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 September 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 October 30, 2017, the Registrant had outstanding 24,492,880 shares of common stock, $0.001 par value.

 

 

 


Table of Contents

FIDUS INVESTMENT CORPORATION

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

 

  PART I — FINANCIAL INFORMATION   
Item 1.  

Financial Statements.

     1  
 

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

     1  
 

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

(unaudited)

     2  
 

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

     3  
 

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

     4  
 

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

     5  
 

Notes to Consolidated Financial Statements (unaudited)

     17  
Item 2.  

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

     35  
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk.

     48  
Item 4.  

Controls and Procedures.

     48  
  PART II — OTHER INFORMATION   
Item 1.  

Legal Proceedings.

     50  
Item 1A.  

Risk Factors.

     50  
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds.

     50  
Item 3.  

Defaults Upon Senior Securities.

     50  
Item 4.  

Mine Safety Disclosures.

     50  
Item 5.  

Other Information.

     50  
Item 6.  

Exhibits.

     51  

Signatures

     52  

Exhibit Index

     53  

 

 

1


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)

 

     September 30, 2017
(unaudited)
    December 31,
2016
 

ASSETS

    

Investments, at fair value

    

Affiliate investments (cost: $111,953 and $113,995, respectively)

   $ 135,515     $ 132,013  

Non-control/non-affiliate investments (cost: $430,149 and $386,519 respectively)

     425,394       392,441  
  

 

 

   

 

 

 

Total investments, at fair value (cost: $542,102 and $500,514, respectively)

     560,909       524,454  

Cash and cash equivalents

     46,868       57,083  

Interest receivable

     5,949       4,407  

Prepaid expenses and other assets

     1,127       798  
  

 

 

   

 

 

 

Total assets

   $ 614,853     $ 586,742  
  

 

 

   

 

 

 

LIABILITIES

    

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

   $ 211,823     $ 219,901  

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

     (246     (462

Accrued interest and fees payable

     583       3,122  

Management and incentive fees payable – due to affiliate

     10,454       8,830  

Administration fee payable and other – due to affiliate

     472       570  

Taxes payable

     365       555  

Accounts payable and other liabilities

     234       441  
  

 

 

   

 

 

 

Total liabilities

     223,685       232,957  
  

 

 

   

 

 

 

Commitments and contingencies (Note 7)

    

NET ASSETS

    

Common stock, $0.001 par value (100,000,000 shares authorized, 24,492,880 and 22,446,076, shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively)

     24       22  

Additional paid-in capital

     372,998       340,101  

Undistributed net investment income

     8,556       9,626  

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

     (9,221     (19,908

Accumulated net unrealized appreciation on investments

     18,811       23,944  
  

 

 

   

 

 

 

Total net assets

     391,168       353,785  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 614,853     $ 586,742  
  

 

 

   

 

 

 

Net asset value per common share

   $ 15.97     $ 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
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  

Investment Income:

        

Interest income

        

Affiliate investments

   $ 2,506     $ 2,281     $ 7,219     $ 7,506  

Non-control/non-affiliate investments

     11,981       8,646       33,935       27,562  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     14,487       10,927       41,154       35,068  

Payment-in-kind interest income

        

Affiliate investments

     520       195       1,390       577  

Non-control/non-affiliate investments

     1,347       1,084       3,792       2,805  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total payment-in-kind interest income

     1,867       1,279       5,182       3,382  

Dividend income

        

Affiliate investments

     325       201       871       857  

Non-control/non-affiliate investments

     108       728       835       1,063  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

     433       929       1,706       1,920  

Fee income

        

Affiliate investments

     79       266       226       279  

Non-control/non-affiliate investments

     1,139       987       3,169       2,199  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

     1,218       1,253       3,395       2,478  

Interest on idle funds and other income

     43       43       110       106  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     18,048       14,431       51,547       42,954  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Interest and financing expenses

