10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 814-00861

 

 

Fidus Investment Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland   27-5017321

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

1603 Orrington Avenue, Suite 1005

Evanston, Illinois

  60201
(Address of Principal Executive Offices)   (Zip Code)

(847) 859-3940

(Registrant’s telephone number, including area code)

n/a

(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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of August 1, 2016, the Registrant had outstanding 19,200,085 shares of common stock, $0.001 par value.

 

 

 


Table of Contents

FIDUS INVESTMENT CORPORATION

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

 

PART I — FINANCIAL INFORMATION   
Item 1.   Financial Statements.      1   
 

Consolidated Statements of Assets and Liabilities — June 30, 2016 (unaudited) and December 31, 2015

     1   
 

Consolidated Statements of Operations — Three and Six Months Ended June 30, 2016 (unaudited) and 2015 (unaudited)

     2   
 

Consolidated Statements of Changes in Net Assets — Six Months Ended June 30, 2016 (unaudited) and 2015 (unaudited)

     3   
 

Consolidated Statements of Cash Flows — Six Months Ended June 30, 2016 (unaudited) and 2015 (unaudited)

     4   
 

Consolidated Schedules of Investments — June 30, 2016 (unaudited) and December 31, 2015

     5   
  Notes to Consolidated Financial Statements (unaudited)      17   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.      36   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.      50   
Item 4.   Controls and Procedures.      50   
PART II — OTHER INFORMATION   
Item 1.   Legal Proceedings.      51   
Item 1A.   Risk Factors.      51   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.      51   
Item 3.   Defaults Upon Senior Securities.      51   
Item 4.   Mine Safety Disclosures.      51   
Item 5.   Other Information.      51   
Item 6.   Exhibits.      52   
Signatures      53   
Exhibit Index      54   


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

 

     June 30, 2016
(unaudited)
    December 31,
2015
 

ASSETS

    

Investments, at fair value

    

Control investments (cost: $12,042 and $12,042, respectively)

   $ —        $ 618   

Affiliate investments (cost: $95,463 and $105,930, respectively)

     107,540        111,846   

Non-control/non-affiliate investments (cost: $342,049 and $330,366, respectively)

     345,198        330,805   
  

 

 

   

 

 

 

Total investments, at fair value (cost: $449,554 and $448,338, respectively)

     452,738        443,269   

Cash and cash equivalents

     59,143        31,657   

Interest receivable

     5,095        4,520   

Prepaid expenses and other assets

     1,060        1,222   
  

 

 

   

 

 

 

Total assets

   $ 518,036      $ 480,668   
  

 

 

   

 

 

 

LIABILITIES

    

SBA debentures, net of deferred financing costs (Note 6)

   $ 210,253      $ 209,394   

Borrowings under credit facility, net of deferred financing costs (Note 6)

     (636     14,734   

Accrued interest and fees payable

     3,037        2,840   

Due to affiliates

     7,032        5,762   

Taxes payable

     205        400   

Accounts payable and other liabilities

     100        176   
  

 

 

   

 

 

 

Total liabilities

     219,991        233,306   
  

 

 

   

 

 

 

Commitments and contingencies (Note 7)

    

NET ASSETS

    

Common stock, $0.001 par value (100,000,000 shares authorized, 19,200,085 and 16,300,732 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively)

     19        16   

Additional paid-in capital

     290,348        246,307   

Undistributed net investment income

     12,218        13,887   

Accumulated net realized (loss) gain on investments, net of taxes and distributions

     (6,319     (6,145

Accumulated net unrealized (depreciation) appreciation on investments

     1,779        (6,703
  

 

 

   

 

 

 

Total net assets

     298,045        247,362   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 518,036      $ 480,668   
  

 

 

   

 

 

 

Net asset value per common share

   $ 15.52      $ 15.17   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

1


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Operations (unaudited)

(in thousands, except shares and per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2016     2015     2016     2015  

Investment Income:

        

Interest income

        

Control investments

   $ —        $ 92      $ —        $ 220   

Affiliate investments

     2,763        2,496        5,607        4,841   

Non-control/non-affiliate investments

     10,034        9,528        20,637        18,978   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     12,797        12,116        26,244        24,039   

Dividend income

        

Affiliate investments

     494        44        656        74   

Non-control/non-affiliate investments

     254        114        335        221   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

     748        158        991        295   

Fee income

        

Control investments

     —          10        —          10   

Affiliate investments

     6        158        13        158   

Non-control/non-affiliate investments

     244        338        1,212        1,102   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

     250        506        1,225        1,270   

Interest on idle funds and other income

     37        19        63        33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     13,832        12,799        28,523        25,637   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Interest and financing expenses

     2,654        2,303        5,254        4,433   

Base management fee

     2,005        1,864        3,988        3,655   

Incentive fee

     3,190        1,557        5,070        3,156   

Administrative service expenses

     367        347        688        715   

Professional fees

     253        220        735        659   

Other general and administrative expenses

     399        463        717        756   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     8,868        6,754        16,452        13,374   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income taxes

     4,964        6,045        12,071        12,263   

Income tax provision (benefit)

     21        6        46        (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     4,943        6,039        12,025        12,268   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

        

Net realized gains on affiliates investments

     458        —          458        —     

Net realized gains (losses) on non-control/non-affiliate investments

     112        5,277        (198     5,277   

Net change in unrealized appreciation (depreciation) on investments

     7,485        (5,070     8,253        (4,890

Income tax provision from realized gains on investments

     (205     —          (205     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net gain on investments

     7,850        207        8,308        387   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 12,793      $ 6,246      $ 20,333      $ 12,655   
  

 

 

   

 

 

   

 

 

   

 

 

 

Per common share data:

        

Net investment income per share-basic and diluted

   $ 0.29      $ 0.37      $ 0.72      $ 0.76   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operation per share — basic and diluted

   $ 0.74      $ 0.39      $ 1.21      $ 0.78   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share

   $ 0.39      $ 0.40      $ 0.78      $ 0.78   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

     17,329,685        16,186,688        16,815,592        16,123,722   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

2


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except shares)

 

     Common Stock                           
     Number of
shares
     Par
value
     Additional
paid in
capital
     Undistributed
net investment
income
    Accumulated
net realized
(loss) on
investments,
net of taxes and
distributions
    Accumulated
net unrealized
(depreciation)
appreciation on
investments
    Total net
assets
 

Balances at December 31, 2014

     16,051,037       $ 16       $ 243,008       $ 12,433      $ (15,999   $ 3,805      $ 243,263   

Public offerings of common stock, net of expenses

     190,623         —           3,174         —          —          —          3,174   

Shares issued under dividend reinvestment plan

     26,483         —           430         —          —          —          430   

Net increase in net assets resulting from operations

     —           —           —           12,268        5,411        (5,024     12,655   

Dividends declared

     —           —           —           (12,600     —          —          (12,600
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2015

     16,268,143       $ 16       $ 246,612       $ 12,101      $ (10,588   $ (1,219   $ 246,922   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2015

     16,300,732       $ 16       $ 246,307       $ 13,887      $ (6,145   $ (6,703   $ 247,362   

Public offerings of common stock, net of expenses (Note 8)

     2,875,000         3         43,667         —          —          —          43,670   

Shares issued under dividend reinvestment plan

     24,353         —           374         —          —          —          374   

Net increase in net assets resulting from operations

     —           —           —           12,025        (174     8,482        20,333   

Dividends declared

     —           —           —           (13,694     —          —          (13,694
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2016

     19,200,085       $ 19       $ 290,348       $ 12,218      $ (6,319   $ 1,779      $ 298,045   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

3


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     Six Months Ended
June 30,
 
     2016     2015  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 20,333      $ 12,655   

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

    

Net change in unrealized (appreciation) depreciation on investments

     (8,253     4,890   

Net realized (gain) on investments

     (260     (5,277

Interest and dividend income paid-in-kind

     (2,201     (2,630

Accretion of original issue discount

     (120     (300

Accretion of loan origination fees

     (528     (324

Purchase of investments

     (44,422     (67,903

Proceeds from sales and repayments of investments

     46,034        47,388   

Proceeds from loan origination fees

     281        377   

Amortization of deferred financing costs

     547        486   

Changes in operating assets and liabilities:

    

Interest receivable

     (575     (565

Prepaid expenses and other assets

     162        (383

Accrued interest and fees payable

     197        253   

Due to affiliates

     1,270        (135

Taxes payable

     (195     (328

Accounts payable and other liabilities

     (76     311   
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     12,194        (11,485
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from stock offerings, net of expenses

     43,670        3,174   

Proceeds received from SBA debentures

     500        6,200   

Net (repayments of) proceeds received from borrowings under credit facility

     (15,500     500   

Payment of deferred financing costs

     (58     (995

Dividends paid to stockholders, including expenses

     (13,320     (12,170
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     15,292        (3,291
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     27,486        (14,776

Cash and cash equivalents:

    

Beginning of period

     31,657        29,318   
  

 

 

   

 

 

 

End of period

   $ 59,143      $ 14,542   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash payments for interest

   $ 4,510      $ 3,694   

Cash payments for taxes, net of tax refunds received

   $ 446      $ 323   

Non-cash financing activities:

    

Shares issued under dividend reinvestment plan

   $ 374      $ 432   

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2016

(In thousands, except shares)

 

Industry
Portfolio Company (a)(b)
Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost     Fair Value     Percent
of Net
Assets
 

Aerospace & Defense Manufacturing

              

FDS Avionics Corp.

