.9 | 15.4 | 12.8 | 0.01 | % | |||||||||||||||
Kings Laundry,LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/30/2017 | 64.5 | 15.3 | 15.4 | 0.01 | % | |||||||||||||||
F-51
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Balthazar Management Virgin Islands, LLC dba The Beach Cafe | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/22/2025 | 15.8 | 15.3 | 15.2 | 0.01 | % | |||||||||||||||
Karis, Inc. | Accommodation | Term Loan | Prime plus 2% | 12/22/2023 | 148.8 | 15.0 | 14.9 | 0.01 | % | |||||||||||||||
Michael S. Decker & Janet Decker dba The Hen House Cafe | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/30/2036 | 16.4 | 15.0 | 15.6 | 0.01 | % | |||||||||||||||
Bradley Stinson and Associates Inc | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 11/19/2025 | 15.0 | 15.0 | 12.6 | 0.01 | % | |||||||||||||||
Elite Institute LLC dba Huntington Learning Center | Educational Services | Term Loan | Prime plus 2.75% | 8/28/2025 | 15.0 | 14.9 | 12.6 | 0.01 | % | |||||||||||||||
Zouk, Ltd. dba Palma | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/25/2020 | 27.5 | 14.7 | 14.9 | 0.01 | % | |||||||||||||||
Graphish Studio, Inc. and Scott Fishoff | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/14/2022 | 20.3 | 14.6 | 14.6 | 0.01 | % | |||||||||||||||
Jay Kevin Gremillion dba Dino Smiles Children's Cosmetic Dentistry | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/18/2025 | 73.0 | 14.6 | 14.6 | 0.01 | % | |||||||||||||||
28 Cornelia Street Properties, LLC and Zouk, Ltd.dba Palma | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 10/25/2021 | 22.5 | 14.6 | 14.8 | 0.01 | % | |||||||||||||||
Vision Network Solutions, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/12/2022 | 19.5 | 14.5 | 14.1 | 0.01 | % | |||||||||||||||
PM Cassidy Enterprises, Inc. dba Junk King | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 6/19/2025 | 14.9 | 14.4 | 12.0 | 0.01 | % | |||||||||||||||
Orchid Enterprises Inc dba Assisting Hands of Sussex County | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/24/2025 | 15.0 | 14.3 | 12.0 | 0.01 | % | |||||||||||||||
Windsor Direct Distribution LLC | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 10/26/2025 | 14.3 | 14.2 | 11.9 | 0.01 | % | |||||||||||||||
Atlas Mountain Construction LLC | Construction of Buildings | Term Loan | Prime plus 2.75% | 1/28/2024 | 16.5 | 14.1 | 14.2 | 0.01 | % | |||||||||||||||
Michael S. Korfe dba North Valley Auto Repair | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/24/2036 | 15.5 | 14.0 | 14.6 | 0.01 | % | |||||||||||||||
Burks & Sons Development LLC dba Tropical Smoothie Cafe | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/22/2018 | 49.8 | 13.9 | 14.0 | 0.01 | % | |||||||||||||||
Laura L. Smith dba Lisa Smith Studio | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/3/2024 | 15.0 | 13.8 | 11.4 | 0.01 | % | |||||||||||||||
Insurance Problem Solvers LLC | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 5/20/2023 | 17.1 | 13.7 | 13.3 | 0.01 | % | |||||||||||||||
Gator Communications Group, LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 3/27/2023 | 17.3 | 13.7 | 13.6 | 0.01 | % | |||||||||||||||
F-52
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Duttakrupa, LLC dba Birmingham Motor Court | Accommodation | Term Loan | Prime plus 2.25% | 9/8/2023 | 98.8 | 13.6 | 13.6 | 0.01 | % | |||||||||||||||
Maynard Enterprises Inc dba Fastsigns of Texarkana | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 9/18/2023 | 16.1 | 13.5 | 12.6 | 0.01 | % | |||||||||||||||
Daniel W. Stark dba Mountain Valley Lodge and RV Park | Accommodation | Term Loan | Prime plus 2.75% | 9/25/2040 | 13.5 | 13.5 | 13.7 | 0.01 | % | |||||||||||||||
Willington Hills Equestrian Center LLC | Animal Production and Aquaculture | Term Loan | Prime plus 2.75% | 10/19/2022 | 85.0 | 13.2 | 13.5 | 0.01 | % | |||||||||||||||
Atlanta Vascular Research Organization, Inc dba Atlanta Vascular Found | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/6/2020 | 24.3 | 13.2 | 13.4 | 0.01 | % | |||||||||||||||
AcuCall LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/21/2023 | 15.8 | 13.1 | 12.0 | 0.01 | % | |||||||||||||||
Nicor LLC dba Fibrenew Sacramento | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/5/2022 | 13.8 | 13.1 | 10.9 | 0.01 | % | |||||||||||||||
John B. Houston Funeral Home, Inc. dba George E. Cushnie Funeral Home | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/19/2028 | 78.8 | 13.0 | 13.4 | 0.01 | % | |||||||||||||||
Clean Brothers Company Inc dba ServPro of North Washington County | Repair and Maintenance | Term Loan | Prime plus 2.75% | 11/21/2022 | 17.0 | 12.8 | 12.6 | 0.01 | % | |||||||||||||||
1911 East Main Street Holdings, Corp | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/18/2032 | 15.8 | 12.8 | 13.3 | 0.01 | % | |||||||||||||||
WeaverVentures, Inc dba The UPS Store | Postal Service | Term Loan | Prime plus 2.75% | 7/28/2020 | 23.8 | 12.8 | 12.9 | 0.01 | % | |||||||||||||||
Pegasus Automotive, Inc. | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/23/2022 | 112.5 | 12.4 | 12.7 | 0.01 | % | |||||||||||||||
S.Drake LLC dba Express Employment Professionals of Ann Arbor, Michigan | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/31/2023 | 18.8 | 12.3 | 11.4 | 0.01 | % | |||||||||||||||
Blue Ox Trucking Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 12/4/2025 | 12.3 | 12.3 | 12.3 | 0.01 | % | |||||||||||||||
Lefont Theaters Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/19/2023 | 14.4 | 12.2 | 11.7 | 0.01 | % | |||||||||||||||
McCallister Venture Group, LLC and Maw's Vittles, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/30/2029 | 75.0 | 12.2 | 12.6 | 0.01 | % | |||||||||||||||
DeRidder Chiropractic LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/25/2024 | 13.2 | 12.2 | 11.9 | 0.01 | % | |||||||||||||||
AJK Enterprise LLC dba AJK Enterprise LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 8/27/2022 | 16.5 | 12.2 | 12.2 | 0.01 | % | |||||||||||||||
P. Agrino, Inc. dba Andover Diner | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/18/2021 | 150.0 | 12.0 | 12.2 | 0.01 | % | |||||||||||||||
F-53
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Nelson Financial Services LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 2/24/2025 | 12.5 | 11.7 | 9.8 | — | % | |||||||||||||||
North Country Transport, LLC | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 2/6/2023 | 15.0 | 11.7 | 11.8 | 0.01 | % | |||||||||||||||
Abbondanza Market LLC dba Hampton Falls Village Market | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/18/2025 | 73.8 | 11.7 | 11.7 | 0.01 | % | |||||||||||||||
Indoor Playgrounds Limited Liability Company dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 4/5/2022 | 19.5 | 11.5 | 11.6 | 0.01 | % | |||||||||||||||
Loriet LLC | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 3/24/2025 | 12.0 | 11.4 | 9.5 | — | % | |||||||||||||||
Diamond Memorials Incorporated | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/25/2023 | 14.3 | 11.3 | 10.3 | 0.01 | % | |||||||||||||||
DWeb Studio, Inc. | Educational Services | Term Loan | Prime plus 2.75% | 11/25/2025 | 11.3 | 11.3 | 9.5 | — | % | |||||||||||||||
CJ Park Inc. dba Kidville Midtown West | Educational Services | Term Loan | Prime plus 2.75% | 6/25/2020 | 26.4 | 11.1 | 11.2 | 0.01 | % | |||||||||||||||
Play and Learn Child Care and School Inc | Social Assistance | Term Loan | Prime plus 2.75% | 11/23/2025 | 11.1 | 11.1 | 11.1 | 0.01 | % | |||||||||||||||
Margab, Inc. dba Smoothie King | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/28/2017 | 44.0 | 11.0 | 11.1 | 0.01 | % | |||||||||||||||
Mala Iyer, MD dba Child and Family Wellness Center | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 8/11/2017 | 50.0 | 11.0 | 11.0 | 0.01 | % | |||||||||||||||
Learning Skills LLC and Christopher Shrope | Educational Services | Term Loan | Prime plus 2.75% | 12/17/2025 | 10.8 | 10.8 | 9.1 | — | % | |||||||||||||||
Georgia Safe Sidewalks LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/27/2022 | 15.0 | 10.8 | 10.7 | 0.01 | % | |||||||||||||||
Luigi's on Main LLC and Luigi's Main Street Pizza Inc | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/4/2025 | 11.3 | 10.7 | 10.6 | 0.01 | % | |||||||||||||||
Kino Oil of Texas LLC dba Kino Company and B&D Oil | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/27/2035 | 12.0 | 10.5 | 10.9 | 0.01 | % | |||||||||||||||
Chong Hun Im dba Kim's Market | Food and Beverage Stores | Term Loan | Prime plus 2.5% | 2/27/2024 | 80.0 | 10.5 | 10.6 | 0.01 | % | |||||||||||||||
M. Krishna, Inc. dba Super 8 Motel | Accommodation | Term Loan | Prime plus 2% | 3/20/2025 | 250.0 | 10.3 | 10.2 | 0.01 | % | |||||||||||||||
Demand Printing Solutions, Inc. and MLM Enterprises, LLC d/b/a Demand Printing Solutions | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 5/27/2021 | 16.5 | 10.3 | 10.4 | 0.01 | % | |||||||||||||||
K9 Bytes, Inc & Epazz, Inc | Publishing Industries (except Internet) | Term Loan | Prime plus 2.75% | 9/30/2020 | 18.5 | 10.2 | 10.2 | 0.01 | % | |||||||||||||||
Prestigious LifeCare for Seniors LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/25/2025 | 9.8 | 9.7 | 8.8 | — | % | |||||||||||||||
F-54
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Dirk's Trucking, L.L.C. dba Dirk's Trucking | Truck Transportation | Term Loan | Prime plus 2.75% | 9/17/2020 | 17.7 | 9.7 | 9.7 | — | % | |||||||||||||||
Taste of Inverness, Inc. dba China Garden | Food Services and Drinking Places | Term Loan | Prime plus 2% | 6/29/2025 | 73.8 | 9.6 | 9.5 | — | % | |||||||||||||||
Jennifer T Campbell | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 7/31/2025 | 9.8 | 9.5 | 8.0 | — | % | |||||||||||||||
Pedzik's Pets, LLC | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 3/31/2030 | 53.5 | 9.4 | 9.8 | — | % | |||||||||||||||
Head To Toe Personalized Pampering, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 1/27/2031 | 52.0 | 9.4 | 9.7 | — | % | |||||||||||||||
Daniel W and Erin H Gordon and Silver Lining Stables CT, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 7/24/2023 | 11.3 | 9.2 | 9.2 | — | % | |||||||||||||||
Capitol Compliance Associates Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 4/30/2025 | 15.9 | 9.0 | 7.5 | — | % | |||||||||||||||
It's A Buffalo | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/26/2016 | 219.8 | 8.9 | 9.0 | — | % | |||||||||||||||
Oz B. Zamir dba Zamir Marble & Granite | Specialty Trade Contractors | Term Loan | Prime plus 2.5% | 8/6/2028 | 54.0 | 8.7 | 8.8 | — | % | |||||||||||||||
Villela CPA PL | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 5/27/2025 | 9.0 | 8.7 | 7.5 | — | % | |||||||||||||||
MiJoy Inc dba Imo's Pizza | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/18/2025 | 8.3 | 8.1 | 6.9 | — | % | |||||||||||||||
Higher Grounds Community Coffeehouse, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/2/2025 | 8.3 | 8.1 | 7.1 | — | % | |||||||||||||||
Kelly Chon LLC dba Shi-Golf | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 7/29/2021 | 17.5 | 8.1 | 8.2 | — | % | |||||||||||||||
Joey O's LLC and Jennifer Olszewski | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/7/2024 | 13.1 | 8.0 | 6.7 | — | % | |||||||||||||||
Aaron Delgado and Associates Inc | Administrative and Support Services | Term Loan | Prime plus 2.75% | 7/22/2025 | 8.2 | 8.0 | 6.7 | — | % | |||||||||||||||
XCESSIVE THROTTLE, INC dba Jake's Roadhouse | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/29/2025 | 8.3 | 7.9 | 6.6 | — | % | |||||||||||||||
Randall D. & Patricia D. Casaburi dba Pat's Pizzazz | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 3/13/2023 | 68.8 | 7.9 | 8.1 | — | % | |||||||||||||||
The Conibear Corporation and Conibear Trucking, LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 12/5/2024 | 12.0 | 7.9 | 7.4 | — | % | |||||||||||||||
RAB Services, Inc. & Professional Floor Installations | Specialty Trade Contractors | Term Loan | Prime plus 2.5% | 1/31/2023 | 62.5 | 7.9 | 7.9 | — | % | |||||||||||||||
F-55
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
JRJG, Inc. dba BrightStar HealthCare-Naperville/Oak Brook | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/23/2020 | 15.0 | 7.7 | 7.7 | — | % | |||||||||||||||
RDJ Maayaa Inc dba RDJ Distributors | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/23/2024 | 8.7 | 7.6 | 7.0 | — | % | |||||||||||||||
Jung Design Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 1/20/2022 | 8.4 | 7.6 | 6.3 | — | % | |||||||||||||||
Cares, Inc dba Dumpling Grounds Day Care Center | Social Assistance | Term Loan | Prime plus 2.75% | 12/10/2025 | 7.5 | 7.5 | 7.3 | — | % | |||||||||||||||
Caring Hands Pediatrics,P.C. dba Caring Hands Pediatrics | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/9/2020 | 14.5 | 7.4 | 7.5 | — | % | |||||||||||||||
A-1 Quality Services Corporation | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/29/2023 | 8.9 | 7.4 | 6.7 | — | % | |||||||||||||||
D&L Rescources, Inc. dba The UPS Store | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 11/27/2022 | 9.8 | 7.4 | 7.2 | — | % | |||||||||||||||
RJS Service Corporation | Gasoline Stations | Term Loan | Prime plus 2.75% | 8/20/2021 | 79.0 | 7.3 | 7.4 | — | % | |||||||||||||||
Stillwell Ave Prep School | Social Assistance | Term Loan | Prime plus 2.75% | 1/14/2023 | 72.0 | 7.2 | 7.3 | — | % | |||||||||||||||
Envy Salon & Spa LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/4/2018 | 20.3 | 7.2 | 7.2 | — | % | |||||||||||||||
Howell Gun Works LLC | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 11/14/2023 | 8.3 | 7.1 | 6.4 | — | % | |||||||||||||||
ATC Fitness, LLC dba Around the Clock Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2022 | 10.2 | 7.1 | 7.1 | — | % | |||||||||||||||
Gilbert Chiropractic Clinic, Inc. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/7/2018 | 22.5 | 6.9 | 7.0 | — | % | |||||||||||||||
RCB Enterprises, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/18/2017 | 21.2 | 6.6 | 6.6 | — | % | |||||||||||||||
ATC Fitness LLC dba Around the Clock Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2019 | 15.0 | 6.3 | 6.3 | — | % | |||||||||||||||
Five Corners, Ltd. | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/11/2019 | 85.0 | 6.1 | 6.2 | — | % | |||||||||||||||
Tanner Optical, Inc. dba Murphy Eye Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/27/2022 | 8.3 | 5.8 | 5.9 | — | % | |||||||||||||||
Food & Beverage Associates Of N.J. Inc | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/11/2021 | 10.0 | 5.6 | 5.7 | — | % | |||||||||||||||
Track Side Collision & Tire, Inc. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 6/16/2025 | 44.8 | 5.2 | 5.4 | — | % | |||||||||||||||
F-56
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
OrthoQuest, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2% | 3/12/2022 | 56.8 | 5.1 | 5.1 | — | % | |||||||||||||||
Demand Printing Solutions, Inc. | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 12/12/2019 | 10.0 | 4.7 | 4.8 | — | % | |||||||||||||||
Bhailal Patel dba New Falls Motel | Accommodation | Term Loan | Prime plus 2.75% | 3/27/2023 | 100.0 | 4.6 | 4.7 | — | % | |||||||||||||||
Maria C. Sathre and David N. Sathre dba Black Forest Liquor Store | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 11/28/2017 | 18.6 | 4.5 | 4.5 | — | % | |||||||||||||||
Gourmet to You, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/28/2019 | 12.1 | 4.5 | 4.5 | — | % | |||||||||||||||
David A. Nusblatt, D.M.D, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/11/2019 | 9.0 | 4.3 | 4.3 | — | % | |||||||||||||||
South Dade Restoration Corp. dba Servpro of Kendall/Pinecrest | Administrative and Support Services | Term Loan | Prime plus 2.75% | 8/10/2016 | 61.8 | 4.0 | 4.0 | — | % | |||||||||||||||
ValleyStar, Inc. dba BrightStar Healthcare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/28/2020 | 7.5 | 4.0 | 4.0 | — | % | |||||||||||||||
Moonlight Multi Media Production, Inc. | Other Information Services | Term Loan | 5.3% | 2/1/2025 | 19.7 | 3.9 | 4.0 | — | % | |||||||||||||||
Patrageous Enterprises, LLC dba Incredibly Edible Delites of Laurel | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/29/2020 | 7.6 | 3.7 | 3.7 | — | % | |||||||||||||||
DDLK Investments LLC d/b/a Smoothie King | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/30/2020 | 7.5 | 3.6 | 3.6 | — | % | |||||||||||||||
Christopher F. Bohon & Pamela D. Bohon | Social Assistance | Term Loan | Prime plus 2.75% | 10/28/2026 | 14.2 | 3.5 | 3.6 | — | % | |||||||||||||||
Enewhere Custom Canvas, LLC | Textile Product Mills | Term Loan | Prime plus 2.75% | 2/15/2018 | 12.0 | 3.4 | 3.4 | — | % | |||||||||||||||
Quality Engraving Services Inc. and Ian M. Schnaitman | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 10/17/2017 | 15.0 | 3.3 | 3.3 | — | % | |||||||||||||||
ValleyStar, Inc. dba BrightStar HealthCare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/28/2020 | 0.6 | 3.2 | 3.2 | — | % | |||||||||||||||
Cocoa Beach Parasail Corp. dba Cocoa Beach Parasail | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 4/26/2020 | 6.3 | 3.2 | 3.2 | — | % | |||||||||||||||
Kyoshi Enterprises, LLC | Educational Services | Term Loan | Prime plus 2.75% | 12/29/2016 | 22.5 | 3.1 | 3.1 | — | % | |||||||||||||||
Champion Pest Control Systems, Inc. | Administrative and Support Services | Term Loan | 6% | 1/15/2016 | 39.0 | 3.0 | — | — | % | |||||||||||||||
Grapevine Professional Services, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 1/22/2019 | 8.2 | 2.9 | 2.9 | — | % | |||||||||||||||
Louis B. Smith dba LAQ Funeral Coach | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 9/15/2017 | 12.6 | 2.8 | 2.8 | — | % | |||||||||||||||
F-57
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Spain Street LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/29/2017 | 63.0 | 2.8 | 2.8 | — | % | |||||||||||||||
Computer Renaissance dba Dante IT Services, Inc. | Electronics and Appliance Stores | Term Loan | Prime plus 3.75% | 3/1/2018 | 100.0 | 2.7 | 2.8 | — | % | |||||||||||||||
Ralph Werner dba Werner Transmissions | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/29/2021 | 26.6 | 2.7 | 2.8 | — | % | |||||||||||||||
Flourishing Fruits, LLC dba Edible Arrangements | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/29/2017 | 21.1 | 2.7 | 2.7 | — | % | |||||||||||||||
Saan M.Saelee dba Saelee's Delivery Service | Truck Transportation | Term Loan | Prime plus 2.75% | 3/12/2018 | 9.8 | 2.7 | 2.7 | — | % | |||||||||||||||
Daniel S. Fitzpatrick dba Danny's Mobile Appearance Reconditioning Service | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/29/2018 | 9.4 | 2.6 | 2.7 | — | % | |||||||||||||||
Flint Batteries, LLC | General Merchandise Stores | Term Loan | Prime plus 2.75% | 7/21/2016 | 46.9 | 2.4 | 2.4 | — | % | |||||||||||||||
Danjam Enterprises, LLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/30/2021 | 3.8 | 2.3 | 2.4 | — | % | |||||||||||||||
L.C.N. Investments, L.L.C. dba Max Muscle Sports Nutrition | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 5/27/2017 | 12.8 | 2.1 | 2.2 | — | % | |||||||||||||||
Inflate World Corporation | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/30/2018 | 7.5 | 2.0 | 2.0 | — | % | |||||||||||||||
Seo's Paradise Cleaners, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 1/19/2018 | 9.8 | 1.9 | 2.0 | — | % | |||||||||||||||
Timothy S. Strange dba Strange's Mobile Apperance Reconditioning Service | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/17/2017 | 8.4 | 1.6 | 1.7 | — | % | |||||||||||||||
Golden Elevator Co., Inc. | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 1/31/2022 | 50.0 | 1.6 | 1.7 | — | % | |||||||||||||||
Flint Batteries LLC dba Batteries Plus of Flint | General Merchandise Stores | Term Loan | Prime plus 2.75% | 8/29/2017 | 9.0 | 1.5 | 1.6 | — | % | |||||||||||||||
MJ Mortgage & Tax Services, Inc. | Credit Intermediation and Related Activities | Term Loan | Prime plus 2.75% | 11/14/2017 | 6.9 | 1.5 | 1.5 | — | % | |||||||||||||||
CCIPTA, LLC | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 1/17/2017 | 47.0 | 1.5 | 1.5 | — | % | |||||||||||||||
Nora A. Palma and Julio O Villcas | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/27/2017 | 56.3 | 1.4 | 1.5 | — | % | |||||||||||||||
Delyannis Iron Works | Fabricated Metal Product Manufacturing | Term Loan | 6% | 12/8/2022 | 16.0 | 1.4 | 1.5 | — | % | |||||||||||||||
Zeroln Media LLC | Data Processing, Hosting, and Related Services | Term Loan | Prime plus 2.75% | 4/25/2017 | 7.5 | 1.4 | 1.4 | — | % | |||||||||||||||
F-58
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Nelson Financial Services, LLC | Scenic and Sightseeing Transportation | Term Loan | Prime plus 2.75% | 9/2/2016 | 57.0 | 1.3 | 1.3 | — | % | |||||||||||||||
Pro Levin Yoga, Incorporated d.b.a. Bikram's Yoga College of India Sug | Educational Services | Term Loan | Prime plus 2.75% | 5/12/2016 | 16.4 | 0.9 | 0.9 | — | % | |||||||||||||||
No Thirst Software LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 4/26/2017 | 6.8 | 0.9 | 0.9 | — | % | |||||||||||||||
New Economic Methods LLC dba Rita's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/15/2020 | 24.8 | 0.9 | 0.9 | — | % | |||||||||||||||
Saul A. Ramirez and Norma L. Trujillo | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/31/2017 | 6.0 | 0.9 | 0.9 | — | % | |||||||||||||||
Eric R. Wise, D.C. dba Jamacha-Chase Chiropractic | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/30/2017 | 15.6 | 0.6 | 0.6 | — | % | |||||||||||||||
Contractors Pumping Service, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/3/2016 | 9.9 | 0.4 | 0.4 | — | % | |||||||||||||||
Tesserah Tile Design, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/29/2016 | 7.1 | 0.4 | 0.4 | — | % | |||||||||||||||
Healthcare Interventions, Inc. dba Brightstar HealthCare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/15/2016 | 8.3 | 0.4 | 0.4 | — | % | |||||||||||||||
Maynard Enterprises, Inc. | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 3/22/2016 | 22.5 | 0.3 | 0.4 | — | % | |||||||||||||||
Vincent Allen Fleece dba Living Well Accessories and Water Camel | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/1/2016 | 3.8 | 0.3 | 0.3 | — | % | |||||||||||||||
Spencer Fitness, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 1/11/2016 | 6.0 | — | — | — | % | |||||||||||||||
Chez Rurene Bakery | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/20/2017 | 150.0 | 31.6 | 45.2 | 0.02 | % | |||||||||||||||
Total Performing SBA Unguaranteed Investments | $ | 181,518.3 | $ | 155,980.4 | $ | 152,157.7 | 74.61 | % | ||||||||||||||||
Non-Performing SBA Unguaranteed Investments (3) | ||||||||||||||||||||||||
* 214 North Franklin, LLC and Winter Ventures, Inc. | Nonstore Retailers | Term Loan | Prime plus 2.75% | 11/29/2037 | $ | 146.0 | $ | 146.1 | $ | 136.9 | 0.07 | % | ||||||||||||
* A + Quality Home Health Care, Inc. | Ambulatory Health Care Services | Term Loan | 6% | 8/1/2016 | 1.3 | 1.3 | 1.2 | — | % | |||||||||||||||
* Almeria Marketing 1, Inc. | Personal and Laundry Services | Term Loan | 7.75% | 10/15/2015 | 4.7 | 4.7 | 0.7 | — | % | |||||||||||||||
* AUM Estates, LLC and Sculpted Figures Plastic Surgery Inc. | Ambulatory Health Care Services | Term Loan | 6% | 3/14/2038 | 305.3 | 305.7 | 136.2 | 0.07 | % | |||||||||||||||
Auto Sales, Inc. | Motor Vehicle and Parts Dealers | Term Loan | 6% | 8/17/2023 | 4.3 | 4.3 | 3.8 | — | % | |||||||||||||||
F-59
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
* AWA Fabrication & Construction, L.L.C. | Fabricated Metal Product Manufacturing | Term Loan | 6% | 4/30/2025 | 34.7 | 34.8 | 24.5 | 0.01 | % | |||||||||||||||
* Baker Sales, Inc. d/b/a Baker Sales, Inc. | Nonstore Retailers | Term Loan | 6% | 3/29/2036 | 181.5 | 182.0 | 99.9 | 0.05 | % | |||||||||||||||
* Barnum Printing & Publishing, Co. | Printing and Related Support Activities | Term Loan | 6% | 7/29/2015 | 9.8 | 9.8 | 8.2 | — | % | |||||||||||||||
* BCD Enterprises, LLC dba Progressive Tool and Nutmeg Tool | Fabricated Metal Product Manufacturing | Term Loan | 6% | 6/22/2026 | 290.3 | 290.9 | — | — | % | |||||||||||||||
* Bwms Management, LLC | Food Services and Drinking Places | Term Loan | 6% | 7/7/2027 | 75.2 | 75.4 | 23.2 | 0.01 | % | |||||||||||||||
* DC Realty, LLC dba FOGO Data Centers | Professional, Scientific, and Technical Services | Term Loan | 6% | 3/23/2037 | 697.8 | 699.5 | 563.2 | 0.28 | % | |||||||||||||||
* DC Realty, LLC dba FOGO Data Centers | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 3/23/2022 | 206.1 | 206.6 | 182.4 | 0.09 | % | |||||||||||||||
* Dill Street Bar and Grill Inc and WO Entertainment, Inc | Food Services and Drinking Places | Term Loan | 6% | 9/27/2027 | 104.4 | 104.6 | 23.6 | 0.01 | % | |||||||||||||||
Dixie Transport, Inc. & Johnny D. Brown & Jimmy Brown & Maudain Brown | Support Activities for Transportation | Term Loan | 5.25% | 12/28/2035 | 140.8 | 141.0 | 78.1 | 0.04 | % | |||||||||||||||
* DocMagnet Inc | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 1/23/2025 | 16.3 | 16.3 | — | — | % | |||||||||||||||
* Dr. Francis E. Anders, DVM | Professional, Scientific, and Technical Services | Term Loan | 6% | 8/9/2015 | 1.6 | 1.6 | 1.6 | — | % | |||||||||||||||
* E & I Holdings, LP & PA Farm Products, LLC | Food Manufacturing | Term Loan | 6% | 4/30/2030 | 1,234.0 | 1,237.1 | 487.3 | 0.24 | % | |||||||||||||||
E.W. Ventures, Inc. dba Swift Cleaners & Laundry | Personal and Laundry Services | Term Loan | 0% | 4/18/2017 | 91.0 | 91.2 | 1.3 | — | % | |||||||||||||||
* Elite Treats Enterprises, Inc. dba Rochelle Dairy Queen | Food Services and Drinking Places | Term Loan | 6% | 1/24/2032 | 131.2 | 131.5 | 95.9 | 0.05 | % | |||||||||||||||
* Europlast Ltd | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/26/2022 | 327.6 | 328.5 | 314.5 | 0.15 | % | |||||||||||||||
* Europlast Ltd | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 5/31/2023 | 155.2 | 155.6 | — | — | % | |||||||||||||||
* Event Mecca LLC | Other Information Services | Term Loan | 6% | 4/10/2023 | 13.2 | 13.2 | 4.8 | — | % | |||||||||||||||
* EZ Towing, Inc. | Support Activities for Transportation | Term Loan | 6% | 1/31/2023 | 123.2 | 123.5 | 72.8 | 0.04 | % | |||||||||||||||
* Goetzke Chiropractic, Inc. | Ambulatory Health Care Services | Term Loan | 6% | 10/25/2017 | 2.9 | 2.9 | 2.4 | — | % | |||||||||||||||
* Gotta Dance Studio, Inc. dba Gotta Dance Studio Academy of Performing | Educational Services | Term Loan | Prime plus 2.75% | 11/16/2016 | 3.6 | 3.6 | 0.5 | — | % | |||||||||||||||
F-60
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
* Grand Manor Realty, Inc. & Kevin LaRoe | Real Estate | Term Loan | 6% | 2/20/2023 | 18.9 | 19.0 | 18.2 | 0.01 | % | |||||||||||||||
* Groundworks Unlimited LLC | Specialty Trade Contractors | Term Loan | 6% | 12/17/2023 | 89.4 | 89.5 | 77.9 | 0.04 | % | |||||||||||||||
Guzman Group,LLC | Rental and Leasing Services | Term Loan | 6% | 1/30/2016 | 196.9 | 197.4 | 176.2 | 0.09 | % | |||||||||||||||
* Harrelson Materials Management,Inc | Waste Management and Remediation Services | Term Loan | 6% | 6/24/2021 | 464.5 | 465.7 | 133.7 | 0.07 | % | |||||||||||||||
* Hybrid Racing LLC. | Transportation Equipment Manufacturing | Term Loan | Prime plus 2.75% | 5/15/2023 | 100.1 | 100.3 | 44.5 | 0.02 | % | |||||||||||||||
* Integrity Sports Group, LLC | Performing Arts, Spectator Sports, and Related Industries | Term Loan | 6% | 3/6/2018 | 14.7 | 14.7 | 12.6 | 0.01 | % | |||||||||||||||
Island Nautical Enterprises, Inc. (OC) and Ingwall Holdings, LLC (EPC) | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 8/14/2038 | 325.2 | 326.1 | 282.0 | 0.14 | % | |||||||||||||||
* J Olson Enterprises LLC and Olson Trucking Direct, Inc. | Truck Transportation | Term Loan | 6% | 6/28/2025 | 658.9 | 660.5 | 262.5 | 0.13 | % | |||||||||||||||
* Jenny's Wunderland, Inc. | Social Assistance | Term Loan | 6% | 6/29/2036 | 149.7 | 150.1 | 73.6 | 0.04 | % | |||||||||||||||
* Krishna of Orangeburg, Inc. | Accommodation | Term Loan | 6% | 2/20/2032 | 10.3 | 10.3 | — | — | % | |||||||||||||||
* Lamson and Goodnow Manufacturing Co and Lamson and Goodnow LLC | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/28/2037 | 28.2 | 28.2 | — | — | % | |||||||||||||||
* Las Torres Development LLC dba Houston Event Centers | Real Estate | Term Loan | 6% | 8/27/2028 | 51.0 | 51.0 | — | — | % | |||||||||||||||
* LJ Parker, LLC | Administrative and Support Services | Term Loan | 7% | 9/8/2014 | 8.9 | 8.9 | 1.7 | — | % | |||||||||||||||
* Lucil Chhor dba Baja Fresh #159 | Food Services and Drinking Places | Term Loan | 6% | 12/28/2022 | 30.0 | 30.0 | 15.6 | 0.01 | % | |||||||||||||||
* Milliken and Milliken, Inc. dba Milliken Wholesale Distribution | Merchant Wholesalers, Durable Goods | Term Loan | 6% | 6/10/2036 | 152.8 | 152.9 | 116.3 | 0.06 | % | |||||||||||||||
* Mojo Brands Media, LLC | Broadcasting (except Internet) | Term Loan | 6% | 8/28/2023 | 731.9 | 733.7 | 421.1 | 0.21 | % | |||||||||||||||
* Morris Glass and Construction | Specialty Trade Contractors | Term Loan | 6% | 3/7/2021 | 44.8 | 44.8 | 0.8 | — | % | |||||||||||||||
* Our Two Daughters L.L.C. dba Washington's Restaurant | Food Services and Drinking Places | Term Loan | 6% | 6/18/2026 | 169.8 | 170.3 | 12.7 | 0.01 | % | |||||||||||||||
* Parth Dev, Ltd dba Amerihost Inn Hotel-Kenton | Accommodation | Term Loan | 5.25% | 10/3/2028 | 38.3 | 38.3 | 20.4 | 0.01 | % | |||||||||||||||
* Professional Systems, LLC and Professional Cleaning | Administrative and Support Services | Term Loan | 6% | 7/30/2020 | 132.0 | 132.1 | 54.5 | 0.03 | % | |||||||||||||||
Pure Water Innovations, LLC | Ambulatory Health Care Services | Term Loan | 6% | 9/6/2016 | 0.2 | 0.2 | 0.2 | — | % | |||||||||||||||
Robin C. & Charles E. Taylor & Brigantine Aquatic Center LLC | Amusement, Gambling, and Recreation Industries | Term Loan | 6% | 9/14/2023 | 16.4 | 16.4 | 13.6 | 0.01 | % | |||||||||||||||
* Sheikh M Tariq dba Selbyville Foodrite | Gasoline Stations | Term Loan | 6% | 3/13/2023 | 21.2 | 21.2 | — | — | % | |||||||||||||||
F-61
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Shivsakti, LLC dba Knights Inn | Accommodation | Term Loan | Prime plus 2.75% | 12/20/2032 | 74.5 | 74.7 | 73.1 | 0.04 | % | |||||||||||||||
* Signs of Fortune, LLC dba FastSigns | Miscellaneous Manufacturing | Term Loan | Prime plus 2.5% | 4/3/2023 | 321.0 | 321.8 | 83.3 | 0.04 | % | |||||||||||||||
* STK Ventures Inc dba JP Dock Service & Supply | Specialty Trade Contractors | Term Loan | 6% | 5/9/2037 | 34.1 | 34.1 | 32.7 | 0.02 | % | |||||||||||||||
Stokes Floor Covering Company Inc. and Robert E. Rainey, Jr. | Furniture and Home Furnishings Stores | Term Loan | 6% | 12/29/2035 | 111.6 | 111.8 | 88.1 | 0.04 | % | |||||||||||||||
* Stormwise South Florida dba Stormwise Shutters | Specialty Trade Contractors | Term Loan | 6% | 11/7/2036 | 406.6 | 407.6 | 353.6 | 0.17 | % | |||||||||||||||
* Stormwise South Florida dba Stormwise Shutters | Specialty Trade Contractors | Term Loan | 6% | 11/7/2036 | 201.1 | 201.6 | — | — | % | |||||||||||||||
* Summit Treatment Services Inc | Social Assistance | Term Loan | Prime plus 2.75% | 3/11/2025 | 21.8 | 21.8 | — | — | % | |||||||||||||||
* Summit Treatment Services, Inc. dba Summit Treatment Services | Social Assistance | Term Loan | Prime plus 2.75% | 11/30/2037 | 129.3 | 129.6 | 112.8 | 0.06 | % | |||||||||||||||
* Sunmar, Inc. dba Creative Cooking | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/19/2035 | 47.1 | 47.2 | 43.3 | 0.02 | % | |||||||||||||||
* Tequila Beaches, LLC dba Fresco Restaurant | Food Services and Drinking Places | Term Loan | 6% | 9/16/2021 | 15.8 | 15.8 | 12.0 | 0.01 | % | |||||||||||||||
The Alba Financial Group, Inc. | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | 6% | 1/10/2019 | 6.5 | 6.5 | 1.6 | — | % | |||||||||||||||
The Lucky Coyote, LLC | Miscellaneous Manufacturing | Term Loan | 6% | 5/8/2017 | 10.3 | 10.3 | 4.7 | — | % | |||||||||||||||
* Top Class, Inc. | Personal and Laundry Services | Term Loan | 6% | 6/28/2016 | 1.3 | 1.3 | 0.1 | — | % | |||||||||||||||
United Woodworking, Inc | Wood Product Manufacturing | Term Loan | 6% | 12/20/2022 | 12.5 | 12.5 | 10.5 | 0.01 | % | |||||||||||||||
* Whirlwind Car Wash, Inc. | Repair and Maintenance | Term Loan | Prime plus 2% | 8/26/2024 | 4.9 | 4.9 | 3.8 | — | % | |||||||||||||||
* Winter Ventures Inc and 214 N Franklin LLC | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/29/2024 | 56.5 | 56.6 | 28.7 | 0.01 | % | |||||||||||||||
* Winter Ventures Inc dba Qualitybargainbooks and Qualitybargainmall | Nonstore Retailers | Term Loan | Prime plus 2.75% | 12/23/2024 | 149.1 | 149.3 | 130.7 | 0.06 | % | |||||||||||||||
* Winter Ventures Inc dba Qualitybargainbooks and Qualitybargainmall | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/3/2029 | 134.4 | 134.5 | 29.4 | 0.01 | % | |||||||||||||||
* B&B Fitness and Barbell, Inc. dba Elevations Health Club | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/22/2035 | 217.8 | 218.1 | 200.0 | 0.10 | % | |||||||||||||||
* Hamer Road Auto Salvage, LLC and Scott T. Cook and Nikki J. Cook | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 8/8/2039 | 185.7 | 186.2 | 178.3 | 0.09 | % | |||||||||||||||
Capstone Pediatrics PLLC and Capstone Healthcare Consulting LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 5/15/2025 | 689.8 | 691.5 | 662.2 | 0.32 | % | |||||||||||||||
F-62
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
* Karykion, Corporation dba Karykion Corporation | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/28/2022 | 144.4 | 144.8 | 132.8 | 0.07 | % | |||||||||||||||
* David M. Goens dba Superior Auto Paint & Body, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/26/2024 | 15.7 | 15.7 | 14.4 | 0.01 | % | |||||||||||||||
* TechPlayZone, Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 1/27/2016 | 0.1 | 0.1 | — | — | % | |||||||||||||||
Total Non-Performing SBA Unguaranteed Investments | $ | 10,748.0 | $ | 10,771.6 | $ | 6,197.2 | 3.04 | % | ||||||||||||||||
Total SBA Unguaranteed Investments | $ | 192,266.3 | $ | 166,752.0 | $ | 158,354.9 | 77.64 | % | ||||||||||||||||
Performing SBA Guaranteed Investments (4) | ||||||||||||||||||||||||
Jay Kevin Gremillion dba Dino Smiles Children's Cosmetic Dentistry | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/18/2025 | 292.0 | 43.9 | 48.5 | 0.02 | % | |||||||||||||||
My Jewels, LLC dba The UPS Store #6712 | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/7/2025 | 225.0 | 97.2 | 107.4 | 0.05 | % | |||||||||||||||
Abbondanza Market LLC dba Hampton Falls Village Market | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/18/2025 | 295.0 | 34.9 | 38.7 | 0.02 | % | |||||||||||||||
D&G Capital LLC dba Miami Grill 277 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/16/2025 | 417.6 | 151.6 | 167.6 | 0.08 | % | |||||||||||||||
Sambella Holdings, LLC and Strike Zone Entertainment Center LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 11/23/2040 | 4,758.0 | 1,638.3 | 1,806.2 | 0.89 | % | |||||||||||||||
401 JJS, Corp and G. Randazzo's Trattoria Corporation | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/1/2040 | 211.0 | 102.9 | 115.4 | 0.06 | % | |||||||||||||||
Total SBA Guaranteed Performing Investments | $ | 6,198.6 | $ | 2,068.8 | $ | 2,283.8 | 1.12 | % | ||||||||||||||||
Total SBA Unguaranteed and Guaranteed Investments | $ | 198,464.9 | $ | 168,820.8 | $ | 160,638.7 | 78.76 | % | ||||||||||||||||
Controlled Investments (5) | ||||||||||||||||||||||||
Advanced Cyber Security Systems, LLC (6), (15) | Data processing, hosting and related services. | 50% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
Term Loan | 3% | December 2014 | 1,120.0 | 381.0 | — | — | % | |||||||||||||||||
*Automated Merchant Services, Inc. (7), (15) | Data processing, hosting and related services. | 100% Common Stock | —% | — | — | — | — | — | % | |||||||||||||||
CDS Business Services, Inc. (8) (15) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Common Stock | —% | — | — | 4,428.0 | 925.0 | 0.45 | % | |||||||||||||||
F-63
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Line of Credit | Prime Plus 2.5% | August 2018 | 2,870.0 | 2,870.0 | 2,870.0 | 1.41 | % | |||||||||||||||||
CrystalTech Web Hosting, Inc. (11) | Data processing, hosting and related services. | 100% Common Stock | —% | — | — | 8,764.0 | 21,413.9 | 10.50 | % | |||||||||||||||
Exponential Business Development Co. Inc. (15) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Common Stock | —% | — | — | — | — | — | % | |||||||||||||||
*Fortress Data Management, LLC (15) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
Newtek Insurance Agency, LLC (12) (15) | Insurance Carriers and Related Activities | 100% Membership Interests | —% | — | — | — | 2,500.0 | 1.23 | % | |||||||||||||||
PMTWorks Payroll, LLC (9) | Data processing, hosting and related services. | 90% Membership Interests | —% | — | — | 700.1 | 1,020.0 | 0.50 | % | |||||||||||||||
Term Loan | 10%-12% | Various maturities through September 2016 | 935.0 | 935.0 | — | — | % | |||||||||||||||||
Secure CyberGateway Services, LLC (10), (15) | Data processing, hosting and related services. | 66.7% Membership Interests | —% | — | — | — | — | — | % | |||||||||||||||
Term Loan | 7% | December 2016 | 2,400.0 | 1,200.0 | 1,196.4 | 0.59 | % | |||||||||||||||||
Small Business Lending, Inc. (13) (15) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Common Stock | —% | — | — | — | 5,500.0 | 2.70 | % | |||||||||||||||
*Summit Systems and Designs, LLC (14) (15) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
Premier Payments LLC (11) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | 16,503.0 | 16,503.0 | 8.09 | % | |||||||||||||||
Universal Processing Services of Wisconsin, LLC (11) (15) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | 52,448.1 | 25.72 | % | |||||||||||||||
Total Controlled Investments | $ | 7,325.0 | $ | 35,781.1 | $ | 104,376.4 | 51.18 | % | ||||||||||||||||
Non-control/Non-affiliate Investments | ||||||||||||||||||||||||
Titanium Asset Management LLC | Administrative and Support Services | Term Loan | 3% | July 2017 | $ | 2,200.0 | $ | 1,847.4 | $ | 1,823.8 | 0.89 | % | ||||||||||||
Warrants | —% | — | — | — | — | — | % | |||||||||||||||||
$ | 2,200.0 | $ | 1,847.4 | $ | 1,823.8 | 0.89 | % | |||||||||||||||||
Investments in Money Market Funds | $ | — | $ | 35.0 | $ | 35.0 | 0.02 | % | ||||||||||||||||
F-64
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2015 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Total Investments | $ | 207,989.9 | $ | 206,484.3 | $ | 266,873.9 | 130.85 | % | ||||||||||||||||
* Denotes non-income producing security.