     2,491       2,648       7,476       7,902  

Base management fee

     2,486       2,055       7,202       6,043  

Incentive fee

     3,008       2,142       7,870       7,212  

Administrative service expenses

     318       356       1,009       1,044  

Professional fees

     294       226       1,004       961  

Other general and administrative expenses

     258       246       967       963  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     8,855       7,673       25,528       24,125  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income taxes

     9,193       6,758       26,019       18,829  

Income tax provision

     4       23       29       69  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     9,189       6,735       25,990       18,760  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

        

Net realized gains (losses) on control investments

           (12,041           (12,041

Net realized gains (losses) on affiliate investments

     (47           (21     458  

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

     6,299       6,083       12,370       5,885  

Net change in unrealized appreciation (depreciation) on control investments

           12,041             11,423  

Net change in unrealized appreciation (depreciation) on affiliate investments

     4,794       2,017       5,544       8,180  

Net change in unrealized appreciation (depreciation) on non-control/non-affiliate investments

     (7,903     (6,241     (10,677     (3,533

Income tax provision from realized gains on investments

     (277           (1,662     (205
  

 

 

   

 

 

   

 

 

   

 

 

 

Net gain on investments

     2,866       1,859       5,554       10,167  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 12,055       8,594     $ 31,544     $ 28,927  
  

 

 

   

 

 

   

 

 

   

 

 

 

Per common share data:

        

Net investment income per share-basic and diluted

   $ 0.38     $ 0.35     $ 1.12     $ 1.06  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.49     $ 0.45     $ 1.36     $ 1.64  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share

   $ 0.39     $ 0.39     $ 1.17     $ 1.17  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

     24,481,690       19,201,024       23,201,533       17,616,540  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

    36,693       —         569       —         —         —         569  

Net increase in net assets resulting from operations

    —         —         —         18,760       (7,682     17,849       28,927  

Dividends declared

    —         —         —         (21,182     —         —         (21,182
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2016

    19,212,425     $ 19     $ 290,543     $ 11,465     $ (13,827   $ 11,146     $ 299,346  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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       32,328       —         —         —         32,330  

Shares issued under dividend reinvestment plan

    34,304       —         569       —         —         —         569  

Net increase in net assets resulting from operations

    —         —         —         25,990       10,687       (5,133     31,544  

Dividends declared

    —         —         —         (27,060     —         —         (27,060
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2017

    24,492,880     $ 24     $ 372,998     $ 8,556     $ (9,221   $ 18,811     $ 391,168  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

3


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2017     2016  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 31,544     $ 28,927  

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

     5,133       (16,070

Net realized (gain) loss on investments

     (12,349     5,698  

Interest and dividend income paid-in-kind

     (5,784     (3,503

Accretion of original issue discount

     (330     (181

Accretion of loan origination fees

     (1,179     (843

Purchase of investments

     (155,577     (104,379

Proceeds from sales and repayments of investments

     132,724       91,936  

Proceeds from loan origination fees

     907       554  

Amortization of deferred financing costs

     957       824  

Changes in operating assets and liabilities:

    

Interest receivable

     (1,542     220  

Prepaid expenses and other assets

     (329     171  

Accrued interest and fees payable

     (2,539     (2,109

Management and incentive fees payable – due to affiliate

     1,624       2,064  

Administration fee payable and other – due to affiliate

     (98     (46

Taxes payable

     (190     (195

Accounts payable and other liabilities

     (207     (59
  

 

 

   

 

 

 

Net cash (used for) provided by operating activities

     (7,235     3,009  
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from stock offering, net of expenses

     32,330       43,670  

Proceeds received from SBA debentures

     34,000       500  

Repayments of SBA debentures

     (41,700     —    

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

     (1,119     (558

Dividends paid to stockholders, including expenses

     (26,491     (20,613
  

 

 

   

 

 

 

Net cash (used for) provided by financing activities

     (2,980     7,499  
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (10,215     10,508  

Cash and cash equivalents:

    

Beginning of period

     57,083       31,657  
  

 

 

   

 

 

 

End of period

   $ 46,868     $ 42,165  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash payments for interest

   $ 9,058     $ 9,187  

Cash payments for taxes, net of tax refunds received

   $ 1,881     $ 469  

Non-cash financing activities:

    

Shares issued under dividend reinvestment plan

   $ 569     $ 569  

See Notes to Consolidated Financial Statements (unaudited).

