<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 0-25174
SIRROM CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TENNESSEE 62-1583116
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(Address of Principal (Zip Code)
Executive Offices)
(615) 256-0701
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of common
stock, no par value per share, outstanding on April 29, 1998 was 37,201,138.
1
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1997 and 1998 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
Consolidated Portfolio of Investments as of December 31, 1997 15
Consolidated Portfolio of Investments as of March 31, 1998 28
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<S> <C>
General 38
Results of Operations 38
Financial Condition, Liquidity and Capital Resources 41
Portfolio Turnover and Credit Quality 42
Year 2000 43
Impact of Inflation 43
Risks 43
PART II. OTHER INFORMATION 45
ITEM 1. LEGAL PROCEEDINGS 45
ITEM 2. CHANGES IN SECURITIES 45
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 45
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 45
ITEM 5. OTHER INFORMATION 45
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 46
SIGNATURES
</TABLE>
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SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
ASSETS (audited) (unaudited)
<S> <C> <C>
Investments, at fair value:
Loans $412,005,353 $465,238,245
Equity interests 55,210,669 56,332,341
Warrants 24,543,035 33,047,474
Other 2,440,503 330,704
------------ ------------
Total investments (cost of $483,417,884
and $544,633,328, respectively) 494,199,560 554,948,764
Investment in unconsolidated subsidiary 924,959 2,201,466
Cash and cash equivalents 3,024,608 471,542
Interest receivable 4,483,640 4,946,252
Receivable from sale of investment 1,498,240 1,243,833
Debt financing costs (less accumulated
amortization of $1,776,700 and
$2,010,025, respectively) 3,989,904 4,526,804
Furniture and equipment (less accumulated
depreciation of $198,248 and $261,244,
respectively) 918,253 1,107,596
Other assets 197,235 439,413
------------ ------------
Total assets $509,236,399 $569,885,670
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business
Administration $ 90,000,000 $101,000,000
Revolving credit facilities 124,250,000 31,515,000
Interest payable 1,576,600 1,773,813
Accounts payable, accrued expenses
and other liabilities 5,435,621 5,374,820
Dividend payable 5,405,267 0
Accrued taxes payable 600,000 400,000
------------ ------------
Total liabilities 227,267,488 140,063,633
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value 251,056,925 395,955,745
Notes receivable from employees (648,442) (592,145)
Undistributed net realized earnings 20,778,752 24,143,001
Unrealized appreciation of investments 10,781,676 10,315,436
------------ ------------
Total shareholders' equity 281,968,911 429,822,037
------------ ------------
Total liabilities and shareholders'
equity $509,236,399 $569,885,670
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31,1997 March 31, 1998
------------- --------------
<S> <C> <C>
Operating Income:
Interest on investments $ 8,028,286 $ 14,112,374
Loan processing and other fees 1,694,320 1,961,246
Other income 17,584 11,558
------------ ------------
Total operating income 9,740,190 16,085,178
Operating Expenses:
Interest expense 2,141,609 4,178,999
Salaries and benefits 791,456 1,662,771
Other operating expenses 614,417 1,143,962
Amortization expense 207,525 233,901
------------ ------------
Total operating expenses 3,755,007 7,219,633
Pretax income of unconsolidated subsidiary
(before taxes of $72,360 and $684,337) 241,201 1,960,844
------------ ------------
Net operating income 6,226,384 10,826,389
Net realized gain on investments 4,456,891 1,187,405
Change in unrealized depreciation
of investments (4,487,800) (466,240)
Provision for income taxes 2,309,480 684,337
------------ ------------
Net increase in shareholders'
equity resulting from operations $ 3,885,995 $ 10,863,217
============ ============
Net increase in shareholders' equity resulting
from operations per share:
Basic $ 0.14 $ 0.33
============ ============
Diluted $ 0.13 $ 0.31
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Operating Activities:
Net increase in shareholders' equity resulting from operations $ 3,885,995 $ 10,863,217
Adjustments to reconcile net increase to net cash
provided by operating activities:
Net unrealized depreciation of investments 4,487,800 466,240
Net realized gain on investments (4,456,891) (1,187,405)
Increase in equity of unconsolidated subsidiary (168,829) (1,276,507)
Amortization of debenture costs 269,025 233,037
(Increase) decrease in interest receivable 235,026 (462,612)
Increase (decrease) in accounts payable and (131,367) 449,025
accrued expenses
Amortization of organization costs 1,500 864
Depreciation of fixed assets 12,437 62,997
(Increase) decrease in other assets (32,634) 56,958
Decrease in accrued taxes payable (1,517,278) (200,000)
Increase in interest payable 95,046 197,213
------------- -------------
Net cash provided by operating activities 2,679,830 9,203,027
------------- -------------
Investing Activities:
Loan principal repayments 17,160,023 28,586,390
Proceeds from sale of equities and other investments 3,475,142 6,019,053
Investments originated or acquired (68,399,786) (95,188,911)
Purchase of fixed assets (29,349) (252,340)
------------- -------------
Net cash used in investing activities (47,793,970) (60,835,808)
------------- -------------
Financing Activities:
Proceeds from debentures payable to 0 11,000,000
Small Business Administration
Proceeds from revolving credit facilities 17,550,132 84,432,000
Repayment of revolving credit facilities (48,408,345) (177,167,000)
Increase in debenture costs (452,421) (769,937)
Issuance of common stock 109,946,441 144,550,000
Stock options exercised 74,000 348,820
Payments on notes receivable from employees 862,627 56,297
Payment of dividends (4,437,910) (13,370,465)
Employee shares repurchased (102,614) 0
------------- -------------
Net cash provided by financing activities 75,031,910 49,079,715
------------- -------------
Increase (decrease) in cash and cash equivalents 29,917,770 (2,553,066)
Cash and cash equivalents, beginning of period 4,611,532 3,024,608
------------- -------------
Cash and cash equivalents, end of period $ 34,529,302 $ 471,542
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 1,956,016 $ 3,704,337
============= =============
Taxes paid $ 3,738,278 $ 200,000
============= =============
Loans transferred to other investments $ 486,777 $ 0
============= =============
Loans transferred to equity interests $ 1,175,000 $ 5,093,712
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
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SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sirrom Capital Corporation (the "Company"), a Tennessee Corporation, was
formed in November 1994 and Sirrom Capital, L.P. (the "Partnership") became a
partnership under the laws of the State of Tennessee in November 1991. Effective
February 1, 1995, the partners of the Partnership transferred, in a tax free
conversion, their partnership interests to the Company in exchange for the
issuance of 10,100,232 shares of common stock of the Company. The common stock
was received by each partner in proportion to the partner's percentage interest
in the Partnership. As a result of this exchange, the Partnership was dissolved
and liquidated, with all of the assets and liabilities of the Partnership
(including the SBIC license which was obtained by the Partnership in May 1992)
being thereby assigned and transferred to the Company. This transaction was
accounted for as a reorganization of entities under common control, in a manner
similar to a pooling of interests. The accompanying financial statements have
been prepared on a basis appropriate for investment companies as enumerated in
the American Institute of Certified Public Accountants' Audit and Accounting
Guide on Audits of Investment Companies.
The Company is a specialty finance company that is primarily engaged in
making loans to small businesses. The Company's objectives are to achieve both a
high level of current income from interest on loans and fees and long-term
growth in the value of its shareholders' equity through the appreciation in
value of the equity interests in its portfolio companies that are primarily
small, privately owned companies. The Company targets small businesses that the
Company believes meet certain characteristics, including the potential for
significant growth, adequate collateral coverage, experienced management teams,
sophisticated outside equity investors and profitable operations. In addition to
making loans to small businesses, the Company makes investments in micro-cap
public companies that are marketed under the name Tandem Capital, Inc.
("Tandem") and provides merger and acquisition advisory services through its
wholly-owned subsidiary, Harris Williams & Co. ("Harris Williams").
The Company is a non-diversified, closed-end investment company, that has
elected to be treated as a business development company under the Investment
Company Act of 1940, as amended (the "1940 Act"). Prior to August 1996, the
Company was also a small business investment company ("SBIC") licensed under the
Small Business Investment Act of 1958, as amended (the "1958 Act"). The Company
was licensed by the U.S. Small Business Administration (the "SBA") on May 14,
1992. In August 1996, the Company transferred its SBIC operations, including its
SBIC license, and the majority of its assets and liabilities, to its
wholly-owned subsidiary, Sirrom Investments Inc. ("SII"), a Tennessee
corporation. Under applicable SBA regulations, SII is restricted to investing
only in qualified small business concerns in the manner contemplated by the 1958
Act. In December 1996, the Company formed Sirrom Funding Corporation ("SFC"), a
closed-end, non-diversified investment company. SFC is a bankruptcy remote
subsidiary that purchases loans and warrants from the Company on a true-sale
basis and holds them as collateral for a $100.0 million revolving credit
facility. The Company, SII and SFC have each elected to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
In August 1996, the Company acquired the ownership interests of Harris
Williams & Co., L.P. ("Harris Williams") for 1,796,908 shares of common stock of
the Company. After the acquisition, Harris Williams began operating as a "C"
corporation. Harris Williams is a merger and acquisition advisory services firm
located in Richmond, Virginia, that is being operated as a wholly-owned
subsidiary of the Company. The acquisition of Harris Williams has been accounted
for as a pooling of interests. The consolidated balance sheets as of December
31, 1997 and March 31, 1998 and the consolidated statements of operations and
cash flows for the quarter ended March 31, 1997 and 1998 reflect the operations
of Harris Williams as an unconsolidated subsidiary accounted for by the equity
method of accounting in conformity with the requirements of the 1940 Act.
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The Company has a 40% ownership interest in a Canadian company, SCC Canada
Inc., that provides loan origination and processing services for loans to
Canadian companies. The Company's ownership interest in SCC Canada Inc. is
immaterial to its financial position and is accounted for under the equity
method of accounting.
2. INTERIM FINANCIAL STATEMENTS
Certain notes and other information have been omitted form the interim
consolidated financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Company's 1997 Annual Report on Form 10-K.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
SII, SFC and SCCGS, Inc. All intercompany accounts and transactions have been
eliminated in the consolidation.
Valuation of Investments
Portfolio investments are stated at fair value as determined by the Board
of Directors.
Under the Company's valuation policy, the fair values of loans to small
business concerns are based on the Board of Directors' evaluation of the
financial condition of the borrowers and/or the underlying collateral. The
values assigned are considered to be amounts that could be realized in the
normal course of business, assuming the Company holds the loan to maturity and
realizes the face value of the loan. Fair value normally corresponds to cost
unless the borrower's condition or external factors lead to a determination of
fair value at a higher or a lower amount.
Equity interests and warrants for which there is not a public market are
valued based on factors such as significant equity financing by sophisticated,
unrelated new investors, history of positive cash flow from operations, the
market value of comparable publicly traded companies (discounted for
illiquidity) and other pertinent factors. The Board of Directors also considers
recent offers to purchase a portfolio company's securities and the filings of
registration statements in connection with a portfolio company's initial public
offering when valuing warrants.
Shares of stock and warrants of public companies that the Company is not
permitted to sell in the public market as a result of securities law
restrictions, lock-up agreements and other similar restrictions are typically
valued at 80% of market value at March 31, 1998 and 70% of market value at
December 31, 1997. All other publicly traded stocks are typically valued at 95%
of market value at the balance sheet at March 31, 1998 and 90% of market value
at December 31, 1997.
At March 31, 1998 and December 31, 1997, the investment portfolio included
investments totaling $542,919,000 and $482,652,000, respectively, whose values
had been estimated by the Board of Directors in the absence of readily
ascertainable market values. Because of the inherent uncertainty of the
valuations, the estimated fair values may differ significantly from the values
that would have been used had a ready market for the securities existed, and the
differences could be material.
Realized and Unrealized Gain or Loss on Investments
Realized gains are recorded upon disposition of investments and are
calculated based upon the difference between the proceeds and the cost basis
determined using the specific identification method. Realized losses are
recorded upon the final disposition of the cost
7
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basis of investments according to federal income tax guidelines and are
calculated in the same manner. All other changes in the valuation of portfolio
investments, as determined by the directors, are included as changes in the
unrealized appreciation or depreciation of investments in the statement of
operations.
Description of Loans Terms
The loans to small business concerns included in investments bear interest
at rates ranging from 6.00% to 16.50%. Typically, interest is payable in monthly
or quarterly installments over five years with the entire principal amount
typically due at maturity. These loans are generally collateralized by liens on
the assets of the borrower and/or guarantees. Certain of these liens may be
subject to prior liens.
Interest on Investments
Interest income is recorded on the accrual basis. The accrual of income is
typically suspended when the related loan becomes 60 days past due unless
management anticipates that accrued amounts will be collected.
Loan Processing Fees
The Company recognizes loan processing fees as income when the related loan
closes.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as cash on hand, cash in
interest bearing and non-interest bearing operating bank accounts and highly
liquid investments such as time deposits with an original maturity of three
months or less.
Debt Financing Costs
SBA debenture costs are amortized over ten years, which represents the term
of the fourteen SBA debentures (See Note 5). Financing costs related to the
revolving credit facilities are amortized over the term of the credit
agreements.
Income Taxes
Beginning in February 1995, the Company elected to be taxed as a RIC under
Subchapter M of the Code. If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of its
assets and the distribution of its net income, the Company is generally taxed as
a pass through entity which acts as a partial conduit of income to its
shareholders.
In order to maintain its RIC status, the Company must, in general, (a)
derive at least 90% of its gross income from dividends, interest and gains from
the sale or disposition of securities, (b) meet investment diversification
requirements defined by the Code and (c) distribute to shareholders at least 90%
of its net income (other than long-term capital gains).
The Company currently intends to meet the RIC qualifications in future
years. Therefore, the Company has not provided for federal income taxes on the
unrealized appreciation of investments.
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Derivative Financial Instruments
The Company uses interest rate swaps to hedge interest costs on its
floating rate revolving credit facilities. Any amounts paid or received on
interest rate swap agreements are recognized as an adjustment to interest
expense. Gains and losses on terminated swaps are recognized over the remaining
life of the underlying obligation as an adjustment to investment income or
interest expense. The fair value of the swap agreements are not recognized in
the consolidated financial statements as they are accounted for as hedges. The
Company does not hold derivative financial instruments for trading or
speculative purposes.
The counterparties to the interest rate swap agreements are major
commercial banks. Management believes that losses related to credit risk are
remote.
Net Increase In Shareholders' Equity Resulting From Operations per Share
Net increase in shareholders' equity resulting from operations per share is
calculated in accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 128. Under the standards established by SFAS
No. 128, per share information is measured at two levels: basic and diluted. See
Note 9 for the Company's computation of these amounts.
New Accounting Pronouncement
In June 1997, the SFAS No. 130, "Reporting Comprehensive Income," was
issued. The Company has adopted this standard which requires the display of
comprehensive income and its components in the financial statements. In the
Company's case, comprehensive income includes all components of the net increase
in shareholder's equity reported in the statement of operations.
Reclassifications
Certain prior period amounts have been reclassified to conform to current
year presentation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
4. INVESTMENTS
Investments consist primarily of loans made and warrants obtained from
borrowers. Investments are recorded at fair value as determined by the directors
or by current market prices, if available, in accordance with the Company's
valuation policy (See Note 3). While the Company markets to borrowers throughout
the United States, approximately 56% of the investment portfolio consists of
loans and equity investments in companies that are headquartered in the
southeastern United States and Texas.
The aggregate cost basis of loans on non-accrual status, less realized
losses, totaled $27,717,592 and $38,066,659 at December 31, 1997 and March 31,
1998, respectively. The aggregate fair values of these loans as determined by
the Company's directors totaled $17,052,737 and $23,135,525 at December 31, 1997
and March 31, 1998, respectively.
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Included in the investment portfolio at December 31, 1997 are other assets
which consist of rights to royalty payments, a right to receive payment from a
potential arbitration settlement and certain tangible assets. Included in the
investment portfolio at March 31, 1998 are assets which consist of rights to
royalty payments and certain intangible assets. The aggregate cost of other
assets at December 31, 1997 and March 31, 1998 was $4,240,503 and $2,270,704,
respectively, which represents the cost basis of the original loans plus
capitalized workout expenses. The Company's directors have estimated the fair
value of these assets to be $2,440,503 and $330,704 at December 31, 1997 and
March 31, 1998, respectively.
5. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
As of March 31, 1998, SII had fourteen debentures totaling $101.0 million
payable to the SBA with semiannual interest only payments based upon rates
ranging from 6.12% to 8.20% per annum, with scheduled maturity dates as follows:
<TABLE>
<CAPTION>
DATE AMOUNT
------- ------------
<S> <C>
2002 $ 10,000,000
2003 24,000,000
2004 17,000,000
2005 22,260,000
2006 16,740,000
2008 11,000,000
------------
$101,000,000
============
</TABLE>
The debentures are subject to a prepayment penalty if paid prior to five
years from maturity. Interest expense related to these debentures for the
periods ended March 31, 1997 and 1998 totaled $1,557,902 and $1,571,222,
respectively.
The SBA and the lenders of the $125.0 million revolving credit facility are
equally secured by the assets of SII. The debentures are also guaranteed by the
Company.