(1) Newtek values each unguaranteed portion of SBA 7(a) performing loans (“Loan”) using a discounted cash flow analysis which projects future cash flows and incorporates projections for Loan pre-payments and Loan defaults using historical portfolio data. The data predicts future prepayment and default probability on curves which are based on Loan age. The recovery assumption for each Loan is specific to the discounted valuation of the collateral supporting that Loan. Each Loan’s cash flow is discounted at a rate which approximates a market yield. The Loans were originated under the SBA 7(a) program and conform to the underwriting guidelines in effect at their time of origination. Newtek has been awarded Preferred Lender Program (“PLP”) status from the SBA. The portions of these Loans are not guaranteed by the SBA. Individual loan participations can be sold to institutions which have been granted an SBA 750 license. Loans can also be sold as a pool of loans in a security form to qualified investors.
(2) Prime Rate is equal to 3.25% as of December 31, 2015.
(3) Newtek values non-performing SBA 7(a) loans using a discounted cash flow analysis of the underlying collateral which supports the loan. Net recovery of collateral, (fair value less cost to liquidate) is applied to the discounted cash flow analysis based upon a time to liquidate estimate. Modified loans are valued based upon current payment streams and are re-amortized at the end of the modification period.
(4) Newtek values guaranteed performing SBA 7(a) loans using the secondary SBA 7(a) market as a reference point. Newtek routinely sells performing SBA 7(a) loans into this secondary market. Guaranteed portions of SBA 7(a) loans partially funded as of the valuation date are valued using level two inputs as disclosed in Note 3.
(5) Controlled Investments are disclosed above as equity investments (except as otherwise noted) in those companies that are “Controlled Investments” of the Company as defined in the Investment Company Act of 1940. A company is deemed to be a “Controlled Investment” of Newtek Business Services Corp. if Newtek Business Services Corp. or its subsidiaries owns more than 25% of the voting securities of such company. See Note 6 in the accompanying notes to the consolidated financial statements for transactions during the year ended December 31, 2015 with affiliates the Company is deemed to control.
(6) 50% owned by Wilshire Holdings II, Inc. (a subsidiary of Newtek Business Services Corp.), 50% owned by non-affiliate. The term loan is past its original maturity date and currently in default. As such, the fair value of the investment is zero.
(7) 96.11% owned by Wilshire Partners, LLC (a subsidiary of Newtek Business Services Corp.), 3.89% owned by Newtek Business Services Corp.
(8) 28.20% owned by Wilshire New York Partners IV, LLC (a subsidiary of Newtek Business Services Corp.), 25.89% owned by Wilshire New York Partners V, LLC (a subsidiary of Newtek Business Services Corp.) and 45.91% owned by Newtek Business Services Corp.
(9) 25% owned by Wilshire New York Partners V, LLC (a subsidiary of Newtek Business Services Corp.), 65% owned by Wilshire Holdings II, Inc. (a subsidiary of Newtek Business Services Corp.), and 10% owned by non-affiliate.
(10) 66.7% owned by Wilshire Holdings II, Inc. (a subsidiary of Newtek Business Services Corp.), 33.3% owned by non-affiliate.
(11) 100% owned by Newtek Business Services Holdco1., Inc. (a subsidiary of Newtek Business Services Corp.).
(12) 100% owned by Wilshire Holdings II, Inc. (a subsidiary of Newtek Business Services Corp.).
(13) 100% owned by Wilshire Holdings I, Inc. (a subsidiary of Newtek Business Services Corp.).
(14) 100% owned by The Whitestone Group, LLC (a subsidiary of Wilshire Holdings I, Inc. and Wilshire Holdings II, Inc., both subsidiaries of Newtek Business Services Corp.).
(15) Zero cost basis is reflected as the portfolio company was organized by the Company and incurred internal legal costs to organize the entity and immaterial external filing fees which were expensed when incurred.
(16) All of the Company's investments are in entities which are organized under the Laws of the United States and have a principal place of business in the United States
(17) Under the Investment Company Act of 1940, as amended, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. At December 31, 2015, 5.3% of total assets are non-qualifying assets.
As of December 31, 2015, the federal tax cost of investments was $200,004,000 resulting in estimated gross unrealized gains and losses of $81,538,000 and $14,669,000, respectively.
F-65
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Performing SBA Unguaranteed Investments (1) | ||||||||||||||||||||||||
MLM Enterprises, LLC and Demand Printing Solutions Inc. | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 11/18/2024 | 70.5 | 70.5 | 63.3 | 0.04 | % | |||||||||||||||
DC Real, LLC and DC Enterprises, LTD dba Lakeview True Value | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/20/2039 | 119.4 | 93.9 | 94.0 | 0.06 | % | |||||||||||||||
Legacy Estate Planning Inc. dba American Casket Enterprises | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/21/2024 | 42.0 | 42.0 | 33.5 | 0.02 | % | |||||||||||||||
J&D Resources, LLC dba Aqua Science | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/21/2024 | 767.9 | 767.9 | 627.3 | 0.38 | % | |||||||||||||||
Teamnewman Enterprises, LLC dba Newmans at 988 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/25/2039 | 148.8 | 148.8 | 138.5 | 0.08 | % | |||||||||||||||
DeRidder Chiropractic, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/25/2024 | 13.2 | 13.2 | 12.5 | 0.01 | % | |||||||||||||||
Stormrider Inc. dba Shirley's Stormrider, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 11/25/2024 | 150.0 | 150.0 | 119.5 | 0.07 | % | |||||||||||||||
Modern Manhattan, LLC | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 11/25/2024 | 220.0 | 220.0 | 178.3 | 0.11 | % | |||||||||||||||
Meridian Hotels, LLC dba Best Western Jonesboro | Accommodation | Term Loan | Prime plus 2.75% | 11/25/2039 | 228.0 | 228.0 | 228.3 | 0.14 | % | |||||||||||||||
Trading Group 3, Inc. | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 11/26/2024 | 22.5 | 22.5 | 17.9 | 0.01 | % | |||||||||||||||
The Red Pill Management Inc. dba UFC Gym Matthews | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 11/26/2024 | 54.3 | 28.7 | 24.6 | 0.01 | % | |||||||||||||||
Homegrown For Good, LLC | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 11/26/2024 | 230.0 | 230.0 | 202.1 | 0.12 | % | |||||||||||||||
Kemmer, LLC and Apples Tree Top Liquors, LLC | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/4/2039 | 138.4 | 138.4 | 125.1 | 0.08 | % | |||||||||||||||
The Conibear Corporation and Conibear Trucking, LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 12/5/2024 | 12.0 | 12.0 | 10.5 | 0.01 | % | |||||||||||||||
All American Games, LLC and Sportslink - The Game, LLC | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/10/2024 | 400.0 | 400.0 | 341.6 | 0.21 | % | |||||||||||||||
B & W Towing, LLC and Boychucks Fuel, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/17/2039 | 164.5 | 164.5 | 151.3 | 0.09 | % | |||||||||||||||
MM and M Management Inc. dba Pizza Artista | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/19/2025 | 46.3 | 46.3 | 37.8 | 0.02 | % | |||||||||||||||
B.S. Ventures, LLC dba Dink's Market | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/19/2039 | 53.8 | 53.8 | 53.4 | 0.03 | % | |||||||||||||||
F-66
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Will Zac Management, LLC dba Papa John's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/19/2024 | 48.8 | 48.8 | 47.9 | 0.03 | % | |||||||||||||||
The Jewelers Inc. dba The Jewelers of Las Vegas | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/19/2024 | 1,250.0 | 1,250.0 | 1,008.4 | 0.61 | % | |||||||||||||||
Beale Street Blues Company-West Palm Beach, LLC | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/22/2024 | 187.5 | 187.5 | 158.8 | 0.10 | % | |||||||||||||||
401 JJS Corporation and G Randazzo's Trattoria Corporation | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/23/2039 | 473.5 | 378.8 | 379.2 | 0.23 | % | |||||||||||||||
The Lodin Group, LLC and Lodin Health Imaging Inc. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/23/2039 | 530.3 | 530.3 | 472.9 | 0.28 | % | |||||||||||||||
Thermoplastic Services Inc. and Paragon Plastic Sheet, Inc | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 12/23/2039 | 500.0 | 500.0 | 500.6 | 0.30 | % | |||||||||||||||
Winter Ventures Inc. dba Qualitybargainbooks and Qualitybargainmall | Nonstore Retailers | Term Loan | Prime plus 2.75% | 12/23/2024 | 156.1 | 156.1 | 132.5 | 0.08 | % | |||||||||||||||
Carolina Flicks Inc. dba The Howell Theater | Motion Picture and Sound Recording Industries | Term Loan | Prime plus 2.75% | 12/23/2032 | 163.3 | 163.3 | 149.9 | 0.09 | % | |||||||||||||||
Atlantis of Daytona. LLC and Ocean Club Sportswear Inc. | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/23/2039 | 240.0 | 240.0 | 240.3 | 0.14 | % | |||||||||||||||
Bowlerama, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/24/2039 | 1,202.5 | 1,202.5 | 1,199.9 | 0.72 | % | |||||||||||||||
Bear Creek Entertainment, LLC dba The Woods at Bear Creek | Accommodation | Term Loan | Prime plus 2.75% | 12/30/2024 | 106.3 | 106.3 | 104.6 | 0.06 | % | |||||||||||||||
Evans and Paul, LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/30/2024 | 223.8 | 223.8 | 207.6 | 0.12 | % | |||||||||||||||
First Prevention and Dialysis Center, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/30/2024 | 238.3 | 78.1 | 76.9 | 0.05 | % | |||||||||||||||
Grand Blanc Lanes, Inc. and H, H and H, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/31/2039 | 133.0 | 133.0 | 130.5 | 0.08 | % | |||||||||||||||
FHJE Ventures, LLC and Eisenreich II Inc. dba Breakneck Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/31/2039 | 245.5 | 161.6 | 161.8 | 0.10 | % | |||||||||||||||
JEJE Realty, LLC and La Familia Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/10/2039 | 205.8 | 205.8 | 191.9 | 0.12 | % | |||||||||||||||
Joey O's, LLC and Jennifer Olszewski | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/7/2024 | 13.1 | 13.0 | 10.3 | 0.01 | % | |||||||||||||||
Laura L. Smith dba Lisa Smith Studio | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/3/2024 | 15.0 | 14.9 | 11.9 | 0.01 | % | |||||||||||||||
F-67
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Frontier Bulk Solutions, LLC | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 10/31/2024 | 1,250.0 | 1,242.3 | 1,043.3 | 0.63 | % | |||||||||||||||
Heartland American Properties, LLC and Skaggs RV Outlet, LLC | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 10/31/2039 | 479.0 | 478.3 | 459.3 | 0.28 | % | |||||||||||||||
M and C Renovations Inc. | Construction of Buildings | Term Loan | Prime plus 2.75% | 10/31/2024 | 20.3 | 20.1 | 16.2 | 0.01 | % | |||||||||||||||
Golden Transaction Corporation dba Bleh Sunoco | Gasoline Stations | Term Loan | Prime plus 2.75% | 10/30/2039 | 156.7 | 156.5 | 152.5 | 0.09 | % | |||||||||||||||
Kantz, LLC and Kantz Auto, LLC dba Kantz's Hometown Auto | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 10/29/2039 | 68.1 | 68.0 | 65.0 | 0.04 | % | |||||||||||||||
Seelan Inc. dba Candleridge Market | Gasoline Stations | Term Loan | Prime plus 2.75% | 10/27/2039 | 90.5 | 90.4 | 84.0 | 0.05 | % | |||||||||||||||
185 Summerfield Inc. and Valcon Contracting Corp. | Construction of Buildings | Term Loan | Prime plus 2.75% | 10/24/2039 | 162.3 | 162.0 | 157.1 | 0.09 | % | |||||||||||||||
Navdeep B Martins and Busy Bubbles, LLC dba Wishy Washy | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/24/2039 | 89.0 | 88.9 | 80.5 | 0.05 | % | |||||||||||||||
3 F Management, LLC and ATC Port Charlotte, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/17/2024 | 131.3 | 130.4 | 110.9 | 0.07 | % | |||||||||||||||
One Hour Jewelry Repair Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/14/2024 | 20.6 | 20.4 | 16.3 | 0.01 | % | |||||||||||||||
Return to Excellence, Inc. dba The Waynesville Inn Golf & Spa | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/10/2039 | 1,250.0 | 1,249.0 | 1,250.5 | 0.75 | % | |||||||||||||||
Capitol Waste and Recycling Services, LLC | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 10/10/2024 | 257.8 | 256.2 | 220.3 | 0.13 | % | |||||||||||||||
Sound Manufacturing Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 10/10/2024 | 187.5 | 186.5 | 157.1 | 0.09 | % | |||||||||||||||
DNT Storage and Properties, LLC | Real Estate | Term Loan | Prime plus 2.75% | 10/10/2039 | 101.8 | 101.6 | 99.2 | 0.06 | % | |||||||||||||||
Boilermaker Industries, LLC dba PostNet | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/9/2024 | 18.8 | 18.8 | 16.8 | 0.01 | % | |||||||||||||||
Doctors Express Management of Central Texas, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 10/8/2024 | 105.0 | 92.4 | 85.0 | 0.05 | % | |||||||||||||||
Smith Spinal Care Center P.C. and James C. Smith | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 10/8/2039 | 60.0 | 59.9 | 57.2 | 0.03 | % | |||||||||||||||
Michael Rey Jr. and Lynn J. Williams (EPC) and GIG Petcare | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/3/2039 | 126.9 | 126.4 | 122.2 | 0.07 | % | |||||||||||||||
Sumad, LLC dba BrightStar Care of Encinitas | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/2/2024 | 92.5 | 92.5 | 90.1 | 0.05 | % | |||||||||||||||
F-68
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Route 130 SCPI Holdings LLC, (EPC) Route 130 SCPI Operations, LLC (OC) | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/30/2039 | 538.8 | 538.8 | 494.2 | 0.30 | % | |||||||||||||||
Roccos, LLC and Sullo Pantalone Inc. dba Rocco's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/30/2039 | 255.8 | 255.0 | 234.8 | 0.14 | % | |||||||||||||||
Keller Holdings, LLC and David H Keller III and Carie C Keller | Scenic and Sightseeing Transportation | Term Loan | Prime plus 2.75% | 9/30/2039 | 100.0 | 99.7 | 98.4 | 0.06 | % | |||||||||||||||
The Woods at Bear Creek, LLC and Bear Creek Entertainment, LLC | Accommodation | Term Loan | Prime plus 2.75% | 9/29/2039 | 513.3 | 512.5 | 513.0 | 0.31 | % | |||||||||||||||
Orange County Insurance Brokerage Inc. dba Beaty Insurance Agency | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 9/29/2039 | 325.1 | 324.6 | 324.7 | 0.20 | % | |||||||||||||||
Keys Phase One, LLC dba The Grand Guesthouse | Accommodation | Term Loan | Prime plus 2.75% | 9/26/2039 | 736.3 | 734.1 | 709.4 | 0.43 | % | |||||||||||||||
Colts V, LLC and Nowatzke Service Center, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/26/2039 | 601.8 | 600.0 | 576.8 | 0.35 | % | |||||||||||||||
Gordon E Rogers dba Stonehouse Motor Inn | Accommodation | Term Loan | Prime plus 2.75% | 9/26/2039 | 57.5 | 57.3 | 57.4 | 0.03 | % | |||||||||||||||
Auto Shine Carwash Inc. and AKM R. Hossain and Jessica F. Masud | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/26/2024 | 22.5 | 22.2 | 18.6 | 0.01 | % | |||||||||||||||
6 Price Avenue, LLC and Pauley Tree & Lawn Care, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/24/2039 | 452.5 | 451.2 | 395.7 | 0.24 | % | |||||||||||||||
North Columbia, LLC and Loop Liquor and Convenience Store, LLC | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 9/24/2039 | 159.3 | 158.8 | 153.0 | 0.09 | % | |||||||||||||||
R A Johnson Inc. dba Rick Johnson Auto and Tire | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/23/2039 | 301.3 | 300.4 | 300.7 | 0.18 | % | |||||||||||||||
Andrene's, LLC dba Andrene's Caribbean Soul Food Carry Out | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/23/2024 | 37.8 | 37.6 | 30.1 | 0.02 | % | |||||||||||||||
Utek Corporation dba Arcade Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/22/2039 | 405.5 | 405.0 | 400.6 | 0.24 | % | |||||||||||||||
Play and Stay, LLC dba Zoom Room Tinton Falls | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/18/2024 | 42.1 | 42.1 | 33.6 | 0.02 | % | |||||||||||||||
Ryan Crick and Pamela J. Crick and Crick Enterprises Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/17/2039 | 145.5 | 145.1 | 145.2 | 0.09 | % | |||||||||||||||
Modern Leather Goods Repair Shop Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/17/2024 | 58.8 | 57.6 | 45.9 | 0.03 | % | |||||||||||||||
Animal Intrusion Prevention Systems Holding Company, LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/15/2024 | 272.5 | 269.1 | 230.1 | 0.14 | % | |||||||||||||||
Tavern Properties, LLC and Wildwood Tavern, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/15/2039 | 425.0 | 312.0 | 312.3 | 0.19 | % | |||||||||||||||
RDT Enterprises, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 9/15/2027 | 162.8 | 161.4 | 152.3 | 0.09 | % | |||||||||||||||
F-69
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
KW Zion, LLC and Key West Gallery Inc. | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 9/12/2039 | 1,250.0 | 1,246.4 | 1,203.3 | 0.72 | % | |||||||||||||||
Indy East Smiles Youth Dentistry, LLC dba Prime Smile East | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/11/2024 | 630.2 | 622.4 | 499.6 | 0.30 | % | |||||||||||||||
B&P Diners, LLC dba Engine House Restaurant | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/10/2024 | 80.0 | 79.0 | 63.0 | 0.04 | % | |||||||||||||||
Feel The World Inc. dba Xero Shoes and Invisible Shoes | Leather and Allied Product Manufacturing | Term Loan | Prime plus 2.75% | 9/5/2024 | 51.9 | 51.3 | 42.2 | 0.03 | % | |||||||||||||||
Alberti and Cardoni, LLC dba Menchie's | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 8/29/2024 | 77.3 | 77.3 | 64.3 | 0.04 | % | |||||||||||||||
Delta Aggregate, LLC | Mining (except Oil and Gas) | Term Loan | Prime plus 2.75% | 8/28/2039 | 911.3 | 911.3 | 912.1 | 0.55 | % | |||||||||||||||
Lamjam, LLC (EPC) Goldsmith Lambros Inc. (OC) | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 8/27/2024 | 133.8 | 131.3 | 129.3 | 0.08 | % | |||||||||||||||
Orange County Cleaning Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 8/27/2024 | 41.3 | 40.5 | 32.3 | 0.02 | % | |||||||||||||||
Qycell Corporation | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 8/26/2024 | 121.0 | 118.9 | 103.7 | 0.06 | % | |||||||||||||||
Atlas Auto Body Inc. dba Atlas Auto Sales | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/22/2039 | 51.6 | 51.3 | 47.9 | 0.03 | % | |||||||||||||||
Grey Light Realty, LLC (EPC) NH Precision Metal Fabricators Inc. (OC) | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 8/21/2039 | 1,226.0 | 1,220.6 | 1,160.5 | 0.70 | % | |||||||||||||||
S&P Holdings of Daytona LLC (EPC) S&P Corporation of Daytona Beach | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 8/15/2039 | 433.5 | 431.6 | 432.0 | 0.26 | % | |||||||||||||||
Barber Investments, LLC and Fieldstone Quickstop, LLC | Gasoline Stations | Term Loan | Prime plus 2.75% | 8/15/2039 | 150.0 | 149.3 | 128.6 | 0.08 | % | |||||||||||||||
Katie Senior Care, LLC dba Home Instead Senior Care | Social Assistance | Term Loan | Prime plus 2.75% | 8/15/2024 | 124.3 | 121.9 | 97.2 | 0.06 | % | |||||||||||||||
Alpha Preparatory Academy, LLC | Social Assistance | Term Loan | Prime plus 2.75% | 8/15/2039 | 145.2 | 109.2 | 109.4 | 0.07 | % | |||||||||||||||
Hamer Road Auto Salvage, LLC and Scott T. Cook and Nikki J. Cook | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 8/8/2039 | 188.4 | 187.6 | 187.8 | 0.11 | % | |||||||||||||||
Almost Home Property, LLC and Almost Home Daycare, LLC | Social Assistance | Term Loan | Prime plus 2.75% | 8/7/2039 | 715.8 | 713.6 | 698.8 | 0.42 | % | |||||||||||||||
iFood, Inc. dba Steak N Shake | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/31/2024 | 379.1 | 290.5 | 259.3 | 0.16 | % | |||||||||||||||
AGV Enterprises, LLC dba Jet's Pizza #42 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/31/2024 | 54.8 | 53.5 | 43.9 | 0.03 | % | |||||||||||||||
575 Columbus Avenue Holding Company, LLC and LA-ZE, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/30/2039 | 22.5 | 22.4 | 22.4 | 0.01 | % | |||||||||||||||
F-70
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
L&S Insurance & Financial Services Inc. | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 7/25/2024 | 22.5 | 21.9 | 17.8 | 0.01 | % | |||||||||||||||
Honeyspot Investors, LLP and Pace Motor Lines Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 7/24/2039 | 150.0 | 149.1 | 147.6 | 0.09 | % | |||||||||||||||
Miss Cranston Diner II, LLC and Miss Cranston II Realty, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/17/2039 | 91.3 | 91.3 | 88.4 | 0.05 | % | |||||||||||||||
Wired, LLC and Moulison North Corporation | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/3/2024 | 150.1 | 146.4 | 126.6 | 0.08 | % | |||||||||||||||
Honeyspot Investors, LLP and Pace Motor Lines Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 6/30/2039 | 875.3 | 870.1 | 859.1 | 0.52 | % | |||||||||||||||
iFood, Inc. dba Steak N Shake | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2039 | 629.8 | 625.2 | 549.0 | 0.33 | % | |||||||||||||||
Wired, LLC and Moulison North Corporation | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/30/2024 | 500.0 | 484.4 | 419.1 | 0.25 | % | |||||||||||||||
AMG Holding, LLC and Stetson Automotive, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/30/2039 | 208.0 | 206.5 | 206.3 | 0.12 | % | |||||||||||||||
Lisle Lincoln II Limited Partnership dba Lisle Lanes LP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/30/2024 | 100.0 | 96.9 | 92.5 | 0.06 | % | |||||||||||||||
Highway Striping Inc. | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 6/30/2024 | 53.1 | 51.5 | 43.1 | 0.03 | % | |||||||||||||||
FHJE Ventures, LLC and Eisenreich II Inc. dba Breakneck Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/27/2039 | 321.8 | 319.6 | 303.4 | 0.18 | % | |||||||||||||||
JPM Investments, LLC and Carolina Family Foot Care P.A. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/26/2039 | 136.1 | 135.5 | 130.5 | 0.08 | % | |||||||||||||||
Zinger Hardware and General Merchant Inc. | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 6/26/2024 | 110.5 | 107.1 | 94.9 | 0.06 | % | |||||||||||||||
Nikobella Properties, LLC and JPO Inc. dba Village Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/25/2039 | 476.3 | 472.8 | 451.7 | 0.27 | % | |||||||||||||||
RDJ Maayaa Inc. dba RDJ Distributors | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/23/2024 | 8.7 | 8.3 | 6.7 | — | % | |||||||||||||||
Big Sky Plaza, LLC and Strickland, Incorporated | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 6/20/2039 | 233.4 | 231.7 | 220.0 | 0.13 | % | |||||||||||||||
510 ROK Realty, LLC dba ROK Health and Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/19/2024 | 332.0 | 322.2 | 304.3 | 0.18 | % | |||||||||||||||
Nirvi Enterprises, LLC dba Howard Johnson / Knights Inn | Accommodation | Term Loan | Prime plus 2.75% | 6/17/2039 | 920.3 | 913.5 | 912.5 | 0.55 | % | |||||||||||||||
F-71
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Hotels of North Georgia, LLC dba Comfort Inn and Suites | Accommodation | Term Loan | Prime plus 2.75% | 6/17/2039 | 837.5 | 831.4 | 825.4 | 0.50 | % | |||||||||||||||
Global Educational Delivery Services, LLC | Educational Services | Term Loan | Prime plus 2.75% | 6/16/2024 | 60.0 | 58.3 | 57.3 | 0.03 | % | |||||||||||||||
GPG Real Estate Holdings, LLC and GPG Enterprises Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/13/2039 | 322.1 | 319.7 | 299.2 | 0.18 | % | |||||||||||||||
Rainbow Dry Cleaners | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/13/2024 | 122.5 | 118.7 | 100.1 | 0.06 | % | |||||||||||||||
GPG Real Estate Holdings, LLC (OC) GPG Enterprises Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/13/2039 | 162.5 | 40.4 | 40.4 | 0.02 | % | |||||||||||||||
NVR Corporation dba Discount Food Mart | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 6/11/2039 | 68.3 | 67.5 | 67.4 | 0.04 | % | |||||||||||||||
Sico & Walsh Insurance Agency Inc. and The AMS Trust | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 6/6/2039 | 250.0 | 249.2 | 232.9 | 0.14 | % | |||||||||||||||
Sujata Inc. dba Stop N Save Food Mart | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 6/3/2024 | 22.5 | 21.8 | 18.0 | 0.01 | % | |||||||||||||||
Long Island Barber Institute Inc. | Educational Services | Term Loan | Prime plus 2.75% | 6/2/2039 | 55.5 | 55.1 | 51.5 | 0.03 | % | |||||||||||||||
CJR LLC (EPC) and PowerWash Plus, Inc. (OC) | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/30/2024 | 53.0 | 51.0 | 46.6 | 0.03 | % | |||||||||||||||
Pocono Coated Products, LLC | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 5/30/2024 | 22.5 | 21.7 | 19.9 | 0.01 | % | |||||||||||||||
R. A. Johnson, Inc. dba Rick Johnson Auto & Tire | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 5/29/2039 | 943.8 | 935.8 | 934.7 | 0.56 | % | |||||||||||||||
Wilton Dental Care P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 5/29/2024 | 128.1 | 125.6 | 100.4 | 0.06 | % | |||||||||||||||
EGM Food Services Inc. dba Gold Star Chili | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/29/2024 | 19.2 | 18.5 | 15.4 | 0.01 | % | |||||||||||||||
Jonesboro Health Food Center, LLC | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 5/27/2024 | 60.0 | 57.8 | 45.7 | 0.03 | % | |||||||||||||||
USI Properties, LLC dba U Store It | Real Estate | Term Loan | Prime plus 2.75% | 5/23/2039 | 144.6 | 143.4 | 141.0 | 0.08 | % | |||||||||||||||
Bay State Funeral Services, LLC (EPC) and Riley Funeral Home Inc.(OC) | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 5/21/2039 | 134.9 | 134.1 | 133.9 | 0.08 | % | |||||||||||||||
Hae M. and Jin S. Park dba Buford Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/15/2039 | 166.5 | 164.3 | 151.0 | 0.09 | % | |||||||||||||||
Moochie's, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/13/2024 | 100.5 | 97.9 | 79.3 | 0.05 | % | |||||||||||||||
The River Beas, LLC and Punam Singh | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/8/2039 | 90.3 | 89.5 | 84.8 | 0.05 | % | |||||||||||||||
F-72
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
AS Boyals, LLC dba Towne Liquors | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 4/29/2039 | 117.5 | 116.3 | 116.2 | 0.07 | % | |||||||||||||||
Winter Ventures Inc. and 214 N Franklin LLC | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/29/2024 | 62.6 | 59.9 | 53.0 | 0.03 | % | |||||||||||||||
ENI Inc., Event Networks Inc., ENI Worldwide, LLC and Spot Shop Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 4/25/2024 | 500.0 | 478.1 | 376.8 | 0.23 | % | |||||||||||||||
Gerami Realty, LC (EPC) Sherrill Universal City Corral, LP | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/23/2027 | 78.8 | 76.4 | 73.4 | 0.04 | % | |||||||||||||||
Complete Body & Paint, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/23/2039 | 20.8 | 20.6 | 20.5 | 0.01 | % | |||||||||||||||
Island Wide Realty, LLC and Long Island Partners, Inc. | Real Estate | Term Loan | Prime plus 2.75% | 4/22/2039 | 103.8 | 102.7 | 102.6 | 0.06 | % | |||||||||||||||
Aiello's Pizzeria, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/18/2024 | 42.8 | 40.9 | 34.0 | 0.02 | % | |||||||||||||||
Wilshire Media Systems Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 4/17/2024 | 186.3 | 178.1 | 145.5 | 0.09 | % | |||||||||||||||
Family Ties Supply Corp. dba Best Cookies & More dba Cookie Factory Out | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 4/16/2024 | 53.1 | 50.8 | 39.8 | 0.02 | % | |||||||||||||||
R2 Tape Inc. dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 4/10/2024 | 78.8 | 75.3 | 74.0 | 0.04 | % | |||||||||||||||
1899 Tavern & Tap, LLC and Ale House Tavern & Tap, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/9/2039 | 137.5 | 135.2 | 130.7 | 0.08 | % | |||||||||||||||
Eagle Aggregate Transportation, LLC and Eagle Pneumatic Transport, LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 3/31/2024 | 1,250.0 | 712.3 | 689.3 | 0.41 | % | |||||||||||||||
Hodges Properties, LLC and Echelon Enterprises Inc. dba Treads Bicycle | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 3/31/2039 | 449.0 | 443.7 | 427.6 | 0.26 | % | |||||||||||||||
Dantanna's Tavern, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2024 | 164.3 | 158.2 | 133.2 | 0.08 | % | |||||||||||||||
RDT Enterprises, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/31/2028 | 141.2 | 137.1 | 135.6 | 0.08 | % | |||||||||||||||
Kemmer, LLC (EPC) and Pitts Package Store, Inc.(OC) | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/31/2039 | 117.5 | 116.3 | 99.7 | 0.06 | % | |||||||||||||||
Little People's Village II, LLC (OC) and Iliopoulos Realty, LLC (EPC) | Social Assistance | Term Loan | Prime plus 2.75% | 3/31/2039 | 101.5 | 100.9 | 91.1 | 0.05 | % | |||||||||||||||
Little People's Village II, LLC (OC) and Iliopoulos Realty, LLC (EPC) | Social Assistance | Term Loan | Prime plus 2.75% | 3/31/2039 | 92.1 | 91.5 | 82.6 | 0.05 | % | |||||||||||||||
Wilban, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/28/2039 | 427.5 | 422.5 | 403.8 | 0.24 | % | |||||||||||||||
F-73
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Lake Area Autosound, LLC and Ryan H. Whittington | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 7/28/2039 | 125.0 | 125.0 | 116.8 | 0.07 | % | |||||||||||||||
TC Business Enterprises, LLC dba Sky Zone Indoor Trampoline Park | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/27/2024 | 290.1 | 280.8 | 229.0 | 0.14 | % | |||||||||||||||
Sapienzo Properties, LLC (EPC) CNS Self-Storage Inc. (OC) | Real Estate | Term Loan | Prime plus 2.75% | 3/27/2039 | 193.8 | 190.6 | 190.4 | 0.11 | % | |||||||||||||||
Hascher Gabelstapler Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/26/2024 | 143.3 | 136.1 | 122.5 | 0.07 | % | |||||||||||||||
Knowledge First Inc. dba Magic Years of Learning and Kimberly Knox | Social Assistance | Term Loan | Prime plus 2.75% | 3/21/2039 | 145.0 | 143.5 | 132.2 | 0.08 | % | |||||||||||||||
636 South Center Holdings, LLC and New Mansfield Brass and Aluminum Co. | Primary Metal Manufacturing | Term Loan | Prime plus 2.75% | 3/20/2039 | 497.5 | 491.5 | 490.9 | 0.29 | % | |||||||||||||||
Cormac Enterprises and Wyoming Valley Beverage Incorporated | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/20/2039 | 110.8 | 109.6 | 109.5 | 0.07 | % | |||||||||||||||
Kinisi, Inc. dba The River North UPS Store | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/18/2024 | 41.3 | 38.4 | 33.8 | 0.02 | % | |||||||||||||||
Tortilla King, Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/14/2029 | 1,033.1 | 1,011.0 | 903.2 | 0.54 | % | |||||||||||||||
SE Properties 39 Old Route 146, LLC (EPC) SmartEarly Clifton Park, LLC | Social Assistance | Term Loan | Prime plus 2.75% | 3/14/2039 | 408.0 | 404.4 | 400.5 | 0.24 | % | |||||||||||||||
Tortilla King Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/14/2039 | 216.9 | 214.3 | 193.3 | 0.12 | % | |||||||||||||||
Bowl Mor, LLC dba Bowl Mor Lanes and Spare Lounge, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/13/2039 | 223.5 | 220.9 | 220.6 | 0.13 | % | |||||||||||||||
Avayaan2, LLC dba Island Cove | Gasoline Stations | Term Loan | Prime plus 2.75% | 3/7/2039 | 157.5 | 155.6 | 148.6 | 0.09 | % | |||||||||||||||
Onofrio's Fresh Cut Inc. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 3/6/2024 | 75.0 | 71.4 | 65.7 | 0.04 | % | |||||||||||||||
J&M Concessions, Inc.dba A-1 Liquors | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/3/2039 | 135.6 | 134.0 | 120.8 | 0.07 | % | |||||||||||||||
R & R Boyal, LLC dba Cap N Cat Clam Bar and Little Ease Tavern | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 2/28/2039 | 417.5 | 412.1 | 386.2 | 0.23 | % | |||||||||||||||
Summit Beverage Group, LLC | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 2/28/2024 | 350.6 | 330.8 | 293.6 | 0.18 | % | |||||||||||||||
Faith Memorial Chapel, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 2/28/2039 | 214.2 | 211.4 | 194.6 | 0.12 | % | |||||||||||||||
952 Boston Post Road Realty, LLC and HNA, LLC dba Styles International | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 2/28/2039 | 211.0 | 208.3 | 192.3 | 0.12 | % | |||||||||||||||
Choe Trade Group Inc. dba Rapid Printers of Monterey | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 2/28/2024 | 159.3 | 150.3 | 143.1 | 0.09 | % | |||||||||||||||
F-74
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Pindar Associates, LLC, Pidar Vineyards, LLC, Duck Walk Vineyards Inc. | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 2/25/2024 | 712.3 | 672.0 | 659.9 | 0.40 | % | |||||||||||||||
96 Mill Street, LLC, Central Pizza, LLC and Jason Bikakis George Bikaki | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/12/2039 | 141.3 | 139.4 | 139.2 | 0.08 | % | |||||||||||||||
JWB Industries, Inc. dba Carteret Die Casting | Primary Metal Manufacturing | Term Loan | Prime plus 2.75% | 2/11/2024 | 280.0 | 264.1 | 217.5 | 0.13 | % | |||||||||||||||
Sovereign Communications, LLC | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 2/7/2024 | 907.8 | 856.3 | 688.8 | 0.41 | % | |||||||||||||||
986 Dixwell Avenue Holding Company, LLC(EPC) and Mughali Foods, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/7/2039 | 99.1 | 98.2 | 93.5 | 0.06 | % | |||||||||||||||
Awesome Pets II Inc. dba Mellisa's Pet Depot | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 2/7/2024 | 83.2 | 79.5 | 66.1 | 0.04 | % | |||||||||||||||
Robert Star Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 2/5/2024 | 46.8 | 44.2 | 43.4 | 0.03 | % | |||||||||||||||
Atlas Mountain Construction, LLC | Construction of Buildings | Term Loan | Prime plus 2.75% | 1/28/2024 | 16.5 | 15.5 | 15.2 | 0.01 | % | |||||||||||||||
Sarah Sibadan dba Sibadan Agency | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 1/27/2039 | 129.4 | 127.5 | 124.3 | 0.07 | % | |||||||||||||||
3Fmanagement, LLC and ATC Fitness Cape Coral, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 1/24/2024 | 425.0 | 398.2 | 334.1 | 0.20 | % | |||||||||||||||
JDR Industries Inc dba CST-The Composites Store | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 1/21/2024 | 140.3 | 131.4 | 112.4 | 0.07 | % | |||||||||||||||
Icore Enterprises Inc. dba Air Flow Filters Inc. | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 1/15/2024 | 21.8 | 20.4 | 20.0 | 0.01 | % | |||||||||||||||
Nutmeg North Associates, LLC (OC) Steeltech Building Products Inc. | Construction of Buildings | Term Loan | Prime plus 2.75% | 12/31/2038 | 897.8 | 883.5 | 814.7 | 0.49 | % | |||||||||||||||
Carl R. Bieber, Inc. dba Bieber Tourways/Bieber Transportation | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 9/30/2027 | 712.5 | 692.9 | 675.7 | 0.41 | % | |||||||||||||||
S.Drake, LLC dba Express Employment Professionals of Ann Arbor, Michigan | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/31/2023 | 18.8 | 17.8 | 14.2 | 0.01 | % | |||||||||||||||
CLU Amboy, LLC (EPC) and Amboy Group, LLC (OC) dba Tommy Moloney's | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/27/2023 | 656.3 | 620.0 | 608.6 | 0.37 | % | |||||||||||||||
Shane M. Howell and Buck Hardware and Garden Center, LLC | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 12/27/2038 | 322.5 | 317.2 | 289.5 | 0.17 | % | |||||||||||||||
Superior Disposal Service, Inc. | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 12/26/2023 | 240.5 | 223.8 | 206.3 | 0.12 | % | |||||||||||||||
KK International Trading Corporation | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/23/2028 | 190.0 | 182.6 | 169.9 | 0.10 | % | |||||||||||||||
F-75
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
AIP Enterprises, LLC and Spider's Web Inc dba Black Widow Harley-Davidson | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 12/20/2038 | 962.5 | 946.7 | 936.7 | 0.56 | % | |||||||||||||||
JackRabbit Sports Inc. | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/20/2023 | 581.3 | 535.9 | 526.0 | 0.32 | % | |||||||||||||||
Mosley Auto Group, LLC dba America's Automotive | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/20/2038 | 221.5 | 217.9 | 212.2 | 0.13 | % | |||||||||||||||
Kurtis Sniezek dba Wolfe's Foreign Auto | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/20/2038 | 88.9 | 87.4 | 87.3 | 0.05 | % | |||||||||||||||
PLES Investements, LLC and John Redder, Pappy Sand & Gravel, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/19/2038 | 555.3 | 546.2 | 508.3 | 0.31 | % | |||||||||||||||
Lefont Theaters Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/19/2023 | 14.4 | 13.4 | 11.6 | 0.01 | % | |||||||||||||||
TAK Properties, LLC and Kinderland Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 12/18/2038 | 405.0 | 398.4 | 373.6 | 0.22 | % | |||||||||||||||
Any Garment Cleaner-East Brunswick, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/18/2023 | 53.8 | 50.0 | 46.0 | 0.03 | % | |||||||||||||||
TOL, LLC dba Wild Birds Unlimited | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 12/13/2023 | 18.0 | 17.3 | 14.8 | 0.01 | % | |||||||||||||||
8 Minute Oil Change of Springfield Corporation and John Nino | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/12/2038 | 196.8 | 193.1 | 188.5 | 0.11 | % | |||||||||||||||
920 CHR Realty, LLC (EPC) V. Garofalo Carting Inc (OC) | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 12/10/2038 | 418.1 | 411.3 | 410.6 | 0.25 | % | |||||||||||||||
DKB Transport Corp. | Truck Transportation | Term Loan | Prime plus 2.75% | 12/5/2038 | 138.8 | 136.5 | 136.3 | 0.08 | % | |||||||||||||||
Firm Foundations Inc. David S Gaitan Jr and Christopher K Daigle | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/3/2023 | 545.8 | 507.7 | 441.3 | 0.27 | % | |||||||||||||||
Firm Foundations Inc. David S Gaitan Jr and Christopher K Daigle | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/3/2038 | 104.3 | 102.5 | 90.3 | 0.05 | % | |||||||||||||||
Spectrum Development, LLC and Solvit Inc & Solvit North, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/2/2023 | 387.3 | 360.3 | 313.0 | 0.19 | % | |||||||||||||||
BVIP Limousine Service, LTD | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 11/27/2038 | 76.5 | 75.1 | 72.4 | 0.04 | % | |||||||||||||||
Eco-Green Reprocessing, LLC and Denali Medical Concepts, LLC | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 11/27/2023 | 67.2 | 62.1 | 50.6 | 0.03 | % | |||||||||||||||
TNDV: Television, LLC | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 11/26/2038 | 253.8 | 249.2 | 234.9 | 0.14 | % | |||||||||||||||
Veterinary Imaging Specialists of Alaska, LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/26/2023 | 162.6 | 155.0 | 144.4 | 0.09 | % | |||||||||||||||
F-76
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Wallace Holdings, LLC (EPC) GFA International Inc. (OC) | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.5% | 11/25/2023 | 125.0 | 115.4 | 92.8 | 0.06 | % | |||||||||||||||