 

4


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

September 30, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Industry

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

Assets
 

Affiliate Investments (l)

                    

Apex Microtechnology, Inc.

   Electronic Components Supplier                  

Warrant (2,293 shares) (m)

               $ 220      $ 476     

Common Equity (11,690 shares)

                 1,169        2,548     
              

 

 

    

 

 

    
                 1,389        3,024        1

FAR Research Inc.

   Specialty Chemicals                  

Common Equity (1,396 units)

                 1,396        1,069        0

FDS Avionics Corp.

                    

(dba Flight Display Systems)

   Aerospace & Defense Manufacturing                  

Subordinated Note

        12.25%/2.75%        4/1/2020      $ 5,405        5,393        4,036     

Preferred Equity (191 units) (j)(g)

                 382        —       

Common Equity (200 units) (j)

                 2,000        —       
              

 

 

    

 

 

    
                 7,775        4,036        1

Fiber Materials, Inc.

   Aerospace & Defense Manufacturing                  

Subordinated Note

        12.00%/1.00%        5/30/2022        4,034        4,017        4,034     

Common Equity (10 units)

                 1,000        1,562     
              

 

 

    

 

 

    
                 5,017        5,596        1

Inflexxion, Inc.

   Business Services                  

Senior Secured Loan

        7.00%/12.00%        12/16/2019        4,405        4,395        2,963     

Revolving Loan ($500 commitment)(j)

        7.00%/12.00%        12/16/2019        271        269        181     

Preferred Equity (252,046 units)

                 252        —       

Preferred Equity (308,987 units)

                 309        —       

Preferred Equity (1,400 units)

                 1,400        —       
              

 

 

    

 

 

    
                 6,625        3,144        1

Malabar International

   Aerospace & Defense Manufacturing                  

Subordinated Note (k)

        11.25%/2.00%        11/13/2021        7,732        7,725        7,732     

Preferred Equity (1,494 shares) (g)

        6.00%/0.00%        5/12/2022           1,997        7,600     
              

 

 

    

 

 

    
                 9,722        15,332        4

Medsurant Holdings, LLC

   Healthcare Services                  

Subordinated Note

        12.25%/0.00%        6/18/2021        6,267        6,229        6,267     

Preferred Equity (126,662 units) (h)

                 1,345        2,745     

Warrant (505,176 units) (h)(m)

                 4,516        9,932     
              

 

 

    

 

 

    
                 12,090        18,944        5

Microbiology Research Associates, Inc.

   Healthcare Services                  

Subordinated Note

        11.00%/1.50%        3/13/2022        8,634        8,615        8,634     

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

                 1,939        3,314     
              

 

 

    

 

 

    
                 10,554        11,948        3

Mirage Trailers LLC

   Utility Equipment Manufacturing                  

Senior Secured Loan (k)(f)

        12.73%/1.50%        11/25/2020        5,994        5,937        5,994     

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

                 2,484        2,882     
              

 

 

    

 

 

    
                 8,421        8,876        2

Pfanstiehl, Inc.

   Healthcare Products                  

Subordinated Note

        10.50%/0.00%        9/29/2021        6,208        6,192        6,208     

Common Equity (8,500 units) (j)

                 850        11,054     
              

 

 

    

 

 

    
                 7,042        17,262        4

Pinnergy, Ltd.

