10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

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  ☑    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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

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

As of July 31, 2017, the Registrant had outstanding 24,480,624 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.

  
 

Consolidated Statements of Assets and Liabilities — June  30, 2017 (unaudited) and December 31, 2016

     1  
 

Consolidated Statements of Operations — Three and Six Months Ended June 30, 2017 (unaudited) and 2016 (unaudited)

     2  
 

Consolidated Statements of Changes in Net Assets — Six Months Ended June 30, 2017 (unaudited) and 2016 (unaudited)

     3  
 

Consolidated Statements of Cash Flows — Six Months Ended June  30, 2017 (unaudited) and 2016 (unaudited)

     4  
 

Consolidated Schedules of Investments — June  30, 2017 (unaudited) and December 31, 2016

     5  
 

Notes to Consolidated Financial Statements (unaudited)

     20  
Item 2.  

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

     39  
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk .

     52  
Item 4.  

Controls and Procedures.

     52  
  PART II — OTHER INFORMATION   
Item 1.  

Legal Proceedings.

     54  
Item 1A.  

Risk Factors.

     54  
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds.

     54  
Item 3.  

Defaults Upon Senior Securities.

     54  
Item 4.  

Mine Safety Disclosures.

     54  
Item 5.  

Other Information.

     54  
Item 6.  

Exhibits.

     55  
Signatures      56  
Exhibit Index      57  


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, 2017
(unaudited)
    December 31,
2016
 

ASSETS

    

Investments, at fair value

    

Affiliate investments (cost: $121,032 and $113,995, respectively)

   $ 139,800     $ 132,013  

Non-control/non-affiliate investments (cost: $410,312 and $386,519 respectively)

     413,460       392,441  
  

 

 

   

 

 

 

Total investments, at fair value (cost: $531,344 and $500,514, respectively)

     553,260       524,454  

Cash and cash equivalents

     50,819       57,083  

Interest receivable

     4,492       4,407  

Proceeds receivable from stock offering

     4,234        

Prepaid expenses and other assets

     1,308       798  
  

 

 

   

 

 

 

Total assets

   $ 614,113     $ 586,742  
  

 

 

   

 

 

 

LIABILITIES

    

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

   $ 212,916     $ 219,901  

Borrowings under Credit Facility, net of deferred financing costs (Note 6)

     (333     (462

Accrued interest and fees payable

     2,612       3,122  

Management and incentive fees payable – due to affiliate

     9,645       8,830  

Administration fee payable and other – due to affiliate

     100       570  

Taxes payable

     365       555  

Accounts payable and other liabilities

     385       441  
  

 

 

   

 

 

 

Total liabilities

     225,690       232,957  
  

 

 

   

 

 

 

Commitments and contingencies (Note 7)

    

NET ASSETS

    

Common stock, $0.001 par value (100,000,000 shares authorized, 24,480,624 and 22,446,076, shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)

     24       22  

Additional paid-in capital

     372,760       340,101  

Undistributed net investment income

     8,915       9,626  

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

     (15,196     (19,908

Accumulated net unrealized appreciation on investments

     21,920       23,944  
  

 

 

   

 

 

 

Total net assets

     388,423       353,785  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 614,113     $ 586,742  
  

 

 

   

 

 

 

Net asset value per common share

   $ 15.87     $ 15.76  
  

 

 

   

 

 

 

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,
 
    2017     2016     2017     2016  

Investment Income:

       

Interest income

       

Affiliate investments

  $ 2,909     $ 2,763     $ 5,583     $ 5,607  

Non-control/non-affiliate investments

    12,325       10,034       24,399       20,637  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    15,234       12,797       29,982       26,244  

Dividend income

       

Affiliate investments

    268       494       546       656  

Non-control/non-affiliate investments

    347       254       727       335  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

    615       748       1,273       991  

Fee income

       

Affiliate investments

    141       6       147       13  

Non-control/non-affiliate investments

    1,254       244       2,030       1,212  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

    1,395       250       2,177       1,225  

Interest on idle funds and other income

    27       37       67       63  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    17,271       13,832       33,499       28,523  
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

       

Interest and financing expenses

    2,401       2,654       4,985       5,254  

Base management fee

    2,403       2,005       4,716       3,988  

Incentive fee

    2,484       3,190       4,862       5,070  

Administrative service expenses

    340       367       691       688  

Professional fees

    241       253       710       735  

Other general and administrative expenses

    431       399       709       717  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    8,300       8,868       16,673       16,452  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income taxes

    8,971       4,964       16,826       12,071  

Income tax provision

    29       21       25       46  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    8,942       4,943       16,801       12,025  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

       

Net realized gains on affiliate investments

          458       26       458  

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

    (367     112       6,071       (198

Net change in unrealized appreciation (depreciation) on investments

    1,382       7,485       (2,024     8,253  

Income tax provision from realized gains on investments

          (205     (1,385     (205
 

 

 

   

 

 

   

 

 

   

 

 

 

Net gain on investments

    1,015       7,850       2,688       8,308  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

  $ 9,957       12,793     $ 19,489     $ 20,333  
 

 

 

   

 

 

   

 

 

   

 

 

 

Per common share data:

       

Net investment income per share-basic and diluted

  $ 0.39     $ 0.29     $ 0.75     $ 0.72  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.44     $ 0.74     $ 0.86     $ 1.21  
 

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share

  $ 0.39     $ 0.39     $ 0.78     $ 0.78  
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

    22,653,580       17,329,685       22,550,846       16,815,592  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

     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
 
     Number of
shares
     Par
value
             

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  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2016

     22,446,076      $ 22      $ 340,101      $ 9,626     $ (19,908   $ 23,944     $ 353,785  

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

     2,012,500        2        32,285        —         —         —         32,287  

Shares issued under dividend reinvestment plan

     22,048        —          374        —         —         —         374  

Net increase in net assets resulting from operations

     —          —          —          16,801       4,712       (2,024     19,489  

Dividends declared

     —          —          —          (17,512     —         —         (17,512
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2017

     24,480,624      $ 24      $ 372,760      $ 8,915     $ (15,196   $ 21,920     $ 388,423  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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,
 
     2017     2016  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 19,489     $ 20,333  

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

    