              

(dba Flight Display Systems)

              

Subordinated Note

     12.3%/0.0%        4/1/2020       $ 5,200       $ 5,182      $ 4,472     

Common Equity (200 units) (i)

             2,000        648     
          

 

 

   

 

 

   
             7,182        5,120        2

Lightning Diversion Systems, LLC

              

Senior Secured Loan

     9.5%/0.0%        12/20/2018         7,198         7,171        7,198     

Revolving Loan ($1,000 commitment) (h)

     9.5%/0.0%        12/20/2018         —           (1     (1  

Common Equity (600,000 units)

             —          3,595     
          

 

 

   

 

 

   
             7,170        10,792        4

Malabar International (k)

              

Subordinated Note (j)

     11.3%/2.0%        11/13/2021         7,540         7,529        7,539     

Preferred Equity (1,494 shares) (f)

     6.0%/0.0%        5/12/2022            1,996        5,049     
          

 

 

   

 

 

   
             9,525        12,588        4

Simplex Manufacturing Co.

              

Subordinated Note

     14.0%/0.0%        12/9/2016         4,050         4,050        4,050     

Warrant (26 shares)

             816        2,750     
          

 

 

   

 

 

   
             4,866        6,800        2

Steward Holding LLC (k)

              

(dba Steward Advanced Materials)

              

Subordinated Note

     12.0%/2.3%        5/12/2021         7,101         7,070        7,101     

Common Equity (1,000,000 units)

             1,000        1,038     
          

 

 

   

 

 

   
             8,070        8,139        3

Apparel Distribution

              

Jacob Ash Holdings, Inc.

              

Subordinated Note (j)

     13.0%/4.0%        6/30/2018         4,000         3,996        4,000     

Subordinated Note

     13.0%/0.0%        6/30/2018         778         772        726     

Preferred Equity (66,138 shares) (f)

     0.0%/15.0%        6/30/2018            992        738     

Warrant (63,492 shares)

             67        —       
          

 

 

   

 

 

   
             5,827        5,464        2

Building Products Manufacturing

              

The Wolf Organization, LLC

              

Common Equity (175 shares)

             1,750        3,575        1

US GreenFiber, LLC

              

Subordinated Note (j)

     12.5%/0.0%        1/2/2019         14,000         13,959        14,000     

Common Equity (1,667 units) (g)(i)

             500        910     
          

 

 

   

 

 

   
             14,459        14,910        5

Business Services

              

Inflexxion, Inc. (k)

              

Senior Secured Loan

     7.0%/6.0%        12/16/2019         4,071         4,054        2,980     

Revolving Loan ($500 commitment) (i)

     7.0%/6.0%        12/16/2019         155         151        113     

Preferred Equity (252,046 units)

             252        —       

Preferred Equity (308,987 units)

             309        —       

Preferred Equity (1,400 units)

             1,400        —       
          

 

 

   

 

 

   
             6,166        3,093        1

 

5


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Plymouth Rock Energy, LLC

                

Senior Secured Loan

     11.8%/0.0%        5/14/2017       $ 6,000       $ 5,990       $ 6,000         2

Vanguard Dealer Services, L.L.C.

                

Subordinated Note ($9,850 commitment) (j)

     12.3%/0.0%        1/30/2021         7,350         7,314         7,350      

Common Equity (6,000 shares)

             600         783      
          

 

 

    

 

 

    
             7,914         8,133         3

Capital Equipment Manufacturing

                

Thermoforming Technology Group LLC

                

Subordinated Note

     12.5%/0.0%        9/14/2021         13,500         13,436         13,436      

Common Equity (3,500 units) (g)(i)

             350         350      
          

 

 

    

 

 

    
             13,786         13,786         5

Commercial Cleaning

                

Premium Franchise Brands, LLC

                

Preferred Equity (1,054,619 shares)

             832         986         0

Component Manufacturing

                

Channel Technologies Group, LLC

                

Preferred Equity (612 units) (g)(i)

             875         —        

Common Equity (612,432 units) (g)(i)

             —           —        
          

 

 

    

 

 

    
             875         —           0

Toledo Molding & Die, Inc.

                

Subordinated Note (i)

     10.5%/0.0%        12/18/2018         10,000         9,907         10,000         3

Consumer Products

                

Grindmaster Corporation

                

Subordinated Note

     11.5%/0.0%        10/31/2019         10,500         10,469         10,500         4

World Wide Packaging, LLC (k)

                

Subordinated Note (i)

     12.0%/1.0%        10/26/2018         10,316         10,296         10,316      

Common Equity (1,517,573 units) (g)(i)

             1,518         2,965      
          

 

 

    

 

 

    
             11,814         13,281         4

Electronic Components Supplier

                

Apex Microtechnology, Inc. (k)

                

Warrant (2,293 shares)

             220         387      

Common Equity (11,690 shares)

             1,169         1,960      
          

 

 

    

 

 

    
             1,389         2,347         1

Financial Services

                

National Truck Protection Co., Inc.

                

Senior Secured Loan

     13.5%/2.0%        9/13/2018         11,089         11,050         11,089      

Common Equity (1,109 shares)

             758         2,042      
          

 

 

    

 

 

    
             11,808         13,131         4

Healthcare Products

                

Allied 100 Group, Inc.

                

Subordinated Note (j)

     11.5%/0.0%        5/26/2020         13,000         12,953         13,000      

Common Equity (1,250,000 units) (i)

             1,250         1,337      
          

 

 

    

 

 

    
             14,203         14,337         5

 

6


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost     Fair Value      Percent
of Net
Assets
 

Anatrace Products, LLC

               

Subordinated Note

     13.0%/1.3%        6/23/2021       $ 6,500       $ 6,482      $ 6,500      

Common Equity (360,000 shares) (i)

             —          244      
          

 

 

   

 

 

    
             6,482        6,744         2

MedPlast, LLC

               

Subordinated Note (i)

     11.0%/1.5%        3/31/2019         10,416         10,378        10,416      

Preferred Equity (188 shares) (f)(i)

     0.0%/8.0%        3/31/2019            231        232      

Common Equity (3,728 shares) (i)

             62        189      
          

 

 

   

 

 

    
             10,671        10,837         4

OMC Investors, LLC

               

(dba Ohio Medical Corporation)

               

Subordinated Note

     12.0%/0.0%        7/15/2021         10,000         9,908        9,908      

Common Equity (5,000 shares) (f)

     0.0%/8.0%              519        519      
          

 

 

   

 

 

    
             10,427        10,427         3

Pfanstiehl, Inc. (k)

               

Subordinated Note

     10.5%/0.0%        9/29/2018         6,208         6,184        6,208      

Common Equity (8,500 units) (i)

             850        8,589      
          

 

 

   

 

 

    
             7,034        14,797         5

Six Month Smiles Holdings, Inc.

               

Subordinated Note (i)

     12.0%/1.8%        7/31/2020         8,178         8,152        7,810         3

Healthcare Services

               

Medsurant Holdings, LLC (k)

               

Subordinated Note

     12.3%/0.0%        6/18/2021         6,267         6,216        6,267      

Preferred Equity (126,662 units) (g)

             1,346        1,617      

Warrant (505,176 units) (g)

             4,516        5,610      
          

 

 

   

 

 

    
             12,078        13,494         5

Microbiology Research Associates, Inc. (k)

               

Senior Secured Loan

     6.0%/0.0%        5/13/2020         3,750         3,735        3,750      

Revolving Loan ($500 commitment) (h)(i)

     6.0%/0.0%        5/13/2020         —           (2     —        

Subordinated Note

     12.5%/0.0%        11/13/2020         6,250         6,225        6,250      

Common Equity (1,000,000 units) (i)

             1,000        1,593      
          

 

 

   

 

 

    
             10,958        11,593         4

Oaktree Medical Centre, P.C.