   Oil & Gas Services                  

Subordinated Note (k)

        0.00%/10.00%        1/24/2020        9,068        9,054        9,068     

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

                 3,000        7,371     

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

                 3,000        3,000     
              

 

 

    

 

 

    
                 15,054        19,439        5

Rhino Assembly Company, LLC

   Specialty Distribution                  

Subordinated Note

        12.00%/1.00%        2/11/2023        3,505        3,488        3,488     

Delayed Draw Commitment ($1,500 commitment) (i)(j)

        12.00%/1.00%        5/17/2022        —          —          —       

Preferred Equity (7,500 units) (j)(s)

                 750        750     
              

 

 

    

 

 

    
                 4,238        4,238        1

Safety Products Group, LLC (n)

   Safety Products Manufacturing                  

Preferred Equity (749 units) (h)(j)

                 —          9     

Common Equity (676 units) ($2,852 commitment) (h)(j)

                 —          —       
              

 

 

    

 

 

    
                 —          9        0

SES Investors, LLC

                    

(dba SES Foam)

   Building Products Manufacturing                  

Senior Secured Loan

        13.00%/0.00%        12/29/2020        5,595        5,553        4,365     

Common Equity (6,000 units) (h)(j)

                 600        —       
              

 

 

    

 

 

    
                 6,153        4,365        1

 

5


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Industry

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

Assets
 

Steward Holding LLC

(dba Steward Advanced Materials)

   Aerospace & Defense Manufacturing               

Subordinated Note

        12.00%/3.25%        5/12/2021      $ 7,322     $ 7,299     $ 7,322    

Common Equity (1,000,000 units)

                1,000       542    
             

 

 

   

 

 

   
                8,299       7,864       2

Trantech Radiator Products, Inc.

   Utility Equipment Manufacturing               

Subordinated Note (j)

        12.00%/2.25%        5/31/2018        6,994       6,991       6,994    

Common Equity (6,875 shares) (j)

                688       174    
             

 

 

   

 

 

   
                7,679       7,168       2

World Wide Packaging, LLC

   Consumer Products               

Common Equity (1,517,573 units) (h)(j)

                499       3,201       1
             

 

 

   

 

 

   

Total Affiliate Investments

                111,953       135,515       34
             

 

 

   

 

 

   

Non-control/Non-affiliate Investments

                 

Accent Food Services, LLC

   Vending Equipment Manufacturing               

Subordinated Note (k)

        10.00%/3.00%        5/30/2022        28,766       28,621       28,766    

Common Equity (7,885 units) (h)(j)

                800       730    
             

 

 

   

 

 

   
                29,421       29,496       8

ACFP Management, Inc. (n)

   Restaurants               

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

                —         —         0

Allied 100 Group, Inc.

   Healthcare Products               

Subordinated Note (k)

        11.50%/0.00%        5/26/2020        13,000       12,968       13,000    

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

                1,250       1,340    
             

 

 

   

 

 

   
                14,218       14,340       4

Brook & Whittle Limited

   Printing Services               

Subordinated Note

        12.00%/4.80%        2/28/2018        8,324       8,324       8,520    

Subordinated Note

        12.00%/2.00%        2/28/2018        2,378       2,378       2,378    

Warrant (1,051 shares) (m)

                285       1,029    

Common Equity - Series A (148 shares)

                110       145    

Common Equity - Series D (527 shares)

                53       155    
             

 

 

   

 

 

   
                11,150       12,227       3

Caldwell & Gregory, LLC

   Laundry Services               

Subordinated Note

        0.00%/12.00%        5/31/2022        2,947       2,947       2,947    

Common Equity (500,000 units) (h)

                500       628    

Warrant (242,121 units) (h)(m)

                242       303    
             

 

 

   

 

 

   
                3,689       3,878       1

Cardboard Box LLC

(dba Anthony’s Coal Fired Pizza)

   Restaurants               

Common Equity (521,021 units) (j)

                521       170       0

Carlson Systems Holdings, Inc. (n)

   Specialty Distribution               

Common Equity (15,000 units) (j)

                —         1       0

Cavallo Bus Lines Holdings, LLC

   Transportation services               

Subordinated Note

        12.75%/0.00%        4/26/2021        7,395       7,367       7,021       2

Comprehensive Logistics Co., Inc.

   Business Services               

Subordinated Note (k)

        11.50%/4.50%        11/22/2021        15,595       15,533       15,595       4

ControlScan, Inc.