AcuCall, LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/21/2023 | 15.8 | 14.7 | 11.6 | 0.01 | % | |||||||||||||||
Seven Peaks Mining Inc. and Cornerstone Industrial Minerals Corporation | Mining (except Oil and Gas) | Term Loan | Prime plus 2.75% | 11/18/2038 | 1,250.0 | 1,227.8 | 1,064.3 | 0.64 | % | |||||||||||||||
Kids in Motion of Springfield, LLC dba The Little Gym of Springfield, IL | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 11/18/2023 | 45.0 | 42.3 | 34.5 | 0.02 | % | |||||||||||||||
Kup's Auto Spa Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 11/15/2038 | 396.7 | 390.0 | 382.7 | 0.23 | % | |||||||||||||||
Yousef Khatib dba Y&M Enterprises | Wholesale Electronic Markets and Agents and Brokers | Term Loan | Prime plus 2.75% | 11/15/2023 | 75.0 | 69.3 | 56.7 | 0.03 | % | |||||||||||||||
River Run Personnel, LLC dba Express Employment Professionals | Administrative and Support Services | Term Loan | Prime plus 2.75% | 11/15/2023 | 20.0 | 1.2 | 1.2 | — | % | |||||||||||||||
Howell Gun Works, LLC | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 11/14/2023 | 8.3 | 7.7 | 6.1 | — | % | |||||||||||||||
Armin and Kian Inc. dba The UPS Store 3714 | Couriers and Messengers | Term Loan | Prime plus 2.75% | 11/13/2023 | 56.5 | 52.2 | 41.0 | 0.02 | % | |||||||||||||||
Polpo Realty, LLC (EPC) Polpo Restaurant, LLC (OC) | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/6/2038 | 62.5 | 61.6 | 61.5 | 0.04 | % | |||||||||||||||
Twinsburg Hospitality Group, LLC dba Comfort Suites | Accommodation | Term Loan | Prime plus 2.75% | 10/31/2038 | 945.0 | 928.1 | 862.6 | 0.52 | % | |||||||||||||||
Master CNC Inc. & Master Properties, LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 10/31/2038 | 596.6 | 585.0 | 524.2 | 0.31 | % | |||||||||||||||
1 North Restaurant Corp. dba 1 North Steakhouse | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 10/31/2038 | 212.5 | 208.4 | 202.4 | 0.12 | % | |||||||||||||||
Mid-Land Sheet Metal Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 10/31/2038 | 137.5 | 135.0 | 129.9 | 0.08 | % | |||||||||||||||
Logistics Business Solutions Inc. dba The UPS Store | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/31/2023 | 50.0 | 46.5 | 41.8 | 0.03 | % | |||||||||||||||
Janice B. McShan and The Metropolitan Day School, LLC | Social Assistance | Term Loan | Prime plus 2.75% | 10/31/2023 | 42.8 | 40.4 | 38.5 | 0.02 | % | |||||||||||||||
Meridian Hotels, LLC dba Best Western Jonesboro | Accommodation | Term Loan | Prime plus 2.75% | 10/29/2038 | 664.5 | 650.4 | 644.4 | 0.39 | % | |||||||||||||||
New Image Building Services Inc. dba New Image Repair Services | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/29/2023 | 331.3 | 303.9 | 254.1 | 0.15 | % | |||||||||||||||
A-1 Quality Services Corporation | Administrative and Support Services | Term Loan | Prime plus 2.75% | 10/29/2023 | 8.9 | 8.1 | 6.4 | — | % | |||||||||||||||
F-77
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Clairvoyant Realty Corp. and Napoli Marble & Granite Design, Ltd | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 10/24/2038 | 246.3 | 241.5 | 221.1 | 0.13 | % | |||||||||||||||
Greenbrier Technical Services, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/24/2023 | 240.1 | 221.6 | 208.6 | 0.13 | % | |||||||||||||||
Kelly Auto Care LLC dba Shoreline Quick Lube and Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 10/18/2023 | 87.5 | 80.3 | 67.2 | 0.04 | % | |||||||||||||||
KenBro Enterprises LLC dba Hearing Aids by Zounds-Cherry Hill | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 10/18/2023 | 25.8 | 23.6 | 21.3 | 0.01 | % | |||||||||||||||
Shepher Distr's and Sales Corp and The Lederer Industries Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/30/2023 | 1,050.0 | 956.4 | 938.7 | 0.56 | % | |||||||||||||||
Fieldstone Quick Stop, LLC (OC) Barber Investments, LLC (EPC) | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/30/2038 | 676.3 | 667.1 | 598.7 | 0.36 | % | |||||||||||||||
Cencon Properties, LLC and Central Connecticut Warehousing Company | Warehousing and Storage | Term Loan | Prime plus 2.75% | 9/30/2038 | 344.5 | 337.8 | 333.3 | 0.20 | % | |||||||||||||||
Lenoir Business Partners, LLC (EPC) LP Industries, Inc. dba Childforms | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2038 | 322.7 | 317.7 | 302.4 | 0.18 | % | |||||||||||||||
Onofrios Enterprises, LLC (EPC) Onofrios Fresh Cut, Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2038 | 312.5 | 306.8 | 294.3 | 0.18 | % | |||||||||||||||
Discount Wheel and Tire | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 9/30/2038 | 223.8 | 219.0 | 204.2 | 0.12 | % | |||||||||||||||
Top Properties, LLC and LP Industries, Inc dba Childforms | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2038 | 120.0 | 117.9 | 117.7 | 0.07 | % | |||||||||||||||
AGS Talcott Partners, Inc. | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 9/30/2023 | 117.8 | 107.3 | 84.2 | 0.05 | % | |||||||||||||||
First Steps Real Estate Company, LLC (EPC) and First Steps Preschool | Social Assistance | Term Loan | Prime plus 2.75% | 9/30/2038 | 97.6 | 95.6 | 86.8 | 0.05 | % | |||||||||||||||
Gabrielle Realty, LLC | Gasoline Stations | Term Loan | Prime plus 2.75% | 9/27/2038 | 757.6 | 741.6 | 688.8 | 0.41 | % | |||||||||||||||
Mitchellville Family Dentistry, Dr. Octavia Simkins-Wiseman, DDS, PC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/27/2038 | 335.1 | 328.0 | 310.9 | 0.19 | % | |||||||||||||||
Handy 6391, LLC dba The UPS Store #6391 | Administrative and Support Services | Term Loan | Prime plus 2.75% | 9/27/2023 | 62.5 | 58.3 | 57.3 | 0.03 | % | |||||||||||||||
Eastside Soccer Dome, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/26/2038 | 463.8 | 453.9 | 453.1 | 0.27 | % | |||||||||||||||
HJ & Edward Enterprises, LLC dba Sky Zone | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/26/2023 | 262.5 | 246.8 | 222.6 | 0.13 | % | |||||||||||||||
Anthony C Dinoto and Susan S P Dinoto | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/26/2038 | 100.0 | 98.0 | 97.8 | 0.06 | % | |||||||||||||||
F-78
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Southeast Chicago Soccer Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/26/2038 | 51.3 | 50.2 | 50.1 | 0.03 | % | |||||||||||||||
Kiddie Steps 4 You Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 9/25/2038 | 89.3 | 83.9 | 78.4 | 0.05 | % | |||||||||||||||
Diamond Memorials Incorporated | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/25/2023 | 14.3 | 12.8 | 10.0 | 0.01 | % | |||||||||||||||
Faith Memorial Chapel, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/20/2038 | 268.4 | 262.7 | 249.0 | 0.15 | % | |||||||||||||||
Serious-Fun in Alpharetta, LLC dba The Little Gym of Alpharetta | Educational Services | Term Loan | Prime plus 2.75% | 9/20/2023 | 46.3 | 42.3 | 34.8 | 0.02 | % | |||||||||||||||
Westville Seafood, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/19/2038 | 112.3 | 109.9 | 102.7 | 0.06 | % | |||||||||||||||
Maynard Enterprises Inc. dba Fastsigns of Texarkana | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 9/18/2023 | 16.1 | 14.8 | 12.3 | 0.01 | % | |||||||||||||||
Grafio Inc. dba Omega Learning Center-Acworth | Educational Services | Term Loan | Prime plus 2.75% | 9/13/2023 | 156.3 | 142.3 | 118.8 | 0.07 | % | |||||||||||||||
The Berlerro Group, LLC dba Sky Zone | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/12/2023 | 421.3 | 395.8 | 326.4 | 0.20 | % | |||||||||||||||
Sound Manufacturing Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 9/12/2028 | 54.8 | 52.1 | 46.6 | 0.03 | % | |||||||||||||||
Prospect Kids Academy Inc. | Educational Services | Term Loan | Prime plus 2.75% | 9/11/2038 | 124.3 | 121.6 | 116.6 | 0.07 | % | |||||||||||||||
Alma J. and William R. Walton (EPC) and Almas Child Day Care Center | Social Assistance | Term Loan | Prime plus 2.75% | 9/11/2038 | 39.5 | 38.7 | 38.6 | 0.02 | % | |||||||||||||||
B for Brunette, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/10/2023 | 53.4 | 49.3 | 39.1 | 0.02 | % | |||||||||||||||
Schmaltz Holdings, LLC (EPC) and Schmaltz Operations, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/4/2038 | 224.2 | 217.8 | 202.8 | 0.12 | % | |||||||||||||||
ACI Northwest Inc. | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 8/30/2023 | 906.3 | 680.0 | 613.9 | 0.37 | % | |||||||||||||||
IlOKA Inc. dba Microtech Tel and NewCloud Networks | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/30/2023 | 687.5 | 621.5 | 528.2 | 0.32 | % | |||||||||||||||
Spectrum Radio Fairmont, LLC | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 8/30/2023 | 187.5 | 169.5 | 163.9 | 0.10 | % | |||||||||||||||
Excel RP Inc. | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 8/30/2023 | 130.3 | 117.8 | 110.1 | 0.07 | % | |||||||||||||||
Gulfport Academy Child Care and Learning Center, Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 8/30/2023 | 43.3 | 39.1 | 36.3 | 0.02 | % | |||||||||||||||
F-79
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Mojo Brands Media, LLC | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 8/28/2023 | 784.0 | 750.1 | 603.7 | 0.36 | % | |||||||||||||||
Ramard Inc and Advanced Health Sciences Inc. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/28/2023 | 187.5 | 169.5 | 133.0 | 0.08 | % | |||||||||||||||
RM Hawkins, LLC dba Pure Water Tech West and Robert M Hawkins | Nonstore Retailers | Term Loan | Prime plus 2.75% | 8/26/2023 | 85.8 | 73.6 | 72.3 | 0.04 | % | |||||||||||||||
JSIL LLC dba Blackstones Hairdressing | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 8/16/2023 | 19.5 | 17.7 | 14.8 | 0.01 | % | |||||||||||||||
Jatcoia, LLC dba Plato's Closet | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 8/15/2023 | 65.0 | 52.3 | 51.0 | 0.03 | % | |||||||||||||||
Island Nautical Enterprises, Inc. (OC) and Ingwall Holdings, LLC (EPC) | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 8/14/2038 | 445.0 | 343.0 | 312.3 | 0.19 | % | |||||||||||||||
Caribbean Concepts, Inc. dba Quick Bleach | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 8/12/2023 | 22.5 | 20.5 | 16.7 | 0.01 | % | |||||||||||||||
VesperGroup, LLC dba The Wine Cellar | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/5/2023 | 45.0 | 40.7 | 33.9 | 0.02 | % | |||||||||||||||
Blacknorange2, LLC dba Popeyes Louisiana Kitchen | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/31/2023 | 175.0 | 159.1 | 128.9 | 0.08 | % | |||||||||||||||
209 North 3rd Street, LLC (EPC) Yuster Insurance Group Inc. (OC) | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 7/29/2038 | 83.9 | 81.8 | 78.2 | 0.05 | % | |||||||||||||||
Majestic Contracting Services, Inc. dba Majestic Electric | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/26/2038 | 190.0 | 185.4 | 171.3 | 0.10 | % | |||||||||||||||
Daniel W. and Erin H. Gordon and Silver Lining Stables CT, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 7/24/2023 | 11.3 | 10.1 | 9.9 | 0.01 | % | |||||||||||||||
Angkor Restaurant Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/19/2038 | 93.0 | 90.8 | 88.3 | 0.05 | % | |||||||||||||||
Harbor Ventilation Inc. and Estes Investment, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/19/2038 | 92.1 | 90.0 | 84.5 | 0.05 | % | |||||||||||||||
Tri County Heating and Cooling Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/19/2023 | 87.8 | 78.8 | 73.7 | 0.04 | % | |||||||||||||||
Morning Star Trucking. LLC and Morning Star Equipment and Leasing, LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 7/17/2023 | 53.8 | 48.2 | 37.9 | 0.02 | % | |||||||||||||||
Maxiflex, LLC | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 6/28/2023 | 153.5 | 136.9 | 135.5 | 0.08 | % | |||||||||||||||
JRA Holdings, LLC (EPC) Jasper County Cleaners Inc. dba Superior Cleaner | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/28/2038 | 121.0 | 117.9 | 118.9 | 0.07 | % | |||||||||||||||
GIA Realty, LLC and VRAJ GIA, LLC dba Lakeview Laundromat | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/28/2038 | 97.5 | 95.0 | 95.8 | 0.06 | % | |||||||||||||||
F-80
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Emerald Ironworks Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/27/2023 | 72.0 | 64.4 | 56.4 | 0.03 | % | |||||||||||||||
Contract Packaging Services Inc. dba Superior Pack Group | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 6/21/2023 | 851.8 | 764.3 | 690.4 | 0.41 | % | |||||||||||||||
2161 Highway 6 Trail, LLC (EPC) | Truck Transportation | Term Loan | Prime plus 2.75% | 6/19/2026 | 1,250.0 | 912.6 | 903.4 | 0.54 | % | |||||||||||||||
CBlakeslee Arpaia Chapman, Inc. dba Blakeslee Industrial Services | Heavy and Civil Engineering Construction | Term Loan | Prime plus 2.75% | 6/18/2028 | 875.0 | 821.3 | 819.1 | 0.49 | % | |||||||||||||||
KDP, LLC and KDP Investment Advisors, Inc. and KDP Asset Management, Inc. | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/14/2023 | 343.8 | 306.2 | 263.6 | 0.16 | % | |||||||||||||||
Elite Structures Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 6/12/2038 | 932.8 | 901.3 | 901.2 | 0.54 | % | |||||||||||||||
(EPC) Absolute Desire, LLC and Mark H. Szierer (OC) Sophisticated Smile | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/5/2038 | 188.3 | 183.7 | 172.4 | 0.10 | % | |||||||||||||||
(EPC) Willowbrook Properties, LLC (OC) Grove Gardens Landscaping Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 6/5/2038 | 186.3 | 181.5 | 177.9 | 0.11 | % | |||||||||||||||
Maciver Corporation dba Indie Rentals and Division Camera | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 5/31/2023 | 440.8 | 390.3 | 363.0 | 0.22 | % | |||||||||||||||
RKP Service dba Rainbow Carwash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/31/2023 | 300.0 | 268.2 | 232.8 | 0.14 | % | |||||||||||||||
Europlast Ltd. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 5/31/2023 | 162.0 | 157.4 | 151.0 | 0.09 | % | |||||||||||||||
RXSB, Inc. dba Medicine Shoppe | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 5/30/2023 | 186.3 | 165.5 | 140.1 | 0.08 | % | |||||||||||||||
Gregory P Jellenek OD and Associates PC dba Gregory P Jellenek OD | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 5/28/2023 | 63.5 | 56.2 | 51.2 | 0.03 | % | |||||||||||||||
Ryan D. Thornton and Thornton & Associates, LLC | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 5/24/2023 | 68.8 | 58.7 | 49.7 | 0.03 | % | |||||||||||||||
Insurance Problem Solvers, LLC | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 5/20/2023 | 17.1 | 15.1 | 12.8 | 0.01 | % | |||||||||||||||
Hybrid Racing, LLC. | Transportation Equipment Manufacturing | Term Loan | Prime plus 2.75% | 5/15/2023 | 116.3 | 103.4 | 92.8 | 0.06 | % | |||||||||||||||
Atlas Mountain Construction, LLC | Construction of Buildings | Term Loan | Prime plus 2.75% | 5/13/2038 | 127.3 | 123.8 | 124.8 | 0.07 | % | |||||||||||||||
PowerWash Plus, Inc. and CJR, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/30/2038 | 550.0 | 534.1 | 512.2 | 0.31 | % | |||||||||||||||
Peanut Butter & Co., Inc. | Food Manufacturing | Term Loan | Prime plus 2.75% | 4/30/2023 | 100.0 | 87.7 | 75.1 | 0.05 | % | |||||||||||||||
F-81
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Brothers International Desserts | Food Manufacturing | Term Loan | Prime plus 2.75% | 4/26/2023 | 230.0 | 201.8 | 185.1 | 0.11 | % | |||||||||||||||
Kidrose, LLC dba Kidville Riverdale | Educational Services | Term Loan | Prime plus 2.75% | 4/22/2023 | 78.8 | 69.9 | 62.3 | 0.04 | % | |||||||||||||||
SFAM Parsippany LLC dba Cups Frozen Yogurt | Food Services and Drinking Places | Term Loan | 6% | 4/19/2023 | 121.3 | 46.3 | 45.8 | 0.03 | % | |||||||||||||||
Vernon & Stephanie Scott and Little Stars Day Care Center, Inc. | Educational Services | Term Loan | Prime plus 2.75% | 4/18/2038 | 151.0 | 146.7 | 147.9 | 0.09 | % | |||||||||||||||
Capital Scrap Metal, LLC and Powerline Investment, LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 3/29/2038 | 500.0 | 463.9 | 467.5 | 0.28 | % | |||||||||||||||
MRM Supermarkets Inc. dba Constantins Breads; Dallas Gourmet Breads | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/29/2038 | 336.0 | 325.8 | 303.2 | 0.18 | % | |||||||||||||||
1258 Hartford TPKE, LLC (EPC) and Phelps and Sons, Inc. (OC) | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 3/29/2038 | 124.6 | 120.8 | 114.3 | 0.07 | % | |||||||||||||||
A & M Commerce, Inc. dba Cranberry Sunoco | Gasoline Stations | Term Loan | Prime plus 2.75% | 3/27/2038 | 330.3 | 320.0 | 313.9 | 0.19 | % | |||||||||||||||
Xela Pack, Inc. and Aliseo and Catherine Gentile | Paper Manufacturing | Term Loan | Prime plus 2.75% | 3/27/2028 | 271.8 | 252.1 | 250.6 | 0.15 | % | |||||||||||||||
Neyra Industries, Inc. and Edward Neyra | Nonmetallic Mineral Product Manufacturing | Term Loan | Prime plus 2.75% | 3/27/2023 | 217.5 | 189.4 | 185.0 | 0.11 | % | |||||||||||||||
Gator Communications Group, LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 3/27/2023 | 17.3 | 15.5 | 14.2 | 0.01 | % | |||||||||||||||
American Diagnostic Imaging, Inc. dba St. Joseph Imaging Center | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/25/2038 | 537.5 | 521.1 | 497.8 | 0.30 | % | |||||||||||||||
Michael A. and Heather R. Welsch dba Art & Frame Etc. | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 3/22/2038 | 67.5 | 65.4 | 63.9 | 0.04 | % | |||||||||||||||
M & H Pine Straw Inc. and Harris L. Maloy | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 3/21/2023 | 288.8 | 251.6 | 235.9 | 0.14 | % | |||||||||||||||
Truth Technologies Inc. dba Truth Technologies Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 3/21/2023 | 79.5 | 69.2 | 60.1 | 0.04 | % | |||||||||||||||
J. Kinderman & Sons Inc., dba BriteStar Inc. | Electrical Equipment, Appliance, and Component Manufacturing | Term Loan | Prime plus 2.75% | 3/20/2023 | 181.3 | 157.8 | 156.0 | 0.09 | % | |||||||||||||||
Stellar Environmental, LLC | Waste Management and Remediation Services | Term Loan | Prime plus 2.75% | 3/18/2023 | 56.3 | 49.0 | 46.7 | 0.03 | % | |||||||||||||||
Sound Manufacturing, Inc. and Monster Power Equipment Inc. | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 3/15/2023 | 523.0 | 455.9 | 417.3 | 0.25 | % | |||||||||||||||
N.S and Z, Inc. dba Panos Pastry and Bakery and Jovinar's Chocolates | Food Manufacturing | Term Loan | Prime plus 2.75% | 3/15/2038 | 129.3 | 125.5 | 126.5 | 0.08 | % | |||||||||||||||
F-82
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Golden Gate Lodging, LLC (OC) | Accommodation | Term Loan | Prime plus 2.75% | 3/12/2038 | 115.0 | 111.5 | 108.9 | 0.07 | % | |||||||||||||||
Aldine Funeral Chapel, LLC dba Aldine Funeral Chapel | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 3/8/2038 | 73.8 | 35.5 | 35.8 | 0.02 | % | |||||||||||||||
River Club Golf Course Inc. dba The River Club | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2038 | 475.2 | 459.9 | 445.9 | 0.27 | % | |||||||||||||||
Bakhtar Group, LLC dba Malmaison | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/28/2023 | 103.8 | 90.4 | 76.6 | 0.05 | % | |||||||||||||||
Osceola River Mill, LLC(EPC) Ironman Machine, Inc.(OC) | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 2/20/2038 | 86.3 | 83.5 | 81.5 | 0.05 | % | |||||||||||||||
Grand Manor Realty, Inc. & Kevin LaRoe | Real Estate | Term Loan | Prime plus 2.75% | 2/20/2023 | 21.8 | 19.0 | 16.1 | 0.01 | % | |||||||||||||||
Java Warung, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/19/2038 | 51.0 | 49.5 | 48.5 | 0.03 | % | |||||||||||||||
Pacheco Investments, LLC (EPC) Pacheco Brothers Gardening Inc. (OC) | Administrative and Support Services | Term Loan | Prime plus 2.75% | 2/15/2038 | 425.0 | 410.0 | 403.5 | 0.24 | % | |||||||||||||||
Nancy & Karl Schmidt (EPC) Moments to Remember USA, LLC | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 2/15/2038 | 106.3 | 102.9 | 100.6 | 0.06 | % | |||||||||||||||
Orient Express, Inc. dba Spracht, Celltek, ODI | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 2/12/2023 | 84.9 | 72.4 | 61.3 | 0.04 | % | |||||||||||||||
Knits R Us, Inc. dba NYC Sports/Mingle | Textile Mills | Term Loan | Prime plus 2.75% | 2/11/2038 | 125.0 | 121.0 | 122.0 | 0.07 | % | |||||||||||||||
North Country Transport, LLC | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 2/6/2023 | 15.0 | 13.0 | 12.8 | 0.01 | % | |||||||||||||||
MJD Investments, LLC dba The Community Day School | Social Assistance | Term Loan | Prime plus 2.75% | 1/31/2038 | 258.3 | 249.6 | 239.6 | 0.14 | % | |||||||||||||||
EZ Towing, Inc. | Support Activities for Transportation | Term Loan | Prime plus 2.75% | 1/31/2023 | 145.0 | 124.5 | 110.3 | 0.07 | % | |||||||||||||||
Sherill Universal City dba Golden Corral | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/28/2038 | 440.5 | 427.4 | 411.7 | 0.25 | % | |||||||||||||||
Macho LLC (EPC) Madelaine Chocolate Novelties Inc(OC) dba The Madelai | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/31/2037 | 500.0 | 484.6 | 488.3 | 0.29 | % | |||||||||||||||
WI130, LLC (EPC) & Lakeland Group, Inc. (OC) dba Lakeland Electrical | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/31/2028 | 271.5 | 250.9 | 226.0 | 0.14 | % | |||||||||||||||
Elegant Fireplace Mantels, Inc. dba Elegant Fireplace Mantels | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 12/31/2022 | 97.5 | 83.0 | 70.8 | 0.04 | % | |||||||||||||||
John Duffy Fuel Co., Inc. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/28/2022 | 513.8 | 437.5 | 428.7 | 0.26 | % | |||||||||||||||
Babie Bunnie Enterprises Inc. dba Triangle Mothercare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/28/2022 | 46.3 | 39.3 | 33.3 | 0.02 | % | |||||||||||||||
F-83
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Polpo Realty LLC (EPC) & Polpo Restaurant LLC (OC) | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/27/2037 | 517.5 | 500.9 | 504.8 | 0.30 | % | |||||||||||||||
Trailer One, Inc. and Trailer One Storage, Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/27/2022 | 166.8 | 142.0 | 140.3 | 0.08 | % | |||||||||||||||
Martin L Hopp, MD PHD, A Medical Corp (OC) | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/21/2022 | 66.3 | 56.2 | 50.0 | 0.03 | % | |||||||||||||||
Ezzo Properties, LLC and Great Lakes Cleaning, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/20/2027 | 389.6 | 357.0 | 317.0 | 0.19 | % | |||||||||||||||
Pioneer Window Holdings, Inc. and Subsidiaries dba Pioneer Windows | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/20/2022 | 225.0 | 195.2 | 176.8 | 0.11 | % | |||||||||||||||
The Amendments Group, LLC dba Brightstar | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/17/2022 | 22.5 | 19.1 | 18.9 | 0.01 | % | |||||||||||||||
G.M. Pop's, Inc. & S.D. Food, Inc. dba Popeyes Louisiana Kitchen | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/11/2022 | 127.1 | 108.2 | 94.4 | 0.06 | % | |||||||||||||||
Color By Number 123 Designs, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 12/11/2022 | 42.5 | 35.9 | 35.4 | 0.02 | % | |||||||||||||||
Aegis Creative Communications, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 11/30/2022 | 387.5 | 302.5 | 256.0 | 0.15 | % | |||||||||||||||
Cheryle A Baptiste and Cheryle Baptiste DDS PLLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/30/2037 | 286.5 | 277.1 | 272.1 | 0.16 | % | |||||||||||||||
Summit Treatment Services, Inc. dba Summit Treatment Services | Social Assistance | Term Loan | Prime plus 2.75% | 11/30/2037 | 136.5 | 131.9 | 118.7 | 0.07 | % | |||||||||||||||
214 North Franklin, LLC and Winter Ventures, Inc. | Nonstore Retailers | Term Loan | Prime plus 2.75% | 11/29/2037 | 153.9 | 148.2 | 140.7 | 0.08 | % | |||||||||||||||
Daniel Gordon and Erin Gordon and Silver Lining Stables CT, LLC | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 11/28/2037 | 223.8 | 215.7 | 215.4 | 0.13 | % | |||||||||||||||
Richmond Hill Mini Market, LLC | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 11/27/2037 | 185.3 | 178.6 | 174.8 | 0.11 | % | |||||||||||||||
D&L Rescources, Inc. dba The UPS Store | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 11/27/2022 | 9.8 | 8.2 | 7.0 | — | % | |||||||||||||||
DRV Enterprise, Inc. dba Cici's Pizza # 339 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 11/26/2022 | 65.0 | 53.6 | 53.0 | 0.03 | % | |||||||||||||||
Pioneer Windows Manufacturing Corp, Pioneer Windows | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 11/21/2022 | 275.0 | 236.7 | 214.2 | 0.13 | % | |||||||||||||||
U & A Food and Fuel, Inc. dba Express Gas & Food Mart | Gasoline Stations | Term Loan | Prime plus 2.75% | 11/21/2037 | 96.3 | 92.7 | 93.4 | 0.06 | % | |||||||||||||||
Clean Brothers Company Inc. dba ServPro of North Washington County | Repair and Maintenance | Term Loan | Prime plus 2.75% | 11/21/2022 | 17.0 | 14.3 | 12.7 | 0.01 | % | |||||||||||||||
R & J Petroleum, LLC (EPC) Manar USA, Inc. (OC) | Gasoline Stations | Term Loan | Prime plus 2.75% | 11/20/2037 | 180.0 | 173.3 | 171.3 | 0.10 | % | |||||||||||||||
F-84
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
PGH Groceries, LLC DBA The Great American Super | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 11/19/2037 | 68.8 | 66.3 | 64.9 | 0.04 | % | |||||||||||||||
St Judes Physical Therapy P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/19/2022 | 21.0 | 17.7 | 17.5 | 0.01 | % | |||||||||||||||
Hi-Def Imaging, Inc. dba SpeedPro Imaging | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 11/9/2022 | 22.2 | 18.7 | 16.5 | 0.01 | % | |||||||||||||||
Reidville Hydraulics & Mfg Inc. dba Summit Farms, LLC | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 11/2/2037 | 265.9 | 256.2 | 237.4 | 0.14 | % | |||||||||||||||
Big Apple Entertainment Partners, LLC d/b/a Ripley's Believe It or Not | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/26/2022 | 180.0 | 154.2 | 130.5 | 0.08 | % | |||||||||||||||
Chickamauga Properties, Inc. and MSW Enterprises, LLP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 10/19/2022 | 59.8 | 50.0 | 49.4 | 0.03 | % | |||||||||||||||
LA Diner Inc. dba Loukas L A Diner | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/28/2037 | 677.5 | 652.1 | 657.0 | 0.39 | % | |||||||||||||||
Spire Investment Partners, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 9/28/2022 | 258.8 | 215.0 | 181.9 | 0.11 | % | |||||||||||||||
ATC Fitness, LLC dba Around the Clock Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/28/2022 | 180.0 | 154.0 | 143.8 | 0.09 | % | |||||||||||||||
University Park Retreat, LLC dba Massage Heights | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 9/27/2022 | 76.0 | 63.0 | 62.3 | 0.04 | % | |||||||||||||||
Europlast Ltd. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/26/2022 | 743.9 | 680.4 | 655.1 | 0.39 | % | |||||||||||||||
Forno Italiano Di Nonna Randazzo, LLC dba Nonna Randazzo's Bakery | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 9/26/2037 | 183.8 | 177.7 | 171.1 | 0.10 | % | |||||||||||||||
LaSalle Market and Deli EOK Inc. and Rugen Realty, LLC dba LaSalle Mark | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/21/2037 | 252.3 | 242.1 | 232.1 | 0.14 | % | |||||||||||||||
O'Rourkes Diner, LLC dba O'Rourke's Diner | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/19/2037 | 65.5 | 62.9 | 59.7 | 0.04 | % | |||||||||||||||
AdLarge Media, LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/13/2022 | 250.0 | 207.7 | 175.7 | 0.11 | % | |||||||||||||||
Vision Network Solutions, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/12/2022 | 19.5 | 16.2 | 13.7 | 0.01 | % | |||||||||||||||
R2 Tape, Inc. dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/31/2037 | 367.5 | 352.1 | 354.7 | 0.21 | % | |||||||||||||||
F-85
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
R2 Tape Inc. dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/31/2022 | 155.0 | 127.5 | 125.9 | 0.08 | % | |||||||||||||||
AJK Enterprise, LLC dba AJK Enterprise, LLC | Truck Transportation | Term Loan | Prime plus 2.75% | 8/27/2022 | 16.5 | 13.6 | 13.1 | 0.01 | % | |||||||||||||||
New Image Building Services, Inc. dba New Image Repair Services | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/23/2037 | 285.7 | 273.7 | 252.7 | 0.15 | % | |||||||||||||||
Suncoast Aluminum Furniture, Inc. | Furniture and Related Product Manufacturing | Term Loan | Prime plus 2.75% | 8/17/2037 | 360.0 | 344.9 | 345.7 | 0.21 | % | |||||||||||||||
Matchless Transportation, LLC dba First Class Limo | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 8/3/2022 | 185.0 | 153.1 | 139.8 | 0.08 | % | |||||||||||||||
Hofgard & Co., Inc. dba HofgardBenefits | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 7/27/2022 | 107.3 | 87.4 | 81.8 | 0.05 | % | |||||||||||||||
Georgia Safe Sidewalks, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/27/2022 | 15.0 | 12.1 | 11.1 | 0.01 | % | |||||||||||||||
Scoville Plumbing & Heating Inc. and Thomas P. Scoville | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/25/2022 | 50.0 | 42.9 | 41.9 | 0.03 | % | |||||||||||||||
Havana Central (NY) 5, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/29/2022 | 1,166.8 | 984.7 | 956.2 | 0.57 | % | |||||||||||||||
Central Tire, Inc. dba Cooper Tire & Auto Services | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/29/2037 | 288.5 | 275.2 | 272.9 | 0.16 | % | |||||||||||||||
WPI, LLC | Transportation Equipment Manufacturing | Term Loan | Prime plus 2.75% | 6/29/2024 | 129.5 | 110.1 | 104.7 | 0.06 | % | |||||||||||||||
Karykion, Corporation dba Karykion Corporation | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/28/2022 | 194.0 | 157.3 | 156.9 | 0.09 | % | |||||||||||||||
Jenkins-Pavia Corporation dba Victory Lane Quick Oil Change | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/27/2037 | 69.8 | 66.5 | 66.9 | 0.04 | % | |||||||||||||||
KIND-ER-ZZ Inc. dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 6/15/2022 | 50.0 | 40.1 | 36.6 | 0.02 | % | |||||||||||||||
Graphish Studio, Inc. and Scott Fishoff | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/14/2022 | 20.3 | 16.4 | 14.9 | 0.01 | % | |||||||||||||||
TNDV: Television, LLC | Motion Picture and Sound Recording Industries | Term Loan | Prime plus 2.75% | 6/13/2022 | 127.5 | 103.2 | 98.8 | 0.06 | % | |||||||||||||||
Spectrumit, Inc, (OC) dba LANformation | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 5/31/2030 | 154.9 | 141.7 | 140.0 | 0.08 | % | |||||||||||||||
5091, LLC and TR/AL, LLC d/b/a Cafe Africana | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/31/2037 | 121.3 | 115.8 | 116.4 | 0.07 | % | |||||||||||||||
ALF, LLC (EPC) Mulit-Service Eagle Tires (OC) | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 5/31/2037 | 62.9 | 59.9 | 59.9 | 0.04 | % | |||||||||||||||
F-86
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Craig R Freehauf d/b/a Lincoln Theatre | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 5/31/2022 | 47.9 | 31.8 | 31.7 | 0.02 | % | |||||||||||||||
Lefont Theaters, Inc. | Motion Picture and Sound Recording Industries | Term Loan | Prime plus 2.75% | 5/30/2022 | 137.0 | 109.9 | 104.7 | 0.06 | % | |||||||||||||||
Christou Real Estate Holdings, LLC dba Tops American Grill | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/17/2037 | 284.0 | 270.3 | 273.5 | 0.16 | % | |||||||||||||||
Tracey Vita-Morris dba Tracey Vita's School of Dance | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 5/10/2022 | 22.5 | 18.1 | 16.5 | 0.01 | % | |||||||||||||||
STK Ventures Inc. dba JP Dock Service & Supply | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 5/9/2037 | 131.8 | 126.1 | 125.3 | 0.08 | % | |||||||||||||||
Bisson Transportation, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 5/7/2037 | 588.1 | 570.2 | 560.0 | 0.34 | % | |||||||||||||||
Bisson Moving & Storage Company Bisson Transportation Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 5/7/2022 | 528.8 | 440.8 | 426.5 | 0.26 | % | |||||||||||||||
Fair Deal Food Mart Inc. dba Neighbors Market | Gasoline Stations | Term Loan | Prime plus 2.75% | 5/3/2037 | 381.3 | 363.0 | 370.4 | 0.22 | % | |||||||||||||||
Custom Software, Inc. a Colorado Corporation dba M-33 Access | Broadcasting (except Internet) | Term Loan | Prime plus 2.75% | 4/30/2022 | 125.0 | 103.1 | 101.7 | 0.06 | % | |||||||||||||||
Tanner Optical, Inc. dba Murphy Eye Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/27/2022 | 8.3 | 6.6 | 6.4 | — | % | |||||||||||||||
Gator Communications Group, LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 4/25/2022 | 228.8 | 187.7 | 176.1 | 0.11 | % | |||||||||||||||
Zane Filippone Co Inc. dba Culligan Water Conditioning | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/12/2022 | 558.2 | 447.7 | 429.7 | 0.26 | % | |||||||||||||||
Indoor Playgrounds Limited Liability Company dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 4/5/2022 | 19.5 | 12.9 | 12.4 | 0.01 | % | |||||||||||||||
Gator Communications Group, LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 3/30/2022 | 466.3 | 378.5 | 355.0 | 0.21 | % | |||||||||||||||
Brandywine Picnic Park, Inc. and B.Ross Capps & Linda Capps | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/30/2031 | 231.5 | 212.5 | 215.1 | 0.13 | % | |||||||||||||||
Access Staffing, LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/30/2022 | 187.5 | 147.7 | 134.6 | 0.08 | % | |||||||||||||||
Willow Springs Golf Course, Inc. & JC Lindsey Family Limited Partners | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/29/2037 | 755.4 | 721.9 | 736.3 | 0.44 | % | |||||||||||||||
Manuel P. Barrera and Accura Electrical Contractor, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 3/23/2028 | 103.7 | 92.4 | 87.6 | 0.05 | % | |||||||||||||||
Shweiki Media, Inc. dba Study Breaks Magazine | Publishing Industries (except Internet) | Term Loan | Prime plus 2.75% | 3/22/2027 | 1,178.8 | 1,036.8 | 997.5 | 0.60 | % | |||||||||||||||
F-87
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
BCD Holdings, LLC and H-MA, LLC d/b/a/ Hawaii Mainland Administrators | Insurance Carriers and Related Activities | Term Loan | Prime plus 2.75% | 3/2/2022 | 451.3 | 343.7 | 315.9 | 0.19 | % | |||||||||||||||
ATC Fitness, LLC d/b/a Around the Clock | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2022 | 10.2 | 8.0 | 7.7 | — | % | |||||||||||||||
ATI Jet, Inc. | Air Transportation | Term Loan | Prime plus 2.75% | 12/28/2026 | 852.8 | 738.5 | 717.5 | 0.43 | % | |||||||||||||||
J. Kinderman & Sons, Inc. dba Brite Star Manufacturing Company | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 12/22/2036 | 495.0 | 469.1 | 478.4 | 0.29 | % | |||||||||||||||
K's Salon 1, LLC d/b/a K's Salon | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/20/2021 | 73.6 | 56.4 | 51.4 | 0.03 | % | |||||||||||||||
15 Frederick Place, LLC & Pioneer Windows Holdings Inc. & Subs | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/16/2021 | 250.0 | 194.1 | 193.3 | 0.12 | % | |||||||||||||||
GP Enterprises, LLC and Gibson Performance Corporation | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/15/2036 | 727.5 | 686.5 | 700.0 | 0.42 | % | |||||||||||||||
GP Enterprises, LLC and Gibson Performance Corporation | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/15/2036 | 522.5 | 493.1 | 502.8 | 0.30 | % | |||||||||||||||
M & H Pinestraw, Inc. and Harris L. Maloy | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/15/2021 | 238.3 | 183.0 | 172.7 | 0.10 | % | |||||||||||||||
Maciver Corporation dba Indie Rentals & Division Camera | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 12/15/2021 | 130.8 | 99.9 | 97.5 | 0.06 | % | |||||||||||||||
Taylor Transport, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 12/8/2021 | 515.5 | 387.6 | 375.2 | 0.23 | % | |||||||||||||||
City Sign Service, Incorporated | Electrical Equipment, Appliance, and Component Manufacturing | Term Loan | Prime plus 2.75% | 11/30/2025 | 165.8 | 142.0 | 140.3 | 0.08 | % | |||||||||||||||
Scent-Sation, Inc. d/b/a Scent-Sation, Inc. | Textile Product Mills | Term Loan | Prime plus 2.75% | 11/21/2021 | 337.5 | 285.2 | 284.0 | 0.17 | % | |||||||||||||||
Thomas P. Scoville dba Scoville Plumbing & Heating, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/16/2021 | 62.5 | 47.4 | 47.2 | 0.03 | % | |||||||||||||||
MRM Supermarkets, Inc. dba Constantin's Breads | Food Manufacturing | Term Loan | Prime plus 2.75% | 11/10/2021 | 137.5 | 104.4 | 96.1 | 0.06 | % | |||||||||||||||
K9 Bytes, Inc & Epazz, Inc dba K9 Bytes, Inc. | Publishing Industries (except Internet) | Term Loan | Prime plus 2.75% | 10/26/2021 | 58.8 | 44.2 | 40.7 | 0.02 | % | |||||||||||||||
Keans Korner, LLC d/b/a MobiMart | Gasoline Stations | Term Loan | Prime plus 2.75% | 10/25/2036 | 938.3 | 881.9 | 888.7 | 0.53 | % | |||||||||||||||
28 Cornelia Street Properties, LLC and Zouk, Ltd.dba Palma | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 10/25/2021 | 22.5 | 16.9 | 16.8 | 0.01 | % | |||||||||||||||
C & G Engines Corp. | Transportation Equipment Manufacturing | Term Loan | Prime plus 2.75% | 9/30/2021 | 1,041.5 | 773.8 | 726.5 | 0.44 | % | |||||||||||||||
F-88
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Robert E. Caves, Sr. and American Plank dba Caves Enterprises | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/30/2021 | 302.5 | 224.8 | 221.6 | 0.13 | % | |||||||||||||||
PTK, Incorporated dba Night N Day 24 HR Convenience Store | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 9/30/2036 | 137.5 | 129.0 | 130.2 | 0.08 | % | |||||||||||||||
39581 Garfield, LLC and Tri County Neurological Associates, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/30/2036 | 83.3 | 78.1 | 79.5 | 0.05 | % | |||||||||||||||
39581 Garfield, LLC and Tricounty Neurological Associates, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/30/2036 | 28.5 | 26.6 | 27.1 | 0.02 | % | |||||||||||||||
Big Apple Entertainment Partners, LLC dba Ripley's Believe it or Not | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/28/2021 | 1,070.0 | 792.3 | 721.8 | 0.43 | % | |||||||||||||||
Polymer Sciences, Inc. dba Polymer Sciences, Inc. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 9/28/2036 | 422.6 | 396.8 | 403.0 | 0.24 | % | |||||||||||||||
Equity National Capital LLC & Chadbourne Road Capital, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 9/26/2021 | 62.5 | 46.5 | 43.4 | 0.03 | % | |||||||||||||||
Bryan Bantry Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 9/8/2021 | 400.0 | 203.3 | 185.3 | 0.11 | % | |||||||||||||||
SBR Technologies d/b/a Color Graphics | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/31/2021 | 806.2 | 586.2 | 572.0 | 0.34 | % | |||||||||||||||
Gator Communications Group, LLC dba Harvard Printing Group | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 8/31/2021 | 575.0 | 437.3 | 423.9 | 0.25 | % | |||||||||||||||
Michael S. Decker & Janet Decker dba The Hen House Cafe | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/30/2036 | 16.4 | 15.4 | 15.4 | 0.01 | % | |||||||||||||||