6. REVOLVING CREDIT FACILITIES
Revolving credit facilities consist of the following at December 31, 1997
and March 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
$125.0 million revolving facility $ 61,500,000 $ 4,515,000
$100.0 million revolving facility 62,750,000 27,000,000
------------- -------------
Total revolving credit facilities $ 124,250,000 $ 31,515,000
============= =============
</TABLE>
The $125.0 million revolving credit facility is payable by SII to a
syndicate of lenders. The facility consists of a swingline totaling $15.0
million which bears interest at prime minus 0.5%, and the balance of the
facility bears interest at either LIBOR plus 1.75% or prime plus 0.5% at SII's
discretion. Borrowing under the facility is based on the principal amount of
eligible loans and public securities in SII's portfolio. The revolving credit
agreement imposes certain operating restrictions on the Company and SII such as
requiring lender approval of certain mergers and acquisitions, changes in
management, and payment of dividends in excess of those required to maintain RIC
status. The agreement contains financial covenants that require SII to maintain
a certain level of tangible net worth and meet ratios related to interest
coverage, non-accrual/delinquent loans and loan losses. As of March 31, 1998,
the Company and SII were in compliance with these covenants. The revolving
credit lenders and the SBA are equally secured by all assets of SII and the
revolving credit facility is guaranteed by the Company. The facility expires on
May 31, 2000.
As of March 31, 1998, the Company had entered into an interest rate swap
agreement under the $125.0 million revolving credit facility. In the agreement,
the Company swapped the variable rate on $45.0 million in borrowings to a fixed
rate of 8.12%. This swap expires in
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May 2000. Interest expense on the revolving credit facility, including the
interest rate swaps and a quarterly fee of .25% per annum on the total revolving
credit facility for the periods ended March 31, 1997 and March 31, 1998 was
$418,734 and $1,233,719, respectively.
At December 31, 1996 SFC entered into a $100.0 million revolving credit
facility with a financial institution. SFC purchases loans and the related
warrants originated by the Company, and funds substantially all such purchases
with borrowings under the facility. The facility is funded by commercial paper
sold by the financial institution, and bears interest at the stated rate on the
commercial paper sold plus 2.25%. SFC is generally able to borrow up to 70% of
the principal amount of conforming loans that are pledged to secure the credit
facility. At March 31, 1998, investments with a cost and fair value of
approximately $129,018,000 and $137,087,000, respectively, had been contributed
or sold to SFC by the Company and were pledged as collateral under the facility.
The facility agreement contains operational restrictions such as requiring
lender approval of certain mergers and acquisitions and changes in management.
The facility agreement also contains financial covenants related to tangible net
worth, loan delinquency and loan defaults. As of March 31, 1998, the Company and
SFC were in compliance with those covenants. The Company may borrow under the
facility until December 31, 2001, and the facility expires on January 5, 2007.
To hedge its exposure under the $100 million revolving credit facility, in
1996 the Company entered into several interest rate swap agreements in which the
Company exchanged variable commercial paper rates on $100 million notional
amount. During the period from January 1998 through December 1999, the Company
swapped the variable commercial paper rate to a fixed rate of 6.00%. During the
period from January 2000 through December 2001, the Company put in place a
collar that caps the variable commercial paper rate at 6.95% in exchange for a
floor at 6.00%. Pursuant to the terms of the swaps, the Company was required to
post cash collateral to secure its obligations thereunder. In March 1998, a new
counterparty assumed the previous counterparty's obligations under the swaps,
and the swaps were modified to eliminate the cash collateral requirement and to
increase the cap to 7.35% during the January 2000 through December 2001 period.
These rates do not include the 2.25% fee charged by the financial institution
on amounts borrowed under the facility.
Interest expense on the $100.0 million credit facility including the swaps
and a monthly fee of .50% per annum on the unused portion of the facility
totaled $157,634 and $1,254,862 for the quarter ended March 31, 1997 and March
31, 1998, respectively.
7. INCOME TAXES
For the quarters ended March 31, 1997 and 1998, the Company provided for
federal income tax at a 35% rate on undistributed realized long-term capital
gains, excise taxes at a 4% rate on undistributed taxable net investment income
as defined by the Code and undistributed realized long-term capital gains and
federal and state income taxes on Harris Williams' pre-tax income (See Note 13).
For the quarters ended March 31, 1997 and 1998, the provision for income taxes
totaled $2,309,480 and $684,337, respectively.
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8. STOCK OPTION PLANS
Employee Stock Option Plan
The Company's two employee stock option plans, the Amended and Restated
1994 Employee Stock Option Plan (the "1994 Plan"), and the 1996 Employee Stock
Incentive Plan, as amended (the "1996 Plan") provide for the granting of options
for up to 1,000,000 and 5,707,098 shares, respectively, of common stock to
selected employees at an exercise price not less than the fair market value of
the common stock on the date of the grant. The terms of each award are
determined by the Board of Directors. The options vest over a five year period
from the date of grant and expire ten years from the date of grant.
A summary of stock option activity related to the plans.
<TABLE>
<CAPTION>
PRICE RANGE
PER SHARE SHARES
--------- ------
<S> <C> <C>
Outstanding, December 31, 1995 933,932
Granted $9.33-17.875 1,535,162
Exercised $6.75-8.938 30,000
Forfeited $9.25-13.167 50,000
---------
Outstanding, December 31, 1996 2,389,094
Granted $13.969-23.875 3,118,004
Exercised $5.50-13.969 134,000
Forfeited $9.25-17.50 42,000
---------
Outstanding, December 31, 1997
Granted $23.50-25.75 5,331,098
Exercised $6.75-17.50 425,000
Forfeited -- 22,000
Outstanding, March 31, 1998 5,734,098
=========
</TABLE>
Directors Stock Option Plan
During 1995, the Company adopted a 1995 Stock Option Plan for
Non-Employee Directors which permits the issuance of options to purchase the
Company's common stock to non-employee directors. The Plan reserves 228,000
shares of common stock for automatic grant. Directors elected prior to December
1, 1994 will receive options to purchase 36,000 shares and directors elected
after December 1, 1994 will receive options to purchase 24,000 shares. Upon the
initial election of a future non-employee director, an option to acquire 12,000
shares of common stock will be issued to the director. Under the terms of the
Plan, the options' exercise price may not be less than the fair market value of
a share of common stock on date of grant. No options were granted in 1995. In
1996, 168,000 options were granted at an exercise price of $12.125 which were
outstanding at December 31, 1996. In 1997, 12,000 options were granted at an
exercise price of $13.968. No shares were exercised prior to
12
<PAGE> 13
1997, 11,600 shares were exercised during 1997 and no shares were exercised
in the first quarter of 1998. No shares have been forfeited to date.
9. SECONDARY OFFERING
In March 1998, the Company completed a public offering of 6,000,000 shares
of common stock at a price of $25.50 per share. The net proceeds to the Company
of the offering, after underwriting commissions and expenses, were
approximately 144,550,000.
10. NET INCREASE IN SHAREHOLDERS' EQUITY PER SHARE
The Company computes the net increase in shareholders' equity from
operations per common share-basic by dividing the net increase in shareholders'
equity from operations by the weighted average number of common shares
outstanding during the quarter, which was 27,837,174 and 32,499,984 for the
quarters ended March 31, 1997 and 1998, respectively. For the calculation of the
net increase in shareholders' equity from operations per common share-diluted,
the Company increases the weighted average number of shares for the potential
dilutive effect of outstanding stock options. The weighted average shares
outstanding considering the effect of the stock options outstanding was
28,923,180 and 35,000,579 for the quarters ended March 31, 1997 and 1998,
respectively.
In December 1997, the Company declared a dividend derived from capital gains
totaling $5,405,267 payable in January 1998. On March 20, 1998, the Company
paid a dividend of $7,929,151 from net investment income to shareholders of
record as of February 27, 1998.
11. STOCK SPLIT
On January 5, 1998 the Board of Directors declared a two-for-one stock
split on the Company's common stock. One additional share was issued for each
share of common stock held by shareholders of record as of the close of business
on January 16, 1998. The new shares were distributed on January 30, 1998. All
references to the number of common shares and per share amounts have been
restated as appropriate to reflect the effect of the split for all periods
presented.
12. COMMITMENTS AND CONTINGENCIES
As of March 31, 1998, the Company had outstanding loan commitments
totaling $10,150,000. These commitments were made in the ordinary course of the
Company's business and are generally on the same terms as loans to existing
borrowers.
As of March 31, 1998, the Company had guaranteed letters of credit issued
by a commercial bank for one of its portfolio companies in the amount of
$1,122,800. The letters of credit expire May 13, 1998 and August 31, 1998.
The Company has made a commitment under a joint venture agreement to fund up
to $100.0 million (in Canadian dollars) in loans to Canadian companies.
13
<PAGE> 14
13. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
As discussed in Note 1, Harris Williams is accounted for by the equity
method of accounting. The balance sheets for Harris Williams as of December 31,
1997 and March 31, 1998 and statements of income for the quarters ended March
31, 1997 and 1998 are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 282,913 $ 1,631,916
Accounts receivable 674,256 3,690,287
Other assets, net 1,645,857 338,240
------------- -------------
Total Assets $ 2,603,026 $ 5,660,443
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 1,678,067 $ 3,458,976
Shareholders' equity 924,959 2,201,467
------------- -------------
Total liabilities and shareholders' equity $ 2,603,026 $ 5,660,443
============= =============
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
REVENUES:
Fee income $ 805,827 $ 3,991,246
Expense reimbursements and other 110,430 188,246
------------- -------------
916,257 4,179,492
------------- -------------
EXPENSES:
Salaries and benefits 417,729 1,736,105
Operating expenses 257,327 482,543
------------- -------------
Total expenses 675,056 2,218,648
------------- -------------
Pre-tax operating income 241,201 1,960,844
Provision for income taxes 72,360 684,377
------------- -------------
Net income $ 168,841 $ 1,276,507
============= =============
</TABLE>
Advisory services are typically provided by Harris Williams in
accordance with engagement contracts that stipulate a monthly retainer,
reimbursement of direct expenses and success fees. Retainer fees are recognized
ratably over the retainer period, expense reimbursements are recognized monthly
as billed and success fees are recognized at the time of closing.
Subsequent to the acquisition in August 1996, Harris Williams began
operating as a "C" corporation. Accordingly for the quarters ended March 31,
1997 and 1998, Harris Williams has provided federal income taxes of $72,360 and
$684,377, respectively, which is included in provision for income taxes in the
accompanying consolidated statements of operations.
Harris Williams reimburses the Company for certain expenses which
totaled $96,516 and $121,816 for the quarters ended March 31, 1997 and 1998.
Expense reimbursements are reflected as a reduction in operating expenses in the
Company's consolidated statements of operations. Harris Williams has a
receivable from the Company as of March 31, 1998 totaling $2,279,753, which is
included in accounts payable in the Company's consolidated balance sheet.
14
<PAGE> 15
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Action Sports Group, LLC......................... 8/19/02 $ 1,750,000 13.00% $ 1,750,000
Aero Products Corporation........................ 6/9/02 2,500,000 13.00 2,500,000
Aero Products Corporation........................ 12/19/99 1,250,000 14.00 1,250,000
Affinity Fund, Inc. ............................. 6/29/98 1,485,000 12.50 1,500,000
Affinity Fund, Inc. ............................. 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. ............................. 12/28/98 495,000 12.50 497,075
Alignis, Inc. ................................... 2/28/02 2,500,000 13.00 2,500,000
American Consolidated Laboratories, Inc.......... 4/25/02 1,458,450 13.50 1,223,990
American Consolidated Laboratories, Inc.......... 12/18/01 520,000 13.00 520,000
American Consolidated Laboratories, Inc.......... 4/25/02 529,238 13.50 534,126
American Corporate Literature, Inc. ............. 9/29/01 1,683,000 14.00 1,687,528
American Corporate Literature, Inc. ............. 1/1/98 500,000 14.00 500,000
American Network Exchange, Inc................... 11/30/98 990,000 13.00 998,350
American Network Exchange, Inc................... 1/18/99 990,000 13.00 998,016
Amscot Holdings, Inc. ........................... 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc. ........................... 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc. ........................... 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc. ........................... 12/27/01 250,000 14.00 250,000
Amscot Holdings, Inc. ........................... 7/30/02 1,000,000 14.00 1,000,000
Anton Airfoods, Inc. ............................ 5/21/02 5,000,000 13.50 5,000,000
ARAC Holding Co., Inc. .......................... 9/27/01 3,000,000 13.50 3,000,000
Ashe Industries, Inc. ........................... 5/18/99 535,546 12.50 185,546
Associated Response Services, Inc. .............. 6/20/99 1,386,000 12.50 1,396,019
Associated Response Services, Inc. .............. 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc. .............. 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. .............. 11/8/01 500,000 12.50 500,000
Associated Response Services, Inc. .............. 3/27/02 3,000,000 12.50 3,000,000
Assured Power, Inc. ............................. 10/1/00 200,000 13.50 50,000
Atlantic Security Systems, Inc. and affiliates... 1/29/02 2,250,000 13.25 2,250,000
Auburn International, Inc. ...................... 12/31/02 2,850,000 13.50 2,852,500
Austin Innovations, Inc. ........................ 7/1/02 1,950,000 13.75 1,953,448
Avionics Systems, Inc. .......................... 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc. ............................. 8/8/00 2,970,000 12.50 2,583,500
B & N Company, Inc. ............................. 3/28/01 990,000 13.00 993,507
BankCard Services Corporation.................... 1/21/98 273,731 13.00 126,631
BiTec Southeast, Inc. ........................... 7/1/99 2,600,321 12.70 2,192,671
BiTec Southeast, Inc. ........................... 8/9/01 950,000 14.00 950,000
BiTec Southeast, Inc. ........................... 4/30/97 350,000 14.00 350,000
BiTec Southeast, Inc. ........................... demand 228,000 14.00 228,000
Bohdan Automation, Inc. ......................... 7/1/02 1,500,000 13.50 1,500,000
Bravo Corporation, Inc. ......................... 3/31/03 3,250,000 12.00 3,250,000
BroadNet, Inc. .................................. 6/9/02 2,500,000 14.00 2,500,000
BUCA, Inc........................................ 10/31/02 1,565,003 13.50 1,572,253
Bug.Z., Inc. .................................... 9/23/02 2,500,000 15.00 2,500,000
C.J. Spirits, Inc. .............................. 6/1/97 750,171 13.50 105,796
Caldwell/VSR Inc. ............................... 2/28/01 1,500,000 12.00 1,500,000
</TABLE>
15
<PAGE> 16
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Caldwell/VSR Inc. ............................... 9/27/01 $ 22,262 14.00% $ 22,262
Cardiac Control Systems, Inc. ................... 3/31/00 1,500,000 13.50 1,500,000
Cartech Holdings, Inc. .......................... 4/29/01 1,500,000 13.00 1,500,000
Carter Kaplan Holdings, LLC...................... 6/22/00 594,000 14.00 44,800
Catalina Food Ingredients, Inc. ................. 3/30/02 3,500,000 13.00 3,500,000
Cedaron Medical, Inc. ........................... 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc. ................................. 3/1/98 990,000 12.75 1,000,000
CF Data Corp. ................................... 3/16/00 1,732,500 13.75 1,742,428
Champion Glove Manufacturing Co., Inc. .......... 7/27/00 1,250,000 13.50 50,000
Check Into Cash, Inc. ........................... 11/7/01 3,039,000 14.00 3,138,879
CMHC Systems, Inc. .............................. 7/1/02 1,400,000 13.50 1,400,000
CMP Enterprises, LLC............................. 12/10/02 3,500,000 13.00 3,500,000
Colonial Investments, Inc. ...................... 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc. ...................... 4/1/98 300,000 13.75 300,000
Colonial Investments, Inc. ...................... 4/1/98 60,933 13.75 60,933
Columbus Medical Holdings, LLC................... 1/31/02 4,000,000 13.75 4,000,000
Compression, Inc. ............................... 12/17/02 3,700,000 13.50 3,700,000
Consumat Systems, Inc. .......................... 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 3/11/01 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 3/26/02 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 7/15/98 500,000 14.00 500,000