               

(dba Pain Management Associates)

               

Senior Secured Loan (i)

     11.5%/0.0%        1/1/2018         571         598        626      

Senior Secured Loan (i)

     7.0%/12.0%        1/1/2018         5,724         5,926        4,928      

Revolving Loan ($2,500 commitment) (i)

     11.5%/0.0%        1/1/2018         2,500         2,511        2,540      
          

 

 

   

 

 

    
             9,035        8,094         3

United Biologics, LLC

               

Subordinated Note

     12.0%/2.0%        3/5/2017         8,609         8,513        8,609      

Preferred Equity (98,377 units) (g)(i)

             1,069        54      

Warrant (57,469 units)

             566        27      
          

 

 

   

 

 

    
             10,148        8,690         3

Industrial Cleaning & Coatings

               

K2 Industrial Services, Inc.

               

Subordinated Note

     11.8%/2.8%        5/23/2017         17,368         17,348        17,069      

Preferred Equity - Series A (1,200 shares)

             1,200        546      

Preferred Equity - Series B (74 shares)

             68        104      
          

 

 

   

 

 

    
             18,616        17,719         6

 

7


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2016

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Information Technology Services

                

FTH Acquisition Corp. VII

                

Subordinated Note

     13.0%/0.0%        3/9/2017       $ 8,265       $ 8,265       $ 8,142      

Preferred Equity (887,122 shares)

             887         278      
          

 

 

    

 

 

    
             9,152         8,420         3

inthinc Technology Solutions, Inc.

                

Subordinate Note ($5,000 commitment)

     12.5%/0.0%        4/24/2020         4,000         3,982         3,739      

Subordinated Note

     0.0%/12.5%        4/24/2020         1,106         947         828      

Royalty Rights

       4/24/2020            185         241      
          

 

 

    

 

 

    
             5,114         4,808         2

Laundry Services

                

Caldwell & Gregory, LLC

                

Subordinated Note

     11.5%/1.0%        11/30/2018         1,547         1,534         1,547      

Subordinated Note

     0.0%/12.0%        5/31/2019         4,320         4,170         4,320      

Common Equity (500,000 units) (g)

             500         589      

Warrant (242,121 units) (g)

             242         285      
          

 

 

    

 

 

    
             6,446         6,741         2

Oil & Gas Services

                

IOS Acquisitions, Inc. (n)

                

Common Equity (2,152 units) (i)

             109         21         0

Pinnergy, Ltd.

                

Subordinated Note (j)(m)

     10.5%/1.8%        1/24/2020         20,089         20,037         12,095         4

Printing Services

                

Brook & Whittle Limited

                

Subordinated Note

     12.0%/4.8%        12/31/2016         7,841         7,841         7,988      

Subordinated Note

     12.0%/2.0%        12/31/2016         2,319         2,319         2,263      

Warrant (1,161 shares)

             285         22      

Common Equity - Series A (148 shares)

             110         3      

Common Equity - Series D (527 shares)

             53         109      
          

 

 

    

 

 

    
             10,608         10,385         3

Promotional Products

                

Hub Acquisition Sub, LLC

                

(dba Hub Pen)

                

Subordinated Note (j)

     12.3%/0.0%        9/23/2021         11,350         11,296         11,296      

Common Equity (7,500 units)

             750         750      
          

 

 

    

 

 

    
             12,046         12,046         4

Restaurants

                

ACFP Management, Inc. (n)

                

Common Equity (1,000,000 units) (i)

             —           —           0

Cardboard Box LLC

                

(dba Anthony’s Coal Fired Pizza)

                

Common Equity (521,021 units) (i)

             521         474         0

Restaurant Finance Co, LLC

                

Senior Secured Loan (j)

     12.0%/4.0%        7/31/2020         8,970         8,938         8,970         3

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2016

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Retail

                

EBL, LLC (EbLens)

                

Common Equity (750,000 units) (g)(i)

           $ 750       $ 1,848         1

Retail Cleaning

                

Paramount Building Solutions, LLC (l)

                

Subordinated Note (m)

     0.0%/18.0%        12/31/2017       $ 625         625         —        

Subordinated Note (m)

     0.0%/15.0%        12/31/2017         275         275         —        

Subordinated Note (m)

     7.0%/3.0%        12/31/2017         1,376         1,376         —        

Subordinated Note (m)

     7.0%/7.0%        12/31/2017         2,927         2,927         —        

Warrant (1,086,035 units) (g)

             —           —        

Preferred Equity (5,000,000 units) (g)

             5,339         —        

Common Equity (107,143 units) (g)

             1,500         —        
          

 

 

    

 

 

    
             12,042         —           0

Safety Products Manufacturing

                

Safety Products Group, LLC (k)(n)

                

Preferred Equity (749 units) (g)(i)

             —           22      

Common Equity (676 units) ($2,852 commitment) (g)(i)

             —           —        
          

 

 

    

 

 

    
             —           22         0

Specialty Chemicals

                

FAR Research Inc. (k)

                

Senior Secured Loan (j)

     11.8%/1.0%        3/31/2019         7,234         7,214         7,234      

Revolving Loan ($1,750 commitment) (i)

     11.8%/1.0%        3/31/2019         137         132         136      

Common Equity (10 units)

             1,000         393      
          

 

 

    

 

 

    
             8,346         7,763         3

Specialty Cracker Manufacturing

                

Westminster Cracker Company, Inc. (k)(n)

                

Common Equity (1,307,262 units)

             —           191         0

Specialty Distribution

                

Carlson Systems Holdings, Inc.

                

Subordinated Note (j)

     12.0%/0.0%        5/20/2020         21,000         20,921         21,260      

Common Equity (15,000 units) (i)

             1,500         5,779      
          

 

 

    

 

 

    
             22,421         27,039         9

Virginia Tile Company, LLC

                

Subordinated Note (j)

     12.3%/0.0%        5/19/2020         12,000         11,957         12,000      

Common Equity (20 shares)

             250         825      
          

 

 

    

 

 

    
             12,207         12,825         4

Transportation Services

                

Cavallo Bus Lines Holdings, LLC

                

Subordinated Note

     12.0%/3.0%        4/26/2021         8,250         8,214         8,250         3

US Pack Logistics LLC

                

Subordinated Note

     12.0%/1.8%        9/27/2020         10,390         10,351         10,390      

Common Equity (5,357 units) (g)(i)

             583         546      
          

 

 

    

 

 

    
             10,934         10,936         4

Worldwide Express Operations, LLC

                

Subordinated Note

     11.5%/1.0%        8/1/2020         17,381         17,267         17,382      

Common Equity (2,500,000 units) (g)(i)

             2,500         4,824      
          

 

 

    

 

 

    
             19,767         22,206         7

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2016

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair Value      Percent of
Net Assets
 

Utility Equipment Manufacturing

                

Mirage Trailers LLC (k)

                

Senior Secured Loan (j)(e)

     12.5%/0.0%        11/25/2020       $ 8,510       $ 8,431       $ 8,510      

Common Equity (2,500,000 shares)

             2,478         2,618      
          

 

 

    

 

 

    
             10,909         11,128         4

Trantech Radiator Products, Inc. (k)

                

Subordinated Note (i)

     12.0%/1.8%        5/4/2017         8,494         8,486         8,494      

Common Equity (6,875 shares) (i)

             688         610      
          

 

 

    

 

 

    
             9,174         9,104         3

Vending Equipment Manufacturing

                

Ice House America, LLC

                

Subordinated Note (i)

     12.0%/3.5%        1/1/2020         4,171         4,000         4,171      

Warrant (1,957,895 units) (g)(i)

             216         108      
          

 

 

    

 

 

    
             4,216         4,279         1
          

 

 

    

 

 

    

Total Investments

           $ 449,554       $ 452,738         152
          

 

 

    

 

 

    

 

(a) See Note 3 to the consolidated financial statements for portfolio composition by geographic location.
(b) Equity ownership may be held in shares or units of companies related to the portfolio companies.
(c) All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.
(d) Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of June 30, 2016. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(e) The investment bears interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The interest rate is set as one-month LIBOR + 11.5% and is subject to a 12.5% interest rate floor. The Company has provided the interest rate in effect as of June 30, 2016.
(f) Income producing. Maturity date, if any, represents mandatory redemption date.
(g) Investment is held by a wholly-owned subsidiary of the Company.
(h) The entire commitment was unfunded at June 30, 2016. As such, no interest is being earned on this investment.
(i) Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(j) The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(k) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated Person are detailed in Note 3 to the consolidated financial statements.
(l) As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control” this portfolio company because it owns 25% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.
(m) Investment was on non-accrual status as of June 30, 2016, meaning the Company has ceased recognizing interest income on the investment.
(n) Investment in portfolio company that has sold its operations and is in the process of winding down.

See Notes to Consolidated Financial Statements (unaudited).

 

 

10


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2015

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost     Fair
Value
    Percent
of Net
Assets
 

Aerospace & Defense Manufacturing

               

FDS Avionics Corp.