Net change in unrealized depreciation (appreciation) on investments

     2,024       (8,253

Net realized (gain) on investments

     (6,097     (260

Interest and dividend income paid-in-kind

     (3,864     (2,201

Accretion of original issue discount

     (275     (120

Accretion of loan origination fees

     (726     (528

Purchase of investments

     (87,087     (44,422

Proceeds from sales and repayments of investments

     66,733       46,034  

Proceeds from loan origination fees

     486       281  

Amortization of deferred financing costs

     625       547  

Changes in operating assets and liabilities:

    

Interest receivable

     (85     (575

Prepaid expenses and other assets

     (510     162  

Accrued interest and fees payable

     (510     197  

Management and incentive fees payable – due to affiliate

     815       1,493  

Administration fee payable and other – due to affiliate

     (470     (223

Taxes payable

     (190     (195

Accounts payable and other liabilities

     (56     (76
  

 

 

   

 

 

 

Net cash (used for) provided by operating activities

     (9,698     12,194  
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from stock offering, net of expenses

     28,053       43,670  

Proceeds received from SBA debentures

     18,000       500  

Repayments of SBA debentures

     (24,750     —    

Proceeds received from borrowings under Credit Facility

     11,000       13,000  

Repayments of borrowings under Credit Facility

     (11,000     (28,500

Payment of deferred financing costs

     (731     (58

Dividends paid to stockholders, including expenses

     (17,138     (13,320
  

 

 

   

 

 

 

Net cash provided by financing activities

     3,434       15,292  
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (6,264     27,486  

Cash and cash equivalents:

    

Beginning of period

     57,083       31,657  
  

 

 

   

 

 

 

End of period

   $ 50,819     $ 59,143  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash payments for interest

   $ 4,870     $ 4,510  

Cash payments for taxes, net of tax refunds received

   $ 1,600     $ 446  

Non-cash financing activities:

    

Shares issued under dividend reinvestment plan

   $ 374     $ 374  

Proceeds receivable from stock offering

   $ 4,234     $ —    

See Notes to Consolidated Financial Statements (unaudited).

 

4


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2017

(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. (k)

               

(dba Flight Display Systems)

               

Subordinated Note

     12.3%/2.8%       4/1/2020      $ 5,367      $ 5,354     $ 5,005     

Preferred Equity (186 units) (i)(f)

             371       371     

Common Equity (200 units) (i)

             2,000       3     
          

 

 

   

 

 

    
             7,725       5,379        1

Fiber Materials, Inc. (k)

               

Subordinated Note

     12.0%/1.0%       5/30/2022        4,024        4,006       4,023     

Common Equity (10 units)

             1,000       1,285     
          

 

 

   

 

 

    
             5,006       5,308        1

Lightning Diversion Systems, LLC

               

Senior Secured Loan (j)

     10.5%/0.0%       9/16/2021        21,204        21,124       21,204     

Revolving Loan ($250 commitment) (h)

     10.5%/0.0%       9/16/2021        —          (1     —       

Common Equity (600,000 units)

             —         3,760     
          

 

 

   

 

 

    
             21,123       24,964        6

Malabar International (k)

               

Subordinated Note (j)

     11.3%/2.0%       11/13/2021        7,693        7,684       7,693     

Preferred Equity (1,494 shares) (f)

     6.0%/0.0%       5/12/2022           1,997       6,009     
          

 

 

   

 

 

    
             9,681       13,702        4

Simplex Manufacturing Co.

               

Subordinated Note

     14.0%/0.0%       11/1/2017        4,050        4,050       4,050     

Warrant (29 shares) (l)

             1,155       3,539     
          

 

 

   

 

 

    
             5,205       7,589        2

Steward Holding LLC (k)

               

(dba Steward Advanced Materials)

               

Subordinated Note

     12.0%/3.3%       5/12/2021        7,262        7,237       7,262     

Common Equity (1,000,000 units)

             1,000       460     
          

 

 

   

 

 

    
             8,237       7,722        2

Apparel Distribution

               

Jacob Ash Holdings, Inc.

               

Subordinated Note (j)

     13.0%/4.0%       6/30/2018        4,000        3,997       4,000     

Subordinated Note

     13.0%/0.0%       6/30/2018        510        507       510     

Preferred Equity (66,138 shares) (f)

     0.0%/15.0%       6/30/2018           1,149       1,152     

Warrant (63,492 shares) (l)

             67       —       
          

 

 

   

 

 

    
             5,720       5,662        1

Building Products Manufacturing

               

SES Investors, LLC (k)

               

(dba SES Foam)

               

Senior Secured Loan

     11.0%/0.0%       3/8/2022        10,448        10,403       9,340     

Revolving Loan ($1,500 commitment)(i)

     6.0%/0.0%       3/8/2022        1,500        1,494       1,500     

Common Equity (6,000 units) (g)(i)

             600       269     
          

 

 

   

 

 

    
             12,497       11,109        3

 

5


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(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
 

The Wolf Organization, LLC

                

Common Equity (175 shares)

           $ 1,455      $ 3,321        1

US GreenFiber, LLC

                

Subordinated Note (j)

   12.0%/2.0%   3/1/2019    $ 14,004        13,979        13,790     

Common Equity (2,522 units) (g)(i)

             586        322     
          

 

 

    

 

 

    
             14,565        14,112        4

Business Services

                

Comprehensive Logistics Co., Inc.

                

Subordinated Note (j)

   11.5%/4.5%   11/22/2021      15,416        15,352        15,417        4

Inflexxion, Inc. (k)

                

Senior Secured Loan

   7.0%/6.0%   12/16/2019      4,324        4,312        3,537     

Revolving Loan ($500 commitment) (i)

   7.0%/6.0%   12/16/2019      365        364        299     

Preferred Equity (252,046 units)

             252        149     

Preferred Equity (308,987 units)

             309        182     

Preferred Equity (1,400 units)

             1,400        —       
          

 

 

    

 

 

    
             6,637        4,167        1

Plymouth Rock Energy, LLC

                

Senior Secured Loan (j)

   11.0%/0.0%   6/30/2019      5,945        5,945        5,945        2

Vanguard Dealer Services, L.L.C.