Qycell Corporation | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 8/19/2021 | 187.5 | 130.4 | 129.9 | 0.08 | % | |||||||||||||||
Trademark Equipment Company Inc. and David A. Daniel | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 8/19/2036 | 133.6 | 125.1 | 125.1 | 0.08 | % | |||||||||||||||
A & A Auto Care, LLC d/b/a A & A Auto Care, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/12/2036 | 101.0 | 94.8 | 96.2 | 0.06 | % | |||||||||||||||
Valiev Ballet Academy, Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 8/12/2036 | 91.5 | 85.7 | 85.2 | 0.05 | % | |||||||||||||||
LaHoBa, LLC d/b/a Papa John's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/3/2036 | 77.5 | 72.1 | 73.5 | 0.04 | % | |||||||||||||||
Kelly Chon, LLC dba Shi-Golf | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 7/29/2021 | 17.5 | 9.4 | 9.4 | 0.01 | % | |||||||||||||||
MTV Bowl, Inc. dba Legend Lanes | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/30/2036 | 248.5 | 232.3 | 234.7 | 0.14 | % | |||||||||||||||
F-89
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Lisle Lincoln II Limited Partnership dba Lisle Lanes LP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/29/2036 | 338.1 | 326.7 | 335.6 | 0.20 | % | |||||||||||||||
Jenny's Wunderland, Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 6/29/2036 | 160.5 | 150.4 | 151.2 | 0.09 | % | |||||||||||||||
Lavertue Properties, LLP dba Lavertue Properties | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/29/2036 | 44.8 | 42.0 | 43.1 | 0.03 | % | |||||||||||||||
Spire Investment Partners, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/22/2021 | 250.0 | 180.6 | 172.4 | 0.10 | % | |||||||||||||||
Custom Software, Inc. a Colorado Corporation dba M-33 Access | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/17/2021 | 426.0 | 320.4 | 320.1 | 0.19 | % | |||||||||||||||
Red Star Incorporated dba Pro Import Company | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/15/2036 | 184.8 | 172.8 | 175.9 | 0.11 | % | |||||||||||||||
Pierce Developments, Inc. dba Southside Granite | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 6/13/2036 | 256.1 | 239.1 | 240.4 | 0.14 | % | |||||||||||||||
Major Queens Body & Fender Corp. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/10/2021 | 28.6 | 20.9 | 20.9 | 0.01 | % | |||||||||||||||
J&K Fitness, LLC dba Physiques Womens Fitness Center | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/8/2036 | 449.3 | 421.0 | 428.6 | 0.26 | % | |||||||||||||||
Peanut Butter & Co., Inc. d/b/a Peanut Butter & Co. | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 6/3/2021 | 65.5 | 45.8 | 43.8 | 0.03 | % | |||||||||||||||
Fleming Marketing, LLC dba Instant Imprints of Longmont | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 5/31/2021 | 7.5 | 5.4 | 5.3 | — | % | |||||||||||||||
Demand Printing Solutions, Inc. and MLM Enterprises, LLC d/b/a Demand | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 5/27/2021 | 16.5 | 11.8 | 11.9 | 0.01 | % | |||||||||||||||
Modern on the Mile, LLC dba Ligne Roset | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 5/25/2021 | 212.5 | 151.2 | 148.2 | 0.09 | % | |||||||||||||||
MSM Healthcare Solutions, Inc. d/b/a BrightStar Care of Tinley Park | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/26/2021 | 46.0 | 32.5 | 31.0 | 0.02 | % | |||||||||||||||
Music Mountain Water Company, LLC | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 4/25/2036 | 138.1 | 128.2 | 131.7 | 0.08 | % | |||||||||||||||
Profile Performance, Inc. and Eidak Real Estate, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 4/20/2036 | 127.5 | 118.6 | 121.8 | 0.07 | % | |||||||||||||||
Northwind Outdoor Recreation, Inc. dba Red Rock Wilderness Store | Nonstore Retailers | Term Loan | Prime plus 2.75% | 4/18/2036 | 129.5 | 120.4 | 123.7 | 0.07 | % | |||||||||||||||
F-90
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
3 A Realty, LLC dba Interior Climate Solutions, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 4/13/2036 | 170.0 | 157.6 | 158.6 | 0.10 | % | |||||||||||||||
Maciver Corporation dba Indie Rentals | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 4/4/2021 | 625.0 | 440.3 | 437.5 | 0.26 | % | |||||||||||||||
Danjam Enterprises, LLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/30/2021 | 3.8 | 2.7 | 2.7 | — | % | |||||||||||||||
Danjam Enterprises, LLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/29/2023 | 93.0 | 71.0 | 70.6 | 0.04 | % | |||||||||||||||
Michael S. Korfe dba North Valley Auto Repair | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/24/2036 | 15.5 | 14.4 | 14.8 | 0.01 | % | |||||||||||||||
Actknowledge, Inc. dba Actknowledge | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 3/21/2021 | 57.3 | 40.1 | 38.2 | 0.02 | % | |||||||||||||||
Stamford Car Wash d/b/a Stamford Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/11/2036 | 19.7 | 18.3 | 18.8 | 0.01 | % | |||||||||||||||
Food & Beverage Associates Of N.J. Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/11/2021 | 10.0 | 6.8 | 6.8 | — | % | |||||||||||||||
Key Products I&II, Inc. dba Dunkin' Donuts/Baskin-Robbins | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 3/10/2021 | 153.0 | 107.0 | 103.1 | 0.06 | % | |||||||||||||||
Stephen Frank, Patricia Frank and Suds Express, LLC dba Frank Chiropra | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 2/25/2023 | 63.0 | 45.9 | 46.1 | 0.03 | % | |||||||||||||||
SuzyQue’s, LLC dba Suzy Que’s | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/11/2036 | 61.0 | 56.7 | 58.0 | 0.03 | % | |||||||||||||||
Little People’s Village, LLC dba Little People’s Village | Social Assistance | Term Loan | Prime plus 2.75% | 1/31/2036 | 31.1 | 28.7 | 29.5 | 0.02 | % | |||||||||||||||
Seagate Group Holdings, Inc. dba Seagate Logistics, Inc. | Support Activities for Transportation | Term Loan | Prime plus 2.75% | 1/28/2036 | 113.4 | 104.7 | 107.5 | 0.06 | % | |||||||||||||||
Joseph the Worker, Inc. d/b/a BrightStar of Plymouth County | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 1/28/2021 | 12.5 | 8.6 | 8.2 | — | % | |||||||||||||||
Nicholas Dugger dba TNDV: Television LLC. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 1/24/2021 | 100.8 | 70.5 | 67.3 | 0.04 | % | |||||||||||||||
Metro Used Cars Inc. dba Metro Auto Center | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 1/14/2027 | 117.6 | 98.5 | 98.6 | 0.06 | % | |||||||||||||||
Patrageous Enterprises, LLC dba Incredibly Edible Delites of Laurel | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/29/2020 | 7.6 | 5.1 | 4.8 | — | % | |||||||||||||||
Chickamauga Properties, Inc., MSW Enterprises, LLP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/22/2035 | 189.5 | 174.9 | 179.6 | 0.11 | % | |||||||||||||||
Chickamauga Properties, Inc., MSW Enterprises, LLP | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/22/2035 | 74.3 | 68.9 | 70.7 | 0.04 | % | |||||||||||||||
Marine Container Services, Inc. & Management Consulting Brokerage, Inc | Truck Transportation | Term Loan | Prime plus 2.75% | 12/21/2020 | 50.3 | 33.8 | 33.8 | 0.02 | % | |||||||||||||||
F-91
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Shree OM Lodging, LLC dba Royal Inn | Accommodation | Term Loan | Prime plus 2.75% | 12/17/2035 | 27.7 | 25.5 | 26.0 | 0.02 | % | |||||||||||||||
Svetavots Corporation dba Brightstar Healthcare of Montgomery County | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/13/2020 | 20.5 | 13.8 | 13.1 | 0.01 | % | |||||||||||||||
Lodin Medical Imaging, LLC dba Watson Imaging Center | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/1/2020 | 66.4 | 43.5 | 43.4 | 0.03 | % | |||||||||||||||
Robert F. Schuler and Lori A. Schuler dba Bob’s Service Center | Repair and Maintenance | Term Loan | Prime plus 2.75% | 11/30/2035 | 34.0 | 31.3 | 32.1 | 0.02 | % | |||||||||||||||
Justforfungames, Inc. | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 11/19/2035 | 50.0 | 45.3 | 46.4 | 0.03 | % | |||||||||||||||
Any Garment Cleaner-East Brunswick, Inc. dba Any Garment Cleaner | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/18/2020 | 42.5 | 23.7 | 23.7 | 0.01 | % | |||||||||||||||
Lebenthal Holdings, LLC and Lebenthal & Co., LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 11/16/2020 | 200.0 | 133.4 | 127.2 | 0.08 | % | |||||||||||||||
West Cobb Enterprises, Inc. and Advanced Eye Associates, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 11/12/2035 | 148.7 | 136.9 | 138.2 | 0.08 | % | |||||||||||||||
R2 Tape, Inc. dba Presto Tape | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 10/20/2020 | 224.4 | 148.2 | 147.4 | 0.09 | % | |||||||||||||||
Lincoln Park Physical Therapy | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 10/20/2020 | 43.5 | 28.6 | 28.6 | 0.02 | % | |||||||||||||||
Jade Automotive d/b/a Sears Hometown Store | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 10/6/2035 | 146.6 | 135.0 | 138.6 | 0.08 | % | |||||||||||||||
Stamford Property Holdings, LLC & Stamford Car Wash, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/4/2035 | 122.5 | 113.2 | 116.2 | 0.07 | % | |||||||||||||||
Wise Forklift Inc. | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 10/1/2020 | 296.9 | 190.2 | 190.2 | 0.11 | % | |||||||||||||||
Elan Realty, LLC and Albert Basse Asociates, Inc. | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 9/30/2035 | 228.2 | 209.1 | 214.5 | 0.13 | % | |||||||||||||||
K9 Bytes, Inc. & Epazz, Inc. dba K9 Bytes, Inc. | Publishing Industries (except Internet) | Term Loan | Prime plus 2.75% | 9/30/2020 | 18.5 | 12.0 | 11.5 | 0.01 | % | |||||||||||||||
Success Express, Inc. dba Success Express | Couriers and Messengers | Term Loan | Prime plus 2.75% | 9/29/2020 | 91.8 | 59.6 | 56.8 | 0.03 | % | |||||||||||||||
Adams & Hancock, LLC dba Brightstar Overland Park & Jordon & Pippen, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/27/2020 | 19.8 | 8.0 | 8.0 | — | % | |||||||||||||||
Modern Manhattan, LLC | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 9/20/2020 | 204.0 | 133.1 | 127.6 | 0.08 | % | |||||||||||||||
F-92
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Dirk's Trucking, LLC dba Dirk's Trucking | Truck Transportation | Term Loan | Prime plus 2.75% | 9/17/2020 | 17.7 | 11.4 | 11.1 | 0.01 | % | |||||||||||||||
Newsome Trucking Inc. and Kevin Newsome | Truck Transportation | Term Loan | Prime plus 2.75% | 9/2/2035 | 423.1 | 387.7 | 397.9 | 0.24 | % | |||||||||||||||
California College of Communications, Inc. | Educational Services | Term Loan | Prime plus 2.75% | 11/2/2020 | 172.5 | 113.9 | 108.6 | 0.07 | % | |||||||||||||||
Rudy & Louise Chavez dba Clyde's Auto and Furniture Upholstery | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/2/2035 | 50.1 | 45.9 | 47.1 | 0.03 | % | |||||||||||||||
DDLK Investments, LLC d/b/a Smoothie King | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/30/2020 | 7.5 | 4.5 | 4.5 | — | % | |||||||||||||||
Kino Oil of Texas, LLC dba Kino Oil | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/27/2020 | 60.0 | 38.5 | 36.7 | 0.02 | % | |||||||||||||||
Kino Oil of Texas, LLC dba Kino Company | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 8/27/2035 | 12.0 | 10.8 | 11.1 | 0.01 | % | |||||||||||||||
Planet Verte, LLC d/b/a Audio Unlimited | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 9/20/2020 | 40.0 | 25.8 | 24.7 | 0.01 | % | |||||||||||||||
Sunmar, Inc. dba Creative Cooking | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/19/2035 | 51.7 | 47.4 | 48.6 | 0.03 | % | |||||||||||||||
Members Only Software | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/30/2020 | 40.3 | 25.7 | 25.1 | 0.02 | % | |||||||||||||||
New Life Holdings, LLC and Certified Collision Services, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 7/29/2035 | 76.2 | 68.7 | 69.8 | 0.04 | % | |||||||||||||||
Quest Logic Investments, LLC dba Dairy Queen | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2035 | 105.0 | 95.8 | 98.6 | 0.06 | % | |||||||||||||||
ActKnowledge, Inc dba ActKnowledge | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/30/2020 | 50.0 | 31.4 | 31.5 | 0.02 | % | |||||||||||||||
I-90 RV & Auto Supercenter | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 6/29/2035 | 74.9 | 68.2 | 70.3 | 0.04 | % | |||||||||||||||
WeaverVentures, Inc. dba The UPS Store | Postal Service | Term Loan | Prime plus 2.75% | 7/28/2020 | 23.8 | 15.1 | 14.7 | 0.01 | % | |||||||||||||||
Zouk, Ltd. dba Palma | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 8/25/2020 | 27.5 | 17.7 | 17.7 | 0.01 | % | |||||||||||||||
CJ Park Inc. dba Kidville Midtown West | Educational Services | Term Loan | Prime plus 2.75% | 6/25/2020 | 26.4 | 13.3 | 12.9 | 0.01 | % | |||||||||||||||
Emotion in Motion Dance Center Limited Liability Company | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 7/25/2020 | 5.4 | 2.7 | 2.7 | — | % | |||||||||||||||
H.H. Leonards Trust and Potomac Fund, LLC | Accommodation | Term Loan | Prime plus 2.75% | 7/23/2020 | 62.0 | 24.0 | 24.0 | 0.01 | % | |||||||||||||||
F-93
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
B&B Fitness and Barbell, Inc. dba Elevations Health Club | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 6/22/2035 | 242.1 | 221.5 | 226.4 | 0.14 | % | |||||||||||||||
Tanner Optical Inc. dba Murphy Eye Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/22/2035 | 94.6 | 86.6 | 88.0 | 0.05 | % | |||||||||||||||
M & H Pine Straw, Inc. and Harris Maloy | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 7/10/2020 | 67.5 | 42.8 | 42.3 | 0.03 | % | |||||||||||||||
Excel RP, Inc./Kevin and Joann Foley | Machinery Manufacturing | Term Loan | Prime plus 2.75% | 7/8/2028 | 50.0 | 42.1 | 42.8 | 0.03 | % | |||||||||||||||
ValleyStar, Inc. dba BrightStar Healthcare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/28/2020 | 7.5 | 4.7 | 4.6 | — | % | |||||||||||||||
ValleyStar, Inc. dba BrightStar HealthCare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/28/2020 | 0.6 | 3.8 | 3.7 | — | % | |||||||||||||||
Atlanta Vascular Research Organization, Inc. dba Atlanta Vascular Found | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 8/6/2020 | 24.3 | 15.6 | 15.6 | 0.01 | % | |||||||||||||||
Diag, LLC dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 6/21/2020 | 37.5 | 23.1 | 22.5 | 0.01 | % | |||||||||||||||
Danjam Enterprises, LLC dba Ariel Dental Care | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/31/2035 | 204.0 | 185.2 | 188.7 | 0.11 | % | |||||||||||||||
M & H Pine Straw, Inc. and Harris L. Maloy | Support Activities for Agriculture and Forestry | Term Loan | 6% | 4/30/2020 | 183.3 | 111.8 | 110.5 | 0.07 | % | |||||||||||||||
Clearbay Enterprises, Inc. dba First Class Kennels | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 4/30/2034 | 60.0 | 53.9 | 55.4 | 0.03 | % | |||||||||||||||
New Economic Methods, LLC dba Rita's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/15/2020 | 24.8 | 1.1 | 1.1 | — | % | |||||||||||||||
Cocoa Beach Parasail Corp. dba Cocoa Beach Parasail | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 4/26/2020 | 6.3 | 3.8 | 3.7 | — | % | |||||||||||||||
Marine Container Services, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 4/25/2020 | 142.6 | 76.4 | 76.4 | 0.05 | % | |||||||||||||||
JRJG, Inc. dba BrightStar HealthCare-Naperville/Oak Brook | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/23/2020 | 15.0 | 9.1 | 8.9 | 0.01 | % | |||||||||||||||
Caring Hands Pediatrics, P.C. dba Caring Hands Pediatrics | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/9/2020 | 14.5 | 8.9 | 8.6 | 0.01 | % | |||||||||||||||
Vortex Automotive, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/5/2035 | 76.6 | 69.4 | 71.0 | 0.04 | % | |||||||||||||||
Adams and Hancock, LLC dba BrightStar Overland Park | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/31/2020 | 43.6 | 21.6 | 21.1 | 0.01 | % | |||||||||||||||
ATC Fitness, LLC dba Around the Clock Fitness | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 2/28/2019 | 15.0 | 8.0 | 8.0 | — | % | |||||||||||||||
F-94
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Lahoba, LLC dba Papa John's Pizza | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/30/2034 | 42.5 | 38.4 | 39.2 | 0.02 | % | |||||||||||||||
Music Mountain Water Company, LLC dba Music Mountain Water Co. | Beverage and Tobacco Product Manufacturing | Term Loan | Prime plus 2.75% | 12/29/2019 | 185.4 | 107.6 | 107.7 | 0.06 | % | |||||||||||||||
Animal Intrusion Prevention Systems Holding Company, LLC | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/29/2024 | 126.5 | 94.9 | 94.4 | 0.06 | % | |||||||||||||||
Bonet Kidz Inc. dba Kidville | Educational Services | Term Loan | Prime plus 2.75% | 3/16/2020 | 15.5 | 6.4 | 6.3 | — | % | |||||||||||||||
CMA Consulting dba Construction Management Associates | Construction of Buildings | Term Loan | Prime plus 2.75% | 12/11/2019 | 58.5 | 32.9 | 32.0 | 0.02 | % | |||||||||||||||
David A. Nusblatt, D.M.D, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/11/2019 | 9.0 | 5.2 | 5.2 | — | % | |||||||||||||||
KMC RE, LLC & B&B Kennels | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/19/2034 | 58.3 | 52.4 | 53.5 | 0.03 | % | |||||||||||||||
Demand Printing Solutions, Inc. | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 12/12/2019 | 10.0 | 5.7 | 5.7 | — | % | |||||||||||||||
Planet Verte, LLC dba Audio Unlimited of Oceanside | Administrative and Support Services | Term Loan | Prime plus 2.75% | 11/28/2019 | 57.0 | 32.2 | 31.4 | 0.02 | % | |||||||||||||||
Demand Printing Solutions, Inc. | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 10/29/2034 | 147.5 | 132.4 | 136.1 | 0.08 | % | |||||||||||||||
Lebenthal Holdings, LLC and Lebenthal & Co., LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 6/29/2019 | 500.0 | 53.0 | 52.5 | 0.03 | % | |||||||||||||||
Supreme Screw Products, Inc. and Misha Migdal | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 4/17/2019 | 308.2 | 152.5 | 152.5 | 0.09 | % | |||||||||||||||
Gray Tree Service, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/18/2018 | 50.0 | 23.7 | 23.7 | 0.01 | % | |||||||||||||||
Healthcare Interventions, Inc. dba Brightstar HealthCare | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/15/2016 | 8.3 | 1.4 | 1.4 | — | % | |||||||||||||||
Envy Salon & Spa, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/4/2018 | 20.3 | 9.4 | 9.3 | 0.01 | % | |||||||||||||||
Gourmet to You, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 2/28/2019 | 12.1 | 5.7 | 5.7 | — | % | |||||||||||||||
Carnagron, LLC dba GearBling | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 11/1/2018 | 6.9 | 3.1 | 3.1 | — | % | |||||||||||||||
Grapevine Professional Services, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 1/22/2019 | 8.2 | 3.8 | 3.7 | — | % | |||||||||||||||
Inflate World Corporation | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 9/30/2018 | 7.5 | 2.6 | 2.6 | — | % | |||||||||||||||
F-95
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Cool Air Solutions, Inc. dba Graham Heating & Air Conditioning | Specialty Trade Contractors | Term Loan | Prime plus 2% | 12/27/2018 | 411.5 | 190.3 | 187.0 | 0.11 | % | |||||||||||||||
Peter Thomas Roth Labs, LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 9/26/2018 | 425.0 | 189.0 | 188.5 | 0.11 | % | |||||||||||||||
Dream Envy, Ltd. d/b/a Massage Envy | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 11/9/2018 | 88.0 | 39.8 | 39.7 | 0.02 | % | |||||||||||||||
K & D Family and Associates, Inc. dba Philly Pretzel Factory | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 8/5/2018 | 81.3 | 35.2 | 35.2 | 0.02 | % | |||||||||||||||
Seven Stars Enterprises, Inc. dba Atlanta Bread Company | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/30/2018 | 86.3 | 36.0 | 36.0 | 0.02 | % | |||||||||||||||
CBA D&A Pope, LLC dba Christian Brothers Automotive | Repair and Maintenance | Term Loan | Prime plus 2.75% | 6/14/2018 | 144.9 | 61.5 | 61.3 | 0.04 | % | |||||||||||||||
Gilbert Chiropractic Clinic, Inc. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/7/2018 | 22.5 | 9.1 | 9.1 | 0.01 | % | |||||||||||||||
Beer Table, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/8/2018 | 10.5 | 3.7 | 3.7 | — | % | |||||||||||||||
D & D's Divine Beauty School of Esther, LLC | Educational Services | Term Loan | 6% | 8/1/2031 | 57.7 | 53.9 | 55.4 | 0.03 | % | |||||||||||||||
Daniel S. Fitzpatrick dba Danny's Mobile Appearance Reconditioning Service | Repair and Maintenance | Term Loan | Prime plus 2.75% | 3/29/2018 | 9.4 | 3.7 | 3.7 | — | % | |||||||||||||||
Burks & Sons Development, LLC dba Tropical Smoothie Café | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/22/2018 | 49.8 | 19.6 | 19.7 | 0.01 | % | |||||||||||||||
Shivsakti, LLC dba Knights Inn | Accommodation | Term Loan | Prime plus 2.75% | 12/20/2032 | 92.5 | 78.9 | 81.2 | 0.05 | % | |||||||||||||||
Bliss Coffee and Wine Bar, LLC | Food Services and Drinking Places | Term Loan | 6% | 3/19/2018 | 87.5 | 73.0 | 72.8 | 0.04 | % | |||||||||||||||
Zog Inc. | Other Information Services | Term Loan | 6% | 3/17/2018 | 97.5 | 81.9 | 81.6 | 0.05 | % | |||||||||||||||
Saan M.Saelee dba Saelee's Delivery Service | Truck Transportation | Term Loan | Prime plus 2.75% | 3/12/2018 | 9.8 | 3.9 | 3.9 | — | % | |||||||||||||||
A & A Acquisition, Inc. dba A & A International | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 2/15/2018 | 100.0 | 37.7 | 37.7 | 0.02 | % | |||||||||||||||
Enewhere Custom Canvas, LLC | Textile Product Mills | Term Loan | Prime plus 2.75% | 2/15/2018 | 12.0 | 4.7 | 4.7 | — | % | |||||||||||||||
All American Printing | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 10/26/2032 | 69.8 | 40.1 | 41.3 | 0.02 | % | |||||||||||||||
Seo's Paradise Cleaners, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 1/19/2018 | 9.8 | 3.2 | 3.2 | — | % | |||||||||||||||
Signs of Fortune, LLC dba FastSigns | Miscellaneous Manufacturing | Term Loan | Prime plus 2.5% | 4/3/2023 | 434.4 | 349.6 | 348.7 | 0.21 | % | |||||||||||||||
Margab, Inc. dba Smoothie King | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/28/2017 | 44.0 | 16.2 | 16.1 | 0.01 | % | |||||||||||||||
F-96
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Ameritocracy, Inc dba Ben and Jerry's | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/18/2017 | 168.8 | 59.7 | 59.7 | 0.04 | % | |||||||||||||||
RCB Enterprises, Inc. | Administrative and Support Services | Term Loan | Prime plus 2.75% | 12/18/2017 | 21.2 | 9.6 | 9.5 | 0.01 | % | |||||||||||||||
Timothy S. Strange dba Strange's Mobile Apperance Reconditioning Service | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/17/2017 | 8.5 | 2.4 | 2.4 | — | % | |||||||||||||||
Parties By Pat, Inc. and Jose M. Martinez Jr. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/11/2017 | 93.1 | 33.4 | 33.2 | 0.02 | % | |||||||||||||||
Tammy's Bakery, Inc. dba Tammy's Bakery | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/10/2017 | 71.8 | 26.7 | 26.5 | 0.02 | % | |||||||||||||||
Maria C. Sathre and David N. Sathre dba Black Forest Liquor Store | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 11/28/2017 | 18.6 | 6.6 | 6.6 | — | % | |||||||||||||||
The Design Shop, LLC | Textile Mills | Term Loan | Prime plus 2.75% | 11/27/2027 | 247.5 | 191.9 | 196.0 | 0.12 | % | |||||||||||||||
MJ Mortgage & Tax Services, Inc. | Credit Intermediation and Related Activities | Term Loan | Prime plus 2.75% | 11/14/2017 | 6.9 | 2.3 | 2.3 | — | % | |||||||||||||||
Kings Laundry, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 10/30/2017 | 64.5 | 23.0 | 23.0 | 0.01 | % | |||||||||||||||
Quality Engraving Services Inc. and Ian M. Schnaitman | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 10/17/2017 | 15.0 | 5.3 | 5.3 | — | % | |||||||||||||||
Flourishing Fruits, LLC dba Edible Arrangements | Food Manufacturing | Term Loan | Prime plus 2.75% | 12/29/2017 | 21.1 | 5.6 | 5.6 | — | % | |||||||||||||||
Louis B. Smith dba LAQ Funeral Coach | Transit and Ground Passenger Transportation | Term Loan | Prime plus 2.75% | 9/15/2017 | 12.6 | 4.3 | 4.3 | — | % | |||||||||||||||
Flint Batteries, LLC dba Batteries Plus of Flint | General Merchandise Stores | Term Loan | Prime plus 2.75% | 8/29/2017 | 9.0 | 2.6 | 2.6 | — | % | |||||||||||||||
1911 East Main Street Holdings, Corp. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 5/18/2032 | 15.8 | 13.3 | 13.7 | 0.01 | % | |||||||||||||||
Metano IBC Services, Inc. and Stone Brook Leasing, LLC | Rental and Leasing Services | Term Loan | Prime plus 2.75% | 8/17/2017 | 315.0 | 87.2 | 87.3 | 0.05 | % | |||||||||||||||
Mala Iyer, MD dba Child and Family Wellness Center | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 8/11/2017 | 50.0 | 16.8 | 16.8 | 0.01 | % | |||||||||||||||
South Dade Restoration Corp. dba Servpro of Kendall/Pinecrest | Administrative and Support Services | Term Loan | Prime plus 2.75% | 8/10/2016 | 61.8 | 11.5 | 11.5 | 0.01 | % | |||||||||||||||
Twietmeyer Dentistry PA | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 6/30/2017 | 148.9 | 47.1 | 47.1 | 0.03 | % | |||||||||||||||
Lynden Evans Clarke, Jr. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 3/16/2017 | 10.0 | 2.9 | 2.9 | — | % | |||||||||||||||
Water Works Laundromat, LLC | Personal and Laundry Services | Term Loan | Prime plus 2.25% | 9/7/2027 | 267.3 | 204.5 | 203.0 | 0.12 | % | |||||||||||||||
F-97
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
L.C.N. Investments, L.L.C. dba Max Muscle Sports Nutrition | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 5/27/2017 | 12.8 | 3.3 | 3.3 | — | % | |||||||||||||||
Dave Kris, and MDK Ram Corp. | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 2/5/2026 | 221.0 | 37.6 | 38.3 | 0.02 | % | |||||||||||||||
Saul A. Ramirez and Norma L. Trujillo | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/31/2017 | 6.0 | 1.6 | 1.6 | — | % | |||||||||||||||
Eric R. Wise, D.C. dba Jamacha-Chase Chiropractic | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 4/30/2017 | 15.6 | 1.2 | 1.2 | — | % | |||||||||||||||
No Thirst Software, LLC | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 4/26/2017 | 6.8 | 1.5 | 1.5 | — | % | |||||||||||||||
Zeroln Media, LLC | Data Processing, Hosting, and Related Services | Term Loan | Prime plus 2.75% | 4/25/2017 | 7.5 | 2.2 | 2.2 | — | % | |||||||||||||||
CCIPTA, LLC | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 1/17/2017 | 47.0 | 3.0 | 3.0 | — | % | |||||||||||||||
Gill Express Inc. dba American Eagle Truck Wash | Repair and Maintenance | Term Loan | Prime plus 2.75% | 1/5/2027 | 286.9 | 213.1 | 217.6 | 0.13 | % | |||||||||||||||
Kyoshi Enterprises, LLC | Educational Services | Term Loan | Prime plus 2.75% | 12/29/2016 | 22.5 | 5.8 | 5.8 | — | % | |||||||||||||||
Spain Street, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/29/2017 | 63.0 | 4.5 | 4.5 | — | % | |||||||||||||||
Aillaud Enterprises, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 3/29/2017 | 13.8 | 0.9 | 0.9 | — | % | |||||||||||||||
Nora A. Palma and Julio O Villcas | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/27/2017 | 56.3 | 3.1 | 3.1 | — | % | |||||||||||||||
Jojan, Inc. | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.25% | 12/18/2031 | 204.8 | 41.0 | 40.7 | 0.02 | % | |||||||||||||||
Misri Liquors, Inc. | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 12/18/2016 | 67.5 | 16.7 | 16.7 | 0.01 | % | |||||||||||||||
Contractors Pumping Service, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 11/3/2016 | 9.9 | 0.9 | 0.9 | — | % | |||||||||||||||
Vincent Allen Fleece dba Living Well Accessories and Water Camel | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/1/2016 | 3.8 | 0.8 | 0.8 | — | % | |||||||||||||||
Houk Enterprises, Inc. d/b/a Max Muscle | Health and Personal Care Stores | Term Loan | Prime plus 2.75% | 10/27/2019 | 46.3 | 8.1 | 8.2 | — | % | |||||||||||||||
Smooth Grounds, Inc. | Food Services and Drinking Places | Term Loan | 7.75% | 10/11/2016 | 64.5 | 39.3 | 39.3 | 0.02 | % | |||||||||||||||
Barr-None Coating Applicators, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 9/20/2016 | 113.8 | 5.3 | 5.3 | — | % | |||||||||||||||
F-98
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Nelson Financial Services, LLC | Scenic and Sightseeing Transportation | Term Loan | Prime plus 2.75% | 9/2/2016 | 57.0 | 3.0 | 3.0 | — | % | |||||||||||||||
A + Quality Home Health Care, Inc. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 8/1/2016 | 22.5 | 1.7 | 1.7 | — | % | |||||||||||||||
Flint Batteries, LLC | General Merchandise Stores | Term Loan | Prime plus 2.75% | 7/21/2016 | 46.9 | 7.9 | 7.9 | — | % | |||||||||||||||
Tesserah Tile Design, Inc. | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 6/29/2016 | 7.1 | 1.1 | 1.1 | — | % | |||||||||||||||
It's A Buffalo | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/26/2016 | 219.8 | 39.6 | 39.6 | 0.02 | % | |||||||||||||||
Pro Levin Yoga, Incorporated d.b.a. Bikram's Yoga College | Educational Services | Term Loan | Prime plus 2.75% | 5/12/2016 | 16.4 | 3.1 | 3.1 | — | % | |||||||||||||||
Cocoa Beach Parasail Corp. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 5/5/2016 | 8.9 | 1.6 | 1.6 | — | % | |||||||||||||||
Maynard Enterprises, Inc. | Miscellaneous Manufacturing | Term Loan | Prime plus 2.75% | 3/22/2016 | 22.5 | 1.4 | 1.4 | — | % | |||||||||||||||
Fran-Car Corporation dba Horizon Landscape Management | Administrative and Support Services | Term Loan | Prime plus 2.75% | 3/3/2028 | 407.8 | 179.8 | 184.0 | 0.11 | % | |||||||||||||||
Head To Toe Personalized Pampering, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 1/27/2031 | 52.0 | 9.8 | 10.0 | 0.01 | % | |||||||||||||||
Olympia Fields Eyecare, Ltd. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 1/12/2016 | 15.0 | 1.9 | 1.9 | — | % | |||||||||||||||
Spencer Fitness, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 1/11/2016 | 6.0 | 0.3 | 0.3 | — | % | |||||||||||||||
Maxwell Place, LLC | Nursing and Residential Care Facilities | Term Loan | 6% | 12/1/2015 | 1,076.8 | 861.1 | 860.1 | 0.52 | % | |||||||||||||||
Hillside Fence Company, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.25% | 2/1/2020 | 206.5 | 61.5 | 61.2 | 0.04 | % | |||||||||||||||
The K Dreyer Company | General Merchandise Stores | Term Loan | Prime plus 2.75% | 12/20/2015 | 62.5 | 2.0 | 2.0 | — | % | |||||||||||||||
Tuan D. Dang, OD, PA | Ambulatory Health Care Services | Term Loan | Prime plus 2.25% | 12/7/2015 | 77.0 | 11.4 | 11.4 | 0.01 | % | |||||||||||||||
Christopher F. Bohon & Pamela D. Bohon | Social Assistance | Term Loan | Prime plus 2.75% | 10/28/2026 | 14.2 | 3.7 | 3.8 | — | % | |||||||||||||||
Champion Pest Control Systems, Inc. | Administrative and Support Services | Term Loan | 6% | 10/20/2015 | 39.0 | 4.0 | 4.0 | — | % | |||||||||||||||
JackRabbit Sports, Inc. | Sporting Goods, Hobby, Musical Instrument, and Book Stores | Term Loan | Prime plus 2.75% | 10/13/2015 | 125.0 | 14.1 | 14.0 | 0.01 | % | |||||||||||||||
Polaris Press, LLC | Printing and Related Support Activities | Term Loan | Prime plus 2.75% | 9/29/2015 | 21.5 | 0.7 | 0.7 | — | % | |||||||||||||||
F-99
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Shree Om Lodging, LLC dba Royal Inn | Accommodation | Term Loan | Prime plus 2.75% | 5/2/2030 | 333.3 | 67.1 | 68.9 | 0.04 | % | |||||||||||||||
Jenchad, Inc and Chadjen, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.125% | 4/7/2025 | 462.5 | 55.9 | 55.2 | 0.03 | % | |||||||||||||||
Pedzik's Pets, LLC | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 3/31/2030 | 53.5 | 9.9 | 10.1 | 0.01 | % | |||||||||||||||
Nancy Carapelluci & A & M Seasonal Corner Inc. | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 3/1/2025 | 106.9 | 17.1 | 17.4 | 0.01 | % | |||||||||||||||
Saralar Corporated dba The UPS Store #5232 | Miscellaneous Store Retailers | Term Loan | Prime plus 2.75% | 1/21/2015 | 40.3 | 0.1 | 0.1 | — | % | |||||||||||||||
Major Queens Body & Fender Corp. | Repair and Maintenance | Term Loan | Prime plus 3.75% | 12/17/2014 | 71.1 | 0.1 | — | — | % | |||||||||||||||
Moonlight Multi Media Production, Inc. | Other Information Services | Term Loan | 5.3% | 2/1/2025 | 19.7 | 4.5 | 4.6 | — | % | |||||||||||||||
McCallister Venture Group, LLC and Maw's Vittles, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/30/2029 | 75.0 | 12.8 | 13.1 | 0.01 | % | |||||||||||||||
Computer Renaissance dba Dante IT Services, Inc. | Electronics and Appliance Stores | Term Loan | Prime plus 3.75% | 3/1/2018 | 100.0 | 3.8 | 3.9 | — | % | |||||||||||||||
Prince Co., Inc. | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 1.5% | 3/18/2029 | 187.5 | 31.7 | 30.0 | 0.02 | % | |||||||||||||||
Chong Hun Im dba Kim's Market | Food and Beverage Stores | Term Loan | Prime plus 2.5% | 2/27/2024 | 80.0 | 11.4 | 11.5 | 0.01 | % | |||||||||||||||
H & G Investments, L.C. dba Kwick Kar Josey Lane | Repair and Maintenance | Term Loan | 5% | 12/22/2028 | 317.5 | 92.1 | 88.7 | 0.05 | % | |||||||||||||||
John B. Houston Funeral Home, Inc. dba George E. Cushnie Funeral Home | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/19/2028 | 78.8 | 13.7 | 14.0 | 0.01 | % | |||||||||||||||
Center-Mark Car Wash, Ltd | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 5/18/2024 | 221.3 | 33.5 | 34.0 | 0.02 | % | |||||||||||||||
Shuttle Car Wash, Inc. dba Shuttle Car Wash | Repair and Maintenance | Term Loan | Prime plus 2.25% | 11/10/2028 | 109.8 | 19.1 | 19.0 | 0.01 | % | |||||||||||||||
Akshar Group, LLC | Accommodation | Term Loan | 6% | 11/5/2028 | 321.3 | 54.2 | 55.6 | 0.03 | % | |||||||||||||||
Min Hui Lin | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/30/2028 | 134.3 | 19.5 | 20.0 | 0.01 | % | |||||||||||||||
Delta Partners, LLC dba Delta Carwash | Repair and Maintenance | Term Loan | Prime plus 2.5% | 4/5/2029 | 280.9 | 47.1 | 47.5 | 0.03 | % | |||||||||||||||
Oz B. Zamir dba Zamir Marble & Granite | Specialty Trade Contractors | Term Loan | Prime plus 2.5% | 8/6/2028 | 54.0 | 9.2 | 9.3 | 0.01 | % | |||||||||||||||
D & M Seafood, LLC d/b/a Rick's Seafood | Food Manufacturing | Term Loan | Prime plus 2.75% | 10/10/2015 | 400.0 | 1.5 | 1.5 | — | % | |||||||||||||||
Rama, Inc. dba Staybridge Suites | Accommodation | Term Loan | Prime plus 2% | 4/18/2026 | 750.0 | 445.9 | 437.4 | 0.26 | % | |||||||||||||||
F-100
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
B & J Manufacturing Corporation and Benson Realty Trust | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2% | 3/30/2021 | 250.0 | 26.2 | 25.9 | 0.02 | % | |||||||||||||||
RAB Services, Inc. & Professional Floor Installations | Specialty Trade Contractors | Term Loan | Prime plus 2.5% | 1/31/2023 | 62.5 | 8.8 | 8.9 | 0.01 | % | |||||||||||||||
Taste of Inverness, Inc. dba China Garden | Food Services and Drinking Places | Term Loan | Prime plus 2% | 6/29/2025 | 73.8 | 10.4 | 10.2 | 0.01 | % | |||||||||||||||
Ralph Werner dba Werner Transmissions | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/29/2021 | 26.6 | 3.1 | 3.1 | — | % | |||||||||||||||
M. Krishna, Inc. dba Super 8 Motel | Accommodation | Term Loan | Prime plus 2% | 3/20/2025 | 250.0 | 11.1 | 11.0 | 0.01 | % | |||||||||||||||
OrthoQuest, P.C. | Ambulatory Health Care Services | Term Loan | Prime plus 2% | 3/12/2022 | 56.8 | 6.0 | 5.9 | — | % | |||||||||||||||
CPN Motel, LLC dba American Motor Lodge | Accommodation | Term Loan | Prime plus 2.25% | 4/30/2024 | 379.0 | 37.1 | 36.9 | 0.02 | % | |||||||||||||||
Track Side Collision & Tire, Inc. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 6/16/2025 | 44.8 | 5.7 | 5.8 | — | % | |||||||||||||||
Duttakrupa, LLC dba Birmingham Motor Court | Accommodation | Term Loan | Prime plus 2.25% | 9/8/2023 | 98.8 | 14.4 | 14.3 | 0.01 | % | |||||||||||||||
Deesha Corporation, Inc. dba Best Inn & Suites | Accommodation | Term Loan | Prime plus 2.25% | 2/14/2025 | 250.0 | 32.5 | 32.3 | 0.02 | % | |||||||||||||||
Maruti, Inc. | Accommodation | Term Loan | Prime plus 2.25% | 11/25/2024 | 220.0 | 30.3 | 30.1 | 0.02 | % | |||||||||||||||
Willington Hills Equestrian Center, LLC | Animal Production and Aquaculture | Term Loan | Prime plus 2.75% | 10/19/2022 | 85.0 | 13.7 | 13.8 | 0.01 | % | |||||||||||||||
LABH, Inc. t/a Ramada Ltd. | Accommodation | Term Loan | Prime plus 2.25% | 9/27/2024 | 555.0 | 48.8 | 48.5 | 0.03 | % | |||||||||||||||
Randall D. & Patricia D. Casaburi dba Pat's Pizzazz | Furniture and Home Furnishings Stores | Term Loan | Prime plus 2.75% | 3/13/2023 | 68.8 | 8.7 | 8.9 | 0.01 | % | |||||||||||||||
Gain Laxmi, Inc. dba Super 8 Motel | Accommodation | Term Loan | Prime plus 2.25% | 5/31/2023 | 202.5 | 24.9 | 24.8 | 0.01 | % | |||||||||||||||
Naseeb Corporation | Accommodation | Term Loan | Prime plus 2.25% | 3/31/2024 | 402.5 | 36.2 | 36.0 | 0.02 | % | |||||||||||||||
La Granja Live Poultry Corp. | Food Manufacturing | Term Loan | Prime plus 2.75% | 8/26/2018 | 54.0 | 3.8 | 3.8 | — | % | |||||||||||||||
Stillwell Ave Prep School | Social Assistance | Term Loan | Prime plus 2.75% | 1/14/2023 | 72.0 | 8.0 | 8.1 | — | % | |||||||||||||||
Karis, Inc. | Accommodation | Term Loan | Prime plus 2% | 12/22/2023 | 148.8 | 16.6 | 16.3 | 0.01 | % | |||||||||||||||
Five Corners, Ltd. | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/11/2019 | 85.0 | 7.4 | 7.5 | — | % | |||||||||||||||
Mimoza LLC, dba Tally Ho Inn | Food Services and Drinking Places | Term Loan | Prime plus 2.25% | 10/7/2023 | 105.0 | 13.4 | 13.3 | 0.01 | % | |||||||||||||||
F-101
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Alyssa Corp dba Knights Inn | Accommodation | Term Loan | Prime plus 2.25% | 9/30/2023 | 350.0 | 46.1 | 45.8 | 0.03 | % | |||||||||||||||
Bhailal Patel dba New Falls Motel | Accommodation | Term Loan | Prime plus 2.75% | 3/27/2023 | 100.0 | 5.4 | 5.4 | — | % | |||||||||||||||
Pegasus Automotive, Inc. | Gasoline Stations | Term Loan | Prime plus 2.75% | 12/23/2022 | 112.5 | 13.8 | 14.0 | 0.01 | % | |||||||||||||||
Delyannis Iron Works | Fabricated Metal Product Manufacturing | Term Loan | 6% | 12/8/2022 | 16.0 | 1.8 | 1.8 | — | % | |||||||||||||||
P. Agrino, Inc. dba Andover Diner | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/18/2021 | 150.0 | 14.6 | 14.8 | 0.01 | % | |||||||||||||||
Golden Elevator Co., Inc. | Support Activities for Agriculture and Forestry | Term Loan | Prime plus 2.75% | 1/31/2022 | 50.0 | 2.6 | 2.7 | — | % | |||||||||||||||
Mohamed Live Poultry Inc. | Animal Production and Aquaculture | Term Loan | Prime plus 2.75% | 12/6/2021 | 36.8 | 4.0 | 4.0 | — | % | |||||||||||||||
RJS Service Corporation | Gasoline Stations | Term Loan | Prime plus 2.75% | 8/20/2021 | 79.0 | 8.4 | 8.5 | 0.01 | % | |||||||||||||||
Chez RuRene Bakery | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/20/2017 | 150.0 | 49.4 | 51.0 | 0.03 | % | |||||||||||||||
Total Performing SBA Unguaranteed Investments | $ | 144,082.5 | $ | 121,505.9 | $ | 115,175.0 | 69.21 | % | ||||||||||||||||