               

(dba Flight Display Systems)

               

Subordinated Note

   12.3%/0.0%      4/1/2020       $ 5,200       $ 5,180      $ 5,200     

Common Equity (200 units) (i)

              2,000        1,468     
           

 

 

   

 

 

   
              7,180        6,668        3

Lightning Diversion Systems, LLC

               

Senior Secured Loan

   9.5%/0.0%      12/20/2018         9,198         9,165        9,198     

Revolving Loan ($1,000 commitment) (h)

   9.5%/0.0%      12/20/2018         —           (1     (1  

Common Equity (600,000 units)

              —          2,429     
           

 

 

   

 

 

   
              9,164        11,626        5

Malabar International (k)

               

Subordinated Note (j)

   12.5%/2.5%      5/21/2017         7,450         7,436        7,450     

Preferred Equity (1,494 shares) (f)

   6.0%/0.0%      11/21/2017            1,994        4,808     
           

 

 

   

 

 

   
              9,430        12,258        5

Simplex Manufacturing Co.

               

Subordinated Note

   14.0%/0.0%      5/1/2016         4,550         4,550        4,550     

Warrant (24 shares)

              710        3,359     
           

 

 

   

 

 

   
              5,260        7,909        3

Steward Holding LLC (k)

               

(dba Steward Advanced Materials)

               

Subordinated Note

   12.0%/2.3%      5/12/2021         7,022         6,987        6,987     

Common Equity (1,000,000 units)

              1,000        1,000     
           

 

 

   

 

 

   
              7,987        7,987        3

Apparel Distribution

               

Jacob Ash Holdings, Inc.

               

Subordinated Note (j)

   13.0%/4.0%      6/30/2018         4,000         3,994        4,000     

Subordinated Note

   13.0%/0.0%      6/30/2018         963         956        963     

Preferred Equity (66,138 shares) (f)

   0.0%/15.0%      6/30/2018            924        926     

Warrant (63,492 shares)

              67        —       
           

 

 

   

 

 

   
              5,941        5,889        2

Building Products Manufacturing

               

The Wolf Organization, LLC

               

Common Equity (175 shares)

              1,750        2,514        1

US GreenFiber, LLC

               

Subordinated Note (j)

   12.5%/0.0%      1/2/2019         14,000         13,952        14,000     

Common Equity (1,667 units) (g)(i)

              500        1,170     
           

 

 

   

 

 

   
              14,452        15,170        6

Business Services

               

Inflexxion, Inc. (k)

               

Senior Secured Loan

   12.5%/0.0%      12/16/2019         3,950         3,931        3,470     

Revolving Loan ($1,000 commitment) (i)

   12.5%/0.0%      12/16/2019         150         146        132     

Preferred Equity (1,400 units)

              1,400        —       
           

 

 

   

 

 

   
              5,477        3,602        1

Plymouth Rock Energy, LLC

               

Senior Secured Loan

   11.8%/0.0%      5/14/2017         6,000         5,984        6,000        2

 

11


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2015

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Stagnito Partners, LLC

                 

(dba Stagnito Business Information)

                 

Senior Secured Loan (i)

   12.0%/0.0%      6/30/2018       $ 6,361       $ 6,290       $ 6,361         3

Vanguard Dealer Services, L.L.C.

                 

Subordinated Note ($9,850 commitment) (j)

   12.3%/0.0%      1/30/2021         7,350         7,310         7,310      

Common Equity (6,000 shares)

              600         600      
           

 

 

    

 

 

    
              7,910         7,910         3

Commercial Cleaning

                 

Premium Franchise Brands, LLC

                 

Preferred Equity (1,054,619 shares)

              832         717         0

Component Manufacturing

                 

Channel Technologies Group, LLC

                 

Subordinated Note

   11.0%/1.8%      4/10/2019         7,000         6,963         6,253      

Preferred Equity (612 units) (g)(i)

              1,139         548      

Common Equity (612,432 units) (g)(i)

              —           —        
           

 

 

    

 

 

    
              8,102         6,801         3

Toledo Molding & Die, Inc.

                 

Subordinated Note (i)

   10.5%/0.0%      12/18/2018         10,000         9,889         10,000         4

Consumer Products

                 

Grindmaster Corporation

                 

Subordinated Note

   11.5%/0.0%      10/31/2019         10,500         10,465         10,500         4

World Wide Packaging, LLC (k)

                 

Subordinated Note (i)

   12.0%/1.0%      10/26/2018         10,265         10,239         10,277      

Common Equity (1,517,573 units) (g)(i)

              1,518         2,043      
           

 

 

    

 

 

    
              11,757         12,320         5

Electronic Components Supplier

                 

Apex Microtechnology, Inc. (k)

                 

Warrant (2,293 shares)

              220         274      

Common Equity (11,690 shares)

              1,169         1,425      
           

 

 

    

 

 

    
              1,389         1,699         1

Financial Services

                 

National Truck Protection Co., Inc.

                 

Senior Secured Loan

   13.5%/2.0%      9/13/2018         11,989         11,944         11,989      

Common Equity (1,109 shares)

              758         1,705      
           

 

 

    

 

 

    
              12,702         13,694         6

Healthcare Products

                 

Allied 100 Group, Inc.

                 

Subordinated Note (j)

   11.5%/0.0%      5/26/2020         13,000         12,948         13,000      

Common Equity (1,250,000 units) (i)

              1,250         1,223      
           

 

 

    

 

 

    
              14,198         14,223         6

Anatrace Products, LLC

                 

Subordinated Note

   13.0%/1.3%      6/23/2021         6,500         6,480         6,480      

Common Equity (360,000 shares) (i)

              —           148      
           

 

 

    

 

 

    
              6,480         6,628         3

 

12


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2015

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost     Fair
Value
     Percent
of Net
Assets
 

MedPlast, LLC

                

Subordinated Note (i)

   11.0%/1.5%      3/31/2019       $ 10,338       $ 10,294      $ 10,338      

Preferred Equity (188 shares) (f)(i)

   0.0%/8.0%      3/31/2019            223        223      

Common Equity (3,728 shares) (i)

              62        103      
           

 

 

   

 

 

    
              10,579        10,664         4

Pfanstiehl, Inc. (k)

                

Subordinated Note

   12.0%/2.0%      9/29/2018         6,208         6,178        6,208      

Common Equity (8,500 units) (i)

              850        4,280      
           

 

 

   

 

 

    
              7,028        10,488         4

Six Month Smiles Holdings, Inc.

                

Subordinated Note (i)

   12.0%/1.8%      7/31/2020         8,106         8,077        8,106         3

Healthcare Services

                

Continental Anesthesia Management, LLC

                

Senior Secured Loan

   10.0%/4.0%      4/15/2016         10,676         10,676        10,676      

Warrant (263 shares)

              276        —        
           

 

 

   

 

 

    
              10,952        10,676         4

Medsurant Holdings, LLC (k)

                

Subordinated Note

   12.3%/0.0%      6/18/2021         6,267         6,211        6,211      

Preferred Equity (126,662 units) (g)

              1,346        1,515      

Warrant (505,176 units) (g)

              4,516        5,237      
           

 

 

   

 

 

    
              12,073        12,963         5

Microbiology Research Associates, Inc. (k)

                

Senior Secured Loan

   6.0%/0.0%      5/13/2020         3,750         3,734        3,750      

Revolving Loan ($500 commitment) (h)(i)

   6.0%/0.0%      5/13/2020         —           (2     —        

Subordinated Note

   12.5%/0.0%      11/13/2020         6,250         6,222        6,250      

Common Equity (1,000,000 units) (i)

              1,000        1,444      
           

 

 

   

 

 

    
              10,954        11,444         5

Oaktree Medical Centre, P.C.

                

(dba Pain Management Associates)

                

Senior Secured Loan (i)

   8.5%/0.0%      1/1/2018         560         570        589      

Senior Secured Loan (i)

   16.0%/0.0%      1/1/2018         5,379         5,458        5,454      

Revolving Loan ($500 commitment) (i)

   8.5%/0.0%      1/1/2018         250         257        263      
           

 

 

   

 

 

    
              6,285        6,306         3

United Biologics, LLC

                

Subordinated Note

   12.0%/2.0%      3/5/2017         8,523         8,360        7,932      

Preferred Equity (98,377 units) (g)(i)

              1,069        —        

Warrant (57,469 units)

              566        —        
           

 

 

   

 

 

    
              9,995        7,932         3

Industrial Cleaning & Coatings

                

K2 Industrial Services, Inc.

                

Subordinated Note

   8.8%/6.4%      5/23/2017         17,118         17,086        16,718      

Preferred Equity - Series A (1,200 shares)

              1,200        271      

Preferred Equity - Series B (74 shares)

              68        78      
           

 

 

   

 

 

    
              18,354        17,067         7

Information Technology Services

                

FTH Acquisition Corp. VII

                

Subordinated Note

   13.0%/0.0%      2/28/2017         8,352         8,352        8,236      

Preferred Equity (887,122 shares)

              887        —        
           

 

 

   

 

 

    
              9,239        8,236         3

 

13


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2015

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

inthinc Technology Solutions, Inc.