                

Subordinated Note

   12.3%/0.0%   1/30/2021      11,450        11,411        11,450     

Common Equity (6,000 shares)

             600        953     
          

 

 

    

 

 

    
             12,011        12,403        3

Capital Equipment Manufacturing

                

Thermoforming Technology Group LLC

                

Subordinated Note

   12.5%/0.0%   9/14/2021      14,700        14,643        14,700     

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

             350        389     
          

 

 

    

 

 

    
             14,993        15,089        4

Component Manufacturing

                

Hilco Plastics Holdings, LLC

                

(dba Hilco Technologies)

                

Subordinated Note

   11.5%/1.0%   7/15/2022      8,063        8,028        8,063     

Common Equity (72,507 units) (g)(i)

             500        448     
          

 

 

    

 

 

    
             8,528        8,511        2

NGT Acquisition Holdings, LLC

                

(dba Techniks Industries)

                

Subordinated Note

   12.0%/0.0%   3/21/2022      11,000        10,946        10,946     

Common Equity (378 units) (i)

             500        500     
          

 

 

    

 

 

    
             11,446        11,446        3

Toledo Molding & Die, Inc.

                

Subordinated Note (i)

   10.5%/0.0%   12/18/2018      10,000        9,945        10,000        3

TransGo, LLC

                

Subordinated Note

   13.3%/0.0%   8/28/2022      9,500        9,455        9,455     

Common Equity (1,000 units)

             1,000        1,000     
          

 

 

    

 

 

    
             10,455        10,455        3

 

6


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(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
 

Consumer Products

                

World Wide Packaging, LLC (k)

                

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

           $ 499      $ 3,205        1

Electronic Components Supplier

                

Apex Microtechnology, Inc. (k)

                

Warrant (2,293 shares) (l)

             220        385     

Common Equity (11,690 shares)

             1,169        2,108     
          

 

 

    

 

 

    
             1,389        2,493        1

Healthcare Products

                

Allied 100 Group, Inc.

                

Subordinated Note (j)

   11.5%/0.0%   5/26/2020    $ 13,000        12,966        13,000     

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

             1,250        1,295     
          

 

 

    

 

 

    
             14,216        14,295        4

Anatrace Products, LLC

                

Subordinated Note

   13.0%/1.3%   6/23/2021      6,500        6,485        6,565     

Common Equity (360,000 shares) (i)

             —          —       
          

 

 

    

 

 

    
             6,485        6,565        2

OMC Investors, LLC

                

(dba Ohio Medical Corporation)

                

Subordinated Note

   12.0%/0.0%   7/15/2021      10,000        9,926        8,602     

Common Equity (5,000 shares)

             500        253     
          

 

 

    

 

 

    
             10,426        8,855        2

Pfanstiehl, Inc. (k)

                

Subordinated Note

   10.5%/0.0%   9/29/2021      6,208        6,191        6,208     

Common Equity (8,500 units) (i)

             850        11,137     
          

 

 

    

 

 

    
             7,041        17,345        4

Six Month Smiles Holdings, Inc.

                

Subordinated Note (i)

   6.0%/8.5%   7/31/2020      9,156        9,136        8,110        2

Healthcare Services

                

Medsurant Holdings, LLC (k)

                

Subordinated Note

   12.3%/0.0%   6/18/2021      6,267        6,226        6,267     

Preferred Equity (126,662 units) (g)

             1,345        2,257     

Warrant (505,176 units) (g)(l)

             4,516        7,984     
          

 

 

    

 

 

    
             12,087        16,508        4

Microbiology Research Associates, Inc. (k)

                

Subordinated Note

   11.0%/1.5%   3/13/2022      8,602        8,582        8,602     

Common Equity (1,625,731 units) (i)

             1,939        2,819     
          

 

 

    

 

 

    
             10,521        11,421        3

 

7


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(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
 

Oaktree Medical Centre, P.C.

                

(dba Pain Management Associates)

                

Senior Secured Loan (i)

   11.5%/0.0%   1/1/2018    $ 571      $ 631      $ 640     

Senior Secured Loan (i)

   7.0%/12.0%   1/1/2018      6,449        6,904        4,944     

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

   11.5%/0.0%   1/1/2018      2,500        2,685        2,800     
          

 

 

    

 

 

    
             10,220        8,384        2

United Biologics, LLC

                

Subordinated Note

   12.0%/2.0%   4/30/2018      8,786        8,762        8,786     

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

             1,069        455     

Warrant (57,469 units) (l)

             566        126     
          

 

 

    

 

 

    
             10,397        9,367        2

Industrial Cleaning & Coatings

                

K2 Industrial Services, Inc.

                

Tranche A Loan

   11.8%/2.5%   4/25/2022      10,174        10,136        10,173     

Tranche B Loan

   11.8%/7.3%   4/25/2022      2,101        2,094        2,102     

Common Equity (1,673 shares)

             1,268        862     
          

 

 

    

 

 

    
             13,498        13,137        3

Information Technology Services

                

inthinc Technology Solutions, Inc. (m)

                

Royalty Rights

     4/24/2020         185        —          0

New Era Technology, Inc.

                

Subordinated Note (i)

   11.0%/1.5%   9/3/2022      11,558        11,504        11,504     

Common Equity (197,369 shares) (i)

             750        750     
          

 

 

    

 

 

    
             12,254        12,254        3

Revenue Management Solutions, LLC

                

Subordinated Note (j)

   11.5%/1.0%   7/4/2022      8,793        8,714        8,714     

Subordinated Note (i)

   7.0%/6.5%   7/4/2022      790        779        779     

Common Equity (2,250,000 units)

             2,250        2,250     
          

 

 

    

 

 

    
             11,743        11,743        3

Software Technology, LLC

                

Subordinated Note (j)

   11.0%/0.0%   6/23/2023      8,750        8,710        8,750     

Common Equity (11 units)

             1,125        1,148     
          

 

 

    

 

 

    
             9,835        9,898        3

Laundry Services

                

Caldwell & Gregory, LLC

                

Subordinated Note

   0.0%/12.0%   5/31/2022      2,861        2,861        2,861     

Common Equity (500,000 units) (g)

             500        642     

Warrant (242,121 units) (g)(l)

             242        311     
          

 

 

    

 

 

    
             3,603        3,814        1

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(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
 

Oil & Gas Distribution

                