Non-Performing SBA Unguaranteed Investments (3) | ||||||||||||||||||||||||
United Woodworking, Inc. | Wood Product Manufacturing | Term Loan | 6% | 12/20/2022 | 17.3 | 13.6 | 13.2 | 0.01 | % | |||||||||||||||
Top Class, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 12/29/2020 | 4.7 | 3.3 | — | — | % | |||||||||||||||
Top Class, Inc. | Personal and Laundry Services | Term Loan | Prime plus 2.75% | 6/28/2016 | 5.0 | 1.3 | 0.4 | — | % | |||||||||||||||
Tequila Beaches, LLC dba Fresco Restaurant | Food Services and Drinking Places | Term Loan | 6% | 9/16/2021 | 21.0 | 15.8 | 11.8 | 0.01 | % | |||||||||||||||
* Stormwise South Florida dba Stormwise Shutters | Specialty Trade Contractors | Term Loan | 6% | 11/7/2036 | 427.5 | 412.0 | 347.8 | 0.21 | % | |||||||||||||||
* Stormwise South Florida dba Stormwise Shutters | Specialty Trade Contractors | Term Loan | 6% | 11/7/2036 | 204.0 | 201.6 | 172.2 | 0.10 | % | |||||||||||||||
Sheikh M Tariq dba Selbyville Foodrite | Gasoline Stations | Term Loan | Prime plus 2.75% | 3/13/2023 | 63.1 | 48.4 | 36.3 | 0.02 | % | |||||||||||||||
Shamrock Jewelers, Inc. | Clothing and Clothing Accessories Stores | Term Loan | 6% | 12/14/2016 | 90.5 | 23.6 | 22.8 | 0.01 | % | |||||||||||||||
Pyramid Real Estate Holdings, LLC dba Hoteps | Food Services and Drinking Places | Term Loan | 6% | 10/7/2022 | 12.7 | 8.9 | 8.8 | 0.01 | % | |||||||||||||||
Pure Water Innovations, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 9/6/2016 | 3.4 | 1.0 | 1.0 | — | % | |||||||||||||||
F-102
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Professional Systems, LLC and Professional Cleaning | Administrative and Support Services | Term Loan | 6% | 7/30/2020 | 159.4 | 132.1 | 58.4 | 0.04 | % | |||||||||||||||
Parth Dev, Ltd dba Amerihost Inn Hotel-Kenton | Accommodation | Term Loan | 5.25% | 10/3/2028 | 54.9 | 38.3 | 18.7 | 0.01 | % | |||||||||||||||
Our Two Daughters LLC dba Washington's Restaurant | Food Services and Drinking Places | Term Loan | 6% | 6/18/2026 | 225.0 | 170.3 | 13.8 | 0.01 | % | |||||||||||||||
Morris Glass and Construction | Specialty Trade Contractors | Term Loan | 6% | 3/7/2021 | 49.8 | 44.8 | 0.8 | — | % | |||||||||||||||
Momentum Medical Group, Inc. | Ambulatory Health Care Services | Term Loan | 7.75% | 9/30/2015 | 244.2 | 159.7 | 5.0 | — | % | |||||||||||||||
Midway Plaza 6, LLC & Adventure World Family Fun Center, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | 6% | 12/19/2029 | 200.0 | 167.6 | 134.0 | 0.08 | % | |||||||||||||||
Lucil Chhor dba Baja Fresh #159 | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/28/2022 | 49.1 | 30.0 | 15.4 | 0.01 | % | |||||||||||||||
Las Torres Development, LLC dba Houston Event Centers | Real Estate | Term Loan | Prime plus 2.75% | 8/27/2028 | 405.8 | 391.6 | 378.2 | 0.23 | % | |||||||||||||||
Lamson and Goodnow Manufacturing Co. and Lamson and Goodnow, LLC | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 12/28/2037 | 197.1 | 187.0 | 116.1 | 0.07 | % | |||||||||||||||
Krishna of Orangeburg, Inc. | Accommodation | Term Loan | 6% | 2/20/2032 | 41.8 | 10.3 | 10.0 | 0.01 | % | |||||||||||||||
J Olson Enterprises LLC and Olson Trucking Direct, Inc. | Truck Transportation | Term Loan | Prime plus 2.75% | 6/28/2025 | 737.6 | 704.5 | 692.4 | 0.42 | % | |||||||||||||||
Hot Buckles, Inc. | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 6/27/2018 | 57.6 | 26.9 | 25.9 | 0.02 | % | |||||||||||||||
Harrelson Materials Management, Inc. | Waste Management and Remediation Services | Term Loan | 6% | 6/24/2021 | 537.5 | 470.0 | 108.1 | 0.06 | % | |||||||||||||||
Hampton's Restaurant Holding Company, LLC/Hampton's Restaurant #1, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 5/29/2023 | 398.0 | 255.7 | 20.4 | 0.01 | % | |||||||||||||||
Goetzke Chiropractic, Inc. | Ambulatory Health Care Services | Term Loan | 6% | 10/25/2017 | 7.3 | 3.1 | 0.6 | — | % | |||||||||||||||
Franvest, Inc. dba Texas Hydro-Equipment Co. | Chemical Manufacturing | Term Loan | 6% | 8/23/2018 | 125.0 | 119.3 | 99.5 | 0.06 | % | |||||||||||||||
Feinman Mechanical, LLC | Specialty Trade Contractors | Term Loan | 6% | 9/28/2028 | 323.0 | 305.2 | 70.6 | 0.04 | % | |||||||||||||||
E & I Holdings, LP & PA Farm Products, LLC | Food Manufacturing | Term Loan | 6% | 4/30/2030 | 1,248.8 | 1,238.0 | 481.4 | 0.29 | % | |||||||||||||||
Dixie Transport, Inc. & Johnny D. Brown & Jimmy Brown & Maudain Brown | Support Activities for Transportation | Term Loan | 5.25% | 12/28/2035 | 145.9 | 144.6 | 53.1 | 0.03 | % | |||||||||||||||
Dill Street Bar and Grill, Inc. and WO Entertainment, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/27/2027 | 122.9 | 112.3 | 41.7 | 0.03 | % | |||||||||||||||
Design Video Communciations, Inc. | Professional, Scientific, and Technical Services | Term Loan | 6% | 2/18/2036 | 92.4 | 19.0 | 6.8 | — | % | |||||||||||||||
D'Elia Auto Repair Inc. dba D'Elia Auto Body | Repair and Maintenance | Term Loan | Prime plus 2.75% | 9/26/2023 | 15.0 | 13.9 | 2.2 | — | % | |||||||||||||||
F-103
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
DC Realty, LLC dba FOGO Data Centers | Professional, Scientific, and Technical Services | Term Loan | 6% | 3/23/2037 | 778.0 | 757.0 | 718.6 | 0.43 | % | |||||||||||||||
DC Realty, LLC dba FOGO Data Centers | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 3/23/2022 | 376.0 | 258.5 | 245.4 | 0.15 | % | |||||||||||||||
Crystal K. Bruens dba Howards Restaurant | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 10/20/2020 | 6.2 | 2.8 | 2.8 | — | % | |||||||||||||||
Bamboo Palace, Inc. | Food Services and Drinking Places | Term Loan | 6% | 11/20/2022 | 56.7 | 40.2 | 38.9 | 0.02 | % | |||||||||||||||
Baker Sales, Inc. d/b/a Baker Sales, Inc. | Nonstore Retailers | Term Loan | 6% | 3/29/2036 | 490.0 | 467.0 | 406.5 | 0.24 | % | |||||||||||||||
AWA Fabrication & Construction, LLC | Fabricated Metal Product Manufacturing | Term Loan | 6% | 4/30/2025 | 152.2 | 34.8 | 7.2 | — | % | |||||||||||||||
AUM Estates, LLC and Sculpted Figures Plastic Surgery, Inc. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/12/2023 | 87.5 | 83.7 | — | — | % | |||||||||||||||
AUM Estates, LLC and Sculpted Figures Plastic Surgery Inc. | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 3/14/2038 | 618.7 | 603.9 | 355.2 | 0.21 | % | |||||||||||||||
Dr. Francis E. Anders, DVM | Professional, Scientific, and Technical Services | Term Loan | 6% | 8/9/2015 | 4.6 | 1.6 | 1.6 | — | % | |||||||||||||||
Elite Treats Enterprises, Inc. dba Rochelle Dairy Queen | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 1/24/2032 | 141.3 | 131.5 | 122.7 | 0.07 | % | |||||||||||||||
LRCSL, LLC dba Daybreak Fruit and Vegetable Company | Food and Beverage Stores | Term Loan | Prime plus 2.75% | 2/28/2021 | 75.1 | 53.0 | 32.6 | 0.02 | % | |||||||||||||||
Harry B Gould dba Lake Athens Marina and Bait Shop | Accommodation | Term Loan | Prime plus 2.75% | 12/28/2025 | 132.9 | 116.2 | 112.3 | 0.07 | % | |||||||||||||||
* The Alba Financial Group, Inc. | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | Term Loan | Prime plus 2.75% | 11/13/2015 | 16.2 | 8.0 | 7.7 | — | % | |||||||||||||||
* Milliken and Milliken, Inc. dba Milliken Wholesale Distribution | Merchant Wholesalers, Durable Goods | Term Loan | 6% | 6/10/2036 | 191.0 | 157.1 | 135.3 | 0.08 | % | |||||||||||||||
* Almeria Marketing 1, Inc. | Personal and Laundry Services | Term Loan | 7.75% | 10/15/2015 | 10.2 | 5.0 | 4.8 | — | % | |||||||||||||||
* Whirlwind Car Wash, Inc. | Repair and Maintenance | Term Loan | Prime plus 2% | 4/9/2029 | 31.5 | 24.0 | 20.0 | 0.01 | % | |||||||||||||||
* West Experience, Inc., West Mountain Equipment Rental, Inc., Ski West Lodge | Amusement, Gambling, and Recreation Industries | Term Loan | 6% | 6/5/2026 | 68.9 | 50.2 | 43.8 | 0.03 | % | |||||||||||||||
* The Lucky Coyote, LLC | Miscellaneous Manufacturing | Term Loan | 6% | 5/8/2017 | 44.9 | 14.4 | 11.8 | 0.01 | % | |||||||||||||||
* TechPlayZone, Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 1/27/2016 | 7.6 | 1.0 | 0.9 | — | % | |||||||||||||||
F-104
NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
* Stokes Floor Covering Company Inc. and Robert E. Rainey, Jr. | Furniture and Home Furnishings Stores | Term Loan | 6% | 12/29/2035 | 122.0 | 110.4 | 94.1 | 0.06 | % | |||||||||||||||
* Robin C. & Charles E. Taylor & Brigantine Aquatic Center, LLC | Amusement, Gambling, and Recreation Industries | Term Loan | 6% | 9/14/2023 | 33.1 | 22.8 | 20.1 | 0.01 | % | |||||||||||||||
* LJ Parker, LLC dba Kwik Kopy Business Center 120 | Administrative and Support Services | Term Loan | 7% | 9/8/2014 | 61.8 | 33.2 | 26.6 | 0.02 | % | |||||||||||||||
* Integrity Sports Group, LLC | Performing Arts, Spectator Sports, and Related Industries | Term Loan | 6% | 3/6/2018 | 62.1 | 17.3 | 13.4 | 0.01 | % | |||||||||||||||
* Guzman Group, LLC | Rental and Leasing Services | Term Loan | 6% | 1/30/2016 | 251.7 | 211.7 | 195.1 | 0.12 | % | |||||||||||||||
* Groundworks Unlimited, LLC | Specialty Trade Contractors | Term Loan | 6% | 12/17/2023 | 116.1 | 97.1 | 85.0 | 0.05 | % | |||||||||||||||
* Gotta Dance Studio, Inc. dba Gotta Dance Studio Academy of Performing | Educational Services | Term Loan | Prime plus 2.75% | 11/16/2016 | 10.3 | 4.0 | 3.5 | — | % | |||||||||||||||
* Furniture Company, LLC | Furniture and Home Furnishings Stores | Term Loan | 7% | 10/30/2015 | 6.4 | 1.4 | 1.3 | — | % | |||||||||||||||
* Event Mecca, LLC | Other Information Services | Term Loan | 6% | 4/10/2023 | 14.3 | 13.3 | 8.9 | 0.01 | % | |||||||||||||||
* E.W. Ventures, Inc. dba Swift Cleaners & Laundry | Personal and Laundry Services | Term Loan | —% | 4/18/2017 | 209.1 | 92.7 | 76.0 | 0.05 | % | |||||||||||||||
* DUCO Energy Services, a Limited Liability Company | Professional, Scientific, and Technical Services | Term Loan | Prime plus 2.75% | 6/20/2023 | 11.8 | 10.8 | 7.3 | — | % | |||||||||||||||
* David M. Goens dba Superior Auto Paint & Body, Inc. | Repair and Maintenance | Term Loan | Prime plus 2.75% | 8/26/2024 | 11.5 | 6.6 | 6.0 | — | % | |||||||||||||||
* CCS, Services, Inc. | Administrative and Support Services | Term Loan | 6% | 2/28/2015 | 2.3 | 0.1 | 0.1 | — | % | |||||||||||||||
* Camilles of Washington Inc. | Food Services and Drinking Places | Term Loan | 6% | 10/28/2015 | 16.4 | 1.5 | 1.5 | — | % | |||||||||||||||
* Bwms Management, LLC | Food Services and Drinking Places | Term Loan | 6% | 7/7/2027 | 109.1 | 82.5 | 66.4 | 0.04 | % | |||||||||||||||
* BCD Enterprises, LLC dba Progressive Tool and Nutmeg Tool | Fabricated Metal Product Manufacturing | Term Loan | Prime plus 2.75% | 6/22/2026 | 506.9 | 418.3 | 333.1 | 0.20 | % | |||||||||||||||
* Barnum Printing & Publishing, Co. | Printing and Related Support Activities | Term Loan | 6% | 7/29/2015 | 44.7 | 11.9 | 11.7 | 0.01 | % | |||||||||||||||
* Auto Sales, Inc. | Motor Vehicle and Parts Dealers | Term Loan | 6% | 8/17/2023 | 13.9 | 6.7 | 6.2 | — | % | |||||||||||||||
* Anmor Machining Company, LLC dba Anmor Machining Company | Fabricated Metal Product Manufacturing | Term Loan | 6% | 11/18/2026 | 192.5 | 146.5 | 110.5 | 0.07 | % | |||||||||||||||
KroBro Inc. d/b/a Village Coffee | Food Services and Drinking Places | Term Loan | 6% | 3/12/2020 | 200.0 | 10.0 | — | — | % | |||||||||||||||
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NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Konversashens Coffee LLC | Food Services and Drinking Places | Term Loan | 6% | 6/28/2016 | 64.4 | 4.9 | — | — | % | |||||||||||||||
Total Non-Performing SBA Unguaranteed Investments | $ | 11,637.2 | $ | 9,587.3 | $ | 6,302.3 | 3.79 | % | ||||||||||||||||
Total SBA Unguaranteed Investments | $ | 155,719.7 | $ | 131,093.2 | $ | 121,477.3 | 73.00 | % | ||||||||||||||||
Performing SBA Guaranteed Investments (4) | ||||||||||||||||||||||||
BS Ventures, LLC dba Dink's Market | Merchant Wholesalers, Nondurable Goods | Term Loan | Prime plus 2.75% | 12/19/2039 | 161.3 | 161.3 | 182.9 | 0.11 | % | |||||||||||||||
M & MM Management | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 4/19/2025 | 138.8 | 138.8 | 155.0 | 0.09 | % | |||||||||||||||
The Jeweler's Inc. | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/19/2024 | 3,750.0 | 3,750.0 | 4,157.8 | 2.50 | % | |||||||||||||||
Will Zak Management, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/19/2024 | 146.3 | 146.3 | 163.3 | 0.10 | % | |||||||||||||||
Winter Ventures, Inc. | Nonstore Retailers | Term Loan | Prime plus 2.75% | 12/23/2024 | 1,404.9 | 1,404.9 | 1,564.7 | 0.94 | % | |||||||||||||||
Atlantis of Daytona, LLC | Clothing and Clothing Accessories Stores | Term Loan | Prime plus 2.75% | 12/23/2039 | 720.0 | 720.0 | 816.3 | 0.49 | % | |||||||||||||||
Thermoplastic Services, Inc. | Plastics and Rubber Products Manufacturing | Term Loan | Prime plus 2.75% | 12/23/2039 | 4,500.0 | 4,500.0 | 5,060.5 | 3.04 | % | |||||||||||||||
The Lodin Group, LLC and Lodin Health | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/23/2039 | 1,590.8 | 1,590.8 | 1,797.6 | 1.08 | % | |||||||||||||||
Bowlerama Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/24/2039 | 3,607.5 | 3,607.5 | 4,058.4 | 2.44 | % | |||||||||||||||
Beale Street Blues Company | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 12/22/2024 | 562.5 | 562.5 | 628.2 | 0.38 | % | |||||||||||||||
Bear Creek Entertainment, LLC dba The Woods at Bear Creek | Accommodation | Term Loan | Prime plus 2.75% | 12/30/2024 | 318.8 | 318.8 | 361.6 | 0.22 | % | |||||||||||||||
Evans & Paul, LLC | Merchant Wholesalers, Durable Goods | Term Loan | Prime plus 2.75% | 12/30/2024 | 671.3 | 671.3 | 749.6 | 0.45 | % | |||||||||||||||
B & W Towing, LLC & Boychuck's Fuel, LLC | Repair and Maintenance | Term Loan | Prime plus 2.75% | 12/17/2039 | 493.5 | 493.5 | 559.9 | 0.34 | % | |||||||||||||||
Grand Blanc Lanes, Inc. | Amusement, Gambling, and Recreation Industries | Term Loan | Prime plus 2.75% | 12/31/2039 | 399.0 | 399.0 | 452.7 | 0.27 | % | |||||||||||||||
Homegrown for Good, LLC | Apparel Manufacturing | Term Loan | Prime plus 2.75% | 11/26/2024 | 2,070.0 | 2,070.0 | 2,297.1 | 1.38 | % | |||||||||||||||
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NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
Lake Area Autosound, LLC | Motor Vehicle and Parts Dealers | Term Loan | Prime plus 2.75% | 7/28/2039 | 375.0 | 375.0 | 425.4 | 0.26 | % | |||||||||||||||
FHJE Ventures, LLC and Eisenreich II, Inc. dba Breakneck Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 6/27/2039 | 962.3 | 965.3 | 1,084.6 | 0.65 | % | |||||||||||||||
Meridian Hotels, LLC | Accommodation | Term Loan | Prime plus 2.75% | 11/25/2039 | 684.0 | 684.0 | 776.0 | 0.47 | % | |||||||||||||||
Carolina Flicks dba The Howell Theatre | Motion Picture and Sound Recording Industries | Term Loan | Prime plus 2.75% | 12/23/2032 | 489.8 | 489.8 | 538.7 | 0.32 | % | |||||||||||||||
Kiddie Steps for You, Inc. | Social Assistance | Term Loan | Prime plus 2.75% | 9/25/2038 | 267.8 | 254.8 | 286.7 | 0.17 | % | |||||||||||||||
401 JJS Corp. and G Randazzo Trattoria Corp. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/23/2039 | 1,136.3 | 1,136.3 | 1,285.4 | 0.77 | % | |||||||||||||||
FHJE Ventures, LLC and Eisenreich II, Inc. dba Breakneck Tavern | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 12/31/2039 | 736.5 | 484.8 | 545.7 | 0.33 | % | |||||||||||||||
Miss Cranston Diner II, LLC | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/17/2039 | 273.8 | 273.8 | 308.8 | 0.19 | % | |||||||||||||||
Wildwood Tavern dba Tavern Properties | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 9/15/2039 | 1,275.0 | 936.0 | 1,058.9 | 0.64 | % | |||||||||||||||
iFood, Inc. | Food Services and Drinking Places | Term Loan | Prime plus 2.75% | 7/31/2024 | 1,137.3 | 871.6 | 973.4 | 0.58 | % | |||||||||||||||
Alpha Prepatory Academy, LLC | Social Assistance | Term Loan | Prime plus 2.75% | 8/15/2039 | 435.7 | 327.7 | 371.8 | 0.22 | % | |||||||||||||||
GPG Real Estate Holdings, LLC | Specialty Trade Contractors | Term Loan | Prime plus 2.75% | 7/3/2024 | 487.5 | 121.6 | 137.9 | 0.08 | % | |||||||||||||||
First Prevention & Dialysis Center, LLC | Ambulatory Health Care Services | Term Loan | Prime plus 2.75% | 12/30/2024 | 714.8 | 234.2 | 261.5 | 0.16 | % | |||||||||||||||
The Red Pill Management, Inc. | Performing Arts, Spectator Sports, and Related Industries | Term Loan | Prime plus 2.75% | 11/26/2024 | 162.8 | 86.1 | 96.2 | 0.06 | % | |||||||||||||||
DC Real, LLC and DC Enterprises LTD | Building Material and Garden Equipment and Supplies Dealers | Term Loan | Prime plus 2.75% | 11/20/2039 | 358.1 | 281.7 | 329.5 | 0.20 | % | |||||||||||||||
Total Performing SBA Guaranteed Investments | $ | 30,031.4 | $ | 28,057.4 | $ | 31,486.1 | 18.92 | % | ||||||||||||||||
Total SBA Unguaranteed and Guaranteed Investments | $ | 185,751.1 | $ | 159,150.6 | $ | 152,963.4 | 91.92 | % | ||||||||||||||||
Controlled Investments (5) | ||||||||||||||||||||||||
Advanced Cyber Security Systems, LLC (6) (13) | Data processing, hosting and related services. | 50% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
Term Loan | 3% | December 2014 | 1,120 | 381 | — | — | % | |||||||||||||||||
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NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
* Automated Merchant Services, Inc. (7) (13) | Data processing, hosting and related services. | 100% Common Stock | —% | — | — | — | — | — | % | |||||||||||||||
* Business Connect, LLC (8) (13) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
* CCC Real Estate Holdings Co., LLC (13) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
CDS Business Services, Inc. (9) (13) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Common Stock | —% | — | — | — | 496 | 0.30 | % | |||||||||||||||
Term Loan | 1% | Various maturities through August 2016 | 4,228 | 4,228 | 1,483 | 0.89 | % | |||||||||||||||||
CrystalTech Web Hosting, Inc. | Data processing, hosting and related services. | 100% Common Stock | —% | — | — | 9,256.0 | 21,500.0 | 12.92 | % | |||||||||||||||
* OnLAN, LLC (15) (17) | Professional, Scientific, and Technical Services | 49% Membership Interests | —% | — | — | 800.0 | — | — | % | |||||||||||||||
* Exponential Business Development Co. Inc. (13) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Common Stock | —% | — | — | — | — | — | % | |||||||||||||||
* Bankcard Alliance of Alabama, LLC (10) (13) | Data processing, hosting and related services. | 95% Membership Interests | —% | — | — | — | — | — | % | |||||||||||||||
* Fortress Data Management, LLC (13) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
Newtek Insurance Agency, LLC (13) | Insurance Carriers and Related Activities | 100% Membership Interests | —% | — | — | — | 2,300.0 | 1.38 | % | |||||||||||||||
PMTWorks Payroll, LLC (11) | Data processing, hosting and related services. | 80% Membership Interests | —% | — | — | — | 920.0 | 0.55 | % | |||||||||||||||
Term Loan | 12% | August 2015 | 935 | 935 | — | — | % | |||||||||||||||||
Secure CyberGateway Services, LLC (12) (13) | Data processing, hosting and related services. | 66.7% Membership Interests | —% | — | — | — | — | — | % | |||||||||||||||
Term Loan | 7% | December 2016 | 2,400.0 | 2,400.0 | 2,400.0 | 1.44 | % | |||||||||||||||||
Small Business Lending, Inc. (13) | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Common Stock | —% | — | — | — | 2,900.0 | 1.74 | % | |||||||||||||||
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NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2014 (In Thousands) | ||||||||||||||||||||||||
Portfolio Company | Industry | Type of Investment | Interest Rate (2) | Maturity | Principal | Cost | Fair Value | % of Net Assets | ||||||||||||||||
* Summit Systems and Designs, LLC (8) (13) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
* The Texas Whitestone Group, LLC | Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 100% Membership Interest | —% | — | — | 65.0 | — | — | % | |||||||||||||||
Universal Processing Services of Wisconsin, LLC (13) | Data processing, hosting and related services. | 100% Membership Interest | —% | — | — | — | 45,500.0 | 27.34 | % | |||||||||||||||
* Where Eagles Fly, LLC (13) (14) | Theatrical productions | 95% Membership Interest | —% | — | — | — | — | — | % | |||||||||||||||
Total Controlled Investments | $ | 8,683 | $ | 18,065 | $ | 77,499 | 46.57 | % | ||||||||||||||||
Investment in Money Market Funds | $ | — | $ | 3,000 | $ | 3,000 | 1.80 | % | ||||||||||||||||
Total Investments | $ | 194,434.1 | $ | 180,215.6 | $ | 233,462.4 | 140.29 | % | ||||||||||||||||
* Denotes non-income producing security.
(1) Newtek values each SBA 7(a) performing unguaranteed loan using a discounted cash flow analysis which projects future cash flows and incorporates projections for loan pre-payments and loan defaults using historical portfolio data. The data predicts future prepayment and default probability on curves which are based on loan age. The recovery assumption for each loan is specific to the discounted valuation of the collateral supporting that loan. Each loan's cash flow is discounted at a rate which approximates a market yield. The loans were originated under the SBA 7(a) program and conform to the underwriting guidelines in effect at their time of origination. Newtek has been awarded Preferred Lender Program (“PLP”) status from the SBA. The loans are not guaranteed by the SBA. Individual loan participations can be sold to institutions which have been granted an SBA 750 license. Loans can also be sold as a pool of loans in a security form to qualified investors.
(2) Prime Rate is equal to 3.25% as of December 31, 2014.
(3) Newtek values SBA 7(a) non-performing loans using a discounted cash flow analysis of the underlying collateral which supports the loan. Net recovery of collateral, (fair value less cost to liquidate) is applied to the discounted cash flow analysis based upon a time to liquidate estimate. Modified loans are valued based upon current payment streams and are re-amortized at the end of the modification period.
(4) Newtek values guaranteed SBA 7(a) performing loans using the secondary SBA 7(a) market as a reference point. Newtek routinely sells into this secondary market. Guaranteed portions, partially funded as of the valuation date are valued using level two inputs as disclosed in Note 3.
(5) Controlled Investments are disclosed above as equity investments (except as otherwise noted) in those companies that are “Controlled Investments” of the Company as defined in the Investment Company Act of 1940. A company is deemed to be a “Controlled Investment” of Newtek Business Services Corp. if Newtek Business Services Corp. owns more than 25% of the voting securities of such company.
(6) 50% owned by Exponential of New York, LLC.
(7) 96.11% owned by Wilshire Partners, LLC, 3.89% owned by Newtek Business Services Corp.
(8) 100% owned by Wilshire Texas Partners I, LLC.
(9) 49.482% owned by Wilshire New York Partners IV, LLC, 24.611% owned by Exponential of New York, LLC and 25.907% owned by Newtek Business Services Corp.
(10) 95% owned by Wilshire Alabama Partners, LLC, 5% owned by non-affiliate.
(11) 80% owned by Wilshire New York Partners IV, LLC, 20% owned by non-affiliate.
(12) 66.7% owned by Wilshire Texas Partners I, LLC, 33.3% owned by non-affiliate.
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(13) Zero cost basis is reflected, as the portfolio company was organized by the Company and incurred internal legal costs to organize the entity and immaterial external filing fees which were expensed when incurred.
(14) 95% owned by Wilshire DC Partners, LLC, 5% owned by non-affiliate.
(15) 49% owned by Wilshire Colorado Partners, LLC, 51% owned by non-affiliate
(16) All of the Company's investments are in entities which are organized under the laws of the United States and have a principal place of business in the United States.
(17) Denotes a non-controlled entity.
See accompanying notes to these consolidated financial statements.
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NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
On November 12, 2014, Newtek Business Services, Inc. merged with and into Newtek Business Services Corp. (“NBS”), a newly-formed Maryland corporation, for the purpose of reincorporating in Maryland (the “Merger”), and thereafter filed an election to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). This transaction is referred to as the “Conversion” or “BDC Conversion”. All subsidiaries and controlled portfolio companies became the property of Newtek Business Services Corp. as part of the Merger. Except as otherwise noted, the terms “we,” “us,” “our,” “Company” and “Newtek” refer to Newtek Business Services, Inc. prior to the Conversion and its successor, Newtek Business Services Corp. following the Conversion.
Description of Business and Basis of Presentation Prior to BDC Conversion
Prior to the Conversion, Newtek Business Services, Inc. was a holding company for several wholly- and majority-owned subsidiaries, which included twelve certified capital companies which are referred to as Capcos, and several portfolio companies in which the Capcos own non-controlling or minority interests. The Company provided a “one-stop-shop” for business services to the small- and medium-sized business market and uses state of the art web-based proprietary technology to be a low cost acquirer and provider of products and services. The Company partners with companies, credit unions, and associations to offer its services.
Prior to the BDC Conversion, the Company’s principal business segments were:
Electronic Payment Processing: Marketing third party credit card processing and check approval services to the small and medium-sized business market under the name of Newtek Merchant Solutions (“NMS” or “UPS”).
Managed Technology Solutions: CrystalTech Web Hosting, Inc., d/b/a Newtek Technology Services (“NTS”), offers shared and dedicated web hosting, data storage and backup services, cloud computing plans and related services to the small and medium-sized business market.
Small Business Finance: Comprised of Small Business Lending, Inc., (“SBL”) a lender service provider for third-parties that primarily services government guaranteed U.S. Small Business Administration (“SBA”) loans and non-SBA loans; Newtek Small Business Finance, LLC (“NSBF”), a nationally licensed, SBA lender that originates, sells and services loans to qualifying small businesses, which are partially guaranteed by the SBA, and CDS Business Services, Inc. d/b/a Newtek Business Credit Solutions (“NBC”) which provides receivable financing and management services.
All Other: Businesses formed from investments made through Capco programs and others which could not be aggregated with other operating segments, including insurance and payroll processing.
Corporate Activities: Corporate implements business strategy, directs marketing, provides technology oversight and guidance, coordinates and integrates activities of the segments, contracts with alliance partners, acquires customer opportunities, and owns our proprietary NewTracker® referral system. This segment includes revenue and expenses not allocated to other segments, including interest income, Capco management fee income and corporate operations expenses.
Capco: Twelve certified capital companies which invest in small and medium-sized businesses. They generate non-cash income from tax credits and non-cash interest expense and insurance expenses in addition to cash management fees.
The consolidated financial statements of the Company and its subsidiaries and consolidated entities have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all wholly- and majority-owned subsidiaries, and several portfolio companies in which the Capcos own non-controlling interest, or those variable interest entities of which Newtek is considered to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Non-controlling interests are reported below net income (loss) under the heading “Net loss attributable to non-controlling interests” in the consolidated statements of operations.
Non-controlling interests
F-111
Non-controlling interests in results of operations of consolidated variable interest entities and majority-owned subsidiaries represents the non-controlling members’ share of the earnings or loss of the consolidated variable interest entities and majority-owned subsidiaries.
Description of Business and Basis of Presentation After BDC Conversion
Newtek Business Services Corp. is a Maryland corporation formed in August 2013 and is an internally managed, closed end investment company. The Company's investment strategy is to maximize the investment portfolio's return by generating current income from the debt investments the Company makes and generate dividend income from equity investments in controlled portfolio companies.
The Company has formed certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
The following wholly-owned subsidiaries are consolidated in the financial statements of the Company:
• | Newtek Small Business Finance, LLC |
• | Newtek Asset Backed Securities, LLC |
• | The Whitestone Group, LLC |
• | Wilshire Alabama Partners, LLC |
• | Wilshire Colorado Partners, LLC |
• | Wilshire DC Partners, LLC |
• | Wilshire Holdings I, Inc. |
• | Wilshire Holdings II, Inc. |
• | Wilshire Louisiana Bidco, LLC |
• | Wilshire Louisiana Partners II, LLC |
• | Wilshire Louisiana Partners III, LLC |
• | Wilshire Louisiana Partners IV, LLC |
• | Wilshire New York Advisers II, LLC |
• | Wilshire New York Partners III, LLC |
• | Wilshire New York Partners IV, LLC |
• | Wilshire New York Partners V, LLC |
• | Wilshire Partners, LLC |
• | Wilshire Texas Partners I, LLC |
• | CCC Real Estate Holdings, LLC |
• | The Texas Whitestone Group, LLC |
• | Newtek Business Services Holdco 1, Inc. |
F-112
The consolidated financial statements of the Company have been prepared in accordance with GAAP and pursuant to the requirements for reporting on Form 10-K and Article 6 or 10 of Regulation S-X. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.
All financial information included in the tables in the following footnotes is stated in thousands, except per share data.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES:
Election to become a Business Development Company
The results of operations for 2014 are divided into two periods. The period from January 1, 2014 through November 11, 2014, reflects the Company’s results prior to operating as a BDC under the 1940 Act. The period from November 12, 2014 through December 31, 2014, reflects the Company’s results as a BDC under the 1940 Act. Accounting principles used in the preparation of the consolidated financial statements beginning November 12, 2014 are different than those of prior periods and, therefore, the financial position and results of operations of these periods are not directly comparable. The primary differences in accounting principles relate to the carrying value of debt and equity investments. Additionally, some of the Company's previously consolidated subsidiaries are now equity investments, or controlled portfolio companies, on the consolidated statements of assets and liabilities and carried at fair value. The following table reflects the cumulative effect of the BDC Conversion on November 11, 2014:
Cumulative Effect of Business Development Company Election | |||
Deconsolidation of subsidiaries | $ | 22,822 | |
Effect of recording debt investments at fair value | (374 | ) | |
Effect of recording servicing assets at fair value | 960 | ||
Effect of recording controlled investments at fair value | 36,118 | ||
Reversal of goodwill | (1,826 | ) | |
Other | (397 | ) | |
Total cumulative effect of BDC election | $ | 57,303 | |
Fair Value
The Company applies fair value to certain of its financial instruments in accordance with Accounting Standards Codification (“ASC”) Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity-specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.
The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.
Any changes to the valuation methodology are reviewed by management and the Company’s board of directors (the “Board”) to confirm that the changes are appropriate. As markets change, new products develop and the pricing for products becomes more or less transparent, the Company will continue to refine its valuation methodologies. See further description of fair value methodology in Note 3.
Use of Estimates
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The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are complete. Actual results could differ from those estimates.
Consolidation
As provided under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company.
Assets related to transactions that do not meet ASC Topic 860 — Transfers and Servicing (“ASC Topic 860”) requirements for accounting sale treatment are reflected in the Company’s consolidated statements of assets and liabilities as investments. Those assets are owned by the securitization trusts, and are included in the Company’s consolidated financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of the Company.
Distributions
The Company currently intends to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, the Company may decide in the future to retain such capital gains for investment and elect to treat such gains as deemed distributions to stockholders. If this happens, stockholders will be treated for U.S. federal income tax purposes as if they had received an actual distribution of the capital gains that the Company retained and reinvested the net after tax proceeds in the Company. In this situation, stockholders would be eligible to claim a tax credit (or in certain circumstances a tax refund) equal to their allocable share of the tax the Company paid on the capital gains deemed distributed to them. The Company cannot assure stockholders that it will achieve results that will permit it to pay any cash distributions, and if it issues senior securities, it may be prohibited from making distributions if doing so would cause it to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if such distributions are limited by the terms of any of its borrowings.
Unless stockholders elect to receive distributions in cash, the Company intends to make such distributions in additional shares of its common stock under its dividend reinvestment plan. Although distributions paid in the form of additional shares of its common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, investors participating in the dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.
Dividends and distributions to the Company's common stockholders are recorded on the declaration date. The timing and amount to be paid out as a dividend or distribution is determined by the Board each quarter and is generally based upon the taxable earnings estimated by management.
Share Repurchase Plan
The Company has a share repurchase program (the “Program”) which allows the Company to repurchase up to 150,000 of the Company’s outstanding common shares on the open market. The shares may be purchased from time to time at prevailing market prices through open market transactions, including block transactions. The Company expects the termination date of the Program to be June 3, 2016, but may be extended at management's discretion. The Company did not make any repurchases of its common stock during the year ended December 31, 2015.
In addition, the Company, may from time to time purchase shares of its debt securities on the NASDAQ Global Market. The Company did not make any repurchases of its debt securities during the year ended December 31, 2015.
Investment Income
Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal
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repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid.
Dividend income is recognized on an accrual basis for preferred equity securities to the extent that such amounts are expected to be collected or realized. In determining the amount of dividend income to recognize, if any, from cash distributions on common equity securities, we will assess many factors including a portfolio company’s cumulative undistributed income and operating cash flow. Cash distributions from common equity securities received in excess of such undistributed amounts are recorded first as a reduction of our investment and then as a realized gain on investment.
We receive servicing income related to the guaranteed portions of SBA loan investments which we sell into the secondary market. These recurring fees are earned daily and recorded when earned. Servicing income is earned for the full term of the loan or until the loan is repaid.
We receive a variety of fees from borrowers in the ordinary course of conducting our business, including packaging, legal, late payment and prepayment fees. All other income is recorded when earned. Other income is generally non-recurring in nature and earned as “one time” fees in connection with the origination of new debt investments with non-affiliates. For the year ended December 31, 2015, other income includes $99,000 of income related to the sale of an intangible asset to a controlled portfolio company.
Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports current period changes in the fair value of investments as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.
Revenue Recognition prior to BDC Conversion
Prior to the BDC Conversion, the Company operated in a number of different segments. Revenues were recognized as services were rendered and are summarized as follows:
Electronic payment processing revenue: Electronic payment processing and fee income was derived from the electronic processing of credit and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services on a percentage of the dollar amount of each transaction plus a flat fee per transaction. Certain merchant customers are charged miscellaneous fees, including fees for handling charge-backs or returns, monthly minimum fees, statement fees and fees for other miscellaneous services. Revenues derived from the electronic processing of MasterCard® and Visa® sourced credit and debit card transactions are reported gross of amounts paid to sponsor banks.
Web hosting revenue: Managed technology solutions revenue was primarily derived from monthly recurring service fees for the use of its web hosting, web design and software support services. Customer set-up fees are billed upon service initiation and are recognized as revenue over the estimated customer relationship period of 2.5 years. Payment for web hosting and related services, excluding cloud plans, is generally received one month to one year in advance. Deferred revenues represent customer payments for web hosting and related services in advance of the reporting period date. Revenue for cloud related services is based on actual consumption used by a cloud customer.