Continental Diamond Cutting Co. ................. 10/28/99 500,000 13.00 500,000
Continental Diamond Cutting Co. ................. 11/16/99 200,000 13.00 200,000
Corporate Link, Inc. ............................ 12/13/01 600,000 14.00 600,000
Corporate Link, Inc. ............................ 1/13/98 300,000 14.00 300,000
Cort Investment Group, Inc. (d/b/a Contract
Network)....................................... 8/27/02 3,320,000 13.50 3,335,000
Creighton Shirtmakers, Inc. and affiliates....... demand 1,969,000 14.00 1,969,000
CSM, Inc. ....................................... 12/31/01 1,400,000 14.00 1,400,000
Cybo Robotics, Inc. ............................. 9/18/02 1,050,000 13.25 1,050,000
Dalts, Inc. ..................................... 4/28/01 2,000,000 13.50 2,000,000
Dartek Industries, Inc........................... 11/20/01 3,800,000 13.50 3,800,000
Dartek Industries, Inc........................... 6/1/99 688,915 13.50 688,915
Data National Corporation........................ 12/10/02 1,050,000 13.75 1,057,500
DentalCare Partners, Inc. ....................... 1/11/01 2,206,023 12.50 2,213,037
DFI/Aeronomics, Inc. ............................ 12/30/02 3,000,000 13.50 3,000,000
Dyad Corporation................................. 12/31/02 2,900,000 14.00 2,910,000
DynaGen, Inc. ................................... 6/17/02 1,733,300 13.50 1,764,415
Dyntec, Inc. .................................... 7/7/02 2,500,000 14.00 2,500,000
Electronic Accessory Specialists Int'l, Inc. .... 6/23/02 1,600,000 13.50 1,600,000
Encor Technologies, Inc. ........................ 3/30/02 1,444,000 13.13 1,444,000
Endeavor Technologies, Inc. ..................... 9/2/02 4,000,000 13.50 4,000,000
Entek Scientific Corporation..................... 5/22/02 1,090,000 13.00 1,108,984
Entek Scientific Corporation..................... 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc. .................. 9/22/00 1,697,598 13.25 1,955,394
</TABLE>
16
<PAGE> 17
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Express Shipping Centers, Inc. .................. 5/1/02 $ 250,000 13.25% $ 250,000
Express Shipping Centers, Inc. .................. 7/14/98 150,000 15.00 150,000
Faxnet Corporation............................... 6/17/02 1,900,000 13.00 1,911,669
FDL, Inc. ....................................... 1/30/02 1,750,000 13.50 1,800,004
Film Technologies International, Inc. ........... 2/27/02 1,500,000 14.00 1,500,000
FoodNet Holdings, LLC............................ 7/22/01 1,500,000 13.50 1,500,000
Fortrend Engineering Corp. ...................... 8/30/01 1,500,000 12.99 1,500,000
Fypro, Inc. ..................................... 12/17/01 1,166,000 8.00 1,016,000
Gardner Wallcovering, Inc. ...................... 3/28/01 235,000 13.50 240,250
General Materials Management, Inc. .............. 7/29/01 2,500,000 13.50 2,250,000
Generation 2 Worldwide LLC....................... 10/31/00 2,000,000 14.00 2,000,000
Global Marine Electronics, Inc. ................. 5/1/01 1,350,000 13.00 1,350,000
Gloves Inc. ..................................... 5/1/02 1,500,000 13.00 1,500,000
Good Food Fast Companies, The.................... 12/10/01 2,500,000 13.50 2,500,000
Gulfstream International Airlines Inc. .......... 7/29/99 1,490,000 13.00 1,498,517
Gulfstream International Airlines Inc. .......... 9/25/00 1,000,000 14.00 1,000,000
Gulfstream International Airlines Inc. .......... 3/19/02 1,500,000 14.00 1,500,000
Gulfstream International Airlines Inc. .......... 12/1/99 2,200,000 14.00 2,200,000
H & H Acq. Corp. ................................ 8/30/01 1,500,000 14.00 1,500,000
Home Link Services, Inc. ........................ 12/30/01 300,000 14.00 300,000
Hunt Assisted Living, LLC........................ 10/17/02 2,999,900 12.00 2,999,904
Hunt Incorporated................................ 3/31/00 3,000,000 14.00 3,000,000
Hydrofuser Industries, Inc. and affiliates....... 7/30/02 885,039 13.00 932,006
I.Schneid Acquisition, LLC....................... 4/1/01 2,000,000 14.00 2,000,000
IJL Holdings, Inc. .............................. 9/12/02 1,250,000 13.50 1,250,000
ILD Communications, Inc.......................... 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc. ......................... 4/19/00 1,188,000 14.00 1,194,600
Johnston County Cable, L.P. ..................... 8/31/00 1,990,000 14.00 1,994,676
Karawia Industries, Inc. ........................ 3/27/02 2,500,000 14.00 2,500,000
KWC Management Co., LLC.......................... 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation..................... 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc. ............... 4/1/01 1,485,000 14.00 1,490,250
Leisure Clubs International, Inc. ............... 3/27/02 125,000 14.00 125,000
M & M Industries, Inc. .......................... 2/26/02 2,250,000 14.00 2,250,000
Master Graphics, Inc. ........................... 5/31/02 4,300,000 13.25 4,300,000
Mayo Hawaiian Corp. ............................. 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation........................ 2/4/99 1,782,000 12.50 1,796,100
McAuley's Incorporated........................... 7/31/01 3,000,000 13.00 3,000,000
MCG, Inc. ....................................... 12/23/02 1,500,000 13.50 1,500,000
Mead-Higgs Company, Inc. ........................ 5/19/02 1,400,000 14.00 1,400,000
Merge Technologies, Inc. ........................ 6/30/02 2,000,000 13.50 2,000,000
Mesa International, Inc. ........................ 1/23/02 3,800,000 14.00 3,800,000
Metals Recycling Technologies Corp. ............. 10/31/01 2,000,000 14.00 2,000,000
MetroLease, Inc. ................................ 7/29/02 2,495,000 13.50 2,495,498
Money Transfer Systems, Inc. .................... 7/24/00 247,500 14.00 248,760
Money Transfer Systems, Inc. .................... 12/20/00 148,500 14.00 149,125
</TABLE>
17
<PAGE> 18
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Money Transfer Systems, Inc. .................... 3/1/01 $ 148,500 14.00% $ 149,050
Money Transfer Systems, Inc. .................... 5/2/01 148,500 14.00 148,950
Money Transfer Systems, Inc. .................... 7/8/01 148,500 14.00 148,950
Money Transfer Systems, Inc. .................... 10/1/01 148,500 14.00 148,875
Money Transfer Systems, Inc. .................... 1/5/02 245,000 14.00 245,996
Money Transfer Systems, Inc. .................... 3/6/02 250,000 14.00 250,000
Money Transfer Systems, Inc. .................... 7/15/02 250,000 14.00 250,000
Moore Diversified Products, Inc. ................ 6/16/00 800,000 13.50 800,000
Moore Diversified Products, Inc. ................ 3/27/02 1,000,000 13.50 1,000,000
Multicom Publishing, Inc. ....................... 3/29/01 1,025,000 13.00 1,068,328
Multicom Publishing, Inc. ....................... demand 51,556 14.00 51,556
Multicom Publishing, Inc. ....................... demand 650,000 14.00 650,000
Multicom Publishing, Inc. ....................... demand 70,000 14.00 70,000
Multicom Publishing, Inc. ....................... demand 160,000 14.00 160,000
Multimedia Learning, Inc. ....................... 5/8/00 1,500,000 14.00 1,500,000
Multimedia Learning, Inc. ....................... 4/18/01 500,000 13.50 500,000
Multimedia Learning, Inc. ....................... 9/12/01 750,000 13.50 750,000
Mytech Corporation............................... 9/25/02 1,400,000 13.50 1,400,000
NASC, Inc. ...................................... 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc. ...................................... 12/13/98 500,000 13.50 500,000
National Health Systems, Inc. ................... 10/1/99 420,000 12.50 127,000
Nationwide Engine Supply, Inc. .................. 1/12/99 2,475,000 12.00 2,495,016
Nationwide Engine Supply, Inc. .................. 9/26/01 1,000,000 13.50 1,000,000
NetForce, Inc. .................................. 11/27/02 2,000,000 14.00 2,000,000
NRI Service and Supply L.P. ..................... 2/13/00 2,225,000 14.00 2,239,595
Omni Home Medical, Inc. ......................... 3/30/02 2,000,000 14.00 2,000,000
One Call Comprehensive Care, Inc. ............... 12/19/01 1,500,000 14.00 1,500,000
One Call Comprehensive Care, Inc. ............... 3/31/02 500,000 14.00 500,000
One Call Comprehensive Care, Inc. ............... 1/31/98 300,000 14.00 300,000
One Call Comprehensive Care, Inc. ............... 1/31/98 175,000 14.00 175,000
One Coast Network Corporation.................... 11/17/02 5,000,000 14.00 5,000,000
Orchid Manufacturing Group, Inc. ................ 9/14/00 2,960,000 13.00 2,976,675
Orchid Manufacturing Group, Inc. ................ 12/28/00 1,000,000 13.50 1,000,000
Outdoor Promotions LLC........................... 11/26/02 850,000 13.75 850,000
Pacific Linen, Inc. ............................. 12/3/02 2,951,976 13.50 2,961,110
Palco Telecom Service, Inc. ..................... 11/22/99 1,300,000 12.00 1,300,000
Paradigm Valve Services, Inc. ................... 11/12/01 1,600,000 13.50 1,600,000
Pathology Consultants of America, Inc............ 12/23/02 1,702,368 13.13 1,703,161
Patton Management Corporation.................... 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc. ...................... 9/26/02 3,725,158 13.50 3,743,482
Pik:Nik Media, Inc. ............................. 6/23/00 1,000,000 12.00 1,000,000
Pipeliner Systems, Inc. ......................... 9/30/98 980,000 10.00 896,984
Plymouth, Inc. .................................. 9/28/00 1,000,000 13.00 1,000,000
Potomac Group, Inc. ............................. 11/20/01 1,997,409 14.00 1,997,409
PRA International, Inc. ......................... 8/10/00 1,980,000 13.50 1,989,657
Precision Panel Products, Inc. .................. 1/11/02 2,022,781 12.75 2,031,781
</TABLE>
18
<PAGE> 19
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Precision Panel Products, Inc. .................. 1/11/02 $ 2,348,026 14.00% $ 2,348,026
Pritchard Paint & Glass Co. ..................... 2/14/01 767,431 14.00 767,431
Pritchard Paint & Glass Co. ..................... 2/10/01 200,000 14.00 200,000
Proamics Corporation............................. 7/31/02 1,000,000 13.00 1,000,000
Professional Training Services, Inc. ............ 9/30/02 3,400,000 13.25 3,400,000
Protect America, Inc. ........................... 1/30/02 3,905,000 13.50 3,923,996
R & R International, Inc. ....................... 6/30/02 2,000,000 13.25 2,000,000
Ready Personnel, Inc. ........................... 12/3/02 3,000,000 13.25 3,000,000
Recompute Corporation............................ 2/21/02 2,300,000 13.50 2,355,000
Reef Chemical Company, Inc. ..................... 9/23/02 2,700,000 13.75 2,720,000
Relax the Back Corporation....................... 10/1/02 2,500,000 13.00 2,500,000
Rocky Mountain Radio Company LLC................. 11/10/01 3,000,000 13.50 3,000,000
Rynel Ltd., Inc. ................................ 10/1/01 1,250,000 14.00 1,250,000
Saraventures Fixtures Inc. ...................... 5/23/02 8,307,376 14.00 4,807,376
Sheet Metal Specialties, Inc. ................... 6/20/01 250,000 14.00 250,000
Sheet Metal Specialties, Inc. ................... 12/4/01 211,750 12.00 211,750
Sheet Metal Specialties, Inc. ................... 1/24/02 38,250 12.00 38,250
SkillMaster, Inc. ............................... 3/30/02 2,475,000 13.75 2,479,170
SkillSearch Corporation.......................... 2/5/98 496,000 13.00 500,153
Solutioneering, Inc. ............................ 3/31/02 2,000,000 13.75 2,000,000
Southern Specialty Brands, Inc. ................. 6/30/02 1,732,500 14.00 1,739,508
Southern Therapy, Inc. .......................... 4/22/02 1,000,000 13.50 1,000,000
Southern Therapy, Inc. .......................... 7/28/02 500,000 13.50 500,000
Stealth Engineering, Inc. ....................... 12/31/02 1,500,000 13.50 1,500,000
Stratford Safety Products, Inc. ................. 3/1/02 2,125,000 13.50 2,138,750
Sub 1 Corporation (d/b/a Risk Management)........ 10/8/02 750,000 14.00 750,000
Summit Publishing Group, Ltd. ................... 3/17/99 1,485,000 12.00 1,496,500
Summit Publishing Group, Ltd. ................... 7/26/01 625,000 14.00 625,000
Summit Publishing Group, Ltd. ................... 1/16/98 250,000 14.00 250,000
Suncoast Medical Group, Inc. .................... 9/14/99 485,000 13.50 91,998
Suncoast Medical Group, Inc. .................... 6/7/00 495,000 14.00 420,913
Suncoast Medical Group, Inc. .................... 2/23/01 522,000 14.00 447,747
Suncoast Medical Group, Inc. .................... 2/23/01 71,700 14.00 21,700
Suncoast Medical Group, Inc. .................... 12/31/98 625,000 13.50 0
TAC Systems, Inc. ............................... 3/27/02 1,012,000 14.00 1,012,000
TAC Systems, Inc. ............................... 1/31/98 500,000 14.00 500,000
TCOM Systems, Inc. .............................. 3/30/04 397,740 0.00 397,740
TeleCommunication Systems, Inc. ................. 9/20/02 3,000,000 14.00 3,000,000
Telecontrol Systems, Inc. ....................... 9/30/02 2,500,000 14.00 2,500,000
Temps & Co., Inc. ............................... 5/12/02 3,000,000 13.25 3,000,000
The Moorings, LLC................................ 12/31/01 1,655,500 13.00 1,799,050
The Moorings, LLC................................ 11/17/02 2,500,000 13.00 2,500,000
Thomas Holding Company (d/b/a Sports & Social
Clubs of the U.S.)............................. 5/21/02 1,500,000 13.50 1,500,000
Tie and Track Systems, Inc....................... 10/31/02 1,500,000 13.50 1,500,000
Towne Services, Inc. ............................ 12/18/02 1,500,000 14.00 1,500,000
</TABLE>
19
<PAGE> 20
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Trade Am International, Inc. .................... 9/30/00 $ 4,000,000 12.75% $ 4,000,000
TRC Acquisition Corporation...................... 10/21/01 2,000,000 13.50 2,000,000
UltraFab, Inc. .................................. 6/27/01 1,500,000 14.00 1,500,000
Umbrellas Unlimited, LLC......................... 8/21/02 314,691 14.00 264,691
Unicoil, Inc. ................................... 9/28/02 2,000,000 13.50 2,000,000
Unique Electronics, Inc. ........................ 11/30/99 600,000 10.67 600,000
Unique Electronics, Inc. ........................ 10/10/02 300,000 13.00 300,000
UOL Publishing, Inc. ............................ 10/31/99 32,353 6.00 32,348
Valdawn Watch Company............................ 4/13/00 2,160,000 14.00 1,525,000
Valdawn Watch Company............................ 8/21/02 1,000,000 14.00 1,000,000
Valdawn Watch Company............................ 1/30/98 100,000 14.00 100,000
VDW Farms, Ltd. ................................. 11/25/02 1,500,000 14.00 1,500,000
Watts-Finnis Holdings, Inc. ..................... 11/30/02 2,500,000 13.25 2,500,000
Wearever Health Products, LLC.................... 3/31/02 1,500,000 13.50 1,500,000
Wearever Health Products, LLC.................... 12/11/02 450,000 13.50 450,000
Wolfgang Puck Food Company, Inc.................. 5/20/02 5,000,000 12.50 5,000,000
Zahren Alternative Power Corp. .................. 1/30/00 495,000 13.00 497,071
Zahren Alternative Power Corp. .................. 11/27/99 1,980,000 13.00 1,993,619
------------ ------------
Subtotals.............................. 375,031,495 365,465,224
------------ ------------
TANDEM CAPITAL LOANS TO PUBLICLY TRADED COMPANIES
Altris Software, Inc. ........................... 6/27/02 $ 2,415,000 11.50% $ 2,454,000
Berger Holdings, Inc. ........................... 1/2/03 1,796,000 12.25 1,799,400
Bikers Dream, Inc. .............................. 11/17/98 2,390,625 12.00 2,392,448
Cover-All Technologies, Inc. (convertible at
$1.25/sh.)..................................... 3/31/02 3,000,000 12.50 5,150,000
Digital Transmission Systems, Inc. (convertible
at $10.25/sh.)................................. 9/25/02 4,000,000 11.50 4,000,000
Environmental Tectonics Corporation.............. 3/27/04 3,500,770 12.00 3,534,054
Smartchoice Automotive Group (convertible at
$6/sh.)........................................ 3/12/99 3,500,000 12.00 3,500,000
Smartchoice Automotive Group (convertible at
$6/sh.)........................................ 5/13/02 4,000,000 12.00 4,000,000
Teltronics, Inc. (convertible at $4/sh.)......... 2/13/02 4,250,000 11.00 4,250,000
Universal Automotive Industries, Inc. ........... 7/11/02 4,500,000 12.25 4,500,000
------------ ------------
Subtotals.............................. 33,352,395 35,579,902
------------ ------------
CANADIAN LOANS
Century Pacific Greenhouses Ltd.*................ 4/14/02 $ 1,002,794 13.00% $ 1,002,794
Copperhead Chemical Company, Inc. ............... 10/23/02 500,000 12.50 500,000
Daxxes Corporation*.............................. 12/1/02 847,997 13.00 847,997
Eagle Quest Golf Center Inc. .................... 6/20/02 1,600,000 13.50 1,600,000
Executrain (3199673 Canada Inc.)*................ 10/1/02 292,105 13.00 292,105
Executrain (3199673 Canada Inc.)*................ 12/24/02 559,910 13.00 559,910
Glen Oak Inc.*................................... 12/17/02 1,268,678 12.50 1,268,678
Graphic Workshop (1246568 Ontario Inc.)*......... 9/30/02 360,787 12.50 360,787
Newfoundland Career Academy Ltd.*................ 8/8/02 860,172 13.50 860,172
Quadravision Communications Ltd.*................ 4/11/02 437,956 13.00 437,956
Race Face Components, Inc.*...................... 11/1/02 433,463 12.00 433,463
SFG Technologies Inc.*........................... 7/30/02 724,218 13.00 724,218
</TABLE>
20
<PAGE> 21
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Sirvys Systems (3404447 Canada Inc.)*............ 12/30/02 $ 704,037 14.00% $ 704,037
Street Level (1216069 Ontario Ltd.)*............. 12/29/02 348,651 13.00 348,651
Supplements Plus Natural Vitamins & Cosmetics,
Ltd.*.......................................... 10/3/03 144,823 16.50 144,823
Systech Group, Inc.*............................. 3/31/02 874,636 13.00 874,636
------------ ------------
Subtotals.............................. $ 10,960,227 $ 10,960,227
------------ ------------
Total Loans............................ $419,344,117 $412,005,353
============ ============
</TABLE>
- ---------------
* Loan cost and fair value are stated in US dollars. Loan principal is
denominated in Canadian dollars.
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE
- ---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
American Consolidated Laboratories, Inc.