LNG Indy, LLC

                

(dba Kinetrex Energy)

                

Subordinated Note (j)

   11.5%/0.0%     9/28/2021      $ 5,000      $ 4,977      $ 5,000     

Common Equity (1,000 units)

             1,000        1,168     
          

 

 

    

 

 

    
             5,977        6,168        2

Oil & Gas Services

                

IOS Acquisitions, Inc. (m)

                

Common Equity (2,152 units) (i)

             103        17        0

Pinnergy, Ltd. (k)

                

Subordinated Note (j)

   0.0%/10.0%     1/24/2020        8,843        8,826        8,843     

Common Equity - Class A-2 (42,500 units) (j)

             3,000        5,494     

Common Equity - Class B (1,000 units) (j)

             3,000        3,000     
          

 

 

    

 

 

    
             14,826        17,337        4

Packaging

                

Rohrer Corporation

                

Subordinated Note (j)

   11.0%/1.5%     1/18/2022        16,740        16,672        16,740     

Common Equity (389 shares)

             750        858     
          

 

 

    

 

 

    
             17,422        17,598        5

Printing Services

                

Brook & Whittle Limited

                

Subordinated Note

   12.0%/4.8%     12/31/2017        8,226        8,226        8,417     

Subordinated Note

   12.0%/2.0%     12/31/2017        2,366        2,366        2,366     

Warrant (1,051 shares) (l)

             285        321     

Common Equity - Series A (148 shares)

             110        45     

Common Equity - Series D (527 shares)

             53        146     
          

 

 

    

 

 

    
             11,040        11,295        3

Promotional Products

                

Hub Acquisition Sub, LLC

                

(dba Hub Pen)

                

Subordinated Note (j)

   12.3%/0.0%     9/23/2021        11,350        11,307        11,350     

Common Equity (7,500 units)

             750        1,046     
          

 

 

    

 

 

    
             12,057        12,396        3

Restaurants

                

ACFP Management, Inc. (m)

                

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

             —          —          0

Cardboard Box LLC

                

(dba Anthony’s Coal Fired Pizza)

                

Common Equity (521,021 units) (i)

             520        244        0

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(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
 

Restaurant Finance Co, LLC

                

Senior Secured Loan (j)(o)

   15.0%/4.0%   7/31/2020    $ 9,342      $ 9,314      $ 6,175        2

Retail

                

EBL, LLC (EbLens)

                

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

             750        2,212        1

Palmetto Moon, LLC

                

Senior Secured Loan

   11.5%/0.0%   10/31/2021      6,254        6,220        6,254     

Common Equity (499 units) (i)

             499        376     
          

 

 

    

 

 

    
             6,719        6,630        2

Safety Products Manufacturing

                

Safety Products Group, LLC (k)(m)

                

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

             —          9     

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

             —          —       
          

 

 

    

 

 

    
             —          9        0

Specialty Chemicals

                

FAR Research Inc. (k)

                

Senior Secured Loan (j)

   11.8%/1.0%   3/31/2019      7,297        7,285        7,297     

Revolving Loan ($500 commitment) (i)

   11.8%/1.0%   3/31/2019      139        135        139     

Common Equity (1,396 units)

             1,396        897     
          

 

 

    

 

 

    
             8,816        8,333        1

Specialty Distribution

                

Carlson Systems Holdings, Inc. (m)

                

Common Equity (15,000 units) (i)

             —          1     
          

 

 

    

 

 

    
             —          1        0

Pugh Lubricants, LLC

                

Subordinated Note (j)

   12.3%/0.0%   5/10/2022      18,581        18,496        18,581     

Common Equity (6,285 units) (g)(i)

             612        730     
          

 

 

    

 

 

    
             19,108        19,311        5

Virginia Tile Company, LLC

                

Subordinated Note (j)

   12.3%/0.0%   4/7/2022      12,000        11,966        12,000     

Common Equity (17 units)

             342        1,246     
          

 

 

    

 

 

    
             12,308        13,246        3

Transportation Services

                

Cavallo Bus Lines Holdings, LLC

                

Subordinated Note

   12.8%/0.0%   4/26/2021      7,395        7,366        7,395        2

Midwest Transit Equipment, Inc.

                

Subordinated Note (i)

   11.0%/2.0%   6/23/2022      12,005        11,207        11,207     

Warrant (14,384 shares) (i)(l)

             361        361     

Warrant (9.59% of Junior Subordinated Notes) (i)(p)

             381        381     
          

 

 

    

 

 

    
             11,949        11,949        3

 

10


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(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
 

US Pack Logistics LLC

                

Subordinated Note (j)

     12.0%/1.8%       9/27/2020      $ 7,217      $ 7,187      $ 7,217     

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

             583        819     
          

 

 

    

 

 

    
             7,770        8,036        2

Worldwide Express Operations, LLC

                

Subordinated Note (i)(n)

     9.9%/0.0%       2/3/2025        10,000        9,857        9,857     

Common Equity (4,000 units) (g)(i)

             4,000        4,000     
          

 

 

    

 

 

    
             13,857        13,857        4

Utility Equipment Manufacturing

                

Mirage Trailers LLC (k)

                

Senior Secured Loan (j)(e)

     12.6%/1.5%       11/25/2020        5,971        5,909        5,971     

Common Equity (2,500,000 shares)(f)

             2,483        2,827     
          

 

 

    

 

 

    
             8,392        8,798        2

Trantech Radiator Products, Inc. (k)

                

Subordinated Note (i)

     12.0%/2.3%       5/31/2018        6,994        6,990        6,878     

Common Equity (6,875 shares) (i)

             688        86     
          

 

 

    

 

 

    
             7,678        6,964        2

Vending Equipment Manufacturing

                

Accent Food Services, LLC

                

Subordinated Note (j)

     10.0%/1.3%       5/30/2022        20,268        20,167        20,268     

Common Equity (7,500 units) (g)(i)

             750        848     
          

 

 

    

 

 

    
             20,917        21,116        5

Ice House America, LLC

                

Subordinated Note (i)

     12.0%/3.0%       1/1/2020        4,300        4,178        4,300     

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

             216        178     
          

 

 

    

 

 

    
            

 

4,394

 

 

 

    

 

4,478

 

 

 

    

 

1

 

 

          

 

 

    

 

 

    

Total Investments

           $ 531,344      $ 553,260        142
          

 

 

    

 

 

    

 

(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, 2017. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(e) The investment bears cash interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The cash 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, 2017.
(f) Income producing. Maturity date, if any, represents mandatory redemption date.
(g) Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.
(h) The entire commitment was unfunded at June 30, 2017. As such, no interest is being earned on this investment.