Income from tax credits: Following an application process, a state will notify a company that it has been certified as a Capco. The state or jurisdiction then allocates an aggregate dollar amount of tax credits to the Capco. However, such amount is neither recognized as income nor otherwise recorded in the financial statements since it has yet to be earned by the Capco. The Capco is entitled to earn tax credits upon satisfying defined investment percentage thresholds within specified time requirements. Newtek has Capcos operating in five states and the District of Columbia. Each statute requires that the Capco invest a threshold percentage of “certified capital” (the funds provided by the insurance company investors) in businesses defined as qualified within the time frames specified. As the Capco meets these requirements, it avoids grounds under the statute for its disqualification for continued participation in the Capco program. Such a disqualification, or “decertification” as a Capco results in a permanent recapture of all or a portion of the allocated tax credits. The proportion of the possible recapture is reduced over time as the Capco remains in general compliance with the program rules and meets the progressively increasing investment benchmarks. As the Capco progresses in its investments in Qualified Businesses and, accordingly, places an increasing proportion of the tax credits beyond recapture, it earns an amount equal to the non-recapturable tax credits and records such amount as income, with a corresponding asset called “credits in lieu of cash” in the balance sheet.
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The amount earned and recorded as income is determined by multiplying the total amount of tax credits allocated to the Capco by the percentage of tax credits immune from recapture (the earned income percentage) at that point. To the extent that the investment requirements are met ahead of schedule, and the percentage of non-recapturable tax credits is accelerated, the present value of the tax credit earned is recognized currently and the asset, credits in lieu of cash, is accreted up to the amount of tax credits deliverable to the certified investors. The obligation to deliver tax credits to the certified investors is recorded as notes payable in credits in lieu of cash. On the date the tax credits are utilizable by the certified investors, the Capco decreases credits in lieu of cash with a corresponding decrease to notes payable in credits in lieu of cash.
Sales and Servicing of SBA Loans: NSBF originates loans to customers under the SBA 7(a) program that generally provides for SBA guarantees of 75% to 90% of each loan, subject to a maximum guarantee amount. This guaranteed portion is generally sold to a third party via an SBA regulated secondary market transaction utilizing SBA Form 1086 for a price equal to the guaranteed loan amount plus a premium. NSBF recognizes premium on loan sales as equal to the cash premium plus the fair value of the initial servicing assets. Revenue is recognized on the trade date of the sale of the guaranteed portion.
Upon recognition of each loan sale, the Company retains servicing responsibilities and receives servicing fees of a minimum of 1% of the guaranteed loan portion sold. The Company is required to estimate its adequate servicing compensation in the calculation of its servicing assets. The purchasers of the loans sold have no recourse to the Company for failure of customers to pay amounts contractually due.
Subsequent measurements of each class of servicing assets and liabilities may use either the amortization method or the fair value measurement method. Prior to the BDC Conversion NSBF had chosen to apply the amortization method to its servicing assets, amortizing the asset in proportion to, and over the period of, the estimated future net servicing income on the underlying sold guaranteed portion of the loans and assessing the servicing assets for impairment based on fair value at each reporting date. In the event future prepayments are significant or impairments are incurred and future expected cash flows are inadequate to cover the unamortized servicing assets, accelerated amortization or impairment charges would be recognized. In evaluating and measuring impairment of servicing assets, NSBF stratifies its servicing assets based on year of loan and loan term which are the key risk characteristics of the underlying loan pools. The Company estimates the fair value of the servicing assets by calculating the present value of estimated future net servicing cash flows, using assumptions of prepayments, defaults, servicing costs and discount rates that NSBF believes market participants would use for similar assets. If NSBF determines that the impairment for a stratum is temporary, a valuation allowance is recognized through a charge to current earnings for the amount the amortized balance exceeds the current fair value. If the fair value of the stratum were to later increase, the valuation allowance may be reduced as a recovery. However, if NSBF determines that impairment for a stratum is other than temporary, the value of the servicing assets and any related valuation allowance is written-down. Subsequent to the BDC Conversion, servicing assets are recorded at fair value.
SBA Loan Interest and Fees: Interest income on loans is recognized as earned. A loan is placed on non-accrual status if it exceeds 90 days past due with respect to principal or interest and, in the opinion of management, interest or principal on the loan is not collectible, or at such earlier time as management determines that the collectability of such principal or interest is unlikely. Such loans are designated as impaired non-accrual loans. All other loans are defined as performing loans. When a loan is designated as impaired non-accrual, the accrual of interest is discontinued, and any accrued but uncollected interest income is reversed and charged against current operations. While a loan is classified as impaired non-accrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding.
The Company passes certain expenditures it incurs to the borrower, such as force placed insurance, insufficient funds fees, or fees it assesses, such as late fees, with respect to managing the loan. These expenditures are recorded when incurred. Due to the uncertainty with respect to collection of these passed through expenditures or assessed fees, any funds received to reimburse the Company are recorded on a cash basis as other income.
Insurance commissions: Revenues were comprised of commissions earned on premiums paid for insurance policies and are recognized at the time the commission is earned. At that date, the earnings process has been completed and the Company can estimate the impact of policy cancellations for refunds and establish reserves. The reserve for policy cancellations is based on historical cancellation experience adjusted by known circumstances.
Other income: Other income represented revenues derived from operating units that cannot be aggregated with other business segments. In addition, other income represents one time recoveries or gains on investments. Revenue is recorded when there is strong evidence of an agreement, the related fees are fixed, the service or product has been delivered, and the collection of the related receivable is assured.
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• | Receivable fees: Receivable fees were derived from the funding (purchase) of receivables from finance clients. NBC recognizes the revenue on the date the receivables are purchased at a percentage of face value as agreed to by the client. The Company also has arrangements with certain of its clients whereby it purchases the client’s receivables and charges a fee at a specified rate based on the amount of funds advanced against such receivables. The funds provided are collateralized and the income is recognized as earned. |
• | Late fees: Late fees were derived from receivables NBC has purchased that have gone over a certain period (usually over 30 days) without payment. The client or the client’s customer is charged a late fee according to the agreement with the client and NBC records the fees as income in the month in which such receivable becomes past due. |
• | Billing fees: Billing fees were derived from billing-only (non-finance) clients. These fees are recorded when earned, which occurs when the service is rendered. |
• | Other fees: These fees included annual fees, due diligence fees, termination fees, under minimum fees, and other fees including finance charges, supplies sold to clients, NSF fees, wire fees and administration fees. These fees are charged upon funding, takeovers or liquidation of finance clients. The Company also receives commission revenue from various sources. |
Electronic Payment Processing Costs
Electronic payment processing costs consisted principally of costs directly related to the processing of merchant sales volume, including interchange fees, VISA® and MasterCard® dues and assessments, bank processing fees and costs paid to third-party processing networks. Such costs are recognized at the time the merchant transactions are processed or when the services are performed. Two of the most significant components of electronic processing expenses included interchange and assessment costs, which are set by the credit card associations. Interchange costs are passed on to the entity issuing the credit card used in the transaction and assessment costs are retained by the credit card associations. Interchange and assessment fees are billed primarily as a percent of dollar volume processed and, to a lesser extent, as a per transaction fee. In addition to costs directly related to the processing of merchant sales volume, electronic payment processing costs also include residual expenses. Residual expenses represent fees paid to third-party sales referral sources. Residual expenses are paid under various formulae as contracted. These are generally linked to revenues derived from merchants successfully referred to the Company and that begin using the Company for merchant processing services. Such residual expenses are recognized in the Company’s consolidated statements of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Invested cash is held almost exclusively at financial institutions of high credit quality. The Company invests cash not held in interest free checking accounts or bank money market accounts mainly in U.S. Treasury only money market instruments or funds and other investment-grade securities. As of December 31, 2015, cash deposits in excess of FDIC deposit insurance and SIPC insurance totaled approximately $13,908,000.
Restricted Cash
Restricted cash includes cash collateral relating to a letter of credit; monies due on SBA loan-related remittances to third parties; a cash reserve established as part of a voluntary agreement with the SBA, and cash reserves associated with securitization transactions.
Broker Receivable
Broker receivable represents amounts due from third parties for loans which have been traded at period end but have not yet settled.
Out of Period Adjustment
During the three months ended December 31, 2015, the Company identified an error in its accounting for the BDC Conversion. The error related to the accounting for recording debt investments in controlled portfolio companies at fair value. There were no errors in the fair value of any investments at December 31, 2014 however, other assets and additional paid-in capital were overstated. The Company assessed the materiality of the error on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and
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SAB No. 108 and concluded that the error was not material to any of its previously issued financial statements. The cumulative adjustment as of December 31, 2015 was a reduction of $800,000 in other assets and an $800,000 reduction of additional paid-in capital. This item was recorded as an out-of-period adjustment at December 31, 2015. There was no impact to the consolidated statements of operations for the year ended December 31, 2015 or the period November 12, 2014 to December 31, 2014.
Allowance for SBA Loan Losses
Prior to the BDC conversion, impaired loans carried on a cost-basis had an allowance for loan losses established by management through provisions for loan losses. The amount of the allowance for loan losses was inherently subjective, as it required making material estimates which may have varied from actual results. Management’s estimates of the allowance for loan losses were particularly affected by the changing composition of the loan portfolio over the last few years as well as other portfolio characteristics, such as industry concentrations and loan collateral. The adequacy of the allowance for loan losses was reviewed by management on a monthly basis at a minimum, and as adjustments became necessary, were reflected in provision for loan losses during the periods in which they became known. Considerations in this evaluation include past and anticipated loss experience, risks inherent in the current portfolio and evaluation of real estate collateral as well as economic conditions. An allowance was established when the discounted cash flows or collateral value or observable market price of the impaired loan was lower than the carrying value of that loan.
In connection with the Company's conversion to a BDC, the allowance for loan losses associated with cost basis loans was released and recorded to the additional paid-in capital component of stockholders' equity as of the conversion date. Subsequent to the BDC Conversion, all SBA loans held for investment are measured at fair value.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Other factors considered by management in determining impairment include payment status and collateral value. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
The Company’s charge-off policy is based on a loan-by-loan review for which the estimated uncollectible portion of nonperforming loans is charged off against the corresponding loan receivable and the allowance for possible loan losses or against the reduction in fair value.
SBA Guaranteed Loans
For guaranteed portions funded, but not yet traded at each measurement date, management recorded SBA guaranteed loans at fair value. SBA guaranteed loans are valued utilizing Level 2 inputs. These inputs include debt securities with quoted prices that are traded less frequently than exchange-traded instruments or have values determined using a pricing model with inputs that are observable in the market. The secondary market for the guaranteed portions is extremely robust with broker dealers acting as primary dealers. NSBF sells regularly into the market and can quickly price its loans held for sale. The Company values the guaranteed portion based on observable market prices for similar assets. SBA guaranteed loans are sold with the servicing rights retained by the Company.
Deferred Financing Costs
Deferred financing costs are amortized under the straight-line method over the terms of the related indebtedness, which approximates the effective interest method and is included in interest expense in the accompanying consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. In order to estimate the
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fair value of a long-lived asset, the Company may engage a third party to assist with the valuation. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future.
Securitization Activities
NSBF engages in securitization transactions involving the unguaranteed portions of its SBA 7(a) loans. Because the transfer of these assets do not meet the criteria of a sale for accounting purposes, the transactions are treated as secured borrowings. NSBF continues to recognize the assets of the secured borrowing in SBA unguaranteed non-affiliate investments and the associated financing in Note payable - Securitization trust VIE, on the consolidated statements of assets and liabilities.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets deemed to have an indefinite life are not amortized and are subject to impairment tests, at least annually. Other intangible assets with finite lives were amortized over their useful lives ranging from 18 to 66 months.
The Company considers the following to be some examples of indicators that may trigger an impairment review outside its annual impairment review: (i) significant under-performance or loss of key contracts acquired in an acquisition relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. In assessing the recoverability of the Company’s goodwill and intangibles, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These include estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, the useful life over which cash flows will occur, and determination of the Company’s cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on goodwill impairment.
In performing Step 1 of the impairment test the Company estimated the fair value of its reporting units based on a combination of an income approach using a discounted cash flow analysis and market based approach based on comparable public companies. Based on this analysis, it was determined that the carrying value of the NBC reporting unit, including goodwill exceeded its fair value requiring the Company to perform Step 2 of the goodwill impairment test to measure the amount of impairment loss, if any. In performing Step 2 of the goodwill impairment test, the Company compared the implied fair value of the NBC reporting unit's goodwill to the carrying value of goodwill. This test resulted in a goodwill impairment charge of $1,706,000 and a write off of goodwill. This impairment has been reported in total expenses on the consolidated statement of operations during the period ended November 11, 2014.
Share—Based Compensation
All share-based payments to employees are recognized in the financial statements based on their fair values using an option-pricing model at the date of grant. The Company recognizes compensation on a straight-line basis over the requisite service period for the entire award. The Company has elected to adopt the alternative transition method for calculating the tax effects of share-based compensation. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee share-based compensation, which is available to absorb tax deficiencies.
Income Taxes
Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted tax rates in effect for the year in which those temporary differences are expected to be realized or settled. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized.
The Company’s U.S. federal and state income tax returns prior to fiscal year 2012 are closed, and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
The Company will elect to be treated as a RIC beginning with the 2015 tax year under Subchapter M of the Internal Revenue Code of 1986, as amended and will operate in a manner so as to qualify for the tax treatment applicable to RICs. The RIC tax
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return will include Newtek Business Services Corp. and NSBF, a single member LLC disregarded for tax purposes. None of the Company’s other subsidiaries are included in the RIC return. The Company will evaluate and record any deferred tax assets and liabilities of the subsidiaries that are not part of the RIC. In order to qualify as a RIC, among other things, the Company will be required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each tax year. The Company intends to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes with respect to all income distributed to its stockholders.
As a result of the BDC Conversion and the Company's intention to elect RIC status when it files its 2015 tax return, the Company reversed the balance of its deferred tax asset as of December 31, 2014 through additional paid-in capital. The deferred tax asset was attributable to previously consolidated subsidiaries of the Company that became non-consolidated portfolio companies as part of the Conversion, or deferred tax assets related to NSBF.
Depending on the level of taxable income earned in a tax year, the Company may choose to retain taxable income in excess of current year dividend distributions, and would distribute such taxable income in the next tax year. The Company would then pay a 4% excise tax on such income, as required. To the extent that the Company determines that it’s estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the year ended December 31, 2015, no U.S. federal excise taxes were due.
The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. Such deferred tax liabilities amounted to $857,000 for the year ended December 31, 2015, and are recorded as deferred tax liability on the consolidated statements of assets and liabilities. The change in deferred tax liabilities is included as a component of net unrealized appreciation (depreciation) on investments in the consolidated statements of operations. There were no deferred tax liabilities related to unrealized gains generated by the Taxable Subsidiaries at December 31, 2014.
Accounting for Uncertainty in Income Taxes
The ultimate deductibility of positions taken or expected to be taken on tax returns is often uncertain. In order to recognize the benefits associated with a tax position taken (i.e., generally a deduction on a corporation’s tax return), the entity must conclude that the ultimate allowability of the deduction is more likely than not. If the ultimate allowability of the tax position exceeds 50% (i.e., it is more likely than not), the benefit associated with the position is recognized at the largest dollar amount that has more than a 50% likelihood of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and recognized will generally result in (1) an increase in income taxes currently payable or a reduction in an income tax refund receivable or (2) an increase in a deferred tax liability or a decrease in a deferred tax asset, or both (1) and (2).
New Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases”,which amends various aspects of existing accounting guidance for leases, including the recognition of a right of use asset and a lease liability for leases with a duration of greater than one year. The ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those periods. Early adoption is permitted. The Company has not completed its review of the new guidance; however, the Company anticipates that upon adoption of the standard it will recognize additional assets and corresponding liabilities related to leases on its consolidated statements of assets and liabilities.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which, among other things, requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU changes the disclosure requirements for financial instruments. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those periods, and early adoption is permitted for certain provisions. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and disclosures.
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-Period Adjustments.” The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update requires that the acquirer record in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects,
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if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods.The Company does not expect this update to have a material impact on its consolidated financial statements and disclosures.
In August 2015, the FASB issued ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” The update allows debt issuance costs related to a line-of-credit arrangement to be deferred as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As the Company currently presents such debt issuance costs in accordance with the update, the Company does not expect this update to have a material impact on its consolidated financial statements and disclosures.
In May 2015, the FASB issued ASU 2015-07 “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” The update changes the requirements for the presentation of certain investments using the net asset value, providing a practical expedient to exclude such investments from categorization within the fair value hierarchy and make a separate disclosure. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods. The Company does not expect this guidance to have a material impact on its consolidated financial statements and disclosures.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs.” This update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the debt liability. This ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact of this update to its consolidated financial statements and disclosures.
Segments
Subsequent to the BDC Conversion, the Company has determined that it has a single reporting segment and operating unit structure. The Company lends to and makes investments in portfolio companies in various industries. The Company separately evaluates the performance of each of its lending and investment relationships. However, because of each of these loan and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
NOTE 3—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, management uses various valuation approaches, all of which have been approved by the Company's Board. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and gives the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The levels of the fair value hierarchy are as follows:
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Level 1 | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts. | |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or a liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company assesses the levels of assets and liabilities at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfers. There were no transfers among Level 1, 2 and 3 of the fair value hierarchy for assets and liabilities during the year ended December 31, 2015, the period from November 12, 2014 to December 31, 2014, the period ended November 11, 2014 or the year ended December 31, 2013. The following section describes the valuation techniques used by the Company to measure different assets and liabilities at fair value and includes the level within the fair value hierarchy in which the assets and liabilities are categorized.
Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms that have been engaged at the direction of the Board to assist in the valuation of certain portfolio investments without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process.
When determining fair value of Level 3 debt and equity investments, the Company may take into account the following factors, where relevant: the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons to publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization (“EBITDA”) or revenue. The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, the Company will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, the Company uses a market interest rate yield analysis to determine fair value.
In addition, for certain debt investments, the Company may base its valuation on quotes provided by an independent third party broker.
Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If
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the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company may realize significantly less than the value at which such investment had previously been recorded.
The Company’s investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.
The following tables present fair value measurements of the Company’s assets and liabilities measured at fair value and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values as of December 31, 2015 and 2014:
Fair Value Measurements at December 31, 2015 Using: | |||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||||
Assets | |||||||||||||||||||
Investments in money markets funds | $ | 35 | $ | 35 | $ | — | $ | — | $ | — | |||||||||
Credits in lieu of cash | 860 | — | 860 | — | (7 | ) | |||||||||||||
SBA unguaranteed non-affiliate investments | 158,355 | — | — | 158,355 | (8,410 | ) | |||||||||||||
SBA guaranteed non-affiliate investments | 2,284 | — | 2,284 | — | 215 | ||||||||||||||
Controlled investments | 104,376 | — | — | 104,376 | 12,250 | ||||||||||||||
Other real estate owned (1) | 989 | — | 989 | — | (221 | ) | |||||||||||||
Non-control/non-affiliate investments | 1,824 | — | — | 1,824 | (24 | ) | |||||||||||||
Servicing assets | 13,042 | — | — | 13,042 | (428 | ) | |||||||||||||
Total assets | $ | 281,765 | $ | 35 | $ | 4,133 | $ | 277,597 | $ | 3,375 | |||||||||
Liabilities | |||||||||||||||||||
Notes payable in credits in lieu of cash | $ | 860 | $ | — | $ | 860 | $ | — | $ | (3 | ) | ||||||||
(1) Included in Other Assets on the Consolidated Statements of Assets and Liabilities
Fair Value Measurements at December 31, 2014 Using: | |||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||||
Assets | |||||||||||||||||||
Investments in money markets funds | $ | 3,000 | $ | 3,000 | $ | — | $ | — | $ | — | |||||||||
Credits in lieu of cash | 2,229 | — | 2,229 | — | (13 | ) | |||||||||||||
SBA unguaranteed investments | 121,477 | — | — | 121,477 | (9,605 | ) | |||||||||||||
SBA guaranteed investments | 31,486 | — | 31,486 | — | 3,429 | ||||||||||||||
Controlled investments | 77,499 | — | — | 77,499 | — | ||||||||||||||
Servicing assets | 9,483 | — | — | 9,483 | (120 | ) | |||||||||||||
Total assets | $ | 245,174 | $ | 3,000 | $ | 33,715 | $ | 208,459 | $ | (6,309 | ) | ||||||||
Liabilities | |||||||||||||||||||
Notes payable in credits in lieu of cash | $ | 2,229 | $ | — | $ | 2,229 | $ | — | $ | 5 | |||||||||
The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements as of December 31, 2015 and 2014. In addition to the techniques and inputs noted in the table below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements at December 31, 2015 and 2014.
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Range | ||||||||||||||
Fair Value as of December 31, 2015 | Valuation Techniques | Unobservable Input | Weighted Average | Minimum | Maximum | |||||||||
Assets: | ||||||||||||||
SBA unguaranteed non-affiliate investments - performing loans | $ | 152,158 | Discounted cash flow | Market yields | 5.30% | 5.30% | 5.30% | |||||||
SBA unguaranteed non-affiliate investments - non-performing loans | $ | 6,197 | Discounted cash flow | Market yields | 8.76% | 8.76% | 8.76% | |||||||
Controlled equity investments (A) | $ | 100,310 | Market comparable companies | EBITDA multiples (B) | 6.0x | 3.00x | 7.00x | |||||||
Market comparable companies | Revenue multiples (B) | 1.08x | 0.50x | 3.00x | ||||||||||
Discounted cash flow | Weighted average cost of capital | 12.37% | 11.30% | 15.60% | ||||||||||
Controlled debt investments | $ | 4,066 | Discounted cash flow | Market yields | 6.26% | 5.75% | 7.50% | |||||||
Non-SBA debt investments | $ | 1,824 | Liquidation value | Asset value | N/A | N/A | N/A | |||||||
Servicing assets | $ | 13,042 | Discounted cash flow | Market yields | 12.03% | 12.03% | 12.03% | |||||||
(A) In determining the fair value of the Company's controlled equity investments as of December 31, 2015, the proportion of the market comparable companies valuation technique and the discounted cash flow valuation technique were 47.1% and 52.9%, respectively, on a weighted average basis.
(B) The Company valued $92,865,000 of investments using a 50/50 weighting of EBITDA and revenue multiples and $1,020,000 of investments using only revenue multiples in the overall valuation approach which included the use of market comparable companies. The Company valued $6,425,000 of investments using only discounted cash flows.
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Range | ||||||||||||||
Fair Value as of December 31, 2014 | Valuation Techniques | Unobservable Input | Weighted Average | Minimum | Maximum | |||||||||
Assets: | ||||||||||||||
SBA unguaranteed non-affiliate investments - performing loans | $ | 115,175 | Discounted cash flow | Market yields | 5.38% | 5.38% | 5.38% | |||||||
SBA unguaranteed non-affiliate investments - non-performing loans | $ | 6,302 | Discounted cash flow | Market yields | 7.00% | 7.00% | 7.00% | |||||||
Controlled investments (A) | $ | 77,499 | Market comparable companies | EBITDA multiples | 5.7x | 3.00x | 9.00x | |||||||
Market comparable companies | Revenue multiples | 0.95x | 0.40x | 3.00x | ||||||||||
Discounted cash flow | Weighted average cost of capital | 17.80% | 10.70% | 20.00% | ||||||||||
Servicing assets | $ | 9,483 | Discounted cash flow | Market yields | 11.58% | 11.58% | 11.58% | |||||||
(A) In determining the fair value of the Company's controlled investments as of December 31, 2014, the proportion of the market comparable companies valuation technique and the discounted cash flow valuation technique were 48.1% and 51.9%, respectively, on a weighted average basis.
The following table presents the changes in investments and servicing assets measured at fair value using Level 3 inputs for the year ended December 31, 2015:
Year ended December 31, 2015 | |||||||||||||||
SBA unguaranteed non-affiliate investments | Controlled investments | Non-control/non-affiliate investments | Servicing assets | ||||||||||||
Fair value, beginning of period | $ | 121,477 | $ | 77,499 | $ | — | $ | 9,483 | |||||||
Net change in unrealized appreciation (depreciation) | 1,183 | 12,250 | (24 | ) | (1,268 | ) | |||||||||
Realized loss | (1,189 | ) | — | — | — | ||||||||||
SBA unguaranteed non-affiliate investments, originated | 57,053 | — | — | — | |||||||||||
Foreclosed real estate acquired | (1,130 | ) | — | — | — | ||||||||||
Funding of investments | — | 19,573 | 2,200 | — | |||||||||||
Purchase of loan from SBA | 703 | — | — | — | |||||||||||
Return of investment | — | (3,746 | ) | — | — | ||||||||||
Principal payments received on debt investments | (19,742 | ) | (1,200 | ) | (352 | ) | — | ||||||||
Additions to servicing assets | — | — | — | 4,827 | |||||||||||
Fair value, end of period | $ | 158,355 | $ | 104,376 | $ | 1,824 | $ | 13,042 | |||||||
The following table presents the changes in controlled investments and servicing assets measured at fair value using Level 3 inputs for the period November 12, 2014 to December 31, 2014:
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November 12, 2014 to December 31, 2014 | |||||||
Controlled investments | Servicing assets | ||||||
Fair value, beginning of period | $ | 77,499 | $ | 9,465 | |||
Net change in unrealized depreciation | — | (120 | ) | ||||
Additions to servicing assets | — | 138 | |||||
Fair value, end of period | $ | 77,499 | $ | 9,483 | |||
The following table presents the changes in SBA unguaranteed non-affiliate investments measured at fair value using Level 3 inputs for the year ended December 31, 2014:
December 31, 2014 | |||
Balance, beginning of year | $ | 78,951 | |
SBA unguaranteed investments, originated | 48,189 | ||
Loans transferred to other real estate owned | (174 | ) | |
Principal payments received | (10,411 | ) | |
Cumulative effect of BDC Conversion | 8,780 | ||
Net change in unrealized depreciation | (3,858 | ) | |
Balance, end of year | $ | 121,477 | |
NOTE 4—CREDITS IN LIEU OF CASH:
Following is a summary of the credits in lieu of cash balance as of December 31, 2015 and 2014 (in thousands):
2015 | 2014 | ||||||
Balance, beginning of year | $ | 2,229 | $ | 3,641 | |||
Add: Income from tax credit accretion (at fair value) | 32 | 62 | |||||
Less: Tax credits delivered | (1,394 | ) | (1,460 | ) | |||
Fair value adjustment | (7 | ) | (14 | ) | |||
Balance, end of year | $ | 860 | $ | 2,229 | |||
NOTE 5—INVESTMENTS:
Investments, all of which are with portfolio companies in the United States, consisted of the following at December 31, 2015 and 2014:
2015 | 2014 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Money market funds | $ | 35 | $ | 35 | $ | 3,000 | $ | 3,000 | ||||||||
Non-affiliate debt investments | $ | 170,668 | $ | 162,463 | $ | 159,150 | $ | 152,963 | ||||||||
Controlled investments | ||||||||||||||||
Equity | $ | 30,395 | $ | 100,310 | $ | 10,121 | $ | 73,616 | ||||||||
Debt | 5,386 | 4,066 | 7,944 | 3,883 | ||||||||||||
Total investments | $ | 206,484 | $ | 266,874 | $ | 180,215 | $ | 233,462 | ||||||||
The following table shows the Company's portfolio investments by industry at December 31, 2015 and 2014:
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2015 | 2014 | |||||||||||||||
Industry | Cost | Fair Value | Cost | Fair Value | ||||||||||||
Data Processing, Hosting and Related Services | $ | 28,506 | $ | 92,600 | $ | 13,772 | $ | 70,322 | ||||||||
Amusement, Gambling, and Recreation Industries | 14,372 | 14,632 | 13,495 | 13,621 | ||||||||||||
Food Services and Drinking Establishments | 15,241 | 14,453 | 15,816 | 15,442 | ||||||||||||
Securities, Commodity Contracts, and Other Financial Investments and Related Activities | 8,057 | 10,031 | 5,278 | 5,771 | ||||||||||||
Repair and Maintenance | 9,440 | 9,337 | 7,250 | 7,023 | ||||||||||||
Ambulatory Health Care Services | 8,858 | 8,214 | 6,777 | 6,225 | ||||||||||||
Specialty Trade Contractors | 8,492 | 7,718 | 6,298 | 5,414 | ||||||||||||
Accommodation | 6,940 | 6,974 | 7,240 | 7,240 | ||||||||||||
Professional, Scientific, and Technical Services | 7,378 | 6,856 | 5,438 | 4,939 | ||||||||||||
Merchant Wholesalers, Durable Goods | 6,726 | 6,299 | 3,763 | 3,729 | ||||||||||||
Truck Transportation | 6,142 | 5,699 | 5,621 | 5,494 | ||||||||||||
Food Manufacturing | 5,386 | 4,630 | 4,757 | 3,793 | ||||||||||||
Administrative and Support Services | 4,797 | 4,566 | 2,663 | 2,400 | ||||||||||||
Motor Vehicle and Parts Dealers | 4,289 | 4,249 | 3,759 | 3,755 | ||||||||||||
Gasoline Stations | 4,040 | 4,008 | 3,895 | 3,727 | ||||||||||||
Social Assistance | 3,955 | 3,845 | 3,537 | 3,474 | ||||||||||||
Insurance Carriers and Related Activities | 1,288 | 3,769 | 1,417 | 3,622 | ||||||||||||
Fabricated Metal Product Manufacturing | 3,943 | 3,577 | 5,627 | 5,258 | ||||||||||||
Personal and Laundry Services | 3,231 | 3,064 | 2,759 | 2,609 | ||||||||||||
Merchant Wholesalers, Nondurable Goods | 3,015 | 2,981 | 2,541 | 2,459 | ||||||||||||
Plastics and Rubber Products Manufacturing | 2,857 | 2,687 | 7,690 | 8,120 | ||||||||||||
Clothing and Clothing Accessories Stores | 2,357 | 2,125 | 6,709 | 6,958 | ||||||||||||
Nonstore Retailers | 2,328 | 2,002 | 2,878 | 2,923 | ||||||||||||
Apparel Manufacturing | 536 | 467 | 2,330 | 2,528 | ||||||||||||
Other | 44,275 | 42,056 | 35,905 | 33,616 | ||||||||||||
Total | $ | 206,449 | $ | 266,839 | $ | 177,215 | $ | 230,462 | ||||||||
NOTE 6—TRANSACTIONS WITH AFFILIATED COMPANIES:
An affiliated company is a company in which the Company has an ownership of 5% or more of its voting securities. A controlled affiliate is a company in which the Company owns more than 25% of its voting securities. Transactions related to our investments with controlled affiliates for the year ended December 31, 2015 were as follows:
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Portfolio Company | Fair Value at December 31, 2014 | Purchases (cost) | Principal received (cost) | Net realized gains/(losses) | Net unrealized gains/(losses) | Fair Value at December 31, 2015 | Interest and other income | Dividend income | ||||||||||||||||||||||||
Controlled Affiliates | ||||||||||||||||||||||||||||||||
Small Business Lending, Inc. | $ | 2,900 | $ | — | $ | (2,965 | ) | $ | — | $ | 5,565 | $ | 5,500 | $ | — | $ | 348 | |||||||||||||||
PMTWorks Payroll, LLC | 920 | — | — | — | 100 | 1,020 | 105 | — | ||||||||||||||||||||||||
Universal Processing Services of Wisconsin, LLC | 45,500 | — | — | — | 6,948 | 52,448 | 5 | 6,590 | ||||||||||||||||||||||||
CrystalTech Web Hosting, Inc. | 21,500 | — | (493 | ) | — | 407 | 21,414 | — | 308 | |||||||||||||||||||||||
CDS Business Services, Inc. (1) | 1,979 | 3,070 | (288 | ) | — | (966 | ) | 3,795 | 31 | — | ||||||||||||||||||||||
Exponential Business Development Co., Inc. | — | — | — | — | — | — | — | 1,080 | ||||||||||||||||||||||||
Premier Payments LLC | — | 16,503 | — | — | — | 16,503 | — | 600 | ||||||||||||||||||||||||
Newtek Insurance Agency, LLC | 2,300 | — | — | — | 200 | 2,500 | 99 | — | ||||||||||||||||||||||||
Advanced Cyber Security Systems, LLC | — | — | — | — | — | — | 14 | — | ||||||||||||||||||||||||
First Bankcard Alliance of Alabama, LLC | — | — | — | — | — | — | — | 78 | ||||||||||||||||||||||||
Fortress Data Management, LLC | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Automated Merchant Services, Inc. | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Summit Systems and Designs, LLC | — | — | — | — | — | — | — | 1,162 | ||||||||||||||||||||||||
Secure CyberGateway Services, LLC | 2,400 | — | (1,200 | ) | — | (4 | ) | 1,196 | 130 | 52 | ||||||||||||||||||||||
Business Connect, LLC | — | — | — | — | — | — | 4 | — | ||||||||||||||||||||||||
Total Controlled Affiliates | $ | 77,499 | $ | 19,573 | $ | (4,946 | ) | $ | — | $ | 12,250 | $ | 104,376 | $ | 388 | $ | 10,218 | |||||||||||||||
(1) During the year ended December 31, 2015, the Company converted its previous debt investments in CDS Business Services, Inc. to equity.
NOTE 7—SERVICING ASSETS:
At December 31, 2015 and 2014, servicing assets are measured at fair value. The Company earns servicing fees from SBA 7(a) loans it originates. Prior to the BDC Conversion, the Company also earned servicing fees from loans originated by third parties. This income is now earned by one of the Company's controlled portfolio companies. Prior to the BDC Conversion, servicing assets were amortized and not recorded at fair value.
The following table summarizes the fair value and valuation assumptions related to servicing assets at December 31, 2015 and 2014:
2015 | 2014 | ||||||
Fair Value | $ | 13,042 | $ | 9,483 | |||
Discount factor (1) | 12.03 | % | 11.58 | % | |||
Cumulative prepayment rate | 15.50 | % | 19.00 | % | |||
Average cumulative default rate | 20.00 | % | 25.00 | % | |||
(1) In 2015, determined based on risk spreads and observable secondary market transactions. In 2014, determined based on a blended approach of the weighted average cost of capital and the weighted average servicing spread.
The following table summarizes servicing fee income earned for the year ended December 31, 2015, the periods November 12, 2014 through December 31, 2014, the period ended November 11, 2014 and the year ended December 31, 2013:
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December 31, 2015 | November 12, 2014 through December 31, 2014 | January 1, 2014 through November 11, 2014 | December 31, 2013 | ||||||||||||
Servicing fees from Newtek originated loans | $ | 4,611 | $ | 562 | $ | 3,111 | $ | 2,769 | |||||||
Servicing fees from third party originated loans (2) | — | — | 6,142 | 3,796 | |||||||||||
Total servicing fees earned | $ | 4,611 | $ | 562 | $ | 9,253 | $ | 6,565 | |||||||
(2) For servicing functions on loans originated by third party lenders, the Company did not retain any risk on such portfolios and earned servicing fees based on a mutually negotiated fee per loan.
NOTE 8—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES:
The following table details the components of accounts payable, accrued expenses and other liabilities at December 31, 2015 and 2014:
2015 | 2014 | ||||||
Due to participants and SBA (a) | $ | 3,943 | $ | 3,100 | |||
Due to borrowers | 184 | 425 | |||||
Accrued payroll and related expenses | 2,091 | 1,552 | |||||
Deferred rent | 78 | 324 | |||||
Commissions payable | 192 | 190 | |||||
Loan processing and servicing | 1,331 | 618 | |||||
Other | 1,126 | 1,566 | |||||
Total accounts payable, accrued expenses and other liabilities | $ | 8,945 | $ | 7,775 | |||
(a) Primarily represents loan related remittances received by NSBF, and due to third parties.
NOTE 9—BORROWINGS:
At December 31, 2015 and 2014, the Company had borrowings comprised of the following:
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||
Facility | Commitments | Borrowings Outstanding | Weighted Average Interest Rate | Commitments | Borrowings Outstanding | Weighted Average Interest Rate | ||||||||||||||||
Capital One line of credit - guaranteed (1) | $ | 50,000 | $ | 29,100 | 4.25 | % | $ | 50,000 | $ | 28,722 | 4.25 | % | ||||||||||
Capital One line of credit - unguaranteed (1) | — | — | — | % | — | 5,134 | 5.13 | % | ||||||||||||||
Capital One term loan | — | — | — | % | 10,000 | 9,167 | 5.75 | % | ||||||||||||||
Notes due 2022 | 8,324 | 8,324 | 7.50 | % | — | — | — | % | ||||||||||||||
Note payable - related party | 38,000 | 5,647 | 7.50 | % | — | — | — | % | ||||||||||||||
Notes payable - Securitization Trusts | 91,745 | 91,745 | 3.29 | % | 79,520 | 79,520 | 3.80 | % | ||||||||||||||
Total | $ | 188,069 | $ | 134,816 | 3.93 | % | $ | 139,520 | $ | 122,543 | 4.11 | % | ||||||||||
(1) Total combined commitments of the guaranteed and unguaranteed lines of credit are $50,000,000 at December 31, 2015 and 2014.
As of December 31, 2015 and 2014, the carrying amounts of the Company's borrowings approximated their fair value. The fair values of the Company's borrowings are determined in accordance with ASC 820 which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.
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Total interest expense for the year ended December 31, 2015, the period November 12, 2014 to December 31, 2014, the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013 were $6,479,000, $568,000, $7,323,000 and $5,863,000, respectively.
7.5% Notes Due 2022
In September 2015, the Company and U.S. Bank, N.A. (the “Trustee”), entered into the First Supplemental Indenture (the “First Supplemental Indenture”) to the Base Indenture between the Company and the Trustee, dated September 23, 2015, relating to the Company’s issuance, offer and sale of $8,200,000 aggregate principal amount of 7.5% notes due 2022 (the “Notes”). In October 2015, the underwriters issued notification to exercise their over-allotment option for an additional $124,000 in aggregate principal amount of the Notes. The sale of the Notes generated net proceeds of approximately $7,747,000.
The Notes will mature on September 30, 2022 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after September 23, 2018, at a redemption price of 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. The Notes bear interest at a rate of 7.5% per year payable quarterly on March 31, June 30, September 30, and December 31 of each year, commencing on December 31, 2015, and trade on the NASDAQ Global Market under the trading symbol “NEWTZ.”
The Notes will be the Company’s direct unsecured obligations and will rank: (i) pari passu with the Company’s other outstanding and future unsecured indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the Notes; (iii) effectively subordinated to all the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries.
The Base Indenture, as supplemented by the First Supplemental Indenture, contains certain covenants including covenants requiring the Company to comply with (regardless of whether it is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act and to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the First Supplemental Indenture. The Base Indenture, as supplemented by the First Supplemental Indenture, also contains certain reporting requirements, including a requirement that the Company provide financial information to the holders of the Notes and the Trustee if the Company should no longer be subject to the reporting requirements under the Securities Exchange Act of 1934. The Base Indenture provides for customary events of default. As of December 31, 2015, the Company was in compliance with the terms of the Base Indenture as supplemented by the First Supplemental Indenture.
At December 31, 2015 the Notes had an outstanding principal balance of $8,324,000. For the year ended December 31, 2015, interest expense and amortization of related deferred financing costs were $169,000 and $22,900, respectively, which represented the interest and amortization of deferred financing costs from September 23, 2015 through December 31, 2015.
Capital One Term Loan
In June 2014, the Company entered into a four year $20,000,000 credit agreement with Capital One consisting of a $10,000,000 term loan and a revolving line of credit of up to $10,000,000. Principal and interest on the term loan were payable quarterly in arrears with interest at Prime plus 2.5% . The term loan was being amortized over a four year period with a final payment due at maturity. The interest rate on the revolving line of credit was also Prime plus 2.5% and was payable monthly in arrears with the principal due at maturity. In addition, the revolving line accrued interest of 0.375% on the unused portion of the line which was payable quarterly in arrears.
The purpose of the facilities was to refinance the Company's existing note payable from Summit Partners Credit Advisors, L.P., payoff the current portion of an NTS note payable and for general working capital purposes. The Company incurred deferred financing costs of approximately $279,000 which were being amortized to interest expense over the term of the facilities. In addition, and in connection with the pay-off of the Summit Partners note payable, the Company expensed the remaining debt discount and deferred financing costs related to Summit, which resulted in a charge to operations for the period ended November 11, 2014 of $1,905,000. Interest expense on the Summit debt, including $1,905,000 of remaining debt discount and
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deferred financing costs expensed at the time of the Capital One refinance, was $2,953,000 and $1,521,000 for the period ended November 11, 2014 and year ended December 31, 2013, respectively.
In June 2015, the Company paid off the Capital One term loan and retired the Capital One credit facility. The proceeds used to pay down the Capital One term loan and accrued interest of $8,879,000 as of June 23, 2015 were received from two controlled portfolio companies. There was no amount due under the revolving line of credit with Capital One at retirement.
Interest expense including amortization of deferred financing costs on the Capital One facilities for the year ended December 31, 2015 and period ended November 11,2014 were approximately $564,000 and $409,000, respectively.
Capital One Lines of Credit (Guaranteed and Unguaranteed)
The Company’s wholly owned subsidiary, NSBF, has a $50,000,000 credit facility with Capital One. The facility provides for a 55% advance rate on the non-guaranteed portions of the SBA 7(a) loans it originates, and a 90% advance rate on the guaranteed portions of SBA 7(a) loans it originates. The interest rate on the portion of the facility, collateralized by the government guaranteed portion of SBA 7(a) loans, is set at Prime plus 1.00%, and there is a quarterly facility fee equal to 0.25% on the unused portion of the revolving credit calculated as of the end of each calendar quarter. The interest rate on the portion of the facility, collateralized by the non-guaranteed portion of SBA 7(a) loans, is set at Prime plus 1.875%, and there is a quarterly facility fee equal to 0.25% on the unused portion of the revolving credit calculated as of the end of each calendar quarter. In June 2015, NSBF amended the existing facility to eliminate the fixed charge coverage ratio in exchange for a debt service ratio, new EBITDA minimums, the elimination of restrictions on the ability to pay dividends to stockholders, as well as the release of the guarantees of our former subsidiaries (now treated as portfolio companies). In addition, the amendment extended the date on which the facility will convert to a term loan from May 16, 2016 to May 16, 2017 and extended the maturity date of the facility to May 16, 2019. The facility provides for quarterly covenants including a debt service ratio, EBITDA minimum requirements and a minimum net income covenant. At December 31, 2015, we were in full compliance with all applicable loan covenants.