Common Stock............................... 1,000,000 9.20% $ 1,000,000 $ 175,000
American Network Exchange, Inc. Common
Stock...................................... 76,222 0.10 21,879 65,741
American Network Exchange, Inc. Common
Stock...................................... 63,429 0.00 0 0
Cardiac Control Systems, Inc. Common Stock... 50,000 2.20 250,000 25,313
Compass Plastics & Technologies Inc. Common
Stock...................................... 447,144 7.70 2,000 2,373,589
Medical Resources Inc. Common Stock.......... 55,549 .30 1,000,000 358,060
Moovies, Inc. Common Stock................... 156,110 1.60 1,561 149,280
Multicom Publishing, Inc. Common Stock....... 844,354 12.50 8,444 41,477
National Vision Associates, Ltd. Common
Stock...................................... 208,698 1.00 1,771,149 1,087,838
Network Event Theaters, Inc. Common Stock.... 412,397 4.20 2,114,772 1,335,135
Premiere Technologies, Inc. Common Stock..... 25,000 .10 0 603,750
QuadraMed Corporation Common Stock........... 11,422 .20 0 209,546
UOL Publishing, Inc. Common Stock............ 32,728 .90 8,494 362,735
Vista Information Solutions, Inc. Common
Stock...................................... 1,015,000 3.20 0 3,387,563
Vista Information Solutions, Inc. Common
Stock...................................... 143,032 0.40 0 371,287
NON-TRADED EQUITY INVESTMENTS IN PUBLIC
COMPANIES
Altris Software, Inc. Preferred
Stock -- convertible at $6.00/sh........... 3,000 0 3,000,000 3,000,000
American Consolidated Laboratories, Inc.
Preferred Stock -- Series A................ 2,720,141 0 2,720,141 2,375,000
Berger Holdings, Ltd. Preferred
Stock -- Series A;
convertible at $4.25/sh.................... 25,000 0 2,500,000 2,500,000
Clinicor, Inc. Preferred Stock -- Series B... 50,000 0 5,000,000 5,000,000
Environmental Tectonics Corporation Preferred
Stock -- Series A; convertible at
$7.50/sh................................... 25,000 0 2,500,000 2,500,000
</TABLE>
21
<PAGE> 22
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE
- ---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Multicom Publishing, Inc. Preferred Stock --
Series A................................... 235,000 0 $ 1,175,000 $ 0
Vista Information Solutions, Inc. Preferred
Stock -- Series E; convertible at
$2.75/sh................................... 2,500 0 2,500,000 2,800,000
Vista Information Solutions, Inc. Preferred
Stock -- Series E; convertible at a price
to be determined in June 1998.............. 2,500 0 2,500,000 2,500,000
EQUITY INVESTMENTS IN PRIVATE COMPANIES
Bravo Corporation Common Stock............... 69,391 1.20% 106,950 350,000
Caldwell/VSR Inc. Preferred Stock............ 890 0 890,000 890,000
CellCall, Inc. Common Stock.................. 358 1.40 10,465 100,000
Clearidge, Inc. Preferred Stock -- Series
A.......................................... 10,800,000 0 2,700,000 2,700,000
Clearidge, Inc. Common Stock................. 4,000,000 17.70 1,000,000 1,000,000
Corporate Flight Management, Inc. Common
Stock...................................... 66,315 6.60 663 663
CSM, Inc. Class A Common Stock............... 99,673 10.00 100,000 100,000
Dentalcare Partners, Inc. Preferred Stock --
Series E................................... 510,617 0 819,639 300,000
Front Royal, Inc. Common Stock............... 110,000 0.80 275,000 400,000
Fypro, Inc. Preferred Stock -- Series A...... 4,659,480 0 4,659,480 4,048,480
Gulfstream International Airlines, Inc.
Preferred Stock --Series A................. 216 0 3,000,000 3,000,000
Home Link, Inc. Preferred Stock.............. 1,000,000 0 1,000,000 750,000
Kentucky Kingdom, Inc. Common Stock.......... 24,142 5.60 238,316 500,000
Palco Telecom Service Common Stock........... 157,895 5.00 1,579 100,000
Paysys International, Inc. Common Stock...... 150,000 15.90 300 600,000
Pipeliner Systems, Inc. Preferred
Stock -- Series D.......................... 5,000 0 1,000,000 800,000
Potomac Group, Inc. Preferred Stock -- Series
A.......................................... 800,000 0 1,000,000 2,000,000
Potomac Group, Inc. Common Stock............. 1,437,681 9.40 292,370 1,799,038
PRA International, Inc. Common Stock......... 148,577 4.20 211,174 2,046,174
Recompute Corporation Common Stock........... 125,000 1.60 250,000 125,000
Relevant Knowledge, Inc. Preferred Stock --
Series B................................... 312,500 0 500,000 500,000
Relevant Knowledge, Inc. Common Stock........ 75,000 3.30 120,000 120,000
Saraventures Fixtures, Inc. Preferred
Stock...................................... 3,510 0 1,659,469 0
Skillsearch Corporation Common Stock......... 5,998 19.10 554,035 125,000
Teltrust, Inc. Common Stock.................. 175,677 1.75 0 525,000
Unique Electronics, Inc. Preferred Stock --
Series A................................... 1,000,000 0 1,000,000 675,000
Valdawn Watch Co. Preferred Stock............ 240 0 240,000 0
Voice FX Corporation Common Stock............ 24,078 0.80 110,001 25,000
Zahren Alternative Power Corporation Common
Stock...................................... 700 3.90 210,000 210,000
Zahren Alternative Power Corporation
Preferred Stock............................ 200 0 200,000 200,000
------------ ------------
Total Equity Interests............. $ 50,222,881 $ 55,210,669
============ ============
</TABLE>
22
<PAGE> 23
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Consolidated Laboratories,
Inc.................................... 1,050,563 9.69% $ 214,312 $ 183,849
American Network Exchange, Inc........... 13,988 0.00 0 0
Cardiac Control Systems, Inc. ........... 150,000 4.35 0 50,625
Cardiac Control Systems, Inc. ........... 50,000 2.15 0 0
Consumat Systems, Inc. .................. 250,000 20.00 0 84,375
Consumat Systems, Inc. .................. 66,379 5.00 0 0
DynaGen, Inc. ........................... 266,700 0.01 266,700 23,336
Encore Medical Corporation............... 69,841 0.01 0 0
HydroFuser Industries, Inc. ............. 662,245 5.00 469,684 463,572
Moovies, Inc. ........................... 20,000 0.20 0 0
Multicom Publishing, Inc. ............... 163,791 2.40 800,000 10,265
Vista Information Solutions, Inc. ....... 47,582 0.20 0 158,805
Vista Information Solutions, Inc. ....... 10,000 0.05 0 25,958
TANDEM CAPITAL WARRANTS IN PUBLICLY
TRADED COMPANIES
Altris Software, Inc. (exercise price
$6/sh.)................................ 300,000 3.00 585,000 450,000
Berger Holdings, Ltd. (exercise price
$4.25/sh.)............................. 240,000 4.60 204,000 204,000
Bikers Dream, Inc. (exercise price
$1/sh.)................................ 437,500 1.55 109,375 109,375
Environmental Tectonics Corp. (exercise
price $1/sh.).......................... 166,410 5.00 499,230 700,000
Smartchoice Automotive Group, Inc.
(exercise price $3/sh.)................ 300,000 2.50 0 200,000
Universal Automotive Industries, Inc.
(exercise price will be 80% of average
closing bid price for the 20 days prior
to 7/11/98)............................ 450,000 6.00 0 175,000
PRIVATE COMPANIES
Action Sports Group, LLC................. 3,350 10.00 0 0
Aero Products Corporation................ 30.61 25.00 0 0
Affinity Corporation..................... 550 9.67 20,000 20,000
Alignis, Inc. ........................... 111,684 4.00 0 0
American Corporate Literature, Inc....... 344,392 28.18 17,000 17,000
American Rockwool Acquisition Corp....... 1,100,000 11.00 0 400,000
Amscot Holdings, Inc. ................... 2,421 32.94 0 0
Anton Airfoods, Inc...................... 124 11.00 0 225,000
Associated Response Services, Inc. ...... 559 36.35 14,000 1,000,000
Assured Power, Inc. ..................... 280 12.00 0 0
Atlantic Security Systems, Inc. ......... 99 9.00 0 0
Auburn International, Inc. .............. 175,214 5.50 150,000 150,000
Austin Innovations, Inc. ................ 35,146 3.00 50,000 50,000
Auto Rental Systems, Inc. ............... 144,869 8.00 0 0
Aviation Holdings Ltd. (Newfoundland
affiliate)............................. 1,570 3.60 0 0
Avionics Systems, Inc. .................. 15% of Co. 15.00 0 0
</TABLE>
23
<PAGE> 24
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
B & N Company, Inc. ..................... 81 4.00% $ 40,000 $ 0
BankCard Services Corporation............ 149,261 32.00 3,000 0
BiTec Southeast, Inc. ................... 1,480 15.00 21,000 0
Bohdan Automation, Inc. ................. 404,564 3.00 0 0
BroadNet, Inc. .......................... 265,568 15.00 0 0
BUCA, Inc................................ 96,666 1.27 434,997 434,997
Bug.Z, Inc. and Subsidiaries............. 821,121 12.50 0 0
C.J. Spirits, Inc. ...................... 180,000 10.00 7,500 0
Caldwell/VSR Inc. ....................... 159 15.93 0 0
Cartech Holdings, Inc.................... 280,702 25.00 0 0
Carter Kaplan Holdings, LLC.............. 24% of LLC 24.00 6,100 0
Catalina Food Ingredients, Inc. ......... 10.2 9.25 0 0
Cedaron Medical, Inc. ................... 173,981 4.25 0 0
Century Pacific Greenhouses LTD.......... 177,418 6.30 0 0
CF Data Corp............................. 257 20.50 17,500 150,000
Champion Glove Manufacturing Co., Inc.... 538,614 6.88 0 0
Check Into Cash, Inc. ................... 63,789 5.00 461,000 461,000
Clearidge, Inc. ......................... 442,164 1.30 0 0
CLS Corporation.......................... 126,997 4.22 0 0
CMHC Systems, Inc. ...................... 3,231 4.20 0 0
CMP Enterprises, LLC..................... 15.17% of LLC 15.17 0 0
Colonial Investments, Inc. .............. 360 32.00 0 0
Columbus Medical Holdings, LLC........... 17,455 12.00 0 0
Continental Diamond Cutting Company...... 112 10.00 0 0
Copperhead Chemical Company, Inc. ....... 93 4.20 0 0
Corporate Link, Inc. .................... 190 16.00 0 0
Cort Investment Group, Inc. (d/b/a
Contract Network)...................... 90,000 9.00 180,000 180,000
Creighton Shirtmakers, Inc. ............. 30,250 30.25 0 0
CSM, Inc. ............................... 130,000 13.00 0 0
Cybo Robotics, Inc. ..................... 1,700,000 8.68 0 0
Dalt's, Inc. ............................ 140 28.00 0 0
Data National Corporation................ 275,682 13.00 450,000 450,000
Daxxes Corporation....................... 61,766 2.94 0 0
Delaware Publishing Group, Inc. ......... 8,534 47.67 15,000 0
Dentalcare Partners, Inc. ............... 666,022 4.98 10,000 10,000
DFI/Aeronomics Incorporated.............. 94,525 0.50 0 0
Dyad Corporation......................... 615 5.00 600,000 600,000
Dyntec, Inc. ............................ 126,667 15.00 0 0
Eagle Quest Golf Centers, Inc. .......... 407,135 1.40 0 250,000
Electronic Accessory Specialists Int'l,
Inc.................................... 3,694 3.00 0 250,000
Encor Technologies, Inc. ................ 7.46 6.84 0 0
Endeavor Technologies, Inc. ............. 557,490 5.00 0 550,000
Entek Scientific Corporation............. 260,710 5.75 160,000 850,000
Executrain (3199673 Canada Inc.)......... 18.0012 12.60 0 0
Express Shipping Centers, Inc. .......... 91,352 6.25 552,402 262,622
</TABLE>
24
<PAGE> 25
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
FaxNet Corporation....................... 190,321 2.50% $ 100,000 $ 100,000
FDL, Inc. ............................... 548 16.00 250,000 250,000
Film Technologies International, Inc. ... 8 7.50 0 0
Foodnet Holdings, LLC.................... 12% of LLC 12.00 0 0
Fortrend Engineering Corp................ 437,552 3.25 0 0
Front Royal, Inc. ....................... 240,458 1.85 0 875,000
Fypro, Inc. ............................. 255,882 15.00 0 0
Gardner Wallcovering, Inc. .............. 2 2.00 15,000 15,000
General Materials Management Inc. ....... 600,000 10.00 0 0
Generation 2 Worldwide LLC............... 28% of LLC 28.00 0 0
Glen Oak Inc. ........................... 93 7.50 0 0
Global Marine Electronics, Inc........... 5,137 18.00 0 0
Gloves Inc. ............................. 5,000 5.00 0 0
Good Food Fast Companies, The............ 174,779 17.00 0 0
Graphic Workshop (1246568 Ontario
Inc.).................................. 462 4.62 0 0
Gulfstream International Airlines,
Inc. .................................. 271 39.00 10,000 140,000
H & H Acqu. Corp......................... 3,600 22.50 0 160,000
Home Link Services, Inc. ................ 166,667 20.00 0 0
Hoveround Corporation.................... 850 10.00 0 3,750,000
HPC America, Inc. ....................... 5 2.75 0 0
Hunt Assisted Living, LLC................ 7.2% of Class A 7.20 0 0
Hunt Assisted Living, LLC................ 4.8% of Class B 4.80 100 100
Hunt Incorporated........................ 49 11.00 0 125,000
Hunt Leasing & Rental Corporation........ 295 11.00 0 125,000
I. Schneid Holdings LLC.................. 21% of LLC 21.00 0 0
IJL Holdings, Inc. ...................... 99 9.00 0 0
ILD Communications, Inc.................. 5,429 3.20 0 750,000
In Store Services, Inc. ................. 429 12.50 12,000 12,000
Isthmus, Inc............................. 38.25 3.50 0 0
Johnston County Cable L.P................ 31.94% of LP 31.94 110,000 600,000
K.W.C. Management Corp................... 794 24.40 0 0
Karawia Industries, Inc. ................ 1,391 12.00 0 0
Lane Acquisition Corporation............. 11,667 10.00 0 0
Leisure Clubs International, Inc. ....... 433 25.00 15,000 0
Lovett's Buffet, Inc. ................... 540,424 8.00 0 400,000
M & M Industries, Inc. .................. 1,659,113 15.00 0 0
Master Graphics, Inc. ................... 5 6.00 0 950,000
Mayo Hawaiian Corp....................... 105 9.50 0 0
MBA Marketing Corporation................ 11,785 4.50 18,000 18,000
McAuley's Incorporated................... 64 6.00 0 0
MCG, Inc. ............................... 121,518 4.50 0 0
Mead-Higgs, Inc. ........................ 2,500 10.00 0 0
Merge Technologies, Inc. ................ 21,449 3.25 0 500,000
Mesa International, Inc. ................ 18.51 16.00 0 750,000
Metals Recycling Technologies Corp....... 257,801 5.00 0 0
MetroLease, Inc. ........................ 26,471 20.00 5,000 5,000
</TABLE>
25
<PAGE> 26
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Money Transfer Systems, Inc. ............ 137 12.00% $ 15,000 $ 500,000
Moore Diversified Products, Inc. ........ 17.04 15.00 0 0
Multimedia Learning, Inc. ............... 183,968 10.82 0 650,000
Mytech Corporation....................... 172,098 3.50 0 0
NASC, Inc. .............................. 2,652 23.00 0 0
Nationwide Engine Supply, Inc. .......... 1,337,379 21.34 25,000 25,000
NetForce, Inc. .......................... 67 6.25 0 0
Newfoundland Career Academy Ltd.......... 6,278 3.60 0 0
NRI Service and Supply, L.P.............. 27.5% of LP 27.50 25,000 25,000
Omni Home Medical, Inc. ................. 2,672 15.00 0 0
One Call Comprehensive Care, Inc. ....... 279,481 21.00 0 0
One Coast Network Corporation............ 763,666 15.63 0 0