 

11


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

June 30, 2017

(In thousands, except shares)

 

 

(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) Warrants entitle the Company to purchase a predetermined number of shares or units of common equity, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(m) Investment in portfolio company that has sold its operations and is in the process of winding down.
(n) The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 8.8% and is subject to a 1.0% LIBOR interest rate floor. The Company has provided the interest rate in effect as of June 30, 2017.
(o) Investment was on non-accrual status as of June 30, 2017, meaning the Company has ceased recognizing interest income on the investment.
(p) Warrant entitles the Company to purchase 9.59% of the outstanding principal of Junior Subordinated Notes prior to exercise, and is non-income producing.

See Notes to Consolidated Financial Statements (unaudited).

 

12


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 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      $ 5,184     $ 4,237     

Common Equity (200 units) (i)

             2,000       312     
          

 

 

   

 

 

    
             7,184       4,549        1

Fiber Materials, Inc. (k)

               

Subordinated Note

     12.0%/1.0%       5/30/2022        4,003        3,984       3,984     

Common Equity (10 units)

             1,000       1,000     
          

 

 

   

 

 

    
             4,984       4,984        1

Lightning Diversion Systems, LLC

               

Senior Secured Loan (j)

     10.5%/0.0%       9/16/2021        21,204        21,114       21,204     

Revolving Loan ($250 commitment) (h)

     10.5%/0.0%       9/16/2021        —          (1     —       

Common Equity (600,000 units)

             —         2,637     
          

 

 

   

 

 

    
             21,113       23,841        7

Malabar International (k)

               

Subordinated Note (j)

     11.3%/2.0%       11/13/2021        7,617        7,607       7,617     

Preferred Equity (1,494 shares) (f)

     6.0%/0.0%       5/12/2022           1,997       5,367     
          

 

 

   

 

 

    
             9,604       12,984        4

Simplex Manufacturing Co.

               

Subordinated Note (n)

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

Warrant (28 shares) (l)

             1,041       3,787     
          

 

 

   

 

 

    
             5,091       7,837        2

Steward Holding LLC (k)

               

(dba Steward Advanced Materials)

               

Subordinated Note

     12.0%/2.3%       5/12/2021        7,181        7,154       7,181     

Common Equity (1,000,000 units)

             1,000       678     
          

 

 

   

 

 

    
             8,154       7,859        2

Apparel Distribution

               

Jacob Ash Holdings, Inc.

               

Subordinated Note (j)

     13.0%/4.0%       6/30/2018        4,000        3,997       4,000     

Subordinated Note

     13.0%/0.0%       6/30/2018        778        773       778     

Preferred Equity (66,138 shares) (f)

     0.0%/15.0%       6/30/2018           1,071       1,075     

Warrant (63,492 shares) (l)

             67       —       
          

 

 

   

 

 

    
             5,908       5,853        2

Building Products Manufacturing

               

SES Investors, LLC (k)

               

(dba SES Foam)

               

Senior Secured Loan

     11.0%/0.0%       3/8/2022        10,474        10,424       10,424     

Revolving Loan ($1,500 commitment)(i)

     6.0%/0.0%       3/8/2022        1,000        993       993     

Common Equity (6,000 units) (g)(i)

             600       600     
          

 

 

   

 

 

    
             12,017       12,017        4

 

13


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 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
 

The Wolf Organization, LLC

                

Common Equity (175 shares)

           $ 1,455      $ 3,102        1

US GreenFiber, LLC

                

Subordinated Note (j)

   12.5%/0.0%   1/2/2019    $ 14,000        13,968        14,000     

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

             500        574     
          

 

 

    

 

 

    
             14,468        14,574        4

Business Services

                

Comprehensive Logistics Co., Inc.

                

Subordinated Note (j)

   11.5%/4.5%   11/22/2021      15,075        15,001        15,001        4

Inflexxion, Inc. (k)

                

Senior Secured Loan

   7.0%/6.0%   12/16/2019      4,196        4,182        3,579     

Revolving Loan ($500 commitment) (i)

   7.0%/6.0%   12/16/2019      159        156        136     

Preferred Equity (252,046 units)

             252        114     

Preferred Equity (308,987 units)

             309        139     

Preferred Equity (1,400 units)

             1,400        —       
          

 

 

    

 

 

    
             6,299        3,968        1

Plymouth Rock Energy, LLC

                

Senior Secured Loan

   11.8%/0.0%   5/14/2017      6,000        5,995        6,000        2

Vanguard Dealer Services, L.L.C.

                

Subordinated Note

   12.3%/0.0%   1/30/2021      11,450        11,405        11,450     

Common Equity (6,000 shares)

             600        907     
          

 

 

    

 

 

    
             12,005        12,357        3

Capital Equipment Manufacturing

                

Thermoforming Technology Group LLC

                

Subordinated Note

   12.5%/0.0%   9/14/2021      14,700        14,637        14,700     

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

             350        353     
          

 

 

    

 

 

    
             14,987        15,053        4

Component Manufacturing

                

Hilco Plastics Holdings, LLC

                

(dba Hilco Technologies)

                

Subordinated Note

   11.5%/1.0%   7/15/2022      8,022        7,984        7,984     

Common Equity (72,507 units) (g)(i)

             500        500     
          

 

 

    

 

 

    
             8,484        8,484        2

Toledo Molding & Die, Inc.

                

Subordinated Note (i)

   10.5%/0.0%   12/18/2018      10,000        9,926        10,000        3

Consumer Products

                

Grindmaster Corporation

                

Subordinated Note

   11.5%/0.0%   10/31/2019      10,500        10,474        10,500        3

 

14


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 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
 

World Wide Packaging, LLC (k)

                

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

           $ 499      $ 2,898        1

Electronic Components Supplier

                

Apex Microtechnology, Inc. (k)

                

Warrant (2,293 shares) (l)

             220        345     

Common Equity (11,690 shares)

             1,168        1,876     
          

 

 

    

 

 

    
             1,388        2,221        1

Healthcare Products

                

Allied 100 Group, Inc.