                 

Subordinated Note ($5,000 commitment)

   12.5%/0.0%      4/24/2020       $ 4,000       $ 3,979       $ 3,979      

Subordinated Note

   0.0%/12.5%      4/24/2020         1,039         861         861      

Royalty Rights

        4/24/2020            185         185      
           

 

 

    

 

 

    
              5,025         5,025         2

Laundry Services

                 

Caldwell & Gregory, LLC

                 

Subordinated Note

   11.5%/1.0%      11/30/2018         1,539         1,523         1,539      

Subordinated Note

   0.0%/12.0%      5/31/2019         4,072         3,897         4,072      

Common Equity (500,000 units) (g)

              500         651      

Warrant (242,121 units) (g)

              242         316      
           

 

 

    

 

 

    
              6,162         6,578         3

Oil & Gas Services

                 

IOS Acquisitions, Inc. (n)

                 

Common Equity (2,152 units) (i)

              109         21         0

Pinnergy, Ltd.

                 

Subordinated Note (j)

   10.5%/1.8%      1/24/2020         20,000         19,945         16,440         7

Printing Services

                 

Brook & Whittle Limited

                 

Subordinated Note

   12.0%/4.8%      12/31/2016         7,655         7,655         7,361      

Subordinated Note

   12.0%/2.0%      12/31/2016         2,296         2,296         2,151      

Warrant (1,051 shares)

              285         —        

Common Equity - Series A (148 shares)

              110         —        

Common Equity - Series D (527 shares)

              53         77      
           

 

 

    

 

 

    
              10,399         9,589         4

Restaurants

                 

ACFP Management, Inc. (n)

                 

Common Equity (1,000,000 units) (i)

              —           —           0

Cardboard Box LLC

                 

(dba Anthony’s Coal Fired Pizza)

                 

Common Equity (521,021 units) (i)

              521         521         0

Restaurant Finance Co, LLC

                 

Senior Secured Loan ($10,500 commitment) (j)

   12.0%/4.0%      7/31/2020         8,443         8,410         8,443         3

Retail

                 

EBL, LLC (EbLens)

                 

Common Equity (750,000 units) (g)(i)

              750         1,389         1

Retail Cleaning

                 

Paramount Building Solutions, LLC (l)

                 

Subordinated Note (m)

   0.0%/18.0%      12/31/2017         625         625         618      

Subordinated Note (m)

   0.0%/15.0%      12/31/2017         275         275         —        

Subordinated Note (m)

   0.0%/10.0%      12/31/2017         1,376         1,376         —        

Subordinated Note (m)

   0.0%/14.0%      12/31/2017         2,927         2,927         —        

Warrant (1,086,035 units) (g)

              —           —        

Preferred Equity (5,000,000 units) (g)

              5,339         —        

Common Equity (107,143 units) (g)

              1,500         —        
           

 

 

    

 

 

    
              12,042         618         0

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2015

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Safety Products Manufacturing

                 

Safety Products Group, LLC (k)

                 

Subordinated Note

   12.0%/1.5%      12/30/2018       $ 10,000       $ 9,974       $ 10,000      

Preferred Equity (749 units) (g)(i)

              749         834      

Common Equity (676 units) (g)(i)

              1         —        
           

 

 

    

 

 

    
              10,724         10,834         4

Specialty Chemicals

                 

FAR Research Inc. (k)

                 

Senior Secured Loan (j)

   11.8%/1.0%      3/31/2019         7,448         7,423         7,448      

Revolving Loan ($1,750 commitment) (i)

   11.8%/1.0%      3/31/2019         137         131         136      

Common Equity (10 units)

              1,000         161      
           

 

 

    

 

 

    
              8,554         7,745         3

Specialty Cracker Manufacturing

                 

Westminster Cracker Company, Inc. (k)(n)

                 

Common Equity (1,307,262 units)

              —           191         0

Specialty Distribution

                 

Carlson Systems Holdings, Inc.

                 

Subordinated Note (j)

   12.0%/0.0%      5/20/2020         21,000         20,912         21,000      

Common Equity (15,000 units) (i)

              1,500         2,079      
           

 

 

    

 

 

    
              22,412         23,079         9

Virginia Tile Company, LLC

                 

Subordinated Note (j)

   12.3%/0.0%      5/19/2020         12,000         11,952         12,000      

Common Equity (20 shares)

              250         559      
           

 

 

    

 

 

    
              12,202         12,559         5

Telecommunication Services

                 

X5 Opco LLC

                 

Senior Secured Loan

   12.0%/0.0%      3/24/2020         5,500         5,477         5,665      

Revolving Loan ($500 commitment) (h)

   12.0%/0.0%      3/24/2020         —           —           —        

Preferred Equity (5,000 units) (f)(g)(i)

   0.0%/8.0%            531         350      
           

 

 

    

 

 

    
              6,008         6,015         2

Transportation Services

                 

Cavallo Bus Lines Holdings, LLC

                 

Subordinated Note

   12.0%/3.0%      4/26/2021         8,250         8,210         8,210         3

US Pack Logistics LLC

                 

Subordinated Note

   12.0%/1.8%      9/27/2020         10,299         10,255         10,299      

Common Equity (5,357 units) (g)(i)

              536         483      
           

 

 

    

 

 

    
              10,791         10,782         4

Worldwide Express Operations, LLC

                 

Subordinated Note

   11.5%/1.0%      8/1/2020         12,805         12,723         12,806      

Common Equity (2,500,000 units) (g)(i)

              2,500         4,036      
           

 

 

    

 

 

    
              15,223         16,842         7

Utility Equipment Manufacturing

                 

Mirage Trailers LLC (k)

                 

Senior Secured Loan (j)(e)

   12.5%/0.0%      11/25/2020         9,000         8,912         8,912      

Common Equity (2,500,000 shares)

              2,475         2,475      
           

 

 

    

 

 

    
              11,387         11,387         5

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2015

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Trantech Radiator Products, Inc. (k)

                 

Subordinated Note (i)

   12.0%/1.8%      5/4/2017       $ 8,494       $ 8,482       $ 8,494      

Common Equity (6,875 shares) (i)

              688         434      
           

 

 

    

 

 

    
              9,170         8,928         4

Vending Equipment Manufacturing

                 

Ice House America, LLC

                 

Subordinated Note (i)

   12.0%/3.5%      1/1/2020         4,098         3,903         3,668      

Warrant (1,957,895 units) (g)(i)

              216         47      
           

 

 

    

 

 

    
              4,119         3,715         2
           

 

 

    

 

 

    

Total Investments

            $ 448,338       $ 443,269         179
           

 

 

    

 

 

    

 

(a) See Note 3 to the consolidated financial statements for portfolio composition by geographic location.
(b) Equity ownership may be held in shares or units of companies related to the portfolio companies.
(c) All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.
(d) Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of December 31, 2015. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(e) The investment bears interest at a variable rate that is determined by reference to LIBOR, which is reset monthly. The interest rate is set as LIBOR + 11.5% and is subject to a 12.5% interest rate floor. The Company has provided the interest rate in effect as of December 31, 2015.
(f) Income producing. Maturity date, if any, represents mandatory redemption date.
(g) Investment is held by a wholly-owned subsidiary of the Company.
(h) The entire commitment was unfunded at December 31, 2015. As such, no interest is being earned on this investment.
(i) Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(j) The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(k) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated Person are detailed in Note 3 to the consolidated financial statements.
(l) As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control” this portfolio company because it owns 25% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.
(m) Investment was on non-accrual status as of December 31, 2015, meaning the Company has ceased recognizing interest income on the investment.
(n) Investment in portfolio company that has sold its operations and is in the process of winding down.

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Note 1. Organization and Nature of Business

Fidus Investment Corporation, a Maryland corporation (“FIC,” and together with its subsidiaries, the “Company”), was formed on February 14, 2011 for the purposes of (i) acquiring 100% of the limited partnership interests of Fidus Mezzanine Capital, L.P. and its consolidated subsidiaries (collectively, “Fund I”) and 100% of the membership interests of Fund I’s general partner, Fidus Mezzanine Capital GP, LLC (“FMCGP”), (ii) raising capital in an initial public offering that was completed in June 2011 (the “IPO”) and (iii) thereafter operating as an externally managed, closed-end, non-diversified management investment company, within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”), that has elected to be regulated as a business development company (“BDC”) under the 1940 Act.

On June 20, 2011, FIC acquired 100% of the limited partnership interests in Fund I and 100% of the equity interests in FMCGP, in exchange for 4,056,521 shares of common stock in FIC (the “Formation Transactions”). Fund I became FIC’s wholly-owned subsidiary, retained its license to operate as a Small Business Investment Company (“SBIC”), and continues to hold investments and make new investments. The IPO consisted of the sale of 5,370,500 shares of the Company’s common stock, including shares purchased by the underwriters pursuant to their exercise of the over-allotment option, at a price of $15.00 per share resulting in net proceeds of $73,626, after deducting underwriting fees and commissions and offering costs totaling $6,932.