Orchid Manufacturing, Inc. .............. 1,219,047 2.61 40,000 600,000
Outdoor Promotions LLC................... 5% of LLC 5.00 0 0
P.A. Plymouth, Inc. ..................... 92,647 15.00 0 475,000
Pacific Linen, Inc. ..................... 365,349 7.81 548,024 548,024
Paradigm Valve Services, Inc. ........... 30,000 12.00 0 0
Pathology Consultants, Inc. ............. 317,553 6.00 47,633 47,632
Patton Management Corporation............ 511 12.00 0 185,000
PaySys International, Inc. .............. 37,660 0.40 274,826 150,000
Pipeliner Systems, Inc. ................. 2,400,000 23.34 20,000 0
Precision Panel Products, Inc. .......... 122 8.25 15,000 0
Pritchard Glass, Inc. ................... 12,500 25.00 0 0
Proamics Corporation..................... 382,299 3.50 0 0
Professional Training Services, Inc...... 255,600 2.40 0 0
Protect America, Inc. ................... 12,200 10.00 95,000 95,000
Quadravision Communications Limited...... 10 1.00 0 0
R & R International, Inc. ............... 67,021 6.00 0 0
Race Face Components. Inc. .............. 3,465 11.55 0 0
Ready Personnel, Inc. ................... 101,565 12.50 0 0
Recompute Corporation.................... 611,144 8.00 300,000 600,000
Reef Chemical Company, Inc. ............. 183,215 3.00 300,000 300,000
Relax the Back Corporation............... 1,156,042 10.00 0 0
Rynel Ltd., Inc. ........................ 390,517 15.00 0 0
Saraventures Fixtures, Inc. ............. 25 20.00 0 0
Scandia Technologies, Inc. .............. 327 25.50 0 0
SFG Technologies Inc. ................... 29,814 1.38 0 0
Sheet Metal Specialties, Inc. ........... 587 37.00 0 0
Sirvys Systems (3404447 Canada Inc.)..... 134,400 3.36 0 0
SkillMaster, Inc. ....................... 117 5.51 25,000 25,000
SkillSearch Corporation.................. 2,381 7.59 250,000 50,000
Solutioneering, Inc. .................... 13,135 7.50 0 0
Southern Specialty Brands, Inc. ......... 10,000 10.00 17,500 17,500
Southern Therapy, Inc.................... 333 10.00 0 400,000
Stealth Engineering, Inc. ............... 228,820 14.00 0 0
</TABLE>
26
<PAGE> 27
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Stratford Safety Products, Inc. ......... 114.21 10.25% $ 75,000 $ 75,000
Street Level (1216069 Ontario Ltd.)...... 68,373 5.88 0 0
Sub 1 Corporation (d/b/a Risk
Management)............................ 15 13.00 0 0
Suncoast Medical Group, Inc. ............ 580,159 24.00 25,000 0
Superior Pharmaceutical Co............... 10% of Co. 10.00 0 0
Supplements Plus Natural Vitamins &
Cosmetics, Ltd......................... 1.3125 1.68 0 0
Systech Group, Inc. ..................... 34,330 2.10 0 0
TAC Systems, Inc. ....................... 315,838 3.60 0 0
TeleCommunication Systems, Inc. ......... 96,774 6.00 0 0
Telecontrol Systems, Inc. ............... 530,303 17.50 0 0
Temps & Co., Inc......................... 53 5.00 0 0
The Moorings, LLC........................ 9,493 14.50 344,500 200,000
Thomas Holding Company (d/b/a Sports &
Social Clubs).......................... 11 10.00 0 0
Tie and Track Systems, Inc............... 1,645 14.00 0 0
Towne Services, Inc. .................... 308,982 2.00 0 0
Trade Am International, Inc. ............ 335,106 6.00 0 0
TRC Acquisition Corporation.............. 375,000 12.50 0 0
UltraFab, Inc. .......................... 120,000 12.00 0 0
UltraFab Vessels, Inc. .................. 120,000 12.00 0 0
Unicoil, Inc. ........................... 86,239 8.50 0 0
Unique Electronics, Inc. ................ 30% of Co. 30.00 0 0
Valdawn Watch Co......................... 400 80.00 0 0
VanGard Communications Co., LLC.......... 14.4% of LLC 14.40 0 0
VDW Farms, Ltd........................... 10% of Co. 10.00 0 0
Voice FX Corporation..................... 233,112 8.00 0 250,000
Watts-Finniss Holdings, Inc. ............ 7,146 10.94 0 0
Wearever Healthcare Products, LLC........ 416,359 16.14 250,000 250,000
WJ Holdings, Inc. ....................... 250,000 25.00 0 0
Wolfgang Puck Food Company, Inc.......... 80,065 1.35 0 0
Zahren Alternative Power Corporation..... 1,168 6.54 25,000 400,000
------------ ------------
Total Warrants................. $ 9,610,383 $ 24,543,035
============ ============
OTHER INVESTMENTS (SEE NOTE 3)
SWS3, Inc. -- Expected proceeds from sale
of mfg. plant.......................... -- -- $ 521,926 $ 371,926
Hancock Company -- Royalty stream to be
collected from sale of Gitman brand
name................................... -- -- 1,700,000 300,000
HSA International, Inc. -- Anticipated
proceeds from litigation............... -- -- 1,150,000 1,000,000
Capitalized workout expenses............. -- -- 868,577 768,577
------------ ------------
Total other investments........ $ 4,240,503 $ 2,440,503
------------ ------------
Total Investments.............. $483,417,884 $494,199,560
============ ============
</TABLE>
27
<PAGE> 28
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Coupon
LOANS Interest
Maturity Cost Rate Fair Value
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Action Sports Group, LLC 8/19/02 $ 1,750,000 13.00% $ 1,750,000
Aero Products Corporation 6/9/02 2,500,000 13.00 2,500,000
Aero Products Corporation 12/19/99 1,250,000 14.00 1,250,000
Affinity Fund, Inc. 6/29/98 1,485,000 12.50 1,500,000
Affinity Fund, Inc. 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. 12/28/98 495,000 12.50 497,316
Alignis, Inc. 2/28/02 2,500,000 13.00 2,500,000
American Network Exchange, Inc. 11/30/98 990,000 13.00 998,851
American Network Exchange, Inc. 1/18/99 990,000 13.00 998,517
Amscot Holdings, Inc. 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc. 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc. 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc. 12/27/01 250,000 14.00 250,000
Amscot Holdings, Inc. 7/30/02 1,000,000 14.00 1,000,000
Anton Airfoods, Inc. 5/21/02 5,000,000 13.50 5,000,000
Ashe Industries, Inc. 5/18/99 475,220 12.50 125,220
Associated Response Services, Inc. 6/20/99 1,386,000 12.50 1,396,718
Associated Response Services, Inc. 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc. 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. 11/8/01 500,000 12.50 500,000
Associated Response Services, Inc. 3/27/02 3,000,000 12.50 3,000,000
Associated Response Services, Inc. 8/1/99 750,000 13.50 750,000
Atlantic Security Systems, Inc. and affiliates 1/29/02 2,250,000 13.25 2,250,000
Auburn International, Inc. 12/31/02 2,850,000 13.50 2,860,000
Austin Innovations, Inc. 7/1/02 1,950,000 13.75 1,956,034
Avionics Systems, Inc. 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc. 8/8/00 2,970,000 12.50 2,183,500
B & N Company, Inc. 3/28/01 990,000 13.00 993,841
BankCard Services Corporation 1/21/98 273,731 13.00 51,631
Bohdan Automation, Inc. 7/1/02 1,500,000 13.50 1,500,000
Bohdan Automation, Inc. 3/5/03 750,000 13.50 750,000
BroadNet, Inc. 6/9/02 2,500,000 14.00 2,500,000
BUCA, Inc. 10/31/02 1,565,003 13.50 1,594,003
Bug.Z., Inc. 9/23/02 2,500,000 15.00 2,500,000
C.J. Spirits, Inc. 6/1/97 750,171 13.50 55,796
Caldwell/VSR Inc. 2/28/01 1,500,000 12.00 1,500,000
Caldwell/VSR Inc. 5/31/03 1,050,000 8.00 925,000
Caldwell/VSR Inc. 5/31/02 99,000 8.00 99,000
Campbell Software, Inc. 2/11/03 2,000,000 13.50 2,000,000
Cardiac Control Systems, Inc. 3/31/00 1,500,000 13.50 1,500,000
Caribou Coffee Company, Inc. 1/25/03 5,153,528 12.50 5,181,744
Cartech Holdings, Inc. 4/29/01 1,500,000 13.00 1,500,000
Catalina Food Ingredients, Inc. 3/30/02 3,500,000 13.00 3,500,000
Cedaron Medical, Inc. 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc. 4/22/98 990,000 12.75 1,000,000
CF Data Corp. 3/16/00 1,732,500 13.75 1,743,304
Champion Glove Manufacturing Co.,Inc. 7/27/00 1,250,000 13.50 50,000
Check Into Cash, Inc. 11/7/01 3,039,000 14.00 3,161,928
Chinese Media Group, LLC 3/27/03 2,100,000 13.50 2,100,000
CMHC Systems, Inc. 7/1/02 1,400,000 13.50 1,400,000
CMP Enterprises, LLC 12/10/02 3,500,000 13.00 3,500,000
Colonial Investments, Inc. 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc. 4/1/98 300,000 13.75 300,000
Columbus Medical Holdings, LLC 1/31/02 4,000,000 13.75 4,000,000
Compression, Inc. 12/17/02 3,700,000 13.50 3,700,000
Consumat Systems, Inc. 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc. 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc. 3/11/01 500,000 14.00 500,000
Consumat Systems, Inc. 3/26/02 500,000 14.00 500,000
Consumat Systems, Inc. 7/15/98 500,000 14.00 500,000
Continental Diamond Cutting Co. 10/28/99 375,000 13.00 375,000
Continental Diamond Cutting Co. 11/16/99 200,000 13.00 200,000
Corporate Link, Inc. 12/13/01 600,000 14.00 600,000
Corporate Link, Inc. 4/13/98 300,000 14.00 300,000
Cort Investment Group, Inc. (d/b/a Contract Network) 8/27/02 3,320,000 13.50 3,344,000
Creighton Shirtmakers, Inc. and affiliates demand 1,969,000 14.00 1,969,000
CSM, Inc. 12/31/01 1,400,000 14.00 1,400,000
</TABLE>
28
<PAGE> 29
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Coupon
LOANS Interest
Maturity Cost Rate Fair Value
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Cybo Robotics, Inc. 9/18/02 $ 1,750,000 13.25 % $ 1,750,000
Dalts, Inc. 4/28/01 2,000,000 13.50 2,000,000
Dartek Industries, Inc. 6/1/99 809,915 13.50 809,915
Data National Corporation 12/10/02 1,050,000 13.75 1,080,000
DentalCare Partners, Inc. 1/11/01 2,206,023 12.50 2,213,538
DFI/Aeronomics, Inc. 12/30/02 3,000,000 13.50 3,000,000
Dyad Corporation 12/31/02 2,900,000 14.00 2,940,000
DynaGen, Inc. 6/17/02 1,733,300 13.50 1,777,750
Dyntec, Inc. 7/7/02 2,500,000 14.00 2,500,000
Electronic Accessory Specialists Int'l, Inc. 6/23/02 1,600,000 13.50 1,600,000
Electronic Accessory Specialists Int'l, Inc. 6/23/02 1,750,000 13.50 1,750,000
Encor Technologies, Inc. 3/30/02 1,444,000 13.125 1,444,000
Endeavor Technologies, Inc. 9/2/02 4,000,000 13.50 4,000,000
Entek Scientific Corporation 5/22/02 1,090,000 13.00 1,117,120
Entek Scientific Corporation 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc. 9/22/00 1,697,598 13.25 1,983,015
Express Shipping Centers, Inc. 5/1/02 250,000 13.25 250,000
Express Shipping Centers, Inc. 7/14/98 148,250 15.00 148,250
Faxnet Corporation 6/17/02 1,900,000 13.00 1,916,670
FDL, Inc. 1/30/02 1,750,000 13.50 1,812,505
Film Technologies International, Inc. 2/27/02 1,500,000 14.00 1,500,000
FoodNet Holdings, LLC 7/22/01 1,500,000 13.50 1,500,000
Fortrend Engineering Corp. 8/30/01 1,500,000 12.99 1,500,000
Fypro, Inc. 12/17/01 1,166,000 8.00 1,016,000
General Materials Management, Inc. 7/29/01 2,500,000 13.50 2,000,000
Generation 2 Worldwide LLC 10/31/00 2,000,000 14.00 2,000,000
Global Marine Electronics, Inc. 5/1/01 1,500,000 13.00 1,500,000
Gloves Inc. 5/1/02 1,500,000 13.00 1,500,000
Good Food Fast Companies, The 12/10/01 2,500,000 13.50 2,250,000
Gulfstream International Airlines Inc. 7/29/99 1,490,000 13.00 1,499,018
Gulfstream International Airlines Inc. 9/25/00 1,000,000 14.00 1,000,000
Gulfstream International Airlines Inc. 3/19/02 1,500,000 14.00 1,500,000
Gulfstream International Airlines Inc. 12/1/99 2,200,000 14.00 2,200,000
H & H Acq. Corp. 8/30/01 1,500,000 14.00 1,500,000
Home Link Services, Inc. 12/30/01 300,000 14.00 300,000
Hunt Assisted Living, LLC 10/17/02 2,999,900 12.00 2,999,910
Hunt Incorporated 3/31/00 2,850,000 14.00 2,850,000
Hydrofuser Industries, Inc. and affiliates 7/30/02 832,595 13.00 903,046
I.Schneid Acquisition, LLC 4/1/01 2,000,000 14.00 2,000,000
IJL Holdings, Inc. 9/12/02 1,250,000 13.50 1,250,000
ILD Communications 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc. 4/19/00 1,188,000 14.00 1,195,200
In-Store Services, Inc. 5/31/98 350,000 14.00 350,000
Jim Bridges Acquisition Company 3/31/03 1,500,000 14.00 1,500,000
Johnston County Cable, L.P. 8/31/00 1,990,000 14.00 1,995,177
Karawia Industries, Inc. 3/27/02 2,500,000 14.00 2,500,000
KWC Management Co., LLC 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc. 4/1/01 1,485,000 14.00 1,491,000
Leisure Clubs International, Inc. 3/27/02 125,000 14.00 125,000
M & M Industries, Inc. 2/26/02 2,250,000 14.00 2,250,000
Marmot Mountain, Ltd. 3/27/03 2,750,000 13.00 2,754,167
Master Graphics, Inc. 5/31/02 4,300,000 13.25 4,300,000
Mayo Hawaiian Corp. 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation 2/4/99 1,782,000 12.50 1,797,000
McAuley's Incorporated 7/31/01 3,000,000 13.00 3,000,000
MCG, Inc. 12/23/02 1,500,000 13.50 1,500,000
Mead-Higgs Company, Inc. 5/19/02 1,400,000 14.00 1,400,000
MegaMarketing Corporation 3/5/03 2,800,000 14.00 2,803,333
Mesa International, Inc. 1/23/02 3,800,000 14.00 3,450,000
Metals Recycling Technologies Corp. 10/31/01 2,000,000 14.00 1,850,000
MetroLease, Inc. 7/29/02 2,495,000 13.50 2,495,747
Moore Diversified Products, Inc. 6/16/00 800,000 13.50 800,000
Moore Diversified Products, Inc. 3/27/02 1,000,000 13.50 1,000,000
Multimedia 2000, Inc. 3/29/01 2,349,192 14.00 1,999,192
Multimedia Learning, Inc. 4/30/98 175,000 13.00 175,000
Mytech Corporation 9/25/02 1,200,000 13.50 1,200,000
</TABLE>
29
<PAGE> 30
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Coupon
LOANS Interest
Maturity Cost Rate Fair Value
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
Mytech Corporation 5/31/98 $ 250,000 13.50% $ 250,000
NASC, Inc. 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc. 12/13/98 500,000 13.50 500,000
National Health Systems, Inc. 10/1/99 420,000 12.50 27,000
Nationwide Engine Supply, Inc. 1/12/99 2,475,000 12.00 2,496,267
Nationwide Engine Supply, Inc. 9/26/01 1,000,000 13.50 1,000,000
NetForce, Inc. 11/27/02 2,000,000 14.00 2,000,000
NRI Service and Supply L.P. 2/13/00 2,225,000 14.00 2,240,846
Omni Home Medical, Inc. 3/30/02 2,000,000 14.00 2,000,000
Omni Products of Palm Beach, Inc. 2/19/03 2,900,000 14.00 2,903,334
One Call Comprehensive Care, Inc. 12/19/01 1,500,000 14.00 1,250,000
One Call Comprehensive Care, Inc. 3/31/02 500,000 14.00 500,000
One Call Comprehensive Care, Inc. 12/30/98 300,000 14.00 300,000
One Call Comprehensive Care, Inc. 12/30/98 175,000 14.00 175,000
One Call Comprehensive Care, Inc. 12/19/01 400,000 14.00 400,000
One Coast Network Corporation 11/17/02 5,000,000 14.00 5,000,000
Online Resources & Communications Corp. 3/30/03 6,000,000 12.75 6,000,000
Orchid Manufacturing Group, Inc. 9/14/00 2,960,000 13.00 2,978,676
Orchid Manufacturing Group, Inc. 12/28/00 1,000,000 13.50 1,000,000
Outdoor Promotions LLC 11/26/02 850,000 13.75 850,000
Pacific Linen, Inc. 12/3/02 2,951,976 13.50 2,988,512
Palco Telecom Service, Inc. 11/22/99 650,000 12.00 650,000
Paradigm Valve Services, Inc. 11/12/01 1,600,000 13.50 1,600,000
Pathology Consultants of America, Inc. 12/23/02 1,702,368 13.13 1,705,543
Patton Management Corporation 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc. 9/26/02 3,725,158 13.50 3,757,225
Pik:Nik Media, Inc. 6/23/00 1,000,000 12.00 1,000,000
Plymouth, Inc. 9/28/00 750,000 13.00 750,000