                

Subordinated Note (j)

     11.5%/0.0%       5/26/2020      $ 13,000        12,960        13,000     

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

             1,250        1,201     
          

 

 

    

 

 

    
             14,210        14,201        4

Anatrace Products, LLC

                

Subordinated Note

     13.0%/1.3%       6/23/2021        6,500        6,483        6,500     

Common Equity (360,000 shares) (i)

             —          259     
          

 

 

    

 

 

    
             6,483        6,759        2

OMC Investors, LLC

                

(dba Ohio Medical Corporation)

                

Subordinated Note

     12.0%/0.0%       7/15/2021        10,000        9,917        9,383     

Common Equity (5,000 shares)

             500        358     
          

 

 

    

 

 

    
             10,417        9,741        3

Pfanstiehl, Inc. (k)

                

Subordinated Note

     10.5%/0.0%       9/29/2021        6,208        6,189        6,208     

Common Equity (8,500 units) (i)

             850        13,750     
          

 

 

    

 

 

    
             7,039        19,958        6

Six Month Smiles Holdings, Inc.

                

Subordinated Note (i)

     6.0%/8.5%       7/31/2020        8,777        8,754        8,106        2

Healthcare Services

                

Medsurant Holdings, LLC (k)

                

Subordinated Note

     12.3%/0.0%       6/18/2021        6,267        6,221        6,267     

Preferred Equity (126,662 units) (g)

             1,346        1,505     

Warrant (505,176 units) (g)(l)

             4,516        5,199     
          

 

 

    

 

 

    
             12,083        12,971        4

Microbiology Research Associates, Inc. (k)

                

Subordinated Note

     11.0%/1.5%       3/13/2022        8,538        8,516        8,538     

Common Equity (1,625,731 units) (i)

             1,939        2,593     
          

 

 

    

 

 

    
             10,455        11,131        3

 

15


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 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
 

Oaktree Medical Centre, P.C.

                

(dba Pain Management Associates)

                

Senior Secured Loan (i)

     11.5%/0.0%       1/1/2018      $ 571      $ 614      $ 633     

Senior Secured Loan (i)

     7.0%/12.0%       1/1/2018        6,078        6,405        4,663     

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

     11.5%/0.0%       1/1/2018        2,500        2,526        2,768     
          

 

 

    

 

 

    
             9,545        8,064        2

United Biologics, LLC

                

Subordinated Note

     12.0%/2.0%       4/30/2018        8,698        8,659        8,698     

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

             1,069        729     

Warrant (57,469 units) (l)

             566        191     
          

 

 

    

 

 

    
             10,294        9,618        3

Industrial Cleaning & Coatings

                

K2 Industrial Services, Inc.

                

Tranche A Loan

     11.8%/2.5%       4/25/2022        10,047        10,005        10,005     

Tranche B Loan

     11.8%/7.3%       4/25/2022        2,027        2,019        2,019     

Common Equity (1,673 shares)

             1,268        553     
          

 

 

    

 

 

    
             13,292        12,577        4

Information Technology Services

                

FTH Acquisition Corp. VII

                

Subordinated Note

     13.0%/0.0%       3/9/2017        8,178        8,178        7,937     

Preferred Equity (887,122 shares)

             887        444     
          

 

 

    

 

 

    
             9,065        8,381        2

inthinc Technology Solutions, Inc.

                

Subordinate Note ($5,000 commitment)

     12.5%/0.0%       4/24/2020        4,000        3,984        4,000     

Subordinated Note

     0.0%/12.5%       4/24/2020        1,178        1,039        1,141     

Royalty Rights

       4/24/2020           185        —       
          

 

 

    

 

 

    
             5,208        5,141        1

Software Technology, LLC

                

Subordinated Note (j)

     11.0%/0.0%       6/23/2023        8,750        8,706        8,706     

Common Equity (11 units)

             1,125        1,125     
          

 

 

    

 

 

    
             9,831        9,831        3

Laundry Services

                

Caldwell & Gregory, LLC

                

Subordinated Note

     11.5%/1.0%       11/30/2018        1,555        1,545        1,555     

Subordinated Note

     0.0%/12.0%       5/31/2019        4,583        4,460        4,583     

Common Equity (500,000 units) (g)

             500        650     

Warrant (242,121 units) (g)(l)

             242        315     
          

 

 

    

 

 

    
             6,747        7,103        2

Oil & Gas Distribution

                

LNG Indy, LLC

                

(dba Kinetrex Energy)

                

Subordinated Note (j)

     11.5%/0.0%       9/28/2021        5,000        4,975        4,975     

Common Equity (1,000 units)

             1,000        1,000     
          

 

 

    

 

 

    
             5,975        5,975        2

 

16


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 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
 

Oil & Gas Services

                 

IOS Acquisitions, Inc. (m)

                 

Common Equity (2,152 units) (i)

            $ 103      $ 17        0

Pinnergy, Ltd. (k)

                 

Subordinated Note (j)

   0.0%/10.0%    1/24/2020    $ 8,414        8,394        8,414     

Common Equity - Class A-2 (42,500 units) (j)

              3,000        3,000     

Common Equity - Class B (1,000 units) (j)

              3,000        3,000     
           

 

 

    

 

 

    
              14,394        14,414        4

Packaging

                 

Rohrer Corporation

                 

Subordinated Note (j)

   11.0%/1.5%    1/18/2022      16,614        16,539        16,539     

Common Equity (389 shares)

              750        750     
           

 

 

    

 

 

    
              17,289        17,289        5

Printing Services

                 

Brook & Whittle Limited

                 

Subordinated Note

   12.0%/4.8%    6/30/2017      8,031        8,031        8,198     

Subordinated Note

   12.0%/2.0%    6/30/2017      2,342        2,342        2,342     

Warrant (1,051 shares) (l)

              285        263     

Common Equity - Series A (148 shares)

              110        37     

Common Equity - Series D (527 shares)

              52        125     
           

 

 

    

 

 

    
              10,820        10,965        3

Promotional Products

                 

Hub Acquisition Sub, LLC

                 