The Company provides customized debt and equity financing solutions to lower middle-market companies. Fund I commenced operations on May 1, 2007, and on October 22, 2007, was granted a license to operate as a SBIC under the authority of the U.S. Small Business Administration (“SBA”). On March 29, 2013, the Company commenced operations of a second wholly-owned subsidiary, Fidus Mezzanine Capital II, L.P. (“Fund II”) and on May 28, 2013, was granted a second license to operate Fund II as an SBIC. Collectively, Fund I and Fund II are referred to as the “Funds.” The SBIC licenses allow the Funds to obtain leverage by issuing SBA-guaranteed debentures (“SBA debentures”), subject to the issuance of leverage commitments by the SBA and other customary procedures. As SBICs, the Funds are subject to a variety of regulations and oversight by the SBA under the Small Business Investment Act of 1958, as amended (the “SBIC Act”), concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments.

Fund I has also elected to be regulated as a BDC under the 1940 Act. Fund II is not registered under the 1940 Act and relies on the exclusion from the definition of investment company contained in Section 3(c)(7) of the 1940 Act. In addition, for federal income tax purposes, the Company elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2011.

For all periods subsequent to the consummation of the Formation Transactions and the IPO, the Company pays a quarterly base management fee and an incentive fee to Fidus Investment Advisors, LLC (the “Investment Advisor”) under an investment advisory agreement (the “Investment Advisory Agreement”). The initial investment professionals of the Investment Advisor were previously employed by Fidus Capital, LLC, who was the investment advisor to Fund I prior to consummation of the Formation Transactions.

Note 2. Significant Accounting Policies

Basis of presentation: The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946), and Articles 6 or 10 of Regulation S-X. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. The current period’s results of operation are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2015.

Use of estimates: The preparation of the consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation: Pursuant to Article 6 of Regulation S-X and ASC 946, the Company will generally not consolidate its investments in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. As a result, the consolidated financial statements of the Company include only the accounts of the Company and its wholly-owned subsidiaries, including the Funds. All significant intercompany balances and transactions have been eliminated.

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Fair value of financial instruments: The Company measures and discloses fair value with respect to substantially all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

Investment classification: The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in those companies where the Company owns more than 25% of the voting securities of such company or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in those companies where the Company owns between 5% and 25% of the voting securities of such company. “Non-Control/Non-Affiliate Investments” are those that neither qualify as Control Investments nor Affiliate Investments.

Segments: In accordance with ASC Topic 280 — Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure.

Cash and cash equivalents: Cash and cash equivalents are highly liquid investments with an original maturity of three months or less at the date of acquisition. The Company places its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company does not believe its cash balances are exposed to any significant credit risk.

Deferred financing costs: Deferred financing costs consist of fees and expenses paid in connection with the Credit Facility (as defined in Note 6) and SBA debentures. Deferred financing costs are capitalized and amortized over the term of the debt agreement using the effective interest method. Unamortized deferred financing costs are presented as an offset to the corresponding debt liabilities on the consolidated statements of assets and liabilities.

Deferred equity financing costs: Deferred equity financing costs include registration expenses related to shelf filings, including expenses related to the launch of the ATM Program. These expenses primarily consist of Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These expenses are included in prepaid assets and are charged to additional paid in capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.

Realized gains or losses and unrealized appreciation or depreciation on investments: Realized gains or losses on investments are recorded upon the sale or disposition of a portfolio investment and are calculated as the difference between the net proceeds from the sale or disposition and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation on the consolidated statements of operations includes changes in the fair value of investments from the prior period, as determined in good faith by the Company’s board of directors (the “Board”) through the application of the Company’s valuation policy, as well as reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.

Interest, fee and dividend income: Interest and dividend income is recorded on the accrual basis to the extent that the Company expects to collect such amounts. Interest and dividend income is accrued daily based on the outstanding principal amount and the contractual terms of the debt or preferred equity investment. Dividend income is recorded at the point an obligation exists for the portfolio company to make a distribution. Distributions from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital.

Certain of the Company’s investments contain a payment-in-kind (“PIK”) income provision. The PIK income, computed at the contractual rate specified in the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of operations. Generally, PIK can be paid-in-kind or all in cash. The Company stops accruing PIK income when there is reasonable doubt that PIK income will be collected. PIK income is included in the Company’s taxable income and, therefore, affects the amount the Company is required to pay to shareholders in the form of dividends in order to maintain the Company’s tax treatment as a RIC and to avoid corporate federal income tax, even though the Company has not yet collected the cash.

When there is reasonable doubt that principal, interest or dividends will be collected, loans or preferred equity investments are placed on non-accrual status and the Company will generally cease recognizing interest or dividend income. Interest and dividend payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on management’s judgment. Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in management’s judgment, payments are likely to remain current.

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

In connection with the Company’s debt investments, the Company will sometimes receive warrants or other equity-related securities from the borrower (“Warrants”). The Company determines the cost basis of Warrants based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and Warrants received. Any resulting difference between the face amount of the debt and its recorded fair value resulting from the assignment of value to the Warrants is treated as original issue discount (“OID”), and accreted into interest income using the effective interest method over the term of the debt investment.

Transaction fees earned in connection with the Company’s investments are recognized as fee income. Such fees typically include fees for services, including structuring and advisory services, provided to portfolio companies. The Company recognizes income from fees for providing such structuring and advisory services when the services are rendered or the transactions are completed. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as fee income when earned. Prior to the Formation Transactions, and in accordance with the prior limited partnership agreement, the Company historically recorded transaction fees provided in connection with its investments as a direct offset to management fee expense.

The Company also typically receives loan origination or closing fees in connection with investments. Such loan origination and closing fees are capitalized as unearned income and offset against investment cost basis on the consolidated statements of assets and liabilities and accreted into income over the life of the investment.

Partial loan sales: The Company follows the guidance in ASC 860, Transfers and Servicing, when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest should remain on the Company’s consolidated statement of assets and liabilities and the proceeds recorded as a secured borrowing until the definition is met. Management has determined that all participations and other partial loan sale transactions entered into by the Company have met the definition of a participating interest. Accordingly, the Company uses sale treatment in accounting for such transactions.

Income taxes: The Company has elected to be treated as a RIC under Subchapter M of the Code, which will generally relieve the Company from U.S. federal income taxes with respect to all income distributed to stockholders. To maintain the tax treatment of a RIC, the Company is required to timely distribute to its stockholders at least 90.0% of “investment company taxable income,” as defined by Subchapter M of the Code, each year. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year; however, the Company will pay a 4.0% excise tax if it does not distribute at least 98.0% of the current year’s ordinary taxable income. Any such carryover taxable income must be distributed through a dividend declared prior to the later of the date on which the final tax return related to the year in which the Company generated such taxable income is filed or the 15th day of the 9th month following the close of such taxable year. In addition, the Company will be subject to federal excise tax if it does not distribute at least 98.2% of its net capital gains realized, computed for any one year period ending October 31.

In the future, the Funds may be limited by provisions of the SBIC Act and SBA regulations governing SBICs from making certain distributions to FIC that may be necessary to enable FIC to make the minimum distributions required to maintain the tax treatment of a RIC.

The Company has certain wholly-owned taxable subsidiaries (the “Taxable Subsidiaries”), each of which generally holds one or more of the Company’s portfolio investments listed on the consolidated schedules of investments. The Taxable Subsidiaries are consolidated for financial reporting purposes, such that the Company’s consolidated financial statements reflect the Company’s investment in the portfolio companies owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to permit the Company to hold equity investments in portfolio companies that are taxed as partnerships for U.S. federal income tax purposes (such as entities organized as limited liability companies (“LLCs”) or other forms of pass through entities) while complying with the “source-of-income” requirements contained in the RIC tax provisions. The Taxable Subsidiaries are not consolidated with the Company for U.S. federal corporate income tax purposes, and each Taxable Subsidiary will be subject to U.S. federal corporate income tax on its taxable income. Any such income or expense is reflected in the consolidated statements of operations.

U.S. federal income tax regulations differ from GAAP, and as a result, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized under GAAP. Differences may be permanent or temporary. Permanent differences may arise as a result of, among other items, a difference in the book and tax basis of certain assets and nondeductible federal income taxes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

ASC Topic 740 — Accounting for Uncertainty in Income Taxes (“ASC Topic 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be respected by the applicable tax authorities. Tax benefits of positions not deemed to meet

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax provision, if any. There were no material uncertain income tax positions at June 30, 2016 and December 31, 2015. The 2012 through 2014 tax years remain subject to examination by U.S. federal and most state tax authorities.