Total interest expense attributable to the NSBF Capital One facility for the year ended December 31, 2015, the period November 12, 2014 to December 31, 2014, the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013 was $1,165,000, $149,000, $921,000 and $886,000, respectively.
Notes Payable - Securitization Trust VIE
Since 2010, NSBF has engaged in securitizations of the unguaranteed portions of its SBA 7(a) loans. In the securitization, it uses a special purpose entity (the “Trust”) which is considered a VIE. Applying the consolidation requirements for VIEs under the accounting rules in ASC Topic 860, Transfers and Servicing, and ASC Topic 810, Consolidation, which became effective January 1, 2010, the Company determined that as the primary beneficiary of the securitization vehicle, based on its power to direct activities through its role as servicer for the Trust and its obligation to absorb losses and right to receive benefits, it needed to consolidate the Trusts. NSBF therefore consolidated the entity using the carrying amounts of the Trust’s assets and liabilities. NSBF reflects the assets in SBA Unguaranteed Non-Affiliate Investments and reflects the associated financing in Notes Payable - Securitization Trust VIE.
In December 2014, NSBF completed a securitization which resulted in the transfer of $36,000,000 of unguaranteed portions of SBA loans. The Trust in turn issued securitization notes for the par amount of $31,700,000 against the assets in a private placement. The notes received an “A” rating by S&P, and the final maturity date of the notes is April 2040.
In September 2015, NSBF issued additional unguaranteed SBA 7(a) loan-backed notes as part of an upsizing of the Newtek Small Business Loan Trust, Series 2010-1. Note principal amounts of the original and exchanged notes were approximately $8,771,000 with additional notes which totaled approximately $32,028,000 as part of the upsizing. The initial aggregate amount of the senior notes issued by the Trust were approximately $40,800,000 on the closing date. The notes are collateralized by approximately $46,458,000 of SBA 7(a) unguaranteed portions and include a prefunded amount of $14,679,000 to be originated and transferred subsequently to the trust. The notes retained their AA rating under S&P, and the final maturity of the amended notes is February 25, 2041.
Total interest expense attributable to the Trusts for the year ended December 31, 2015, the period November 12, 2014 to December 31, 2014, the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013 was approximately $3,810,000, $389,000, $2,692,000 and $2,111,000, respectively.
Deferred financing costs associated with the securitization transactions were $2,501,000 and $2,550,000 at December 31, 2015 and 2014, respectively, At December 31, 2015 and 2014, the assets of the consolidated Trust totaled $148,964,000 and
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$123,540,000 respectively. At December 31, 2015 and 2014, the liabilities of the consolidated Trust totaled $91,745,000 and $79,520,000, respectively.
The Trusts are only permitted to purchase the unguaranteed portion of SBA 7(a) loans, issue asset-backed securities, and make payments on the securities. The Trusts only issued a single series of securities to pay for the unguaranteed portions it acquired from NSBF and will be dissolved when those securities have been paid in full. The primary source for repayment of the debt is the cash flows generated from the unguaranteed portion of SBA 7(a) loans owned by the Trusts; principal on the debt will be paid by cash flow in excess of that needed to pay various fees related to the operation of the Trusts and interest on the debt. The debt has an expected maturity of approximately six years based on the expected performance of the underlying collateral and structure of the debt and a legal maturity of 30 years from the date of issuance. The assets of the Trusts are legally isolated and are not available to pay NSBF’s creditors. However, NSBF continues to retain rights to cash reserves and residual interests in the Trusts and will receive servicing income. For bankruptcy analysis purposes, NSBF sold the unguaranteed portions to the Trusts in a true sale and the Trusts are separate legal entities. The investors and the Trusts have no recourse to any of NSBF’s other assets for failure of debtors to pay when due; however, NSBF’s parent, Newtek, has provided a limited guaranty to the investors in the Trusts in an amount not to exceed 10% of the original issuance amount to be used after all of the assets of the Trusts have been exhausted.
Note Payable - Related Party
In June 2015, the Company entered into an unsecured revolving line of credit agreement with two of its wholly owned controlled portfolio companies, UPS and NTS. Maximum borrowings under the line of credit are $38,000,000. The outstanding balance bears interest at a rate equal to (a) the greater of LIBOR or 50 basis points plus (b) 7% or at a rate equal to (y) the greater of the Prime Rate or 3.5%, plus (z) 6%. The interest rate in effect is equal to the interest rate on the term loan between UPS, NTS, Premier Payments LLC (“Premier”) and Goldman Sachs Bank USA as discussed in Note 11. At December 31, 2015, the line of credit bears interest at 7.5%. The revolving line of credit has a maturity date of June 21, 2019. The outstanding borrowings at December 31, 2015 were $5,647,000. Interest expense for the year ended December 31, 2015 was approximately $621,000.
Total expected principal repayments on the Company's borrowings for the next five fiscal years and thereafter are as follows:
December 31, | Borrowings | Capital Lease | Total | ||||||||
2016 | $ | 29,100 | $ | 16 | $ | 29,116 | |||||
2017 | — | 1 | 1 | ||||||||
2018 | — | — | — | ||||||||
2019 | 5,647 | — | 5,647 | ||||||||
2020 | — | — | — | ||||||||
Thereafter | 100,069 | — | 100,069 | ||||||||
$ | 134,816 | $ | 17 | $ | 134,833 | ||||||
NOTE 10—NOTES PAYABLE IN CREDITS IN LIEU OF CASH:
Each Capco has separate contractual arrangements with the Certified Investors obligating the Capco to make payments on the Notes.
At the time the Capcos obtained the proceeds from the issuance of the Notes, Capco warrants or Company common shares to the Certified Investors, the proceeds were deposited into escrow accounts which required that the insurance contracts be concurrently and simultaneously purchased from the insurer before the remaining proceeds could be released to and utilized by the Capco. The Capco Note agreements require, as a condition precedent to the funding of the Notes that insurance be purchased to cover the risks associated with the operation of the Capco. This insurance is purchased from Chartis Specialty Insurance Company and National Union Fire Insurance Company of Pittsburgh, both subsidiaries of Chartis, Inc. (Chartis), an international insurer. Chartis and these subsidiaries are “A+” credit rated by S&P. In order to comply with this condition precedent to the funding, the Notes closing is structured as follows: (1) the Certified Investors wire the proceeds from the Notes issuance directly into an escrow account; (2) the escrow agent, pursuant to the requirements under the Note and escrow agreement, automatically and simultaneously funds the purchase of the insurance contract from the proceeds received. The Notes offering cannot close without the purchase of the insurance, and the Capcos are not entitled to the use and benefit of the net proceeds received until the escrow agent has completed the payment for the insurance. Under the terms of this insurance, the insurer incurs the primary obligation to repay the Certified Investors a substantial portion of the debt as well as to make
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compensatory payments in the event of a loss of the availability of the related tax credits. The Coverage A portion of these contracts makes the insurer primarily obligated for a portion of the liability.
The Capcos, however, are secondarily, or contingently, liable for such payments. The Capco, as a secondary obligor, must assess whether it has a contingency to record on the date of issuance and at every reporting date thereafter until the insurer makes all their required payments. As of December 31, 2015, the insurer has made all of the scheduled cash payments under Coverage A, therefore the contingent liability of the Company has been extinguished.
The Coverage B portion of these contracts provides for the payment of cash in lieu of tax credits in the event the Capco becomes decertified. The Capcos remain primarily liable for the requirement to deliver tax credits (or make cash payments in lieu of tax credits not delivered).
Although Coverage B protects the Certified Investors as described above, the Company remains primarily liable for the portion of this obligation. This liability has been recorded as notes payable in credits in lieu of cash, representing the present value of the Capcos’ total liability it must pay to the Certified Investors. Such amount will be increased by an accretion of interest expense during the term of the Notes and will decrease as the Capcos pay interest by delivering the tax credits, or paying cash.
Notes payable in credits in lieu of cash are recorded at fair value. The following is a summary of activity of Notes payable in credits in lieu of cash balance for the years ended December 31, 2015 and 2014:
2015 | 2014 | ||||||
Balance, beginning of year | $ | 2,229 | $ | 3,641 | |||
Add: Accretion of interest expense | 24 | 53 | |||||
Less: Tax credits delivered | (1,394 | ) | (1,460 | ) | |||
Fair value adjustment | 1 | (5 | ) | ||||
Balance, end of year | $ | 860 | $ | 2,229 | |||
Under the Note agreements, no interest is paid by the Capcos in cash provided that the Certified Investors receive the uninterrupted use of the tax credits. The Certified Investors acknowledge, in the Note agreements, that the insurer is primarily responsible for making the scheduled cash payments as provided in the Notes.
NOTE 11—COMMITMENTS AND CONTINGENCIES:
Operating and Employment Commitments
The Company leases office space and other office equipment in several states under operating lease agreements which expire at various dates through 2029. Those office space leases which are for more than one year generally contain scheduled rent increases or escalation clauses.
The following summarizes the Company’s obligations and commitments, as of December 31, 2015 for future minimum cash payments required under operating lease and employment agreements (in thousands):
Year | Operating leases | Employment agreements | Total | ||||||||
2016 | $ | 1,252 | $ | 240 | $ | 1,492 | |||||
2017 | 1,790 | — | 1,790 | ||||||||
2018 | 1,691 | — | 1,691 | ||||||||
2019 | 1,300 | — | 1,300 | ||||||||
2020 | 1,126 | — | 1,126 | ||||||||
Thereafter | 7,577 | — | 7,577 | ||||||||
Total | $ | 14,736 | $ | 240 | $ | 14,976 | |||||
Rent expense for the year ended December 31, 2015, the period November 12, 2014 to December 31, 2014, the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013, was $866,000, $97,000, $2,264,000, and $2,406,000, respectively.
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Legal Matters
In the ordinary course of business, the Company and its wholly owned portfolio companies may from time to time be party to lawsuits and claims. The Company evaluates such matters on a case by case basis and its policy is to contest vigorously any claims it believes are without compelling merit. The Company is not currently involved in any litigation matters.
Guarantees
The Company is a guarantor on a bank line of credit held at NBC, a controlled portfolio company. Maximum borrowings under the line of credit are $10,000,000 with a maturity date of February 2016. At December 31, 2015, total principal and accrued interest owed by NBC was $3,923,000. In addition, the Company deposited $750,000 to collateralize the guarantee. On August 27, 2015, NBC entered into Amendment No. 2 (the “Amendment”) to the Loan and Security Agreement, dated February 28, 2011 (as amended through August 27, 2015, including the Amendment, the “Agreement”), by and between Sterling National Bank (“Sterling”) and NBC. The Amendment permits NBC to use a portion of the warehouse line of credit provided by Sterling under the Agreement to fund inventory financing arrangements NBC may provide to its clients. The Amendment also removed certain restrictions placed upon the Company in connection with its guaranty of the credit facility provided under the Agreement. At December 31, 2015, the Company determined that it is not probable that payments would be required to be made under the guarantee.
NBC also entered into an additional Loan and Security Agreement with Sterling on August 27, 2015 (as amended through December 4, 2015) (the “504 Loan Agreement”), pursuant to which Sterling and any future participant lenders agreed to provide NBC another line of credit to fund SBA 504 loans extended by NBC (the “504 Facility”). The maximum amount of the 504 Facility is up to $35,000,000, depending upon syndication. The 504 Loan Agreement specifies certain events of default, pursuant to which all outstanding amounts under the 504 Facility could become immediately due and payable. In addition, the Company has guaranteed NBC’s obligations under the 504 Loan Agreement, pursuant to a Guaranty dated as of August 27, 2015. At December 31, 2015, the Company determined that it is not probable that payments would be required to be made under the guarantee.
On June 23, 2015, UPS and NTS (together, the “Borrowers”), each a controlled portfolio company of the Company, entered into a Credit and Guaranty Agreement (the “Agreement”), dated June 23, 2015, with Goldman Sachs Bank USA (“GS Bank”), as Administrative Agent, Collateral Agent and Lead Arranger, pursuant to which GS Bank agreed to extend the Borrowers a term loan facility up to an aggregate principal amount of $38,000,000 (the “Facility” and each term loan made thereunder, a “Term Loan”). On September 18, 2015, the Agreement was amended to add Premier as a borrower. The Company, Newtek Business Services Holdco 1, Inc., a wholly-owned subsidiary of the Company (“Intermediate Holdings”), and certain subsidiaries of Intermediate Holdings party to the Agreement from time to time, have agreed to guarantee the repayment of the Facility and are parties to the Agreement as “Guarantors” thereunder. At December 31, 2015, $22,000,000 was outstanding under this Facility. At December 31, 2015, the Company determined that it is not probable that payments would be required to be made under the guarantee.
NOTE 12—EARNINGS PER SHARE:
The following table summarizes the calculation for net increase in net assets per common share for the year ended December 31, 2015 and the period November 12, 2014 through December 31, 2014:
December 31, 2015 | November 12, 2014 through December 31, 2014 | |||||||
Net increase in net assets | $ | 35,736 | $ | 681 | ||||
Weighted average shares outstanding | 10,770 | 7,620 | ||||||
Net increase in net assets per common share | $ | 3.32 | $ | 0.09 | ||||
Basic income per share is computed based on the weighted average number of common shares outstanding during the period. The dilutive effect of common share equivalents is included in the calculation of diluted income per share only when the effect of their inclusion would be dilutive:
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For the Period Ended November 11, | Year Ended December 31, | |||||||
The calculations of Net Income Per Share were: | 2014 | 2013 | ||||||
Numerator: | ||||||||
Numerator for basic and diluted EPS—net income available to common stockholders | $ | 3,293 | $ | 7,528 | ||||
Denominator: | ||||||||
Denominator for basic EPS—weighted average shares | 7,315 | 7,059 | ||||||
Denominator for diluted EPS—weighted average shares | 7,315 | 7,581 | ||||||
Net income per share: Basic | $ | 0.45 | $ | 1.07 | ||||
Net income per share: Diluted | $ | 0.45 | $ | 0.99 | ||||
Anti-dilutive shares excluded from above: | ||||||||
Contingently issuable shares | 17 | 17 | ||||||
NOTE 13—PUBLIC OFFERINGS:
The following table summarizes the total shares issued and proceeds received net of underwriting and offering costs in public offerings of the Company’s common stock for the years ended December 31, 2015, 2014, and 2013:
Years ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Shares issued | 2,300,000 | 2,530,000 | — | |||||||||
Offering price per share | $ | 16.5 | $ | 12.5 | N/A | |||||||
Proceeds net of underwriting discounts and offering costs | $ | 35,290 | $ | 27,883 | $ | — | ||||||
On November 18, 2014 the Company priced a public offering of 2,200,000 shares of its common stock at a public offering price of $12.50 per share. The Company also sold an additional 330,000 shares of its common stock at a public offering price of $12.50 per share pursuant to the underwriter's full exercise of the over-allotment option.
On October 15, 2015 the Company priced a public offering of 2,000,000 shares of its common stock at a public offering price of $16.50 per share. The Company also sold an additional 300,000 shares of its common stock at a public offering price of $16.50 per share pursuant to the underwriter's full exercise of the over-allotment option.
NOTE 14—DIVIDENDS AND DISTRIBUTIONS:
The Company's dividends and distributions are recorded on the declaration date. The following table summarizes the Company's dividend declarations and distributions during the year ended December 31, 2015. There were no dividend declarations or distributions during any prior years.
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Date Declared | Record Date | Payment Date | Amount Per Share | Cash Distribution | DRIP Shares Issued | DRIP Shares Value | |||||||||||||
March 19, 2015 | March 30, 2015 | April 13, 2015 | $ | 0.39 | $ | 3,985 | — | $ | — | ||||||||||
June 15, 2015 | June 29, 2015 | July 15, 2015 | $ | 0.47 | $ | 4,715 | 5 | $ | 87 | ||||||||||
October 1, 2015 | October 22, 2015 | November 3, 2015 | $ | 0.50 | $ | 6,123 | 12 | $ | 201 | ||||||||||
October 1, 2015 (1) | November 18, 2015 | December 31, 2015 | $ | 2.69 | $ | 9,195 | — | $ | — | ||||||||||
December 16, 2015 | January 7, 2016 | January 19, 2016 | $ | 0.40 | $ | 5,659 | 13 | $ | 143 | ||||||||||
Special Dividend (1)
On October 1, 2015, the Company declared a one-time special dividend of approximately $34,055,000 payable on December 31, 2015 to stockholders of record as of November 18, 2015. This special dividend was declared as a result of the Company’s intention to elect RIC status for tax year 2015, as it must distribute 100% of its accumulated earnings and profits through December 31, 2014 in order to qualify as a RIC. The special dividend amount of approximately $34,055,000 was computed based on an earnings and profits analysis completed through December 31, 2014.
The dividend was paid in cash and shares of the Company's common stock at the election of each stockholder. The total amount of cash distributed to all stockholders was limited to 27% or $9,195,000 of the total dividend . The remainder of the dividend was paid in the form of shares of the Company's common stock. As a result approximately 1,844,000 shares of the Company's common shares were issued.
NOTE 15—BENEFIT PLANS:
Defined Contribution Plan
The Company’s employees (and its portfolio company's employees for the periods prior to the BDC Conversion) participate in a defined contribution 401(k) plan (the “Plan”) adopted in 2004 which covers substantially all employees based on eligibility. The Plan is designed to encourage savings on the part of eligible employees and qualifies under Section 401(k) of the Internal Revenue Code. Under the Plan, eligible employees may elect to have a portion of their pay, including overtime and bonuses, reduced each pay period, as pre-tax contributions up to the maximum allowed by law. The Company may elect to make a matching contribution equal to a specified percentage of the participant’s contribution, on their behalf as a pre-tax contribution. For the years ended December 31, 2015, 2014 and 2013, the Company matched 50% of the first 2% of employee contributions, resulting in $177,000, $130,000 and $153,000 in expense, respectively.
NOTE 16—INCOME TAXES:
The Company intends to qualify to be treated as a RIC for the 2015 tax year under Subchapter M of the Code. As a result, the Company must distribute substantially all of its respective net taxable income each tax year as dividends to its stockholders. Accordingly, no provision for federal income tax has been made in the financial statements for the year ended December 31, 2015.
Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent book-tax differences, including the offset of net operating losses against net short-term gains and nondeductible meals and entertainment, have no impact on net assets.
The following differences were reclassified for tax purposes for the year ended December 31, 2015:
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December 31, 2015 | |||
Increase in additional paid-in capital | $ | 195 | |
Increase in distributions in excess of undistributed net investment income | 10,622 | ||
Decrease in net realized gains on investments | (10,817 | ) | |
Taxable income generally differs from net increase (decrease) in net assets for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses and generally excludes unrealized appreciation (depreciation) on investments as investment gains and losses are not included in taxable income until they are realized.
The following table reconciles net increase in net assets to taxable income for the year ended December 31, 2015:
December 31, 2015 | |||
Net increase in net assets | $ | 35,736 | |
Net change in unrealized depreciation on investments | (10,187 | ) | |
Net change in deferred tax liability | 857 | ||
GAAP versus tax basis consolidation of subsidiaries | (4,115 | ) | |
Other deductions/losses for tax, not book | (307 | ) | |
Other differences | 92 | ||
Taxable income before deductions for distributions | $ | 22,076 | |
The tax character of distributions paid during the year ended December 31, 2015 was as follows:
December 31, 2015 | |||
Ordinary income | $ | 15,043 | |
Long-term capital gains | 67 | ||
Return of capital | — | ||
The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. The Company’s fourth quarter dividend which was declared in December 2015, but had a record date in 2016, will be included in the 2016 dividends reportable to shareholders. Approximately 35.8% of the Company’s ordinary income was from qualified dividends. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.
The tax basis components of distributable earnings/(accumulated losses) and reconciliation to accumulated earnings/(deficit) on a book basis for the year ended December 31, 2015 were as follows:
December 31, 2015 | |||
Undistributed ordinary income - tax basis | $ | 6,781 | |
Undistributed net realized gains - tax basis | 184 | ||
Net change in unrealized appreciation on investments | 8,062 | ||
GAAP versus tax basis consolidation of subsidiaries | 4,115 | ||
Other temporary differences | 1,288 | ||
Dividends payable | (5,802 | ) | |
Total accumulated earnings - book basis | $ | 14,628 | |
The differences between the components of distributable earnings on a tax basis and the amounts reflected in the consolidated statements of changes in net assets are primarily due to temporary book-tax differences that will reverse in a subsequent period.
As of December 31, 2015, the Company had a deferred tax liability of $857,000 pertaining to the unrealized appreciation on investments held by Taxable Subsidiaries.
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Income Taxes Prior to RIC Election
The Company’s tax provision is based on the Company’s results for the full year on a consolidated tax basis. Although the company converted to a BDC on November 11, 2014, it was not be eligible to elect RIC status until the year ended December 31, 2015. The Company’s deferred tax asset at December 31, 2014, was closed out to additional paid-in capital on January 1, 2015.
Provision for income taxes for the years ended December 31, 2014 and 2013 is as follows:
2014 | 2013 | ||||||
Current: | |||||||
Federal | $ | 2,742 | $ | 5,075 | |||
State and local | 1,043 | 132 | |||||
3,785 | 5,207 | ||||||
Deferred: | |||||||
Federal | 296 | (1,132 | ) | ||||
State and local | 48 | (157 | ) | ||||
344 | (1,289 | ) | |||||
Total provision for income taxes | $ | 4,129 | $ | 3,918 | |||
Included in the 2013 current state provision is a receivable from state tax refunds in the amount of approximately $1,115,000, which favorably impacted the Company’s effective tax rate by approximately 8.6% for the year ended December 31, 2013. This receivable resulted from the amendment of the 2010, 2011 and 2012 tax returns.
A reconciliation of income taxes computed at the U.S. federal statutory income tax rate to the provision for income taxes for the years ended December 31, 2014 and 2013 is as follows:
2014 Provision | 2013 Provision | ||||||
Provision for income taxes at U.S. federal statutory rate of 35% | $ | 2,655 | $ | 3,874 | |||
State and local taxes, net of federal benefit | 709 | 399 | |||||
Deferred adjustment true-ups | — | 116 | |||||
Permanent differences | (47 | ) | 91 | ||||
Goodwill impairment | 597 | — | |||||
Deferred tax asset valuation allowance increase | 200 | 178 | |||||
Change in NYC valuation allowance | — | (3,370 | ) | ||||
Deferred rate true up – NYC NOL | — | 3,370 | |||||
Other – refund from prior year amended state returns | — | (639 | ) | ||||
Other | 15 | (101 | ) | ||||
Total provision for income taxes | $ | 4,129 | $ | 3,918 | |||
Deferred tax assets and liabilities consisted of the following at December 31, 2014:
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2014 | |||
Deferred tax assets: | |||
Net operating losses (“NOLs”) and capital losses (excluding New York City NOL) | $ | 2,193 | |
New York City NOL | 225 | ||
Prepaid insurance | 78 | ||
Loan loss reserves and fair value discounts | 2,466 | ||
Flow through of deferred items from investments in qualified businesses | 522 | ||
Interest payable in credits in lieu of cash | 1,090 | ||
Depreciation and amortization | 44 | ||
Accrued expenses | 771 | ||
Other | 815 | ||
Total deferred tax assets before valuation allowance | 8,204 | ||
Less: Valuation allowance | (2,663 | ) | |
Less: Valuation allowance – New York City NOL | (225 | ) | |
Total deferred tax assets | 5,316 | ||
Deferred tax liabilities: | |||
Credits in lieu of cash | (1,992 | ) | |
Deferred income | (451 | ) | |
Total deferred tax liabilities | (2,443 | ) | |
Net deferred tax asset | $ | 2,873 | |
As of December 31, 2014, the Company had gross federal NOLs of approximately $4,783,000 and state and local NOLs of approximately $7,447,000 which will begin to expire in 2020, and $332,000 of capital losses with a full valuation allowance which will expire in 2015. The Federal NOLs are attributable to NSBF and NBC, of which the NOLs at NBC have a full valuation allowance and the NOLs at NSBF, subject to IRC Section 382 limitations, have a partial valuation allowance.
Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. The Company had total valuation allowances of approximately $2,888,000 at December 31, 2014. The change in the valuation allowance represents the charge off of capital losses that have expired unused.
The Company analyzed its tax positions taken on their federal and state tax returns for the open tax years 2012, 2013 and 2014, and used three levels of analysis in determining whether any uncertainties existed with respect to these positions. The first level consisted of an analysis of the technical merits of the position, past administrative practices and precedents, industry norms and historical audit outcome. The second level of analysis was used to determine if the threshold (more than 50%) was met for the tax filing position. The third level of analysis consisted of determining the probable outcome once it was determined that the threshold was met for the tax filing position. Based on our analysis, the Company determined that there were no uncertain tax positions and that the Company should prevail upon examination by the taxing authorities.
The Company’s operations have been extended to other jurisdictions. This extension involves dealing with uncertainties and judgments in the application of tax regulations in these jurisdictions. The final resolution of any tax liabilities are dependent upon factors including negotiations with taxing authorities in these jurisdictions and resolution of disputes arising from federal, state and local tax audits. The Company recognizes potential liabilities associated with anticipated tax audit issues that may arise during an examination. Interest and penalties that are anticipated to be due upon examination are recognized as accrued interest and other liabilities with an offset to interest and other expense. The Company determined that there were no uncertainties with respect to the application of tax regulations in these jurisdictions.
NOTE 17—FINANCIAL HIGHLIGHTS:
The financial highlights for the Company are as follows:
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Per share data (2) | Year ended December 31, 2015 | November 12, 2014 to December 31, 2014 | ||||||
Net asset value at beginning of period | $ | 16.31 | $ | 13.49 | ||||
Issuance of common stock | 2.43 | 2.73 | ||||||
Dividends from capital gains | (1.76 | ) | — | |||||
Special dividend | (2.69 | ) | — | |||||
Net investment loss | (0.57 | ) | (0.33 | ) | ||||
Net realized gain on investments | 3.14 | 0.08 | ||||||
Net unrealized appreciation on non-affiliate investments | 0.95 | 0.36 | ||||||
Change in provision for deferred taxes | (0.06 | ) | — | |||||
Net unrealized loss on servicing assets | (0.12 | ) | (0.02 | ) | ||||
Exponential of New York LLC distributions to members | (0.25 | ) | — | |||||
Reversal of deferred tax asset | (0.19 | ) | — | |||||
Out of period adjustment related to BDC Conversion | (0.06 | ) | — | |||||
Dilutive effect of special dividend | (3.07 | ) | — | |||||
Net asset value at end of period | $ | 14.06 | $ | 16.31 | ||||
Per share market value at end of period | $ | 14.32 | $ | 14.76 | ||||
Total return based on market value (3) | 24.46 | % | 13.10 | % | ||||
Total return based on average net asset value (3) | 13.52 | % | 20.87 | % | ||||
Shares outstanding at end of period | 14,509 | 10,206 | ||||||
Ratios/Supplemental Data: | ||||||||
Ratio of expenses to average net assets | 17.42 | % | 20.46 | % | ||||
Ratio of net investment loss to average net assets | (3.34 | )% | (11.99 | )% | ||||
Net assets at end of period | $ | 203,949 | $ | 166,418 | ||||
Average debt outstanding | $ | 128,680 | $ | 108,483 | ||||
Average debt outstanding per share | $ | 8.87 | $ | 10.63 | ||||
Asset coverage ratio | 249 | % | 223 | % | ||||
Portfolio turnover | 103.50 | % | 5.08 | % | ||||
(1) Years prior to becoming a business development company are not presented in the financial highlights as the information would not be meaningful.
(2) Based on actual number of shares outstanding at the end of the corresponding period or the weighted average shares outstanding for the period, unless otherwise noted, as appropriate.
(3) Assumes dividends are reinvested.
NOTE 18—RELATED PARTY TRANSACTIONS:
Investment in Premier Payments LLC
On July 23, 2015, the Company acquired 100% of Premier which was owned 100% by Jeffrey Rubin, former President of Newtek. The total purchase price was approximately $16,483,000, of which $14,011,000 was paid in cash and $2,472,000 was paid in newly issued restricted shares of Newtek common stock. A total of 130,959 shares were issued on the date of acquisition which may not be sold or transferred for six months from the acquisition date. The Company’s Board, including a majority of independent directors, approved the purchase.
Consulting Agreement
In July 2015, the Company entered into a consulting agreement (the “Agreement”), with Jeffrey Rubin, former President of Newtek and former CEO of Premier (a controlled portfolio company acquired in July 2015). The Agreement retained Jeffrey
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Rubin to perform business development consulting services. The Agreement entitled Jeffrey Rubin to annual compensation of $200,000 paid monthly. For the year ended December 31, 2015, the Company incurred approximately $83,000 in consulting fees related to the Agreement. The Agreement was terminated in December 2015 and no additional payments are required to be made. On January 1, 2016, Jeffrey Rubin entered into an independent sale agent agreement with Premier.
Investment in PMTWorks Payroll, LLC
In November 2015, the Company exercised a warrant for nominal consideration to acquire an additional 10% membership interest in PMTWorks Payroll, LLC (“PMT”). The additional 10% interest was obtained from the founder and current board member of PMT, a controlled portfolio company.
Note Payable - Related Party
In June 2015, the Company entered into an unsecured revolving line of credit agreement with UPS and NTS. The maximum borrowings under the line of credit are $38,000,000. The outstanding balance bears interest at a rate equal to (a) the greater of LIBOR or 50 basis points plus (b) 7% or at a rate equal to (y) the greater of the Prime Rate or 3.5%, plus (z) 6%. Refer to Note 9 - “Borrowings” for additional discussion.
Managerial Assistance Fees from Controlled Investments
The Company provides managerial assistance to certain controlled portfolio companies. Amounts are charged based on estimates of time and effort spent by certain employees providing managerial services for certain controlled portfolio companies. Fees are recorded on a quarterly basis and are recurring in nature. The table below summarizes amounts charged to each controlled affiliate for the year ended December 31, 2015. The amounts are recorded as a reduction of salaries and benefits in the consolidated statements of operations for the year ended December 31, 2015. No amounts were charged in prior years as the controlled affiliates were consolidated subsidiaries.
Portfolio Company | Managerial assistance fees | |||
Universal Processing Services of Wisconsin, LLC | $ | 590 | ||
CrystalTech Web Hosting, Inc. | 528 | |||
PMTWorks Payroll, LLC | 149 | |||
Newtek Insurance Agency, LLC | 241 | |||
Summit Systems and Designs, LLC | 30 | |||
Secure CyberGateway Services, LLC | 45 | |||
Premier Payments LLC | 45 | |||
Small Business Lending, Inc. | 176 | |||
Total | $ | 1,804 | ||
Sale of Intangible Asset
In December 2015, the Company sold a portfolio of health-related insurance policies to Newtek Insurance Agency, LLC (“NIA”) for $407,000. The carrying value of the portfolio at the time of sale was $308,000 which resulted in gain on sale of $99,000 which is included in other income from controlled investments on the consolidated statements of operations. The purchase price was calculated based on one times the trailing twelve month gross commissions earned from the remaining active policies.
Other Transactions with Related Parties
During the year ended December 31, 2015, the Company incurred $599,000 in managed technology services expenses from NTS, $255,000 in loan processing and closing expenses from Business Connect, LLC, and $22,000 in payroll processing fees from PMT. During the year ended December 31, 2015, the Company earned $51,000 in consulting and other income from certain controlled portfolio companies.
A member of the Company’s Board and audit committee chairman receives a pension from CohnReznick LLP and capital payouts from his partnership interests. CohnReznick LLP performs tax services for the Company.
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The spouse of the Chief Accounting Officer of the Company is the Controller of UPS and is paid an annual salary in excess of $125,000.
Prior to the BDC Conversion, and during the period January 1, 2014 to November 11, 2014 and year ended December 31, 2013, the Company provided merchant processing for a company controlled by the father-in-law of a major stockholder and former President of the Company, in the approximate amount of $15,000 in each period.
Prior to the BDC Conversion, the Company paid gross residuals to an independent sales organization (“ISO”) controlled by a major stockholder of the Company. The ISO earned gross residuals from Newtek, and in turn paid commissions to its sales representatives as well as other operating expenses. Gross residuals paid by the Company to the ISO for the period ended November 11, 2014 and year ended December 31, 2013 were approximately $3,241,000 and $3,636,000, respectively.
As a result of the BDC Conversion, subsidiaries which were consolidated in prior years are now reflected as investments in controlled portfolio companies, recorded at fair value. As a result, transactions and balances with these companies are no longer eliminated in consolidation. As of December 31, 2015, the Company has $3,056,000 due from related parties and $256,000 due to related parties. At December 31, 2014, the Company had $3,190,000 due from related parties and $2,867,000 due to related parties.
NOTE 19—STOCK OPTIONS AND RESTRICTED STOCK GRANTED TO EMPLOYEES:
The Newtek Business Services Corp. 2014 Stock Incentive Plan, (the “2014 Plan”) currently provides for the issuance of options up to a maximum of 3,000,000 common shares to employees and non-employees. All options are to be issued at fair value on the date of grant. Options issued generally have a maximum term that ranges from 2 to 10 years and vesting provisions that range from 0 to 4 years. As of December 31, 2015, there were 3,000,000 shares available for future grant under the Plan and no options were issued during 2014 or 2015.
Prior to the BDC Conversion, the Company had a restricted stock plan. Stock based compensation expense for the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013 was $865,000 and $784,000, respectively, and is included in salaries and benefits and other general and administrative costs in the accompanying consolidated statements of operations for stock compensation related to employees and the Board, respectively. No stock based compensation expense was recorded for the period November 12, 2014 through December 31, 2014 and the year ended December 31, 2015, as the Company's plan terminated upon the Conversion date.
During the first quarter of 2013, the Company granted certain employees, executives and directors an aggregate of 60,000 restricted shares of common stock valued at $556,000. The employee and executive grants had a vesting date of March 1, 2016 while the directors’ vested July 1, 2015. The fair value of these grants was determined using the fair value of the common shares at the grant date. The restricted shares were forfeitable upon early voluntary or involuntary termination of the employee’s employment. Upon vesting, the grantee will receive one common share for each restricted share vested. Under the terms of the plan, these share awards do not include voting rights until the shares vest. All outstanding restricted shares vested in November 2014. The Company recorded $374,000 and $182,000 in share-based compensation for the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013, respectively.
During the second quarter of 2013, the Company granted certain employees and executives an aggregate of 16,000 restricted shares of common stock valued at $174,000 with a vesting date of March 1, 2016. The fair value of these grants was determined using the fair value of the common shares at the grant date. The restricted shares were forfeitable upon early voluntary or involuntary termination of the employee’s employment. Upon vesting, the grantee will receive one common share for each restricted share vested. Under the terms of the plan, these share awards do not include voting rights until the shares vest. All outstanding restricted shares vested in November 2014. The Company recorded $77,000 and $31,000 in share-based compensation for the period January 1, 2014 to November 11, 2014 and the year ended December 31, 2013, respectively.
During the third quarter of 2013, the Company granted certain employees an aggregate of 14,000 restricted shares of common stock valued at $176,000 with 2,000 vesting on March 1, 2016 and 12,000 vesting on July 31, 2016. The fair value of these grants was determined using the fair value of the common shares at the grant date. The restricted shares were forfeitable upon early voluntary or involuntary termination of the employee’s employment. Upon vesting, the grantee will receive one common share for each restricted share vested. Under the terms of the plan, these share awards did not include voting rights until the shares vest. All outstanding restricted shares vested in November 2014. The Company recorded $134,000 and $21,000 in share-based compensation for the period January 1, 2014 to November 11, 2014 and year ended December 31, 2013, respectively.
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In April 2014, the Company granted a certain employee 2,000 restricted shares of common stock valued at $28,600 which vested on April 30, 2014. The fair value of this grant was determined using the fair value of the common shares at the grant date. The restricted shares are forfeitable upon early voluntary or involuntary termination of the employee’s employment. Upon vesting, the grantee received one common share for each restricted share vested. The Company recorded $28,600 to share-based compensation for the period January 1, 2014 to November 11, 2014 in connection with the vesting period associated with this grant.
In July 2014, the Company granted certain employees and executives an aggregate of 5,400 options valued at $26,000. Option awards were granted with an exercise price of $20.00 which exceeded the market price of the Company’s stock at the date of grant. The options vested immediately and expired 5 years from the date of grant. The fair value of each option award was estimated on the date of grant using a Black-Scholes option valuation model that uses the following assumptions: 5 year expected life, risk-free interest rate of 1.66% and expected volatility of the Company’s stock of 54.6%. Expected volatilities were based on the Company’s stock. The risk-free rate for periods during the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term was determined using historical exercise patterns and the period of time that the awards were expected to be outstanding. The Company recorded $26,000 to share-based compensation for the period January 1, 2014 to November 11, 2014 related to these grants.
On November 11, 2014, all outstanding restricted stock and option awards granted to employees and executives under all previously active stock incentive plans vested as a result of the BDC Conversion. No options or restricted stock awards have been granted since the Conversion.
NOTE 20—SEGMENT REPORTING:
Prior to the BDC Conversion, operating segments were organized internally primarily by the type of services provided. The Company aggregated similar operating segments into six reportable segments: Electronic payment processing, Managed technology solutions, Small business finance, All other, Corporate and Capcos.
The Electronic payment processing segment was a processor of credit card transactions, as well as a marketer of credit card and check approval services to the small- and medium-sized business market. Expenses included direct costs (included in a separate line captioned electronic payment processing costs), professional fees, salaries and benefits, and other general and administrative costs, all of which are included in the respective caption on the consolidated statements of operations.
The Small business finance segment consisted of SBL, a lender service provider for third-parties that primarily services government guaranteed SBA loans and non-SBA loans; Texas Whitestone Group which manages the Company’s Texas Capco; NSBF, a nationally licensed SBA lender that originates, sells and services loans to qualifying small businesses; and NBC which provides accounts receivable financing, billing and accounts receivable maintenance services to businesses. NSBF generates revenues from sales of loans, servicing income and interest income earned on the loans themselves. The lender generates expenses for interest, professional fees, salaries and benefits, depreciation and amortization, and provision for loan losses, all of which are included in the respective caption on the consolidated statements of operations. NSBF also has expenses such as loan recovery expenses, loan processing costs, and other expenses that are all included in the other general and administrative costs caption on the consolidated statements of operations.
The Managed technology solutions segment consisted of NTS which was acquired in July 2004. NTS’s revenues were derived primarily from web hosting services and consisted of web hosting and set up fees. NTS generated expenses such as professional fees, payroll and benefits, and depreciation and amortization, which are included in the respective caption on the accompanying consolidated statements of operations, as well as licenses and fees, rent, and general office expenses, all of which are included in other general and administrative costs in the respective caption on the consolidated statements of operations.
The All other segment includes revenues and expenses primarily from qualified businesses that received investments made through the Company’s Capcos which cannot be aggregated with other operating segments. The three largest entities in the segment were NIA, an insurance sales operation, PMT, a provider of payroll processing services and Business Connect, LLC, a provider of sales and processing services.
Corporate activities represented revenue and expenses not allocated to other segments. Revenue included interest income and management fees earned from Capcos (and included in expenses in the Capco segment). Expenses primarily included corporate
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operations related to broad-based sales and marketing, legal, finance, information technology, corporate development and additional costs associated with administering the Capcos.
The Capco segment, which consisted of the twelve Capcos, generated non-cash income from tax credits, interest income and gains from investments in qualified businesses which are included in other income. Expenses primarily included non-cash interest and insurance expense, management fees paid to Newtek (and included in Corporate activities revenues), legal, audit fees and losses from investments in qualified businesses.
Management considered the following characteristics when making its determination of its operating and reportable segments:
• | the nature of the product and services; |
• | the type or class of customer for their products and services; |
• | the methods used to distribute their products or provide their services; and |
• | the nature of the regulatory environment (for example, banking, insurance, or public utilities). |
The accounting policies of the segments were the same as those described in the summary of significant accounting policies.
The Company no longer has six reportable segments after November 11, 2014 as a result of the BDC Conversion. The segment information presented below represents results up until the date of conversion. For the year ended December 31, 2015 and the period from November 12, 2014 through December 31, 2014 there is only one reportable segment.