(dba Hub Pen)

                 

Subordinated Note (j)

   12.3%/0.0%    9/23/2021      11,350        11,301        11,350     

Common Equity (7,500 units)

              750        1,010     
           

 

 

    

 

 

    
              12,051        12,360        3

Restaurants

                 

ACFP Management, Inc. (m)

                 

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

              —          —          0

Cardboard Box LLC

                 

(dba Anthony’s Coal Fired Pizza)

                 

Common Equity (521,021 units) (i)

              520        240        0

Restaurant Finance Co, LLC

                 

Senior Secured Loan (j)

   12.0%/4.0%    7/31/2020      9,154        9,126        7,377        2

Retail

                 

EBL, LLC (EbLens)

                 

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

              750        2,044        1

 

17


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 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
 

Palmetto Moon, LLC

                

Senior Secured Loan

     11.5%/0.0%       10/31/2021      $ 6,402      $ 6,364      $ 6,364     

Common Equity (499 units)

             499        499     
          

 

 

    

 

 

    
             6,863        6,863        2

Safety Products Manufacturing

                

Safety Products Group, LLC (k)(m)

                

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        7,271        7,256        7,271     

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

     11.8%/1.0%       3/31/2019        138        134        138     

Common Equity (1,396 units)

             1,395        1,012     
          

 

 

    

 

 

    
             8,785        8,421        2

Specialty Distribution

                

Carlson Systems Holdings, Inc. (m)

                

Common Equity (15,000 units) (i)

             —          73     
          

 

 

    

 

 

    
             —          73        0

Pugh Lubricants, LLC

                

Subordinated Note (j)

     12.3%/0.0%       5/10/2022        12,256        12,197        12,197     

Common Equity (5,000 units) (g)(i)

             500        500     
          

 

 

    

 

 

    
             12,697        12,697        4

Virginia Tile Company, LLC

                

Subordinated Note (j)

     12.3%/0.0%       4/7/2022        12,000        11,962        12,000     

Common Equity (17 units)

             342        1,220     
          

 

 

    

 

 

    
             12,304        13,220        4

Transportation Services

                

Cavallo Bus Lines Holdings, LLC

                

Subordinated Note

     12.0%/3.0%       4/26/2021        8,250        8,218        8,250        2

US Pack Logistics LLC

                

Subordinated Note (j)

     12.0%/1.8%       9/27/2020        14,027        13,923        14,027     

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

             583        675     
          

 

 

    

 

 

    
             14,506        14,702        4

Worldwide Express Operations, LLC

                

Subordinated Note

     11.5%/1.0%       8/1/2020        17,468        17,368        17,559     

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

             2,500        6,613     
          

 

 

    

 

 

    
             19,868        24,172        7

Utility Equipment Manufacturing

                

Mirage Trailers LLC (k)

                

Senior Secured Loan (j)(e)

     12.5%/0.0%       11/25/2020        8,208        8,138        8,208     

Common Equity (2,500,000 shares)

             2,480        2,721     
          

 

 

    

 

 

    
             10,618        10,929        3

 

18


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 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
 

Trantech Radiator Products, Inc. (k)

                

Subordinated Note (i)

     12.0%/2.3%       5/31/2018      $ 6,994      $ 6,988      $ 6,994     

Common Equity (6,875 shares) (i)

             688        242     
          

 

 

    

 

 

    
             7,676        7,236        2

Vending Equipment Manufacturing

                

Accent Food Services, LLC

                

Subordinated Note

     10.0%/1.3%       5/30/2022        14,516        14,436        14,436     

Common Equity (7,500 units) (g)(i)

             750        750     
          

 

 

    

 

 

    
             15,186        15,186        4

Ice House America, LLC

                

Subordinated Note (i)

     12.0%/3.0%       1/1/2020        4,237        4,090        4,237     

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

             216        101     
          

 

 

    

 

 

    
            

 

4,306

 

 

 

    

 

4,338

 

 

 

    

 

1

 

 

          

 

 

    

 

 

    

Total Investments

           $ 500,514      $ 524,454        148
          

 

 

    

 

 

    

 

(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, 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 December 31, 2016.
(f) Income producing. Maturity date, if any, represents mandatory redemption date.
(g) Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.
(h) The entire commitment was unfunded at December 31, 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) Warrants entitle the Company to purchase a predetermined number of shares of common stock, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(m) Investment in portfolio company that has sold its operations and is in the process of winding down.
(n) The debt investment continues to pay interest, including the default rate, while the portfolio company pursues refinancing options.

See Notes to Consolidated Financial Statements (unaudited).

 

19


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.

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, 2016.

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.

 

20


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Investment risks: The Company’s investments are subject to a variety of risks. These risks may include, but are not limited to the following:

 

    Market risk - Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument due to market changes.

 

    Credit risk - Credit risk represents the risk that the Company would incur if the counterparties failed to perform pursuant to the terms of their agreements with the Company.

 

    Liquidity risk - Liquidity risk represents the possibility that the Company may not maintain sufficient cash balances or may not have access to sufficient cash to meet loan and other commitments as they become due.

 

    Interest rate risk - Interest rate risk represents the likelihood that a change in interest rates could have an adverse impact on the fair value of an interest-bearing financial instrument.

 

    Prepayment risk - Certain of the Company’s debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the debt investments and making the instrument less likely to be an income producing instrument.

 

    Off-Balance sheet risk - Some of the Company’s financial instruments contain off-balance sheet risk. Generally, these financial instruments represent future commitments to purchase other financial instruments at specific terms at specific future dates. See Note 7 for further details.

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 offering costs: Deferred equity offering 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.

 

21


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Interest and dividend income: Interest and dividend income is recorded on the accrual basis to the extent that we expect to collect such amounts. Interest is accrued daily based on the outstanding principal amount and the contractual terms of the debt. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution, and is generally recognized when received. Distributions from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital. Distributions of earnings are included in dividend income while a return of capital is recorded as a reduction in the cost basis of the investment. Estimates are adjusted as necessary when the relevant tax forms are received from the portfolio company.

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.

Fee income: 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.

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.

Warrants: 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.

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.

 

22


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

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 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, 2017 and December 31, 2016. The Company’s tax returns are generally subject to examination by U.S. federal and most state tax authorities for a period of three years from the date the respective returns are filed, and, accordingly, the Company’s 2013 through 2016 tax years remain subject to examination.