PRA International, Inc. 8/10/00 1,980,000 13.50 1,990,656
Precision Panel Products, Inc. 1/11/02 2,022,781 12.75 2,032,531
Precision Panel Products, Inc. 1/11/02 3,966,639 14.00 3,966,639
Pritchard Paint & Glass Co. 2/14/01 767,431 14.00 767,431
Pritchard Paint & Glass Co. 2/10/01 200,000 14.00 200,000
Proamics Corporation 7/31/02 1,000,000 13.00 1,000,000
Professional Training Services, Inc. 9/30/02 3,400,000 13.25 3,400,000
Pro-Style Acquisition Corporation 2/26/03 6,000,000 13.59 6,000,000
Protect America, Inc. 1/30/02 4,880,000 13.50 4,904,301
R & R International, Inc. 6/30/02 2,000,000 13.25 2,000,000
Ready Personnel, Inc. 12/3/02 3,000,000 13.25 3,000,000
Recompute Corporation 2/21/02 2,300,000 13.50 2,370,000
Reef Chemical Company, Inc. 9/23/02 2,700,000 13.75 2,735,000
Relax the Back Corporation 10/1/02 5,000,000 13.00 5,000,000
Relevant Knowledge, Inc. 9/15/98 283,000 10.00 283,000
Rocky Mountain Radio Company LLC 11/10/01 3,000,000 13.50 3,000,000
Rynel Ltd., Inc. 10/1/01 1,250,000 14.00 1,250,000
Rynel Ltd., Inc. 10/1/01 307,500 14.00 307,500
Saraventures Fixtures Inc. 5/23/02 8,844,610 14.00 3,344,610
SBX Holding Company 3/26/03 4,100,000 13.13 4,100,000
Sheet Metal Specialties, Inc. 6/20/01 250,000 14.00 250,000
Sheet Metal Specialties, Inc. 12/4/01 211,750 12.00 211,750
Sheet Metal Specialties, Inc. 1/24/02 38,250 12.00 38,250
SkillSearch Corportion 3/31/99 496,000 13.00 500,000
Solutioneering, Inc. 3/31/02 2,000,000 13.75 2,000,000
Southern Specialty Brands, Inc. 6/30/02 1,732,500 14.00 1,740,384
Southern Therapy, Inc. 4/22/02 1,500,000 13.50 1,500,000
Southern Therapy, Inc. 7/28/02 500,000 13.50 500,000
Stealth Engineering, Inc. 12/31/02 1,500,000 13.50 1,500,000
Stratford Safety Products, Inc. 3/1/02 2,125,000 13.50 2,142,500
Sub 1 Corporation (d/b/a Risk Management) 10/8/02 750,000 14.00 750,000
Summit Publishing Group, Ltd. 3/17/99 1,485,000 12.00 0
Summit Publishing Group, Ltd. 7/26/01 625,000 14.00 346,500
Summit Publishing Group, Ltd. 1/16/98 250,000 14.00 250,000
SWS6, Inc. 12/31/98 4,145,663 12.70 3,420,663
Synaxis Group, Inc. 3/31/03 2,500,000 13.00 2,500,000
TAC Systems, Inc. 3/27/02 1,012,000 14.00 1,012,000
TAC Systems, Inc. 5/31/98 500,000 14.00 500,000
TCOM Systems, Inc. 3/30/04 392,224 0.00 392,224
</TABLE>
30
<PAGE> 31
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Coupon
LOANS Interest
Maturity Cost Rate Fair Value
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
TeleCommunication Systems, Inc. 9/20/02 $ 3,000,000 14.00% $ 3,000,000
TeleCommunication Systems, Inc. 6/18/98 180,513 14.00 180,513
Telecontrol Systems, Inc. 9/30/02 2,500,000 14.00 2,500,000
Telemate Software, Inc. 3/27/03 1,000,000 14.00 1,000,000
Temps & Co., Inc. 5/12/02 3,000,000 13.25 3,000,000
The Moorings, LLC 12/31/01 1,655,500 13.00 1,816,276
The Moorings, LLC 11/17/02 2,500,000 13.00 2,500,000
Therapeutic Services of America, Inc. 1/4/03 2,750,000 13.25 2,750,000
Thomas Holding Company (d/b/a Sports & Social Clubs) 5/21/02 1,500,000 13.50 1,500,000
Tie and Track Systems, Inc. 10/31/02 1,500,000 13.50 1,500,000
Toccoa Associates, LLC 2/18/03 2,110,000 13.50 2,110,000
Towne Services, Inc. 12/18/02 1,500,000 14.00 1,500,000
Trade Am International, Inc. 9/30/00 4,000,000 12.75 4,000,000
TRC Acquisition Corporation 10/21/01 2,000,000 13.50 2,000,000
Tulsa Industries, Inc. 2/26/03 6,000,000 13.00 6,000,000
UltraFab, Inc. 6/27/01 1,500,000 14.00 1,500,000
Umbrellas Unlimited, LLC 8/21/02 264,691 14.00 214,691
Unicoil, Inc. 9/28/02 2,000,000 13.50 2,000,000
Unique Electronics, Inc. 11/30/99 600,000 10.67 600,000
Unique Electronics, Inc. 10/10/02 300,000 13.00 300,000
UOL Publishing, Inc. 10/31/99 32,352 6.00 32,352
Valdawn Watch Company 8/21/02 2,160,000 14.00 625,000
Valdawn Watch Company 8/21/02 1,000,000 14.00 1,000,000
Valdawn Watch Company 12/31/98 100,000 14.00 100,000
Valdawn Watch Company 2/14/00 325,000 14.00 325,000
VDW Farms, Ltd. 11/25/02 1,500,000 14.00 1,500,000
Vision 2000, Inc. 4/25/02 2,387,219 13.50 2,137,219
Vision Software, Inc. 2/26/03 5,000,000 12.75 5,000,000
Watts-Finnis Holdings, Inc. 11/30/02 2,500,000 13.25 2,500,000
Wearever Health Products, LLC 3/31/02 1,500,000 13.50 1,500,000
Wearever Health Products, LLC 12/11/02 650,000 14.00 650,000
Westcorp Software Systems, Inc. 3/6/03 2,000,000 14.00 2,000,000
Wolfgang Puck Food Company, Inc. 5/20/02 5,000,000 12.50 5,000,000
Zahren Alternative Power Corp. 1/30/00 495,000 13.00 497,320
Zahren Alternative Power Corp. 11/27/99 1,980,000 13.00 1,994,618
------------ ------------
Subtotals $416,930,052 $402,298,283
------------ ------------
<CAPTION>
TANDEM CAPITAL LOANS TO PUBLICLY TRADED COMPANIES
<S> <C> <C> <C> <C>
Altris Software, Inc. 06/27/02 $ 2,415,000 11.50 $ 2,483,250
Berger Holdings, Inc. 1/2/03 1,796,000 12.25 1,809,600
Bikers Dream, Inc. 11/17/98 2,390,625 12.00 2,419,793
Compass Plastics & Technologies, Inc. 2/27/03 6,615,205 12.25 6,628,031
Cover-All Technologies, Inc.(Convertible at $1.25/sh.) 3/31/02 3,000,000 12.50 5,300,000
Digital Transmission Systems, Inc.(Convertible at $10.25/sh.) 9/25/02 4,000,000 11.50 4,000,000
Environmental Tectonics Corporation 3/27/04 3,500,770 12.00 3,559,017
Ergobilt, Inc. 1/15/03 3,818,400 11.50 3,821,531
Smartchoice Automotive Group(Convertible at $3.67/sh.) 3/12/99 3,500,000 12.00 3,500,000
Smartchoice Automotive Group(Convertible at $3.67/sh.) 5/13/02 4,000,000 12.00 4,000,000
Tava Technologies, Inc. 1/31/01 3,685,350 11.50 3,692,342
Teltronics, Inc. 2/13/02 1,571,500 12.00 1,578,938
Teltronics, Inc. 2/25/99 875,900 12.00 896,584
Teltronics, Inc. 10/1/00 280,000 12.00 280,000
Universal Automotive Industries, Inc. 7/11/02 4,500,000 12.25 4,500,000
------------ ------------
SUBTOTALS $ 45,948,750 $ 48,469,085
------------ ------------
</TABLE>
31
<PAGE> 32
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Coupon
LOANS Interest
Maturity Cost Rate Fair Value
-------- ---- ---- ----------
<S> <C> <C> <C> <C>
CANADIAN LOANS
Century Pacific Greenhouses Ltd.* 4/14/02 $ 1,002,794 13.00% $ 1,002,794
Copperhead Chemical Company, Inc. 10/23/02 500,000 12.50 500,000
Daxxes Corporation* 12/1/02 847,997 13.00 847,997
DEC Interactive 3/8/03 75,000 11.00 75,000
Eagle Quest Golf Center Inc. 6/20/02 1,600,000 13.50 1,600,000
Eagle Quest Golf Center Inc. 4/3/03 180,000 13.00 180,000
Executrain (3199673 Canada Inc.)* 10/1/02 292,105 13.00 292,105
Executrain (3199673 Canada Inc.)* 12/24/02 559,910 13.00 559,910
FEI Refrigerated Services LLC 1/14/03 2,000,000 12.50 2,000,000
Glen Oak Inc.* 12/17/02 1,268,678 12.50 1,268,678
Graphic Workshop (1246568 Ontario Inc.) * 9/30/02 360,787 12.50 360,787
Hunt Industries* 2/1/03 1,034,353 15.00 934,353
Newfoundland Career Academy Ltd.* 8/8/02 860,172 13.50 860,172
Race Face Components, Inc.* 11/1/02 433,463 12.00 433,463
SFG Technologies Inc.* 7/30/02 724,218 13.00 724,218
SFG Technologies Inc.* 4/7/03 60,000 13.00 60,000
Sirvys Systems (3404447 Canada Inc.)* 12/30/02 704,037 14.00 704,037
Street Level (1216069 Ontario Ltd.)* 12/29/02 348,651 13.00 348,651
Supplements Plus Natural Vitamins & Cosmetics, Ltd.* 10/3/03 144,823 16.50 144,823
Systech Group, Inc.* 3/31/02 874,636 13.00 874,636
West Sun International, Inc.* 1/14/03 699,252 13.00 699,252
------------ ------------
Subtotals $ 14,570,876 $ 14,470,876
------------ ------------
Total loans $477,449,678 $465,238,244
============ ============
</TABLE>
*Loan cost and fair value are stated in U.S. dollars. Loan
principal is denominated in Canadian dollars.
32
<PAGE> 33
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Cost or
EQUITY INTERESTS Number of Contributed
Shares Value Fair Value
------ ----- ------------
<S> <C> <C> <C> <C>
Publicly Traded Investments
American Network Exchange , Inc. Common Stock 76,222 $ 21,879 0
American Network Exchange , Inc. Common Stock 63,429 0 0
Cardiac Control Systems, Inc. Common Stock 50,000 250,000 19,000
Compass Plastics & Technologies Inc. Common Stock 447,144 2,000 2,302,792
Consumat Systems, Inc. Common Stock 100,000 600,100 35,625
Medical Resources Inc. Common Stock 55,549 1,000,000 330,372
Merge Technologies, Inc. Common Stock 108,942 0 557,420
National Vision Associates, Ltd. Common Stock 208,698 1,771,149 1,247,405
Network Event Theaters, Inc. Common Stock 412,397 2,114,772 1,422,770
PMTS Services Common Stock 79,800 1 1,113,210
Premiere Technologies, Inc. Common Stock 25,000 0 829,271
UOL Publishing, Inc. Common Stock 32,728 8,494 238,369
Video Update Inc. Common Stock 85,000 1,561 276,735
Vista Information Solutions, Inc. Common Stock 429,016 0 3,158,630
Non-traded Equity Investments in Public Companies
Altris Software, Inc. Preferred Stock - convertible at $6.00 3,000 3,000,000 2,400,000
Berger Holdings, Ltd. Preferred Stock - Series A; convertible at $4.25 25,000 2,500,000 2,500,000
Clinicor, Inc. Preferred Stock - Series B; convertible at $3.00 50,000 5,000,000 5,000,000
Environmental Tectonics Corporation Preferred Stock - Series A; convertible at $7.50 25,000 2,500,000 2,500,000
Teltronic, Inc. Preferred Stock - Series B; convertible at $2.75 25,000 2,500,000 2,500,000
Vista Information Solutions, Inc. Preferred Stock - Series E; convertible at $2.75 2,500 2,500,000 2,800,000
Vista Information Solutions, Inc. Preferred Stock - Series F; convertible at a price 2,500 2,500,000 2,700,000
to be determined in June 1998
Equity Investments in Private Companies
Bravo Corporation Common Stock 69,391 106,950 350,000
CellCall, Inc. Common Stock 2,359 10,485 200,020
Clearidge, Inc. Preferred Stock - Series A 10,800,000 2,700,000 2,700,000
Clearidge, Inc. Common Stock 4,000,000 1,000,000 1,000,000
Corporate Flight Management Common Stock 66,315 663 663
CSM, Inc. Class A Common Stock 99,673 100,000 100,000
Dentalcare Partners, Inc. Preferred Stock - Series E 510,617 819,639 300,000
Front Royal, Inc. Common Stock 110,000 275,000 550,000
Fypro, Inc. Preferred Stock - Series A 4,659,480 4,659,480 3,048,480
Gulfstream International Airlines, Inc. Preferred Stock - Series A 216 3,000,000 3,000,000
Home Link, Inc. Preferred Stock 1,000,000 1,000,000 375,000
HPC America, Inc. Common Stock 5.04 0 0
Kentucky Kingdom, Inc. Common Stock 24,142 238,316 500,000
Multimedia 2000, Inc. Common Stock 844,354 8,444 0
Multimedia 2000, Inc. Preferred Stock - Series A 235,000 2,274,556 0
Palco Telecom Service Common Stock 157,895 1,579 100,000
Paysys International Common Stock 150,000 300 375,000
Potomac Group, Inc. Preferred Stock - Series A 800,000 1,000,000 2,000,000
Potomac Group, Inc. Common Stock 1,437,681 292,370 1,799,038
PRA International, Inc. Common Stock 144,119 211,166 2,046,166
Recompute Corporation Common Stock 125,000 250,000 125,000
Relevant Knowledge, Inc. Preferred Stock - Series B 312,500 500,000 500,000
Relevant Knowledge, Inc. Common Stock 75,000 120,000 120,000
Saraventures Fixtures, Inc. Preferred Stock 3,510 1,659,469 0
Skillsearch Corporation Common Stock 13,350 1,060,875 431,840
SWS6 Inc. Preferred Stock 649,321 649,321 0
Teltrust, Inc. Common Stock 175,677 0 1,350,000
Unique Electronics, Inc. Preferred Stock - Series A 1,000,000 1,000,000 675,000
Valdawn Watch Co. Preferred Stock 240 240,000 0
Vision 2000, Inc. Common Stock 1,000,000 1,000,000 0
Vision 2000, Inc. Preferred Stock - Series A 2,720,141 2,720,141 2,344,540
Vision 2000, Inc. Preferred Stock - Series B 520,000 527,136 0
Zahren Alternative Power Corporation Common Stock 700 210,000 210,000
Zahren Alternative Power Corporation Preferred Stock 200 200,000 200,000
----------- -----------
TOTAL EQUITY INTERESTS $54,105,847 $56,332,341
=========== ===========
</TABLE>
33
<PAGE> 34
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Cost or
STOCK WARRANTS Number of Percentage Contributed
-------------- Shares Ownership Value Fair Value
------ --------- ----- ----------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Network Exchange, Inc. 13,988 0.00% $ 0 $ 0
Cardiac Control Systems, Inc. 150,000 4.35 0 57,000
Cardiac Control Systems, Inc. 50,000 2.15 0 0
Consumat Systems, Inc. 250,000 20.00 0 89,063
Consumat Systems, Inc. 66,379 5.00 0 0
DynaGen, Inc. 26,670 0.01 266,700 13,113
Encore Medical Corporation 69,841 0.01 0 0
HydroFuser Industries, Inc. 662,245 5.00 469,684 132,449
Video Update Inc. 20,000 0.20 0 0
Vista Information Solutions, Inc. 23,791 0.20 0 175,161
Vista Information Solutions, Inc. 5,000 0.05 0 31,000
TANDEM CAPITAL
WARRANTS & OPTIONS IN PUBLICLY TRADED COMPANIES
Altris Software, Inc. (exercise price $6/sh.) 300,000 3.00 585,000 0
Berger Holdings, Ltd. (exercise price $4.25/sh.) 240,000 4.60 204,000 175,000
Bikers Dream, Inc. (exercise price $2/sh.) 218,750 1.55 109,375 75,000
Compass Plastics & Technologies, Inc. (exercise price $6.75/sh.) 420,000 7.92 384,795 400,000
Environmental Tectonics Corp. (exercise price $1/sh.) 166,410 5.00 499,230 700,000
Ergobilt, Inc. (exercise price $10/sh.) 100,000 1.67 181,600 150,000
Smartchoice Automotive Group, Inc. (exercise price $3/sh.) 300,000 2.50 0 400,000
Tava Technologies, Inc. (exercise price $6.25/sh.) 155,000 1.00 314,650 550,000
Teltronics, Inc. (exercise price $2.75/sh.) 365,000 6.90 124,100 124,100
Teltronics, Inc. (exercise price $2.75/sh.) 525,000 10.00 178,500 178,500
Universal Automotive Industries, Inc. (exercise price 80% bid price) 450,000 6.00 0 100,000
PRIVATE COMPANIES
Action Sports Group, LLC 3,350 10.00 0 0
Aero Products Corporation 30.61 25.00 0 0
Affinity Corporation 550 9.67 20,000 20,000
Alignis, Inc. 111,684 4.00 0 0
American Rockwool Acquisition Corp. 1,100,000 11.00 0 1,075,000
Amscot Holdings, Inc. 2,421 32.90 0 0
Anton Airfoods, Inc. 124 11.00 0 225,000
Associated Response Services, Inc. 559 36.35 14,000 1,000,000
Assured Power, Inc. 280 12.00 0 0
Atlantic Security Systems, Inc. 99 9.00 0 375,000
Auburn International, Inc. 175,214 5.50 150,000 150,000
Austin Innovations, Inc. 35,146 3.00 50,000 50,000
Auto Rental Systems, Inc. 144,869 9.00 0 0
Aviation Holdings Ltd. (Newfoundland affiliate) 2,440 5.49 0 0
Avionics Systems, Inc. 15% of Co. 15.00 0 0
B & N Company, Inc. 81 4.00 40,000 0
BankCard Services Corporation 149,261 32.00 3,000 0
Bohdan Automation, Inc. 571,048 4.25 0 0
BroadNet, Inc. 265,568 15.00 0 0
BUCA, Inc. 96,666 1.27 434,997 434,997
Bug.Z, Inc. and Subsidiaries 821,121 12.50 0 0
C.J. Spirits, Inc. 180,000 10.00 7,500 0
Caldwell/VSR Inc. 159 15.93 0 0
Campbell Software, Inc. 748,942 1.50 0 0
Caribou Coffee Company, Inc. 125,418 1.70 846,472 846,472
Cartech Holdings, Inc. 280,702 25.00 0 0
Catalina Food Ingredients, Inc. 14.0 12.25 0 0
Cedaron Medical, Inc. 173,981 4.25 0 0
Century Pacific Greenhouses LTD 177,418 6.30 0 0
CF Data Corp. 257 20.50 17,500 150,000
Champion Glove Manufacturing Co., Inc. 538,614 6.88 0 0
</TABLE>
34
<PAGE> 35
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Cost or