The following table presents the Company’s segment information for the period ended November 11, 2014, and the year ended December 31, 2013:
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For the period ended November 11, 2014 | For the year ended December 31, 2013 | ||||||
Third Party Revenue | |||||||
Electronic payment processing | $ | 79,529 | $ | 89,655 | |||
Small business finance | 36,426 | 34,112 | |||||
Managed technology solutions | 13,997 | 17,576 | |||||
All other | 2,277 | 2,568 | |||||
Corporate activities | 774 | 900 | |||||
Capco | 364 | 213 | |||||
Total reportable segments | 133,367 | 145,024 | |||||
Eliminations | (1,520 | ) | (1,431 | ) | |||
Consolidated Total | $ | 131,847 | $ | 143,593 | |||
Inter Segment Revenue | |||||||
Electronic payment processing | $ | 3,708 | $ | 3,265 | |||
Small business finance | 454 | 520 | |||||
Managed technology solutions | 528 | 526 | |||||
All other | 1,435 | 1,654 | |||||
Corporate activities | 3,406 | 4,753 | |||||
Capco | 692 | 805 | |||||
Total reportable segments | 10,223 | 11,523 | |||||
Eliminations | (10,223 | ) | (11,523 | ) | |||
Consolidated Total | $ | — | $ | — | |||
Income (loss) before income taxes | |||||||
Electronic payment processing | $ | 7,366 | $ | 8,304 | |||
Small business finance | 9,090 | 10,143 | |||||
Managed technology solutions | 2,818 | 3,564 | |||||
All other | (1,153 | ) | (1,606 | ) | |||
Corporate activities | (9,879 | ) | (8,002 | ) | |||
Capco | (778 | ) | (1,284 | ) | |||
Total reportable segments | 7,464 | 11,119 | |||||
Eliminations | (321 | ) | (50 | ) | |||
Consolidated Total | $ | 7,143 | $ | 11,069 | |||
Depreciation and Amortization | |||||||
Electronic payment processing | $ | 226 | $ | 358 | |||
Small business finance | 1,440 | 1,241 | |||||
Managed technology solutions | 1,165 | 1,316 | |||||
All other | 180 | 203 | |||||
Corporate activities | 129 | 161 | |||||
Capco | — | 5 | |||||
Consolidated Total | $ | 3,140 | $ | 3,284 | |||
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For the period ended November 11, 2014 | For the year ended December 31, 2013 | ||||||
Interest (Income) Expense, net | |||||||
Electronic payment processing | $ | (1 | ) | $ | (4 | ) | |
Small business finance | (712 | ) | 766 | ||||
Managed technology solutions | 41 | 94 | |||||
All other | — | (1 | ) | ||||
Corporate activities | 2,264 | 24 | |||||
Capco | (234 | ) | 96 | ||||
Total reportable segments | 1,358 | 975 | |||||
Eliminations | 302 | 50 | |||||
Consolidated Total | $ | 1,660 | $ | 1,025 | |||
NOTE 21—UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES:
In accordance with the SEC’s Regulation S-X and GAAP, we are not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which we have a controlling interest. We had one unconsolidated subsidiary as of December 31, 2015 and for the year ended December 31, 2015 that met at least one of the significance conditions under Rule 1-02(w) of Regulation S-X for which we are required, pursuant to Rule 3-09 of Regulation S-X, to attach separate financial statements as exhibits to the Form 10-K. Accordingly, the financial statements of UPS for the year ended December 31, 2015 and the period November 12, 2014 to December 31, 2014 have been attached as exhibits.
NOTE 22—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table sets forth certain unaudited consolidated quarterly statement of operations data from the eight quarters ended December 31, 2015. This information is unaudited, but in the opinion of management, it has been prepared substantially on the same basis as the audited consolidated financial statements appearing elsewhere in this report, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below. The consolidated quarterly data should be read in conjunction with the current audited consolidated statements and notes thereto. The total of the quarterly EPS data may not equal to the full year results.
Three Months Ended | |||||||||||||||
2015 | 3/31 | 6/30 | 9/30 | 12/31 | |||||||||||
Total investment income | $ | 4,750 | $ | 5,606 | $ | 7,038 | $ | 8,676 | |||||||
Net investment (loss) income | $ | (2,476 | ) | $ | (2,295 | ) | $ | (1,491 | ) | $ | 77 | ||||
Net gain on investments | $ | 12,479 | $ | 7,171 | $ | 6,240 | $ | 16,031 | |||||||
Net increase in net assets | $ | 10,003 | $ | 4,876 | $ | 4,749 | $ | 16,108 | |||||||
Net increase in net assets per share | $ | 0.98 | $ | 0.48 | $ | 0.46 | $ | 1.31 | |||||||
Net asset value per share at period end | $ | 16.61 | $ | 16.62 | $ | 16.88 | $ | 14.06 | |||||||
Three Months Ended | Period from 10/1/14 through | Period from 11/12/14 through | |||||||||||||||||
2014 | 3/31 | 6/30 | 9/30 | 11/11/14 | 12/31/14 | ||||||||||||||
Total revenue | $ | 36,087 | $ | 38,128 | $ | 38,166 | $ | 19,466 | $ | — | |||||||||
Investment income | $ | — | $ | — | $ | — | $ | — | $ | 1,976 | |||||||||
Income (loss) before income taxes | $ | 2,216 | $ | 2,289 | $ | 4,523 | $ | (1,228 | ) | $ | (2,329 | ) | |||||||
Net income (loss) available to common stockholders/net increase in net assets | $ | 1,391 | $ | 1,394 | $ | 2,644 | $ | (1,415 | ) | $ | 681 | ||||||||
Income (loss) per share—basic | $ | 0.20 | $ | 0.20 | $ | 0.35 | $ | (0.19 | ) | $ | — | ||||||||
Income (loss) per share—diluted | $ | 0.18 | $ | 0.18 | $ | 0.34 | $ | (0.19 | ) | $ | — | ||||||||
Net increase in net assets per share | $ | — | $ | — | $ | — | $ | — | $ | 0.09 | |||||||||
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NOTE 23—SUBSEQUENT EVENTS:
Quarterly Dividend
On February 25, 2016 the Company declared a quarterly cash dividend of $0.35 per share payable on March 31, 2016 to stockholders of record as of March 22, 2016. The dividend will be paid in cash or shares of the Company's common stock through participation in the Company's dividend reinvestment plan, at the election of stockholders.
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Newtek Business Services Corp. and Subsidiaries
Schedule of Investments In and Advances to Affiliates
December 31, 2015
Portfolio Company/Type of Investment (1) | Amount of Interest, Fees or Dividends Credited in Income | Fair Value at December 31, 2014 | Gross Additions (2) | Gross Reductions (3) | Fair Value at December 31, 2015 | |||||||||||||||
Controlled Investments | ||||||||||||||||||||
Advanced Cyber Security Systems, LLC | ||||||||||||||||||||
50% Membership Interest | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Term loan | 14 | — | — | — | — | |||||||||||||||
Automated Merchant Services, Inc. | ||||||||||||||||||||
100% Common Stock | — | — | — | — | — | |||||||||||||||
Business Connect, LLC | ||||||||||||||||||||
100% Membership Interest | 4 | — | — | — | — | |||||||||||||||
CDS Business Services, Inc. | ||||||||||||||||||||
100% Common Stock | — | 496 | 1,483 | (1,054 | ) | 925 | ||||||||||||||
Term loan | — | 1,483 | 200 | (1,683 | ) | — | ||||||||||||||
Line of credit | 31 | — | 2,870 | — | 2,870 | |||||||||||||||
CrystalTech Web Hosting, Inc. | ||||||||||||||||||||
100% Common Stock | 308 | 21,500 | 826 | (912 | ) | 21,414 | ||||||||||||||
Exponential Business Development Co. Inc. | ||||||||||||||||||||
100% Common Stock | 1,080 | — | — | — | — | |||||||||||||||
First Bankcard Alliance of Alabama, LLC | ||||||||||||||||||||
95% Membership Interest | 78 | — | — | — | — | |||||||||||||||
Fortress Data Management, LLC | ||||||||||||||||||||
100% Membership Interest | — | — | — | — | — | |||||||||||||||
Newtek Insurance Agency, LLC | ||||||||||||||||||||
100% Membership Interest | 99 | 2,300 | 200 | — | 2,500 | |||||||||||||||
PMTWorks Payroll, LLC | ||||||||||||||||||||
90% Membership Interest | — | 920 | 100 | — | 1,020 | |||||||||||||||
Term Loan | 104 | — | — | — | — | |||||||||||||||
Secure CyberGateway Services, LLC | ||||||||||||||||||||
66.7% Membership Interest | 52 | — | — | — | — | |||||||||||||||
Term Loan | 130 | 2,400 | — | (1,204 | ) | 1,196 | ||||||||||||||
Premier Payments LLC | ||||||||||||||||||||
100% Membership Interest | 600 | — | 16,503 | — | 16,503 | |||||||||||||||
Small Business Lending, Inc. | ||||||||||||||||||||
100% Common Stock | 348 | 2,900 | 5,565 | (2,965 | ) | 5,500 | ||||||||||||||
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Portfolio Company/Type of Investment (1) | Amount of Interest, Fees or Dividends Credited in Income | Fair Value at December 31, 2014 | Gross Additions (2) | Gross Reductions (3) | Fair Value at December 31, 2015 | |||||||||||||||
Summit Systems and Designs, LLC | ||||||||||||||||||||
100% Membership Interest | 1,162 | — | — | — | — | |||||||||||||||
Universal Processing Services of Wisconsin, LLC | ||||||||||||||||||||
100% Membership Interest | 6,596 | 45,500 | 6,948 | — | 52,448 | |||||||||||||||
Total Controlled Investments | $ | 10,606 | $ | 77,499 | $ | 34,695 | $ | (7,818 | ) | $ | 104,376 | |||||||||
(1) The principal amount and ownership detail as shown in the Company's Consolidated Schedule of Investments.
(2) Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and the exchange of one or more existing securities for one or more new securities. Gross additions also includes net increases in unrealized appreciation or net decreases in unrealized depreciation.
(3) Gross reductions include decreases in the cost basis of investments resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation.
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NEWTEK BUSINESS SERVICES CORP. | ||
SUBSIDIARIES | ||
Name of Company | State of Incorporation/Organization | |
CCC Real Estate Holdings, LLC | Delaware | |
Exponential of New York, LLC | New York | |
Newtek Small Business Finance, LLC | New York | |
Newtek Asset Backed Securities, LLC | Delaware | |
Newtek Business Services Holdco1, Inc. | New York | |
The Texas Whitestone Group, LLC | Texas | |
The Whitestone Group, LLC | New York | |
Wilshire Alabama Partners, LLC | Alabama | |
Wilshire Colorado Partners, LLC | Colorado | |
Wilshire DC Partners, LLC | District of Columbia | |
Wilshire Holdings I, Inc. | New York | |
Wilshire Holdings II, Inc. | New York | |
Wilshire Louisiana Bidco, LLC | Louisiana | |
Wilshire Louisiana Partners II, LLC | Louisiana | |
Wilshire Louisiana Partners III, LLC | Louisiana | |
Wilshire Louisiana Partners IV, LLC | Louisiana | |
Wilshire New York Advisers II, LLC | New York | |
Wilshire New York Partners III, LLC | New York | |
Wilshire New York Partners IV, LLC | New York | |
Wilshire New York Partners V, LLC | New York | |
Wilshire Partners, LLC | Florida | |
Wilshire Texas Partners I, LLC | Texas | |
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Barry Sloane, certify that:
1. I have reviewed this annual report on Form 10-K of Newtek Business Services Corp. (the “registrant”).
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/S/ BARRY SLOANE | |
Barry Sloane | |
Principal Executive Officer | |
Date: March 15, 2016
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jennifer Eddelson, certify that:
1. I have reviewed this annual report on Form 10-K of Newtek Business Services Corp. (the “registrant”).
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/S/ JENNIFER EDDELSON | |
Jennifer Eddelson | |
Principal Financial Officer | |
Date: March 15, 2016
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Newtek Business Services Corp. (the “Company”), for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry Sloane, Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, certify that, to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.
/S/ BARRY SLOANE | |
Barry Sloane | |
Principal Executive Officer | |
March 15, 2016
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Newtek Business Services Corp. (the “Company”), for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jennifer Eddelson, Chief Accounting Officer of the Company, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, certify that, to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.
/S/ JENNIFER EDDELSON | |
Jennifer Eddelson | |
Principal Financial Officer | |
March 15, 2016
Universal Processing Services of Wisconsin, LLC (A Limited Liability Company) and Subsidiary Consolidated Financial Report and Independent Auditor’s Report Year Ended December 31, 2015
Universal Processing Services of Wisconsin, LLC and Subsidiary Index Year Ended December 31, 2015 Pages Independent Auditor’s Report ................................................................................................................... 1 Financial Statements Consolidated Balance Sheet .......................................................................................................................... 2 Consolidated Statement of Income ............................................................................................................... 3 Consolidated Statement of Changes in Member’s Deficit ............................................................................ 4 Consolidated Statement of Cash Flows ........................................................................................................ 5 Notes to Consolidated Financial Statements ............................................................................................ 6-12
Independent Auditor's Report To the Board of Directors and Member of Universal Processing Services of Wisconsin, LLC We have audited the accompanying consolidated financial statements of Universal Processing Services of Wisconsin, LLC and Subsidiary, which comprise the consolidated balance sheet as of December 31, 2015, and the related consolidated statements of income, changes in member’s deficit and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Processing Services of Wisconsin, LLC and Subsidiary as of December 31, 2015, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. C Jericho, New York March 2, 2016
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Balance Sheet December 31, 2015 See notes to consolidated financial statements. 2 Assets Current Assets: Cash 3,210,066$ Accounts receivable 2,545,411 Prepaid expenses and other current assets 83,348 Inventory 287,475 Total current assets 6,126,300 Fixed assets, net 396,483 Customer merchant accounts, net 1,640,588 Deferred financing costs, net 824,397 Restricted cash 492,715 Due from related parties 378,188 Notes receivable - related party 5,646,749 Goodwill 1,908,495 Total assets 17,413,915$ Liabilities and Member's Deficit Liabilities: Current Liabilities: Accounts payable and accrued expenses 2,231,648$ Residuals payable 809,843 Due to related parties 264,778 Chargeback reserves 604,926 Total current liabilities 3,911,195 Bank note payable 16,998,694 Total liabilities 20,909,889 Commitments and contingencies Member's deficit (3,495,974) Total liabilities and member's deficit 17,413,915$
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Statement of Income Year Ended December 31, 2015 See notes to consolidated financial statements. 3 Revenue: Electronic payment processing 98,474,937$ Expenses: Electronic payment processing costs 82,505,282 Salaries and benefits 5,070,083 Professional fees 1,682,895 Depreciation and amortization 318,262 Other general and administrative costs 1,041,980 Total expenses 90,618,502 Income from operations 7,856,435 Interest expense, net (811,383) Inter st income - related party 484,222 Net income 7,529,274$
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Statement of Changes in Member’s Deficit Year Ended December 31, 2015 See notes to consolidated financial statements. 4 Member's Equity (Deficit) Balance, December 31, 2014 3,537,404$ Net income 7,529,274 Member distributions (14,562,652) Balance, December 31, 2015 (3,495,974)$
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Statement of Cash Flows Year Ended December 31, 2015 See notes to consolidated financial statements. 5 Cash flows from operating activities: Net income 7,529,274$ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 318,262 Amortization of deferred financing costs 140,493 Changes in operating assets and liabilities: Restricted cash 209,304 Accounts receivable 1,115,267 Prepaid expenses and other current assets 36,330 Inventory (78,002) Accounts payable, accrued expenses and other current liabilities (1,777,781) Due to/from related parties (957,313) Net cash provided by operating activities 6,535,834 Cash flows from investing activities: Purchase of customer merchant accounts (1,524,853) Net advances under related party note (5,646,749) Purchase of fixed assets (263,761) Net cash used in investing activities (7,435,363) Cash flows used in financing activities: Distributions to member (14,562,652) Proceeds from term loan 16,998,694 Deferred financing costs paid (964,890) Net cash provided by financing activities 1,471,152 Net increase in cash 571,623 Cash, beginning of year 2,638,443 Cash, end of year 3,210,066$ Supplemental disclosure of cash flow information Interest paid 680,281$
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 6 1. Organization, Basis of Presentation and Description of Business Universal Processing Services of Wisconsin, LLC (“UPS-WI”), was organized as a limited liability company (“LLC”) under the laws of the State of Wisconsin and is a wholly-owned subsidiary of Newtek Business Services Holdco 1, Inc. (“Holdco”). As a limited liability company, the liability of Holdco is limited to its capital account. Prior to being a wholly-owned subsidiary of Holdco, UPS-WI was a wholly-owned subsidiary of The Whitestone Group, LLC (“The Whitestone Group”). In 2015, the Whitestone Group transferred all of its membership interest in UPS-WI to Holdco. UPS-WI, and its wholly-owned subsidiary, Solar Processing Services, LLC (“Solar”), are hereinafter referred to as the “Company”. The Company markets credit and debit card processing services, check approval services and ancillary processing equipment and software to merchants who accept credit cards, debit cards, checks and other non-cash forms of payment. The accompanying consolidated financial statements include the accounts of UPS-WI and Solar. All significant intercompany accounts and transactions have been eliminated in consolidation. 2. Significant Accounting Policies Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates, by their nature, are based on judgment and available information. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the reserve for chargeback losses. Financial Instruments The Company’s financial instruments include cash, accounts receivable, accounts payable, residuals payable, notes receivable from a related party and a bank note payable. The carrying amounts of cash, accounts receivable, accounts payable and residuals payable approximate fair value due to their short term maturities. The carrying amounts of notes receivable from a related party and bank note payable approximate fair value due to the variable interest rate they carry. Cash The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Invested cash is held exclusively at financial institutions of high credit quality. As of December 31, 2015, cash deposits in excess of insured amounts totaled approximately $2,648,000.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 7 Restricted Cash Under the terms of the processing agreement between UPS-WI and its processing banks, UPS-WI maintains cash accounts as reserves against chargeback losses. As the Company receives fees from the processing bank, a certain percentage is allocated to the cash reserve account. Inventory Inventory consists primarily of equipment to be installed in merchant locations to enable them to process electronic transactions. Inventory is stated at the lower of cost or market, which is determined on a FIFO (first in-first out) basis. Fixed Assets Fixed assets, which are comprised of telephone systems, software, website, computer equipment and leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation of fixed assets is provided on a straight-line basis using estimated useful lives of the related assets. Amortization of leasehold improvements is provided on a straight-line basis using the lesser of the useful life of the asset, which generally is three to five years, or lease term. Goodwill and Customer Merchant Accounts Goodwill is not amortized but is instead subject to impairment testing, at least annually. Customer merchant accounts with finite lives are amortized over 66 months as discussed in Note 5. The Company considers the following to be some examples of indicators that may trigger an impairment review outside its annual impairment review: (i) significant under-performance or loss of key contracts acquired in an acquisition relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s fair market value for a sustained period of time; and (vi) regulatory changes. In assessing the recoverability of the Company’s goodwill and customer merchant accounts, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These include estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, the period over which cash flows will occur, and determination of the Company’s cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on goodwill impairment. Revenue Recognition Electronic Payment Processing Electronic payment processing and fee income is derived from the electronic processing of credit and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services as a percentage of each transaction dollar plus a flat fee per transaction. Certain merchant customers are charged miscellaneous fees, including fees for handling charge-backs or returns, monthly minimum fees, statement fees and fees for other miscellaneous services. Revenues derived from the electronic processing of MasterCard®, Visa® and Discover® sourced credit and debit card transactions are reported gross of amounts paid to sponsor banks.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 8 Interest Income Interest income is recorded on an accrual basis, when earned, based on the current lending rate in place. Reserve for Losses on Merchant Accounts Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s acquiring bank and charged to the merchant. If the merchant has inadequate funds, the Company or, under limited circumstances, the Company and the acquiring bank, must bear the credit risk for the full amount of the transaction. The Company evaluates its risk for such transactions and estimates its potential loss for charge-backs based primarily on historical experience and other relevant factors. The Company records reserves for charge-backs and contingent liabilities when such amounts are deemed to be probable and estimable. The required reserves may change in the future due to new developments, including, but not limited to, changes in litigation or increased charge-back exposure as the result of merchant insolvency, liquidation, or other reasons. The required reserves are reviewed periodically to determine if adjustments are required. Electronic Payment Processing Costs Electronic payment processing costs consist principally of costs directly related to the processing of merchant sales volume, including interchange fees, Visa®, MasterCard® and Discover® dues and assessments, bank processing fees and costs paid to third-party processing networks. Such costs are recognized at the time the merchant transactions are processed or when the services are performed. Two of the most significant components of electronic processing expenses include interchange and assessment costs, which are set by the credit card associations. Interchange costs are passed on to the entity issuing the credit card used in the transaction and assessment costs are retained by the credit card associations. Interchange and assessment fees are billed primarily as a percentage of dollar volume processed and, to a lesser extent, as a per transaction fee. In addition to costs directly related to the processing of merchant sales volume, electronic payment processing costs also include residual expenses. Residual expenses represent fees paid to third-party sales referral sources. Residual expenses are paid in accordance with contracted terms. These are generally linked to revenues derived from merchants successfully referred to the Company and that begin using the Company for merchant processing services. Such residual expenses are recognized in the Company’s consolidated statement of income. During the year ended December 31, 2015, the Company partnered with two sponsor banks for substantially all merchant transactions. Substantially all merchant transactions were processed by one merchant processor. Income Taxes The Company is a limited liability company (“LLC”) and therefore pays no corporate taxes. The Company’s income, instead, passes through to its member. Accordingly, no liability for Federal, State and/or local income taxes has been recorded in the accompanying consolidated financial statements. As a wholly-owned subsidiary of Holdco, the Company evaluated its tax positions at year end, and based on its analysis, determined that there were no uncertain tax positions. The Company’s U.S. Federal and State income tax returns prior to fiscal 2012 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 9 Subsequent Events The Company has evaluated subsequent events for potential recognition and/or disclosure through March 2, 2016, the date these consolidated financial statements were available to be issued. 3. Fixed Assets The Company’s fixed assets are comprised of the following at December 31, 2015: Accumulated Depreciation Net Book Cost and Amortization Value Telephone systems 273,549$ 88,423$ 185,126$ Software 398,256 222,590 175,666 Leasehold improvements 63,644 41,546 22,098 Computer equipment 86,157 72,648 13,509 Website 5,202 5,118 84 Totals 826,808$ 430,325$ 396,483$ Depreciation expense related to fixed assets for the year ended December 31, 2015 was approximately $166,000. 4. Goodwill The carrying value of goodwill at December 31, 2015 is approximately $1,908,000. The Company performed a qualitative assessment to determine if it is more likely than not that the Company’s fair value is less than its carrying amount. Based on its qualitative assessment, the Company determined that goodwill was not impaired at December 31, 2015 and no further assessment was required. 5. Customer Merchant Accounts The net carrying value of customer merchant accounts is approximately $1,641,000 which consists of approximately $2,593,000 of gross costs, net of accumulated amortization of approximately $952,000 at December 31, 2015. Customer merchant accounts are being amortized over 66 months. Total amortization expense of customer merchant accounts using the sum of the year’s digits is included in depreciation and amortization in the accompanying consolidated statement of income was approximately $152,000. In 2015, the Company purchased approximately $1,525,000 of customer merchant accounts of which approximately $1,515,000 was purchased from three separate related parties. The purchase price was based on the present value of the merchant accounts future cash flows. These merchant accounts are being amortized over 66 months.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 10 Total expected amortization expense for the next five fiscal years and thereafter is as follows: Year Ending December 31, 2016 566,393$ 2017 442,921 2018 322,317 2019 203,943 2020 94,739 Thereafter 10,275 1,640,588$ 6. Bank Note Payable In 2015, the Company, CrystalTech Web Hosting, Inc. (“CrystalTech”) and Premier Payments LLC (“Premier”), all subsidiaries of Holdco, collectively as “Borrowers” entered into a Credit and Guarantee Agreement (the “Agreement”) with Goldman Sachs Bank USA which extended a multi draw term loan facility (the “Facility”) up to an aggregate principal amount of $38,000,000. The total outstanding balance under the Facility as of December 31, 2015 was $22,000,000. The Borrowers are collectively liable for the outstanding balance under the Facility. All assets of the Borrowers are pledged as collateral under the Agreement. The Facility provides for monthly interest only payments with total principal due at maturity. The Facility matures in June 2019. Borrowings under the facility are classified either as a “Base Rate Loan” or “LIBOR Rate Loan” at the Company’s election. Each LIBOR Rate Loan shall bear interest on the outstanding balance at a rate equal to (a) the greater of LIBOR or 50 basis points plus (b) 7% and each Base Rate Loan shall bear interest on the outstanding balance at a rate equal to (y) the greater of the Prime Rate or 350 basis points, plus (z) 6%. The effective interest rate at December 31, 2015 was 7.5%. The Company may make principal payments within 24 months of the closing date and pay a prepayment premium based on a percentage of the principal outstanding as defined in the Agreement. After 24 months, principal may be repaid under no penalty. The Agreement requires certain restrictive covenants for which the Company is in compliance with as of December 31, 2015. During the year ended December 31, 2015, the Company borrowed approximately $16,999,000 of the $22,000,000 total borrowings under the Facility all of which is outstanding as of December 31, 2015. Interest expense for the year ended December 31, 2015 was approximately $680,000. Deferred financing costs incurred by the Company related to the Facility were $965,000. Amortization of deferred financing costs for the year ended December 31, 2015 was approximately $140,000 and included in interest expense on the consolidated income statement. Deferred financing costs are amortized over the term of the Facility under the effective interest method. 7. Notes Receivable – Related Party In June 2015, the Company and CrystalTech entered into a revolving line of credit agreement with Newtek Business Services Corp. (“Newtek”) and Holdco as borrowers. The line of credit bears interest at a rate of 7.5% and matures in June 2019. Maximum borrowings under the line of credit are $38,000,000. At December 31, 2015, net advances to Newtek and Holdco are approximately
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 11 $5,647,000. The Company recorded related interest income of approximately $484,000 during the year ended December 31, 2015. 8. Related Party Transactions The Company generated management fees of $11,000 each from Summit Systems, LLC (“Summit”) and Business Connect, LLC (“Business Connect”), both affiliates of the Company. At December 31, 2015, the total amount due from related parties was approximately $378,000. The Company incurred residual expenses totaling approximately $1,971,000 from several related parties. In addition, the Company incurred gateway fees of approximately $129,000 from Secure Cyber Gateway Services, LLC, and breach insurance costs of approximately $270,000 from Newtek Insurance Agency, LLC, which are included in electronic payment processing costs on the consolidated statement of income. Salaries and overhead costs of approximately $352,000 and $42,000 charged from Business Connect and CrystalTech, respectively, are included in salaries and benefits. Payroll processing costs of approximately $15,000 from PMTWorks Payroll, LLC, overhead expenses from Business Connect of approximately $53,000, and managed technology services of approximately $15,000 from CrystalTech are included in other general and administrative costs. At December 31, 2015 total amounts due to related parties are approximately $265,000. Included in salaries and benefits are charges from Newtek related to salaries for management and certain other employees that perform services for the Company. Total amounts allocated to the Company for the year ended December 31, 2015 were approximately $590,000. In 2015, the Company purchased approximately $1,515,000 of customer merchant accounts from three related parties. See Note 5. In June 2015, the Company and CrystalTech provided Newtek and Holdco with a revolving line of credit facility. See Note 7. The Company’s parent, Holdco, and Newtek are both guarantors of the Facility with Goldman Sachs Bank USA. 9. Commitments and Contingencies Operating Commitments The Company entered into noncancellable operating leases for office facilities with future rentals as follows: Year Ending December 31, 2016 176,917$ 2017 181,067 357,984$
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements Year Ended December 31, 2015 12 Total rent expense for the year ended December 31, 2015 was approximately $161,000. Under the amended terms of a Service Agreement and amended terms of Merchant Program Processing Agreement, UPS-WI is required to pay minimum fees of $1,000,000 in total under these agreements during each processing year. The Company’s fee payments for the 12-month period ended December 31, 2015, exceeded the minimum required amount under these agreements. The term of the service agreement was extended to March 2016. The Merchant Program Processing Agreement initial term ends December 2015 and renews automatically each year. Under the terms of an Independent Sales Organization Agreement and Member Services Provider Agreement between UPS and one of their sponsoring banks, UPS-WI is required to pay monthly minimum fees of $10,000 during the term of the agreement. The Company exceeded the monthly minimum required amount under the agreement for the year ended December 31, 2015. The agreement renews automatically annually. Under the amended terms of a Processing Services Agreement between UPS-WI and one of their front-end processors, UPS-WI is required to pay a quarterly minimum of $68,000 during the term of the amended agreement. The Company’s fee payments for the 12-month period ended December 31, 2015, exceeded the minimum required amount under these agreements. The agreement expires July 2016. Litigation In 2013, the Federal Trade Commission (the “FTC”) amended an existing complaint in the matter Federal Trade Commission v. WV Universal Management, LLC et al., pending in the United States District Court for the Middle District of Florida (the “Court”), to add UPS-WI, as an additional defendant on one count of providing substantial assistance in violation of the Telemarketing Sales Rule. On November 18, 2014, the Court issued an Order granting the FTC’s motion for summary judgment against UPS-WI on the single count. Subsequently, the FTC filed motions for a permanent injunction and equitable monetary relief against UPS-WI and the other remaining defendants. Prior to the Court hearing on the motions, UPS-WI and the FTC reached a settlement on the FTC’s motion for a permanent injunction. The Court granted the FTC’s motion for equitable relief against UPS-WI and the other remaining defendants, ordering that the remaining defendants pay approximately $1,735,000 in equitable monetary relief. This amount has been deposited with the Court pending the outcome of an appeal of the judgement. In January 2014, NCMIC Finance Corporation (“NCMIC”) filed a complaint against the Company in the United States District Court for the Southern District of Iowa. The complaint asserts claims against the Company for breach of the UPS-WI and NCMIC agreement for the processing of credit card transactions, and seeks monetary relief. The Company believes that the claims asserted in the complaint are wholly without merit and intends to vigorously defend the action. Trial is currently set for March 2016. The Company does not expect this matter to have a material impact on its operations. In October 2015, the Company filed an action against NCMIC and NCMIC related entities seeking, among other things, indemnification in connection with the claims asserted by NCMIC against the Company, as well as for monetary damages for breach of contract and fraud.
Universal Processing Services of Wisconsin, LLC (A Limited Liability Company) and Subsidiary Consolidated Financial Report As of December 31, 2014 and for the Period November 12, 2014 to December 31, 2014 (Unaudited)
Universal Processing Services of Wisconsin, LLC and Subsidiary Index December 31, 2014 Pages Financial Statements Consolidated Balance Sheet .......................................................................................................................... 1 Consolidated Statement of Operations .......................................................................................................... 2 Consolidated Statement of Changes in Member’s Equity ............................................................................ 3 Consolidated Statement of Cash Flows ........................................................................................................ 4 Notes to Consolidated Financial Statements ............................................................................................ 5-10
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Balance Sheet (Unaudited) December 31, 2014 See notes to consolidated financial statements. 1 Assets Cash and cash equivalents 2,638,443$ Restricted cash 702,019 Accounts receivable 3,660,678 Prepaid expenses and other current assets 119,678 Inventory 209,473 Total current assets 7,330,291 Fixed assets, net 298,653 Customer merchant accounts, net 268,066 Due from related parties 161,281 Goodwill 1,908,495 Total assets 9,966,786$ Liabilities and Member's Equity Liabilities: Accounts payable and accrued expenses 3,344,614$ Residuals payable 1,090,431 Chargeback reserves 989,153 Total current liabilities 5,424,198 Due to related parties 1,005,184 Total liabilities 6,429,382 Commitments and contingencies Member's equity 3,537,404 Total liabilities and member's equity 9,966,786$
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Statement of Operations (Unaudited) For the Period November 12, 2014 to December 31, 2014 See notes to consolidated financial statements. 2 Revenues Electronic payment processing 11,520,751$ Expenses Electronic payment processing costs 9,756,025 Salaries and benefits 535,340 Profes ional fees 1,900,119 Depreciation and amortization 34,798 Other general and administrative costs 109,413 Total expenses 12,335,695 Net loss (814,944)$
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Statement of Changes in Member’s Equity (Unaudited) For the Period November 12, 2014 to December 31, 2014 See notes to consolidated financial statements. 3 Member's Equity Balance, November 12, 2014 42,098,332$ Net loss (814,944) Member distributions (37,745,984) Balance, December 31, 2014 3,537,404$
Universal Processing Services of Wisconsin, LLC and Subsidiary Consolidated Statement of Cash Flows (Unaudited) For the Period November 12, 2014 to December 31, 2014 See notes to consolidated financial statements. 4 Cash flows from operating activities: Net loss (814,944)$ Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 34,798 Changes in operating assets and liabilities: Restricted cash (68,753) Accounts receivable 797,773 Prepaid expenses and other current assets 23,891 Inventory (22,939) Accounts payable and accrued expenses 1,683,666 Due from related parties (34,620) Due to related parties (138,782) Net cash provided by operating activities 1,460,090 Cash flows from investing activities: Purchase of customer merchant accounts (7,172) Purchase of fixed assets (9,889) Net cash used in investing activities (17,061) Cash flows used in financing activities: Advances on revolving credit line - related party (9,472,390) Net increase in cash and cash equivalents 1,443,029 Cash and cash equivalents, beginning of year 1,195,414 Cash and cash equivalents, end of year 2,638,443$ Supplemental disclosure of cash flow activities Non-cash financing activity: Advances/distributions to related party 37,745,984$
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements (Unaudited) December 31, 2014 5 1. Organization, Basis of Presentation and Description of Business Universal Processing Services of Wisconsin, LLC (“UPS-WI”), was organized as a limited liability company (“LLC”) under the laws of the State of Wisconsin and is a wholly owned subsidiary of The Whitestone Group, LLC (“The Whitestone Group”). The accompanying consolidated financial statements include the accounts of UPS-WI and its wholly owned subsidiary, Solar Processing Services, LLC (“Solar”). All significant intercompany accounts and transactions have been eliminated in consolidation. UPS-WI, along with its subsidiary, Solar, are hereinafter referred to as “the Company". The Company markets credit and debit card processing services, check approval services and ancillary processing equipment and software to merchants who accept credit cards, debit cards, checks and other non-cash forms of payment. 2. Significant Accounting Policies Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates, by their nature, are based on judgment and available information. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the reserve for chargeback losses. Financial Instruments The Company’s financial instruments include cash and cash equivalents, accounts receivable, and accounts payable including residuals payable. The carrying amounts of the cash and cash equivalents, accounts receivable, and accounts and residuals payable approximate fair value because of their short term maturity and interest rates which approximate current rates. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Invested cash is held exclusively at financial institutions of high credit quality. As of December 31, 2014, cash deposits in excess of FDIC deposit insurance and SIPC insurance totaled approximately $2,207,000. Restricted Cash Under the terms of the processing agreement between UPS-WI and its processing banks, UPS-WI maintains cash accounts as reserves against chargeback losses. As fees are received by the processing bank, a certain percentage is allocated to the cash reserve account.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements (Unaudited) December 31, 2014 6 Inventory Inventory consists primarily of equipment to be installed in merchant locations to enable them to process electronic transactions. Inventory is stated at the lower of cost or market, determined on the FIFO (first in-first out) basis. Fixed Assets Fixed assets, which are comprised of furniture and fixtures, software, computer office equipment and leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation of fixed assets is provided on a straight-line basis using estimated useful lives of the related assets. Amortization of leasehold improvements is provided on a straight-line basis using the lesser of the useful life of the asset or lease term. Useful lives of assets are generally three to five years. Goodwill and Customer Merchant Accounts Goodwill is not amortized and is subject to impairment tests, at least annually. Customer merchant accounts with finite lives are amortized over their useful lives ranging from 18 to 66 months, and evaluated as discussed in Note 5. The Company considers the following to be some examples of indicators that may trigger an impairment review outside its annual impairment review: (i) significant under-performance or loss of key contracts acquired in an acquisition relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. In assessing the recoverability of the Company’s goodwill and customer merchant accounts, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These include estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, the useful life over which cash flows will occur, and determination of the Company’s cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on goodwill impairment. Revenue Recognition Electronic payment processing and fee income is derived from the electronic processing of credit and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services on a percentage of the dollar amount of each transaction plus a flat fee per transaction. Certain merchant customers are charged miscellaneous fees, including fees for handling charge-backs or returns, monthly minimum fees, statement fees and fees for other miscellaneous services. Revenues derived from the electronic processing of MasterCard®, Visa® and Discover® sourced credit and debit card transactions are reported gross of amounts paid to sponsor banks.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements (Unaudited) December 31, 2014 7 Reserve for Losses on Merchant Accounts Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s acquiring bank and charged to the merchant. If the merchant has inadequate funds, the Company or, under limited circumstances, the Company and the acquiring bank, must bear the credit risk for the full amount of the transaction. The Company evaluates its risk for such transactions and estimates its potential loss for charge-backs based primarily on historical experience and other relevant factors. The Company records reserves for charge-backs and contingent liabilities when such amounts are deemed to be probable and estimable. The required reserves may change in the future due to new developments, including, but not limited to, changes in litigation or increased charge-back exposure as the result of merchant insolvency, liquidation, or other reasons. The required reserves are reviewed periodically to determine if adjustments are required. Electronic Payment Processing Costs Electronic payment processing costs consist principally of costs directly related to the processing of merchant sales volume, including interchange fees, VISA®, MasterCard® and Discover® dues and assessments, bank processing fees and costs paid to third-party processing networks. Such costs are recognized at the time the merchant transactions are processed or when the services are performed. Two of the most significant components of electronic processing expenses include interchange and assessment costs, which are set by the credit card associations. Interchange costs are passed on to the entity issuing the credit card used in the transaction and assessment costs are retained by the credit card associations. Interchange and assessment fees are billed primarily as a percent of dollar volume processed and, to a lesser extent, as a per transaction fee. In addition to costs directly related to the processing of merchant sales volume, electronic payment processing costs also include residual expenses. Residual expenses represent fees paid to third-party sales referral sources. Residual expenses are paid under various formulae as contracted. These are generally linked to revenues derived from merchants successfully referred to the Company and that begin using the Company for merchant processing services. Such residual expenses are recognized in the Company’s consolidated statements of income. Income Taxes The Company is an LLC and in lieu of corporate taxes, the members of the LLC are taxed on their proportionate share of the entity’s taxable income. Accordingly, no liability for federal, state and local income taxes has been recorded in the accompanying consolidated financial statements. As a controlled portfolio company of a public company, the Company evaluated its tax positions at year end, and based on its analysis, determined that there were no uncertain tax positions. The Company’s U.S. Federal and state income tax returns prior to fiscal 2011 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Subsequent Events The Company has evaluated subsequent events for potential recognition and/or disclosure through March 31, 2015, the date these financial statements were available to be issued.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements (Unaudited) December 31, 2014 8 3. Fixed Assets The Company’s fixed assets are comprised of the following at December 31, 2014: Accumulated Depreciation and Net Book Cost Amortization Value Computer equipment 75,730$ 62,382$ 13,348$ Furniture and fixtures 125,639 48,670 76,969 Software 292,829 118,770 174,059 Website 5,205 4,771 434 Leasehold improvements 63,644 29,801 33,843 Total 563,047$ 264,394$ 298,653$ Depreciation expense related to fixed assets for the period November 12, 2014 to December 31, 2014 was $17,088. 4. Goodwill The carrying value of goodwill at December 31, 2014 is $1,908,495. Based upon the Company’s performance of an impairment test using the fair value approach of the discounted cash flows method, the Company determined that goodwill was not impaired at December 31, 2014. 5. Customer Merchant Accounts The carrying amount of customer merchant accounts, net of accumulated amortization at December 31, 2014 is $268,066. Customer merchant accounts are being amortized over sixty-six months. Total amortization expense of customer merchant accounts included in the accompanying consolidated statement of income was $17,710. Total expected amortization expense for the next five fiscal years and thereafter is as follows: December 31, Amount 2015 103,671$ 2016 74,579 2017 50,418 2018 29,127 2019 10,065 Thereafter 206 Total 268,066$
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements (Unaudited) December 31, 2014 9 6. Related Party Transactions The Company generated management and consulting fees of approximately $1,500 and $2,500, respectively from Summit Systems, LLC (“Summit”), and $1,500 in management fees from Business Connect, LLC (“Business Connect”). Summit and Business Connect are both affiliates of The Whitestone Group. Amounts due from related parties at December 31, 2014 were approximately $161,000. The Company incurred residual expenses totaling approximately $46,000, gateway fees of approximately $16,000, breach insurance of approximately $34,000, salaries and overhead of approximately $33,000, payroll processing of approximately $1,800 and server support services of approximately $1,900 from affiliates of The Whitestone Group. These expenses are included in electronic payment processing costs, salaries and benefits and other general and administrative costs respectively, on the consolidated statement of income. The total liabilities resulting from related party transactions included in due to related parties on the consolidated balance sheet at December 31, 2014 is approximately $1,005,000. 7. Commitments and Contingencies Operating Commitments The Company entered into noncancellable operating leases for office facilities with future rentals as follows: Year Ended December 31, 2015 160,788$ 2016 176,905 2017 181,067 Total 518,760$ Under the amended terms of a Service Agreement and amended terms of Merchant Program Processing Agreement, UPS is required to pay minimum fees of $1,000,000 in total under these agreements during each processing year. The Company’s fee payments for the 12-month period ended December 31, 2014, exceeded the minimum required amount under these agreements. The term of the service agreement ends December 2015. The Merchant Program Processing Agreement initial term ends December 2015 and renews automatically each year. Under the terms of an Independent Sales Organization Agreement and Member Services Provider Agreement between UPS and one of their sponsoring banks, UPS is required to pay monthly minimum fees of $10,000 during the term of the agreement. The Company exceeded the monthly minimum required amount under the agreement for the year ended December 31, 2014. The agreement renews automatically annually.
Universal Processing Services of Wisconsin, LLC and Subsidiary Notes to Consolidated Financial Statements (Unaudited) December 31, 2014 10 Under the amended terms of a Processing Services Agreement between UPS and one of their front- end processors, UPS is required to pay a quarterly minimum of $68,000 during the term of the amended agreement. The Company’s fee payments for the 12-month period ended December 31, 2014, exceeded the minimum required amount under these agreements. The agreement expires July 2016. Litigation In 2013, the Federal Trade Commission (the “FTC”) amended an existing complaint in the matter Federal Trade Commission v. WV Universal Management, LLC et al., pending in the United States District Court for the Middle District of Florida (the “Court”), to add Universal Processing Services of Wisconsin, LLC, as an additional defendant on one count of providing substantial assistance in violation of the Telemarketing Sales Rule. On November 18, 2014, the Court issued an Order granting the FTC’s motion for summary judgment against UPS-WI on the single count. Subsequently, the FTC filed motions for a permanent injunction and equitable monetary relief against UPS-WI and the other remaining defendants. Prior to the Court hearing on the motions, UPS-WI and the FTC reached a settlement on the FTC’s motion for a permanent injunction. The Court granted the FTC’s motion for equitable relief against UPS-WI and the other remaining defendants, ordering that the remaining defendants pay $1,734,972 in equitable monetary relief. While the court has yet to issue a judgment setting forth the terms of the relief granted, UPS-WI has recorded a reserve for the full amount of the potential loss as of December 31, 2014, which is reflected in the consolidated statement of income.