Distributions to stockholders: Distributions to stockholders are recorded on the record date with respect to such distributions. The amount, if any, to be distributed to stockholders, is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, may be distributed at least annually, although the Company may decide to retain such capital gains for investment.

The determination of the tax attributes for the Company’s distributions is made annually, and is based upon the Company’s taxable income and distributions paid to its stockholders for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax characterization of the Company’s distributions generally includes both ordinary income and capital gains but may also include qualified dividends or return of capital.

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the Company’s stockholders who have not “opted out” of the DRIP at least three days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Company’s common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator before any associated brokerage or other costs. See Note 9 to the consolidated financial statements regarding dividend declarations and distributions.

Earnings and net asset value per share: The earnings per share calculations for the three months ended June 30, 2016 and 2015, as well as the six months ended June 30, 2016 and 2015, are computed utilizing the weighted average shares outstanding for the period. Net asset value per share is calculated using the number of shares outstanding as of the end of the period.

Stock repurchase plan: The Company has an open market stock repurchase program (the “Program”) under which the Company may acquire up to $5.0 million of its outstanding common stock. Under the Program, the Company may, but is not obligated to, repurchase outstanding common stock in the open market from time to time provided that the Company complies with the prohibitions under its insider trading policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints. The timing, manner, price and amount of any share repurchases will be determined by Fidus’ management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate considerations. Unless extended by the Board, the Company expects that the Program will be in effect until January 22, 2017, or until the approved dollar amount has been used to repurchase shares. The Program does not require the Company to repurchase any specific number of shares and the Company cannot assure that any shares will be repurchased under the Program. The Program may be suspended, extended, modified or discontinued at any time. The Company did not make any repurchases of common stock during the six months ended June 30, 2016 or 2015.

Recent accounting pronouncements: In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02, Consolidation: Amendments to the Consolidation Analysis, which amends the criteria for determining which entities are considered variable interest entities (“VIEs”), amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. The Company adopted ASU 2015-02 as of January 1, 2016. The adoption of ASU 2015-02 had no material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The Company adopted ASU 2015-03 as of January 1, 2016. The adoption of ASU 2015-03 had no material impact on the Company’s consolidated financial statements other than corresponding reductions to total assets and total liabilities on the consolidated statements of assets and liabilities. Prior to adoption, the Company recorded deferred financing costs as an asset on the consolidated statements of assets and liabilities. Upon adoption of ASU 2015-03, the Company reclassified these deferred costs to a direct offset of the related debt liability on the consolidated statements of assets and liabilities. The new guidance will be applied retrospectively to each prior period presented. The Company reclassified the $4,872 of deferred financing costs presented as an asset as of December 31, 2015 to a direct offset of the related debt liabilities as of such date on the consolidated statements of assets and liabilities.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and early application is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial position or disclosures.

Note 3. Portfolio Company Investments

The Company’s portfolio investments principally consist of secured and unsecured debt, equity warrants and direct equity investments in privately held companies. The debt investments may or may not be secured by either a first or second lien on the assets of the portfolio company. The debt investments generally bear interest at fixed rates, and generally mature between five and seven years from the original investment. In connection with a debt investment, the Company also may receive nominally priced equity warrants and/or make a direct equity investment in the portfolio company. The Company’s warrants or equity investments may be investments in a holding company related to the portfolio company. In addition, the Company periodically makes equity investments in its portfolio companies through Taxable Subsidiaries. In both situations, the investment is generally reported under the name of the operating company on the consolidated schedules of investments.

As of June 30, 2016, the Company had investments in 53 portfolio companies with an aggregate fair value of $452,738 and a weighted average effective yield on its debt investments of 13.3%. As of June 30, 2016, the Company held equity investments in 84.9% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 7.6%. As of December 31, 2015, the Company had investments in 53 portfolio companies with an aggregate fair value of $443,269 and a weighted average effective yield on its debt investments of 13.3%. As of December 31, 2015, the Company held equity investments in 83.0% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 8.3%. The weighted average yields were computed using the effective interest rates for debt investments at cost as of June 30, 2016 and December 31, 2015, including accretion of original issue discount and loan origination fees, but excluding investments on non-accrual status, if any.

Purchases of debt and equity investments for the six months ended June 30, 2016 and 2015, totaled $44,422 and $67,903, respectively. Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the three months ended June 30, 2016, and 2015 totaled $46,034 and $47,388, respectively.

Investments by type with corresponding percentage of total portfolio investments consisted of the following:

 

     Fair Value     Cost  
     June 30, 2016     December 31, 2015     June 30, 2016     December 31, 2015  

Subordinated notes

   $ 319,692         70.5 %   $ 300,467         67.8 %   $ 333,129         74.1   $ 309,899         69.2

Senior secured loans

     64,073         14.2        88,485         20.0        65,898         14.7        88,505         19.7   

Equity

     59,543         13.2        44,899         10.1        43,414         9.7        42,651         9.5   

Warrants

     9,189         2.0        9,233         2.1        6,928         1.5        7,098         1.6   

Royalty rights

     241         0.1        185         —          185         —          185         —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 452,738         100.0 %   $ 443,269         100.0 %   $ 449,554         100.0 %   $ 448,338         100.0 %
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

All investments made by the Company as of June 30, 2016 and December 31, 2015 were made in portfolio companies headquartered in the U.S. The following table shows portfolio composition by geographic region at fair value and cost and as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

 

     Fair Value     Cost  
     June 30, 2016     December 31, 2015     June 30, 2016     December 31, 2015  

Midwest

   $ 135,924         30.1   $ 119,291         26.8 %   $ 123,297         27.5   $ 116,015         25.9

Northeast

     107,486         23.7        93,430         21.1        104,717         23.3        92,492         20.6   

Southeast

     105,616         23.3        107,975         24.4        116,986         26.0        113,430         25.3   

West

     70,447         15.6        84,648         19.1        61,208         13.6        77,028         17.2   

Southwest

     33,265         7.3        37,925         8.6        43,346         9.6        49,373         11.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 452,738         100.0   $ 443,269         100.0   $ 449,554         100.0   $ 448,338         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

As of June 30, 2016 and December 31, 2015, the Company had no portfolio company investments that represented more than 10% of the total investment portfolio. As of June 30, 2016, the Company had debt investments in two portfolio companies on non-accrual status, which had an aggregate cost and fair value of $25,240 and $12,095, respectively, as of such date. As of December 31, 2015, the Company had debt investments in one portfolio company on non-accrual status, which had an aggregate cost and fair value of $5,203 and $618, respectively, as of such date.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Schedule 12-14. Consolidated Schedule of Investments In and Advances To Affiliates

The table below represents the fair value of control and affiliate investments as of December 31, 2015 and any gross additions and reductions made to such investments, as well as the ending fair value as of June 30, 2016.

 

Portfolio Company (1)

   Credited to
Income(2)
     December 31,
2015
Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     June 30,
2016
Fair Value
 

Control Investments

              

Paramount Building Solutions, LLC

              

Subordinated Note

   $ —         $ 618       $ —         $ 618       $ —     

Subordinated Note

     —           —           —           —           —     

Subordinated Note

     —           —           —           —           —     

Subordinated Note

     —           —           —           —           —     

Warrant

     —           —           —           —           —     

Preferred Equity

     —           —           —           —           —     

Common Equity

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     —           618         —           618         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Control Investments

   $ —         $ 618       $ —         $ 618       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Affiliate Investments

              

Apex Microtechnology, Inc.

              

Warrant

   $ 5       $ 274       $ 113       $ —         $ 387   

Common Equity

     67         1,425         535         —           1,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     72         1,699         648         —           2,347   

FAR Research Inc.

              

Senior Secured Loan

     469         7,448         40         254         7,234   

Revolving Loan

     14         136         2         2         136   

Common Equity

     —           161         232         —           393   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     483         7,745         274         256         7,763   

Inflexxion, Inc.

              

Senior Secured Loan

     264         3,470         123         613         2,980   

Revolving Loan

     12         132         5         24         113   

Preferred Equity

     —           —           252         252         —     

Preferred Equity

     —           —           309         309         —     

Preferred Equity

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     276         3,602         689         1,198         3,093   

Malabar International

              

Subordinated Note

     553         7,450         93         4         7,539   

Preferred Equity

     61         4,808         241         —           5,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     614         12,258         334         4         12,588   

Medsurant Holdings, LLC

              

Subordinated Note

     393         6,211         56         —           6,267   

Preferred Equity

     —           1,515         102         —           1,617   

Warrant

     —           5,237         373         —           5,610   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     393         12,963         531         —           13,494   

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Portfolio Company (1)

   Credited to
Income(2)
     December 31,
2015
Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     June 30,
2016
Fair Value
 

Microbiology Research Associates, Inc.