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 and six months ended June 30, 2017 and 2016, 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 the Company’s 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. On November 1, 2016, the Board extended the Program through December 31, 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 three and six months ended June 30, 2017 or 2016.

 

23


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Recent accounting pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, 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. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09, such that the 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, but the Company does not expect the impact to be material.

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, 2017, the Company had active investments in 55 portfolio companies and residual investments in five portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $553,260 and the weighted average effective yield on the Company’s debt investments was 13.0% as of such date. As of June 30, 2017, the Company held equity investments in 86.7% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 7.3%.

As of December 31, 2016, the Company had active investments in 53 portfolio companies and residual investments in four portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $524,454 and the weighted average effective yield on the Company’s debt investments was 13.1% as of such date. As of December 31, 2016, the Company held equity investments in 86.0% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 7.3%.

The weighted average yield of the Company’s debt investments is not the same as a return on investment for its stockholders but, rather, relates to a portion of the Company’s investment portfolio and is calculated before the payment of all of the Company’s and its subsidiaries’ fees and expenses. The weighted average yields were computed using the effective interest rates for debt investments at cost as of June 30, 2017 and December 31, 2016, 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, 2017 and 2016, totaled $87,087 and $44,422, respectively. Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the six months ended June 30, 2017 and 2016 totaled $66,733 and $46,034, respectively.

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

 

     Fair Value     Cost  
     June 30, 2017     December 31, 2016     June 30, 2017     December 31, 2016  

Subordinated notes

   $     387,806        70.1 %   $     363,646        69.4 %   $     389,454        73.3   $     364,543        72.9

Senior secured loans

     76,045        13.7       79,758        15.2       82,724        15.6       83,426        16.7  

Equity

     75,823        13.7       70,849        13.5       50,972        9.6       45,207        9.0  

Warrants

     13,586        2.5       10,201        1.9       8,009        1.5       7,153        1.4  

Royalty rights

     —          —         —          —         185        —         185        —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 553,260        100.0 %   $ 524,454        100.0 %   $ 531,344        100.0 %   $ 500,514        100.0 %
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

24


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

All investments made by the Company as of June 30, 2017 and December 31, 2016 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, 2017     December 31, 2016     June 30, 2017     December 31, 2016  

Midwest

   $     186,915        33.8   $     166,412        31.6 %   $     176,787        33.2   $     153,456        30.7

Southeast

     119,355        21.6       122,633        23.4       126,283        23.8       130,107        26.0  

Northeast

     105,735        19.1       98,470        18.8       100,801        19.0       94,481        18.9  

West

     71,561        12.9       73,703        14.1       56,673        10.7       63,717        12.7  

Southwest

     69,694        12.6       63,236        12.1       70,800        13.3       58,753        11.7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 553,260        100.0   $ 524,454        100.0   $ 531,344        100.0   $ 500,514        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As of June 30, 2017 and December 31, 2016, the Company had no portfolio company investments that represented more than 10% of the total investment portfolio on a fair value or cost basis. As of June 30, 2017, the Company had debt investments in one portfolio company on non-accrual status, which had an aggregate cost and fair value of $9,314 and $6,175, respectively. As of December 31, 2016, there were no investments on non-accrual status.

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

The table below represents the fair value of affiliate investments as of December 31, 2016 and any gross additions and reductions made to such investments during the six months ended June 30, 2017, as well as the ending fair value as of June 30, 2017.

 

Portfolio Company (1)

   Credited to
Income(2)
     December 31,
2016
Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     June 30,
2017
Fair Value
 

Affiliate Investments

              

Apex Microtechnology, Inc.

              

Warrant

   $ —        $ 345      $ 40      $ —        $ 385  

Common Equity

     84        1,876        232        —          2,108  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     84        2,221        272        —          2,493  

FAR Research Inc.

              

Senior Secured Loan

     455        7,271        30        4        7,297  

Revolving Loan

     13        138        2        1        139  

Common Equity

     —          1,012        —          115        897  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     468        8,421        32        120        8,333  

FDS Avionics Corp. (dba Flight

              

Display Systems)

              

Subordinated Note

     238        —          5,005        —          5,005  

Preferred Equity

     9        —          371        —          371  

Common Equity

     —          —          312        309        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     247        —          5,688        309        5,379  

Fiber Materials, Inc.

              

Subordinated Note

     264        3,984        39        —          4,023  

Common Equity

     —          1,000        285        —          1,285  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     264        4,984        324        —          5,308  

Inflexxion, Inc.

              

Senior Secured Loan

     279        3,579        130        172        3,537  

Revolving Loan

     14        136        207        44        299  

Preferred Equity

     —          114        35        —          149  

Preferred Equity

     —          139        43        —          182  

Preferred Equity

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     293        3,968        415        216        4,167  

 

25


Table of Contents

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,
2016

Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     June 30,
2017
Fair Value
 

Malabar International

              

Subordinated Note

   $ 510      $ 7,617      $ 77      $ 1      $ 7,693  

Preferred Equity

     60        5,367        642        —          6,009  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     570        12,984        719        1        13,702  

Medsurant Holdings, LLC

              

Subordinated Note

     391        6,267        5        5        6,267  

Preferred Equity

     —          1,505        752        —          2,257  

Warrant

     —          5,199        2,785        —          7,984  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     391        12,971        3,542        5        16,508  

Microbiology Research Associates, Inc.

              

Subordinated Note

     532        8,538        66        2        8,602  

Common Equity

     —          2,593        226        —          2,819  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     532        11,131        292        2        11,421  

Mirage Trailers LLC

              

Senior Secured Loan

     563        8,208        11        2,248        5,971  

Common Equity

     87        2,721        106        —          2,827  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     650        10,929        117        2,248        8,798  

Pinnergy, Ltd.

              

Subordinated Note

     451        8,414        432        3        8,843  

Common Equity — Class A-2

     —          3,000        2,494        —          5,494  

Common Equity — Class B

     —          3,000        —          —          3,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     451        14,414        2,926        3        17,337  

Pfanstiehl, Inc.

              

Subordinated Note

     325        6,208        2        2        6,208  

Common Equity

     180        13,750        —