STOCK WARRANTS Number of Percentage Contributed
-------------- Shares Ownership Value Fair Value
------ --------- ----- ----------
<S> <C> <C> <C> <C>
Check Into Cash, Inc. 63,789 5.00% $ 461,000 $ 1,800,000
Chinese Media Group, LLC 17.5% of LLC 17.50 0 0
Clearidge, Inc. 442,164 1.30 0 0
CLS Corporation 126,997 4.22 0 0
CMHC Systems, Inc. 3,231 4.20 0 0
CMP Enterprises, LLC 15.17% of LLC 15.17 0 0
Colonial Investments, Inc. 360 32.00 0 0
Columbus Medical Holdings, LLC 17,455 12.00 0 0
Continental Diamond Cutting Company 112 10.00 0 0
Copperhead Chemical Company, Inc. 93 4.20 0 0
Corporate Link, Inc. 190 16.00 0 0
Cort Investment Group, Inc.(d/b/a Contract Network) 90,000 9.00 180,000 180,000
Creighton Shirmakers, Inc. 30,250 30.25 0 0
CSM, Inc. 130,000 13.00 0 150,000
Cybo Robotics, Inc. 1,700,000 8.68 0 0
Dalt's, Inc. 140 28.00 0 0
Data National Corporation 275,682 13.00 450,000 450,000
Daxxes Corporation 61,766 2.94 0 0
DEC Interactive 11,803 0.89 0 0
Delaware Publishing Group, Inc. 8,534 47.67 15,000 0
Dentalcare Partners, Inc. 666,022 4.98 10,000 0
DFI/Aeronomics Incorporated 94,525 0.50 0 0
Dyad Corporation 615 5.00 600,000 600,000
Dyntec, Inc. 126,667 15.00 0 0
Eagle Quest Golf Centers, Inc. 407,135 1.40 0 250,000
Electronic Accessory Specialists Int'l, Inc. 349,372 5.00 0 1,200,000
Encor Technologies, Inc. 7.46 6.84 0 0
Endeavor Technologies, Inc. 557,490 5.00 0 1,425,000
Entek Scientific Corporation 260,710 5.25 160,000 850,000
Executrain (3199673 Canada Inc.) 18.0012 12.60 0 0
Express Shipping Centers, Inc. 91,352 6.25 552,402 0
FaxNet Corporation 190,321 2.50 100,000 100,000
FDL, Inc. 548 16.00 250,000 250,000
Film Technologies International, Inc. 8 7.50 0 0
Foodnet Holdings, LLC 12% of LLC 12.00 0 0
Fortrend Engineering Corp. 437,552 3.25 0 0
Front Royal, Inc. 240,458 1.85 0 1,225,000
Fypro, Inc. 255,882 15.00 0 0
Gardner Wallcovering, Inc. 2 2.00 0 0
General Materials Management Inc. 600,000 10.00 0 0
Generation 2 Worldwide LLC 28% of LLC 28.00 0 0
Glen Oak Inc. 93 7.50 0 0
Global Marine Electronics, Inc. 5,137 18.00 0 0
Gloves Inc. 5,000 5.00 0 0
Good Food Fast Companies, The 174,779 17.00 0 0
Graphic Workshop (1246568 Ontario Inc.) 462 4.62 0 0
Gulfstream International Airlines, Inc. 271 21.00 10,000 10,000
H & H Acqu. Corp. 3,600 22.50 0 160,000
Home Link Services, Inc. 166,667 20.00 0 0
Hoveround Corporation 850 10.00 0 3,750,000
Hunt Assisted Living, LLC 7.2% of Class A 7.20 0 0
Hunt Assisted Living, LLC 4.8% of Class B 4.80 100 100
Hunt Incorporated 54 12.00 0 200,000
Hunt Leasing & Rental Corporation 326 12.00 0 200,000
I. Schneid Holdings LLC 21% of LLC 21.00 0 0
IJL Holdings, Inc. 99 9.00 0 0
ILD Communications, Inc. 5,429 2.09 0 1,250,000
In Store Services, Inc. 429 12.50 12,000 12,000
Isthmus, Inc. 38.25 3.50 0 0
Jim Bridges Acquisition Company 10,728 15.00 0 0
Johnston County Cable L.P. 31.94% of LP 31.94 110,000 600,000
K.W.C. Management Corp. 794 24.40 0 0
Karawia Industries, Inc. 1,391 12.00 0 0
</TABLE>
35
<PAGE> 36
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Cost or
STOCK WARRANTS Number of Percentage Contributed
-------------- Shares Ownership Value Fair Value
------ --------- ----- ----------
<S> <C> <C> <C> <C>
Lane Acquisition Corporation 11,667 10.00% $ 0 $ 0
Leisure Clubs International, Inc. 433 25.00 15,000 0
Lovett's Buffet, Inc. 540,424 8.00 0 400,000
M & M Industries, Inc. 1,659,113 15.00 0 0
Marmot Mountain, Ltd. 64.84 2.25 250,000 250,000
Master Graphics, Inc. 5 6.00 0 2,000,000
Mayo Hawaiian Corp. 105 9.50 0 0
MBA Marketing Corporation 12,470 4.50 18,000 18,000
McAuley's Incorporated 64 6.00 0 0
MCG, Inc. 121,518 4.50 0 0
Mead-Higgs, Inc. 2,500 10.00 0 0
MegaMarketing Corporation 260,192 4.00 200,000 200,000
Mesa International, Inc. 18.51 16.00 0 0
Metals Recycling Technologies Corp. 257,801 5.00 0 0
MetroLease, Inc. 26,471 20.00 5,000 475,000
Moore Diversified Products, Inc. 17.04 15.00 0 0
Moorings, LLC 9,493 14.50 344,500 200,000
Multimedia Learning, Inc. 183,968 10.82 0 200,000
Mytech Corporation 172,098 3.50 0 175,000
NASC, Inc. 2,652 23.00 0 250,000
Nationwide Engine Supply, Inc. 1,337,379 21.34 25,000 25,000
NetForce, Inc. 67 6.25 0 0
Newfoundland Career Academy Ltd. 10,069 5.67 0 0
NRI Service and Supply, L.P. 27.5% of LP 27.50 25,000 25,000
Omni Home Medical, Inc. 2,672 15.00 0 0
Omni Products of Palm Beach, Inc. 149,925 16.00 0 0
Omni Products of Palm Beach, Inc. for preferred stock 19,048 16.00 100,000 100,000
One Call Comprehensive Care, Inc. 279,481 21.00 0 0
One Coast Network Corporation 763,666 15.63 0 0
Online Resources & Communications Corp. 250,000 0.93 0 0
Orchid Manufacturing, Inc. 1,219,047 2.61 40,000 600,000
Outdoor Promotions LLC 12.47% of LLC 12.47 0 125,000
P.A. Plymouth, Inc. 92,647 15.00 0 475,000
Pacific Linens, Inc. 365,349 7.81 548,020 548,020
Paradigm Valve Services, Inc. 30,000 12.00 0 0
Pathology Consultants, Inc. 317,553 6.00 47,633 500,000
Patton Management Corporation 511 12.00 0 275,000
PaySys International, Inc. 37,660 0.40 274,842 150,000
Precision Panel Products, Inc. 122 8.25 15,000 0
Pritchard Glass, Inc. 12,500 25.00 0 0
Proamics Corporation 382,299 3.50 0 0
Professional Training Services, Inc. 255,600 2.40 0 0
Pro-Style Acquisition Corporation 121,993 10.00 0 0
Protect America, Inc. 14,592 12.00 120,000 300,000
R & R International, Inc. 67,021 6.00 0 325,000
Race Face Components. Inc. 3,465 11.55 0 0
Ready Personnel, Inc. 101,565 12.50 0 0
Recompute Corporation 611,144 8.00 300,000 600,000
Reef Chemical Company, Inc. 183,215 3.00 300,000 300,000
Relax the Back Corporation 1,156,042 10.00 0 0
Relevant Knowledge, Inc. 91,171 0.93 0 0
Rynel Ltd., Inc. 916,523 22.50 0 0
Saraventures Fixtures, Inc. 25 20.00 0 0
SBX Holding Company 101,928 9.25 0 0
Scandia Technologies, Inc. 327 25.50 0 0
SFG Technologies Inc. 29,814 1.38 0 0
Sheet Metal Specialties, Inc. 587 37.00 0 0
Sirvys Systems (3404447 Canada Inc.) 134,400 3.36 0 0
Solutioneering, Inc. 13,135 7.50 0 0
Southern Specialty Brands, Inc. 10,000 10.00 17,500 17,500
Southern Therapy, Inc. 333 10.00 0 400,000
Stealth Engineering, Inc. 228,820 14.00 0 0
Stratford Safety Products, Inc. 114.21 10.25 75,000 75,000
</TABLE>
36
<PAGE> 37
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Cost or
STOCK WARRANTS Number of Percentage Contributed
-------------- Shares Ownership Value Fair Value
------ --------- ----- ----------
<S> <C> <C> <C> <C>
Street Level (1216069 Ontario Ltd.) 68,373 5.88% $ 0 $ 0
Sub 1 Corporation (d/b/a Risk Management) 15 13.00 0 0
Superior Pharmaceutical Co.(Dynagen affiliate) 10% of Co. 10.00 0 0
Supplements Plus Natural Vitamins & Cosmetics, Ltd. 1.3125 1.68 0 0
Synaxis Group, Inc. 331,819 5.50 0 0
Systech Group, Inc. 34,330 2.10 0 0
TAC Systems, Inc. 315,838 3.60 0 0
TeleCommunication Systems, Inc. 290,322 6.00 0 0
Telecontrol Systems, Inc. 530,303 17.50 0 0
Telemate Software, Inc. 20,116 1.00 0 0
Temps & Co., Inc. 53 5.00 0 0
Therapeutic Services of America, Inc. 20,000 14.00 0 0
Thomas Holding Company (d/b/a Sports & Social Clubs) 11 10.00 0 0
Tie and Track Systems, Inc. 1,645 14.00 0 0
Toccoa Associates, LLC 99.17 15.47 0 0
Towne Services, Inc. 308,982 2.00 0 700,000
Trade Am International, Inc. 335,106 6.00 0 0
TRC Acquisition Corporation 375,000 12.50 0 0
Tulsa Industries, Inc. 2,564 2.50 0 0
UltraFab Vessels, Inc. 120,000 12.00 0 0
UltraFab, Inc. 120,000 12.00 0 0
Unicoil, Inc. 86,239 8.50 0 0
Unique Electronics, Inc. 30% of Co. 30.00 0 0
Valdawn Watch Co. 400 80.00 0 0
VanGard Communications Co., LLC 14.4% of LLC 14.40 0 0
VDW Farms, Ltd. 10% of Co. 10.00 0 0
Vision Software, Inc. 36,740 2.08 0 0
Watts-Finniss Holdings, Inc. 7,146 10.94 0 0
Wearever Healthcare Products, LLC 416,359 16.14 250,000 250,000
West Sun International, Inc. 224 1.26 0 0
Westcorp Software Systems, Inc. 887,066 4.00 0 0
WJ Holdings, Inc. 250,000 25.00 0 0
Wolfgang Puck Food Company 121,353 1.40 0 350,000
Zahren Alternative Power Corporation 1,168 6.54 25,000 400,000
------------ ------------
Total Warrants $ 10,807,100 $ 33,047,474
============ ============
OTHER INVESTMENTS
SWS3, Inc. (expected proceeds from sale of mfg. plant) $ 523,511 $ 173,511
Hancock Company (royalty stream to be collected
from sale of Gitman brand name) 1,700,000 150,000
Capitalized workout expenses 47,193 7,193
------------ ------------
Total Other Investments $ 2,270,704 $ 330,704
============ ============
------------ ------------
Total Investments $544,633,328 $554,948,764
============ ============
</TABLE>
37
<PAGE> 38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's principal investment objectives are to achieve a high
level of income from the collection of interest and processing and financial
advisory fees and long-term growth in its shareholders' equity through the
appreciation in value of equity interests in its portfolio companies. The
Company's and SII's loans are typically made in the form of secured debt with
relatively high fixed interest rates accompanied by warrants to purchase equity
securities of the borrower. In addition to interest on investments, the Company
and SII also typically collect an up-front processing fee on each loan they
originate. Harris Williams typically obtains a monthly retainer fee for each
merger and acquisition transaction for which it is retained and, in addition, a
success fee when the transaction is consummated.
RESULTS OF OPERATIONS
The Company's financial performance in the Statements of Operations is
comprised of four primary elements. The first is "net operating income," which
is the difference between the Company's income from interest, dividends, fees
and Harris Williams' pretax income, and its total operating expenses, including
interest expense. The second element is "realized gain (loss) on investments,"
which is the difference between the proceeds received from the disposition of
portfolio assets and their stated costs at the beginning of the period. The
third element is the "change in unrealized appreciation (depreciation) of
investments," which is the net change in the fair values of the Company's
portfolio assets compared with their fair values of the Company's portfolio
assets compared with their fair values at the beginning of the period or their
stated costs, as appropriate. Generally, "realized gain (loss) on investments"
and "change in unrealized appreciation (depreciation) of investments" are
inversely related in that when an appreciated asset is sold to realize a gain, a
decrease in unrealized appreciation occurs since the gain associated with the
asset is transferred from the "unrealized" category to the "realized" category.
Conversely, when a loss is realized on a depreciated portfolio asset, the
reclassification of the loss from "unrealized" to "realized" causes an increase
in unrealized appreciation and an increase in realized loss. The fourth element
is "provision for income taxes," which primarily consists of taxes owed on
retained capital gains, excise taxes on undistributed earnings and taxes on the
pre-tax income of Harris Williams.
Net Operating Income. During the quarter ended March 31, 1998, the
Company earned interest on investments of $14.1 million, a 76.3% increase over
the $8.0 million earned in the first quarter of 1997. In addition to interest on
investments, the Company also collects an up-front processing fee for each loan
it originates. During the first quarter of 1998, the Company collected $2.0
million in processing and other fees, a 17.6% increase over the $1.7 million
collected in the first quarter of 1997. These increases in interest income and
processing and other fees are a result of increases in the dollar amount of
loans outstanding and originated during the applicable periods. The Company's
loan portfolio increased to $465.2 million at March 31, 1998, an increase of
72.0% over the $270.2 million at March 31, 1997. The $94.6 million of loans
originated during the first quarter of 1998 was a 41.0% increase over the $67.2
million of loans originated during the first quarter of 1997, and the weighted
average interest rate charged on the loan portfolio at March 31, 1998 and 1997
was 13.2%. The Company also earned income from miscellaneous sources in an
amount equal to $12,000 in the first quarter of 1998 and $18,000 in the first
quarter of 1997, primarily from interest received on loans to employees made in
connection with purchases of common stock of the Company.
The Company's interest expense increased to $4.2 million in the first
quarter of 1998, a 100.0% increase over the $2.1 million in the same quarter of
1997. The increase in interest expense from the first quarter of 1997 to the
first quarter of 1998 was primarily attributable to increased borrowings from
the SBA and under the Company's two revolving credit facilities. The Company's
total borrowings were $132.5 million on March 31, 1998 and $90.0 million on
March 31, 1997.
38
<PAGE> 39
Overhead and amortization of borrowing costs totaled $3.0 million in
the first quarter of 1998, a 87.5% increase over the $1.6 million of such
expenses in the first quarter of 1997. These increases can be largely attributed
to the increase in the number of employees from 26 in the first quarter of 1997
to 51 in the first quarter of 1998, expansions of the Company's Nashville office
space, opening and expanding the Company's San Francisco office and opening the
Company's Stamford office.
During the first quarter of 1998, Harris Williams had revenues of $4.2
million, a 358.5% increase over the $916,000 in the first quarter of 1997.
During the first quarter of 1998, Harris Williams had pre-tax income of $2.0
million, a 729.9% increase over the $241,000 in pre-tax income in 1997. These
increases were due to an increase in the number of transactions in which Harris
Williams provided advisory services and a higher average fee collected on the
1998 transactions. Harris Williams provided advisory services on four
transactions that closed during the first quarter of 1998, a 100.0% increase
over the two transactions closed in the first quarter of 1997. Income taxes of
$684,377 and $72,360 were accrued on Harris Williams' pre-tax income in the
first quarter of 1998 and 1997, respectively.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $1.2 million during the quarter ended March 31, 1998, and $4.5
million for the quarter ended March 31, 1997. The following table sets forth the
details of realized gains and losses that occurred during the first quarter of
1998 and 1997.
REALIZED GAINS AND (LOSSES) FOR THE QUARTERS ENDED
MARCH 31, 1997, AND MARCH 31, 1998
<TABLE>
<CAPTION>
Quarter Ended March 31,
---------------------------
1997 1998
------- ------
(in thousands)
<S> <C> <C>
IOL 2000, Inc. loan and common stock ($1,517)
(formerly Suncoast Medical Group, Inc.)