              

Senior Secured Loan

   $ 114       $ 3,750       $ 2       $ 2       $ 3,750   

Revolving Loan

     2         —           —           —           —     

Subordinated Note

     391         6,250         3         3         6,250   

Common Equity

     —           1,444         149         —           1,593   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     507         11,444         154         5         11,593   

Mirage Trailers LLC

              

Senior Secured Loan

     565         8,912         87         489         8,510   

Common Equity

     74         2,475         143         —           2,618   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     639         11,387         230         489         11,128   

Pfanstiehl, Inc.

              

Subordinated Note

     416         6,208         5         5         6,208   

Common Equity

     90         4,280         4,309         —           8,589   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     506         10,488         4,314         5         14,797   

Safety Products Group, LLC

              

Subordinated Note

     651         10,000         26         10,026         —     

Preferred Equity

     159         834         —           812         22   

Common Equity

     —           —           1         1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     810         10,834         27         10,839         22   

Steward Holding LLC

(dba Steward Advanced Materials)

              

Subordinated Note

     502         6,987         114         —           7,101   

Common Equity

     —           1,000         38         —           1,038   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     502         7,987         152         —           8,139   

Trantech Radiator Products, Inc.

              

Subordinated Note

     594         8,494         4         4         8,494   

Common Equity

     —           434         176         —           610   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     594         8,928         180         4         9,104   

Westminster Cracker Company, Inc.

              

Common Equity

     54         191         —           —           191   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     54         191         —           —           191   

World Wide Packaging, LLC

              

Subordinated Note

     679         10,277         56         17         10,316   

Common Equity

     147         2,043         922         —           2,965   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     826         12,320         978         17         13,281   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Affiliate Investments

   $ 6,276       $ 111,846       $ 8,511       $ 12,817       $ 107,540   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The principal amount, the ownership detail for equity investments, and if the investment is income producing is shown in the consolidated schedule of investments.
(2) Represents the total amount of interest, fees or dividends included in 2016 income for the portion of the six months ended June 30, 2016 that an investment was included in Control or Affiliate categories.
(3) Gross additions include increases in the cost basis of investments resulting from a new portfolio investment, follow on investments, accrued PIK interest or dividends, and accretion of OID and loan origination fees. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, as well as the movement of an existing portfolio company into this category and out of a different category.
(4) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, if any. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Note 4. Fair Value Measurements

Investments

The Board has established and documented processes and methodologies for determining the fair values of portfolio company investments on a recurring basis in accordance with ASC Topic 820 and consistent with the requirements of the 1940 Act. Fair value is the price, determined at the measurement date, that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques described below are applied. Under ASC Topic 820, portfolio investments recorded at fair value in the consolidated financial statements are classified within the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value, as defined below:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets as of the measurement date.

Level 2 — Inputs include quoted prices for similar assets in active markets, or that are quoted prices for identical or similar assets in markets that are not active and inputs that are observable, either directly or indirectly, for substantially the full term, if applicable, of the investment.

Level 3 — Inputs include those that are both unobservable and significant to the overall fair value measurement.

An investment’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board, using Level 3 inputs. The degree of judgment exercised by the Board in determining fair value is greatest for investments classified as Level 3 inputs. Due to the inherent uncertainty of determining the fair values of investments that do not have readily available market values, the Board’s estimate of fair values may differ significantly from the values that would have been used had a ready market for the securities existed, and those differences may be material. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the amounts ultimately realized on these investments to be materially different than the valuations currently assigned.

With respect to investments for which market quotations are not readily available, the Board undertakes a multi-step valuation process each quarter, as described below:

 

    the quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals of the Investment Advisor responsible for the portfolio investment;

 

    preliminary valuation conclusions are then documented and discussed with the investment committee of the Investment Advisor;

 

    the Board engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of our portfolio investments for which market quotations are not readily available. Each portfolio company investment is generally appraised by the valuation firm(s) at least once every calendar year and each new portfolio company investment is appraised at least once in the twelve-month period following the initial investment. In certain instances, the Company may determine that it is not cost-effective, and as a result it is not in the Company’s stockholders’ best interest, to request the independent appraisal of certain portfolio company investments. Such instances include, but are not limited to, situations where the Company determines that the fair value of the portfolio company investment is relatively insignificant to the fair value of the total portfolio. The Board consulted with the independent valuation firm(s) in arriving at the Company’s determination of fair value for 11 and 16 of its portfolio company investments representing 28.4% and 43.0% of the total portfolio investments at fair value (exclusive of new portfolio company investments made during the three months ended June 30, 2016 and December 31, 2015, respectively) as of June 30, 2016 and December 31, 2015, respectively.

 

    the audit committee of the Board reviews the preliminary valuations of the Investment Advisor and of the independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments; and

 

    the Board discusses these valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of the Investment Advisor, the independent valuation firm(s) and the audit committee.

In making the good faith determination of the value of portfolio investments, the Board starts with the cost basis of the security. The transaction price is typically the best estimate of fair value at inception. When evidence supports a subsequent change to the carrying value from the original transaction price, adjustments are made to reflect the expected exit values.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Consistent with the policies and methodologies adopted by the Board, the Company performs detailed valuations of its debt and equity investments, including an analysis on the Company’s unfunded loan commitments, using both the market and income approaches as appropriate. Under the market approach, the Company typically uses the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which the Company derives a single estimate of enterprise value. Under the income approach, the Company typically prepares and analyzes discounted cash flow models to estimate the present value of future cash flows of either an individual debt investment or of the underlying portfolio company itself.

The Company evaluates investments in portfolio companies using the most recent portfolio company financial statements and forecasts. The Company also consults with the portfolio company’s senior management to obtain further updates on the portfolio company’s performance, including information such as industry trends, new product development and other operational issues.

For the Company’s debt investments, including senior secured loans and subordinated notes, the primary valuation technique used to estimate the fair value is the discounted cash flow method. However, if there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other methods in determining the fair value, including the value attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis. The Company’s discounted cash flow models estimate a range of fair values by applying an appropriate discount rate to the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated loan agreements. The Company prepares a weighted average cost of capital for use in the discounted cash flow model for each investment, based on factors including, but not limited to: current pricing and credit metrics for similar proposed or executed investment transactions of private companies; the portfolio company’s historical financial results and outlook; and the portfolio company’s current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made. The Company may also consider the following factors when determining the fair value of debt investments: the portfolio company’s ability to make future scheduled payments; prepayment penalties and other fees; estimated remaining life; the nature and realizable value of any collateral securing such debt investment; and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made. The Company estimates the remaining life of its debt investments to generally be the legal maturity date of the instrument, as the Company generally intends to hold its loans to maturity. However, if the Company has information available to it that the loan is expected to be repaid in the near term, it would use an estimated remaining life based on the expected repayment date.

For the Company’s equity investments, including equity and warrants, the Company generally uses a market approach, including valuation methodologies consistent with industry practice, to estimate the enterprise value of portfolio companies. Typically, the enterprise value of a private company is based on multiples of EBITDA, net income, revenues, or in limited cases, book value. In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio company’s historical and projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public. Where applicable, the Company considers the Company’s ability to influence the capital structure of the portfolio company, as well as the timing of a potential exit.

The Company may also utilize an income approach when estimating the fair value of its equity securities, either as a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting methodology to corroborate the fair value ranges determined by the market approach. The Company typically prepares and analyzes discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company. The Company considers various factors, including but not limited to the portfolio company’s projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public.

The fair value of the Company’s royalty rights are calculated based on projected future cash flows and the specific provisions contained in the pertinent agreements. The determination of the fair value of such royalty rights is not a significant component of the Company’s valuation process.

The Company reviews the fair value hierarchy classifications on a quarterly basis. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. There were no transfers among Levels 1, 2, and 3 during the six months ended June 30, 2016 and 2015.

The following tables present a reconciliation of the beginning and ending balances for fair valued investments measured using significant unobservable inputs (Level 3) for the six months ended June 30, 2016 and 2015:

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

     Subordinated
Notes
    Senior Secured
Loans
    Equity     Warrants     Royalty
Rights
     Total  

Balance, December 31, 2014

   $ 273,711      $ 74,286      $ 42,886      $ 5,472      $ —         $ 396,355   

Net realized gains (losses) on investments

     —          —          5,277        —          —           5,277   

Net change in unrealized (depreciation) appreciation on investments

     (4,055     580        (2,980     1,565        —           (4,890

Purchase of investments

     45,397        17,451        4,839        216        —           67,903   

Proceeds from sales and repayments of investments

     (36,019     (5,220     (6,149     —          —           (47,388

Interest and dividend income paid-in-kind

     2,155        398        77        —          —           2,630   

Proceeds from loan origination fees

     (219     (158     —          —          —           (377

Accretion of loan origination fees

     270        53        1        —          —           324   

Accretion of original issue discount

     291        7  &nbs