HSA International, Inc. other investment (441)
and expenses
Assured Power, Inc. loan (200)
American Corporate Literature, Inc. warrants 38
Video Update, Inc. common stock 99
Quadravision Communications Ltd. warrants 156
Merge Technologies common stock 196
Voice FX Corporation common stock 199
SkillMaster, Inc. warrants 200
QuadraMed Corporation common stock 358
Multimedia Learning, Inc. warrants 925
Vista Information Systems common stock 1,187
Eastern Food Group LLC loan ($1,265)
Gold Medal Products, Inc. loan (825)
Golf Video, Inc. loan (500)
Miscellaneous (16)
Sqwincher Corporation warrant 320
Radiant Systems, Inc. common stock 716
Innotech, Inc. common stock 901
Premiere Technologies, Inc. common stock 5,126
------ ------
$4,457 $1,187
====== ======
</TABLE>
Change in Unrealized Appreciation (Depreciation) of Investments. For
the quarter ended March 31, 1997 and 1998, the Company recorded a net increase
in unrealized depreciation of $4,487,800 and $466,240, respectively. These
changes are the result of the Company's quarterly revaluation of its portfolio
in accordance with its valuation policy to reflect the fair value of each of its
portfolio assets. The following table sets forth information regarding
significant changes in unrealized appreciation (depreciation) of assets in the
Company's portfolio made during the first quarter of 1998 and 1997.
39
<PAGE> 40
Schedule of significant unrealized appreciation (depreciation) for the quarters
ending March 31, 1997 and March 31, 1998.
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1997 1998
---- ----
(in thousands)
<S> <C> <C>
LOANS:
Ashe Industries, Inc. ($150)
Assured Power, Inc. $ 150
B&N Company, Inc. (400)
Caldwell/VSR Inc. (125)
Campus Voice LLC (200)
Carter Kaplan Holdings LLC 549
Coverall Technologies, Inc. 150
Eastern Food Group LLC 1,265
General Materials Management, Inc. (250)
Golf Corporation of America (275)
Golf Video, Inc. 450
Good Food Fast Companies, The (250)
Hancock Company (other investments) (150)
HSA International, Inc. (other investments) 250
Hunt Industries (100)
IOL 2000, Inc. 1,225
Mesa International, Inc. (350)
Metals Recycling Technologies Corp. (150)
Multimedia 2000, Inc. (100)
National Health Systems, Inc. (100)
One Call Comprehensive Care, Inc. (250)
Pipeliner Systems, Inc. 100
Saraventures Fixtures, Inc. (2,000)
Summit Publishing Group, Ltd. (1,775)
SWS6, Inc. (300)
Tower Environmental, Inc. (1,585)
Valdawn Watch Company (900)
PRIVATE COMPANY WARRANTS AND
EQUITY SECURITIES:
American Rockwool Acquisition Corp. 675
Argenbright Holdings Ltd. 375
Atlantic Security Systems, Inc. 375
CellCall, Inc. 100
Check into Cash, Inc. 1,339
CSM, Inc. 150
Electronic Accessory Specialists Int'l, Inc. 950
Endeavor Technologies, Inc. 875
Express Shipping Centers, Inc. (290) (262)
Front Royal Inc. 350
Front Royal, Inc. 150
Fypro, Inc. (1,000)
Global Finance & Leasing, Inc. 425
Gulfstream International Airlines, Inc. (130)
Home Link, Inc. (375)
HomeLink Services, Inc. (250)
Hunt Leasing & Rental Corporation 150
ILD Communications, Inc. 500
Master Graphics, Inc. 1,050
Mesa International, Inc. (750)
Metrolease, Inc. 470
Multimedia 2000, Inc. (351)
Multimedia Learning, Inc. (450)
Mytech Corporation 175
NASC, Inc. 250
Outdoor Promotions LLC 125
Pathology Consultants, Inc. 452
Paysys International, Inc. (225)
Pipeliner Systems, Inc. 200
PRA International, Inc. 1,170
Protect America, Inc. 180
R&R International, Inc. 325
SWS3, Inc. (200)
SWS6, Inc. (628)
Teltrust, Inc. 825
Towne Services, Inc. 700
Vision 2000, Inc. (702)
Voice FX Corporation (165)
Wolfgang Puck Food Company, Inc. 350
PUBLIC COMPANY WARRANTS AND
EQUITY SECURITIES:
Altris Software, Inc. common stock (600)
Altris Software, Inc. preferred stock (450)
Consumat Systems, Inc. common stock (558)
Educational Medical, Inc. common stock 250
Encore Medical, Inc. common stock 497
Hydrofuser Industries, Inc. warrant (331)
Innotech, Inc. common stock (454)
National Vision Associates, Ltd. common stock 160
PMT Services, Inc. common stock 613
Premiere Technologies, Inc. common stock (5,357) 225
QuadraMed Corporation common stock (210)
Smart Choice Automotive Group, Inc. warrant 200
Tava Technologies, Inc. warrant 235
UOL Publishing, Inc. common stock (124)
Video Update (Moovies) common stock 127
Vista Information Solutions, Inc. common stock (600)
Vista Information Solutions, Inc. preferred stock 200
</TABLE>
40
<PAGE> 41
Provision for Income Taxes. Beginning in February 1995, the Company
elected to be taxed as a regulated investment company (a "RIC") under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). If the Company,
as a RIC, satisfies certain requirements relating to the source of its income,
the diversification of its assets and the distribution of its net income, the
Company is generally taxed as a pass through entity that acts as a partial
conduit of income to its shareholders. In order to maintain its RIC status, the
Company must, in general, derive at least 90% of its gross income from
dividends, interest and gains from the sale or disposition of securities; meet
investment diversification requirements defined by the Code; and distribute to
shareholders 90% of its net investment income. The Company presently intends to
meet the RIC qualifications in 1998. However, no assurance can be given that the
Company will continue to elect or qualify for such treatment after 1998.
During the first quarter of 1998, the Company paid dividends of $13.4
million compared to the $4.4 million paid in the first quarter of 1997. Of these
dividends, $8.0 million and $4.4 million were derived from net investment income
for the first quarter of 1998 and for the first quarter of 1997, respectively,
and $5.4 million and $0 were derived from realized capital gains, respectively.
For the year ended December 31, 1997, the Company modified its dividend policy
with respect to its long-term capital gains. The Company now intends to
distribute to shareholders all long-term capital gains and did so for the year
ended December 31, 1997.
For the quarters ended March 31, 1997 and 1998, the Company provided
for federal income tax at a 35% rate on undistributed realized long-term capital
gains, excise taxes at a 4% rate on undistributed taxable net investment income
as defined by the Code and undistributed realized long-term capital gains and
federal and state income taxes on Harris Williams' pre-tax income (See Note 13).
For the quarters ended March 31, 1997 and 1998, the provision for income taxes
totaled $2,309,480 and $684,337, respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $472,000 in cash and cash
equivalents. At March 31, 1998, the Company's investment portfolio included
investments in stocks and warrants of publicly-traded companies that had an
ascertainable market value and were being carried at a fair value of
approximately $12.0 million and represent an additional source of liquidity.
However, the Company's ability to realize such values on a short-term basis is
limited by market conditions and various securities law restrictions.
Traditionally, the Company's principal sources of capital to fund its
portfolio growth have been borrowings through the SBA-sponsored SBIC debenture
program, sales of the Company's equity securities, both privately and publicly,
and funds borrowed from banking institutions. In February 1995, the Company
consummated its initial public offering and has completed four additional public
offerings since that time, including the public offering of 6,000,000 shares
completed in March 1998, that have generated net proceeds of $361.5 million in
the aggregate. The Company has used the proceeds of these offerings to
temporarily repay debt and to originate new loans.
At March 31, 1998, total SBA borrowings were $101.0 million, the
maximum amount of SBA loans available to an SBIC. In March 1998, the Company
received $11.0 in funding from the SBA at an annual interest rate of 6.32%,
making it the only SBIC to have borrowed the maximum amount of funding now
available. Each borrowing from the SBA has a term of ten years, is secured by
the assets of SII, is guaranteed by the Company and can be prepaid without
penalty after five years. The average interest rate on these borrowings was 6.9%
as of March 31, 1998, and none of these borrowings mature prior to 2002.
As of March 31, 1998, SII had $4.5 million outstanding under its $125.0
million revolving credit facility (the "Revolving Credit Facility") with First
Union National Bank and a syndicate of other banks. The Revolving Credit
Facility is secured by a lien on all of SII's assets and a pledge of SII's stock
and guaranteed by the Company. In order to manage the interest rate risk
associated with the variable interest rate provided for under the Revolving
Credit Facility, SII has entered into various hedging arrangements. The
Revolving
41
<PAGE> 42
Credit Facility matures on May 31, 2000. The Revolving Credit Facility requires
that SII obtain the lenders' consent prior to, among other things, encumbering
its assets, merging or consolidating with another entity and making investments
other than those permitted by the SBA. In addition, the Revolving Credit
Facility provides that the repayment of any amounts outstanding can be
accelerated if either George M. Miller, II, or David M. Resha ceases to be
employed by the Company.
The Company has also established a $100.0 million credit facility (the
"ING Credit Facility") with Holland Limited Securitization, Inc., a multi-seller
commercial paper conduit sponsored by ING Baring (U.S.) Capital Markets, Inc.
(individually and collectively, "ING"). During the first quarter of 1998, the
Company obtained a commitment from ING to increase the facility to $200.0
million and expects to close on the increase during the second quarter of 1998.
Sirrom Funding Company ("SFC"), a wholly-owned, special purpose, bankruptcy
remote subsidiary of the Company, is the borrower under the ING Credit Facility.
SFC purchases loans originated by the Company and the related warrants and uses
these loans and warrants as collateral to secure borrowings from ING. SFC is
generally able to borrow up to 70% of the principal amount of conforming loans
collateralizing the ING Credit Facility. As of January 3, 1997, the Company made
an initial capital contribution to SFC of approximately $25.0 million of loans,
which served as initial collateral for the ING Credit Facility. At March 31,
1998, $27.0 million was outstanding under the ING Credit Facility and $129.0 and
$137.0 million of loans and warrants at cost and fair value, respectively, had
been contributed to or sold to SFC by the Company and were collateralizing the
ING Credit Facility. In order to manage interest rate risk associated with the
variable interest rate provided for under the ING Credit Facility, the Company
has entered into various hedging arrangements. The Company may borrow under the
ING Credit Facility until December 31, 2001, and it expires on January 5, 2007.
The ING Credit Facility is not guaranteed by the Company. However, certain
actions by the Company can trigger an event of default under the ING Credit
Facility, which will result in termination of further funding thereunder and the
application of the collateral pledged for repayment of the amounts outstanding
thereunder. In addition, the ING Credit Facility provides that an event of
default is triggered if any two of George M. Miller, II, David M. Resha and Carl
W. Stratton are no longer employed by the Company.
The Company believes that the proceeds from the most recent completed
public offering, anticipated borrowings under the Revolving Credit Facility and
the increased ING Credit Facility, together with cash on hand, loan repayments
and cash flow from operations (after distributions to shareholders), will be
adequate to fund the continuing growth of the Company's investment portfolio
through the fourth quarter of 1998. In order to provide the funds necessary for
the Company to continue its growth strategy beyond that period, the Company
expects to incur, from time to time, additional short and long-term borrowings
from other sources, and to issue, in public or private transactions, its equity
and debt securities. The availability and terms of any such borrowings will
depend upon interest rate, market and other conditions. There can be no
assurances that such additional funding will be available on terms acceptable to
the Company.
PORTFOLIO TURNOVER AND CREDIT QUALITY
During the quarter ended March 31, 1998, the Company made loans to 53
companies totaling approximately $94.6 million and received repayments (either
partial or full) from 26 companies aggregating $28.6 million. During the quarter
ended March 31, 1997, the Company made loans to 50 companies totaling
approximately $67.2 million and received repayments (either partial or full)
from 10 companies aggregating $13.6 million. Since inception, the Company has
originated $693.9 million in total loans and $153.8 million, or 22.2%, have been
repaid. The Company cannot control changes in its portfolio of investments, as
borrowers have the right to prepay loans made by the Company without penalty.
The Company has implemented a system by which it grades all loans on a
scale of 1 to 6. The system was intended to reflect the performance of the
borrower's business, as well as the collateral coverage of the loans and other
factors considered relevant. To monitor and manage the risk in the overall
portfolio, management tracks the weighted average portfolio grade. The weighted
average grade was 3.10 and 3.07 at March 31, 1998 and 1997, respectively. The
Company believes that weighted average grades between 2.75 and 3.25 represent
the current normal range for the portfolio.
42
<PAGE> 43
Loans graded 4 typically involve a borrower that is performing
marginally below expectations and the existence of short-term negative trends or
negative events that have created some concern. Loans in this category require a
proactive action plan to be executed by the borrower's management and monitored
by the responsible Company officer. A grade 4 is typically a temporary rating
that is followed by an upgrade or downgrade within six months as the borrower's
business improves or declines. As of March 31, 1998 and 1997, the Company's
portfolio consisted of 20 and 17 loans, respectively, graded 4. The aggregate
principal balance of loans graded 4 at March 31, 1998 and 1997, respectively,
was $42.1 million and $36.1 million, which represented 8.6% and 12.8%,
respectively, of the total portfolio balance at such dates. Since late 1995 when
the Company redefined the loan grading system to reflect management's additional
experience in monitoring its growing portfolio, the percentage of the principal
balance of loans graded 4 to the total portfolio balance has typically ranged
between 10% and 15%, with an occasional decrease to as low as 7%. The Company
believes the current percentage to be within the normal range of variability and
expects significant variability in the future in the absolute dollar amount of
loans graded 4 and in the ratio of loans graded 4 to the total portfolio
balance.
Loans graded 5 and 6 are placed on the Company's Credit Watch List and
are serviced by a member of the Company's workout group. Loans with a grade 5
are generally in default and interest is generally not being accrued, but the
Company's management believes the borrower's management is capable of executing
a plan to return the borrower to an acceptable risk level. Loans with a grade 6
involve an unacceptable level of risk with substantial probability of loss.
These loans are on non-accrual and the Company has charged off or expects to
charge off some part of the loan. At March 31, 1998 and 1997, the Company had
loans to 17 companies with an aggregate principal balance of $38.1 million, and
13 companies with an aggregate principal balance of $16.0 million, respectively,
that were graded a 5 or 6 and that were not accruing interest, which represented
7.8% and 5.7%, respectively, of the total loan portfolio balance. The Company
believes that the current normal range of loans graded 5 and 6 is 6% to 10% of
the total portfolio balance. Given the nature of the Company's portfolio, the
Company expects some variability in the absolute dollar amount of the loans
graded 5 and 6 and in the ratio of loans graded 5 and 6 to the total portfolio
balance.
YEAR 2000
The Company has reviewed the Year 2000 issue and has identified three
primary areas in which it could be affected. First, the Company utilizes two
primary software programs, one of which tracks its investment portfolio and one
of which provides accounting functions. Both software vendors have indicated to
the Company that their programs are Year 2000 compatible. Therefore, the Company
believes that it has no material exposure in this area. Second, the Company
utilizes standard cash management software provided by its commercial banks. The
Company is unaware of any potential exposure related to this software and
believes the possibility is remote that a major commercial bank would leave any
such problems unresolved. However, the Company will continue to analyze this
area in further detail in 1998. Third, the Company has begun an investigation of
the impact of the Year 2000 on its portfolio companies. Overall, given the
size and age of its portfolio companies and the service-based industries in
which they primarily operate, the Company believes that few of its portfolio
companies will face any material issues regarding the Year 2000. As a first
step in its investigation, the Company is surveying all portfolio companies for
their recognition of, exposure to, and plans to mitigate Year 2000 risk. As of
March 31, 1998, 72% of the companies had responded, and to date the Company has
not identified significant issues. The Company intends to complete the survey
during the third quarter of 1998, at which point it will determine if further
steps are required, either overall or with individual companies.
Based on the above, the Company believes that expenditures related to
the Year 2000 will not be material.
IMPACT OF INFLATION
The Company does not believe that its business is materially affected
by inflation, other than the impact which inflation may have on the securities
markets, the valuations of business enterprises and the relationship of such
valuations to underlying earnings, all of which could influence the value of the
Company's investments.
RISKS
The risks inherent in the Company's business, which primarily consists
of making loans to small businesses, are set forth in the Company's most recent
Registration Statement on
43
<PAGE> 44
Form N-2 (Reg. No. 333-46051) and should be kept in mind when evaluating the
Company's financial performance.
44
<PAGE> 45
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
None.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements 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.
SIRROM CAPITAL CORPORATION
Date: May 13, 1998 By: /s/ Carl W. Stratton
---------------------------------
Carl W. Stratton
Chief Financial Officer
46
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
Exhibit 27 Financial Data Schedule (for SEC use only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 544,633,328
<INVESTMENTS-AT-VALUE> 554,948,764
<RECEIVABLES> 4,946,252
<ASSETS-OTHER> 9,990,654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 569,885,670
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 132,515,000
<OTHER-ITEMS-LIABILITIES> 7,548,633
<TOTAL-LIABILITIES> 140,063,633
<SENIOR-EQUITY> 395,955,745
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 37,119,138
<SHARES-COMMON-PRIOR> 31,093,226
<ACCUMULATED-NII-CURRENT> 10,826,389
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,527,216
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,315,436
<NET-ASSETS> 429,822,037
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,112,374
<OTHER-INCOME> 1,972,804
<EXPENSES-NET> 7,219,633
<NET-INVESTMENT-INCOME> 10,826,389
<REALIZED-GAINS-CURRENT> 1,187,405
<APPREC-INCREASE-CURRENT> 466,240
<NET-CHANGE-FROM-OPS> 10,863,217
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,754,594
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,022,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 3,912
<NET-CHANGE-IN-ASSETS> 60,649,271
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 4,178,999
<GROSS-EXPENSE> 7,219,633
<AVERAGE-NET-ASSETS> 355,895,474
<PER-SHARE-NAV-BEGIN> 9.07
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> 2.47
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.58
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 173,382,500
<AVG-DEBT-PER-SHARE> 4.67
</TABLE>