   Information Technology Services               

Subordinated Note (j)

        11.00%/0.00%        1/28/2023        6,750       6,717       6,717    

Common Equity (3,704 shares) (j)

                4       4    

Preferred Equity (100 shares) (j)

                996       996    
             

 

 

   

 

 

   
                7,717       7,717       2

EBL, LLC (EbLens)

   Retail               

Subordinated Note (j)

        12.00%/1.00%        1/13/2023        9,271       9,182       9,182    

Common Equity (75,000 units) (j)

                750       750    
             

 

 

   

 

 

   
                9,932       9,932       3

 

6


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Industry

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

Assets
 

Hilco Plastics Holdings, LLC

(dba Hilco Technologies)

   Component Manufacturing                  

Subordinated Note

        11.50%/1.00%        7/15/2022      $ 8,083      $ 8,050      $ 8,083     

Common Equity (72,507 units) (h)(j)

                 500        469     
              

 

 

    

 

 

    
                 8,550        8,552        2

Hub Acquisition Sub, LLC

(dba Hub Pen)

                    

Subordinated Note (k)

        12.25%/0.00%        9/23/2021        15,000        14,941        15,000     

Common Equity (7,500 units)

                 332        775     
              

 

 

    

 

 

    
                 15,273        15,775        4

Ice House America, LLC

  

Vending Equipment Manufacturing

                 

Subordinated Note (j)

        12.00%/3.00%        1/1/2020        4,334        4,223        4,334     

Warrant (1,957,895 units) (h)(j)(m)

                 216        209     
              

 

 

    

 

 

    
                 4,439        4,543        1

inthinc Technology Solutions, Inc. (n)

  

Information Technology Services

                 

Royalty Rights

           4/24/2020           185        —          0

IOS Acquisitions, Inc. (n)

  

Oil & Gas Services

                 

Common Equity (2,152 units) (j)

                 103        17        0

Jacob Ash Holdings, Inc.

  

Apparel Distribution

                 

Subordinated Note (k)

        13.00%/4.00%        6/30/2018        4,000        3,998        4,000     

Subordinated Note

        13.00%/0.00%        6/30/2018        510        507        510     

Preferred Equity (66,138 shares) (g)

        0.00%/15.00%        6/30/2018           1,192        1,152     

Warrant (63,492 shares) (m)

                 67        —       
              

 

 

    

 

 

    
                 5,764        5,662        1

K2 Industrial Services, Inc.

  

Industrial Cleaning & Coatings

                 

Tranche A Loan

        11.75%/2.50%        4/25/2022        10,239        10,203        10,239     

Tranche B Loan

        11.75%/7.25%        4/25/2022        2,140        2,134        2,141     

Common Equity (1,673 shares)

                 1,268        595     
              

 

 

    

 

 

    
                 13,605        12,975        3

LNG Indy, LLC

(dba Kinetrex Energy)

   Oil & Gas Distribution                  

Subordinated Note (k)

        11.50%/0.00%        9/28/2021        5,000        4,979        5,000     

Common Equity (1,000 units)

                 1,000        1,041     
              

 

 

    

 

 

    
                 5,979        6,041        2

Marco Group International OpCo, LLC

  

Industrial Cleaning & Coatings

                 

Subordinated Note

        10.50%/0.75%        1/21/2023        12,018        11,960        11,960     

Common Equity (3,704 shares) (h)(j)

                 750        750     
              

 

 

    

 

 

    
                 12,710        12,710        3

Midwest Transit Equipment, Inc.

  

Transportation services

                 

Subordinated Note (j)

        11.00%/2.00%        6/23/2022        12,067        11,308        11,308     

Warrant (14,384 shares) (j)(m)

                 361        361     

Warrant (9.59% of Junior Subordinated Notes) (j)(q)

                 381        381     
              

 

 

    

 

 

    
                 12,050        12,050        3

New Era Technology, Inc.

  

Information Technology Services

                 

Subordinated Note (j)

        11.00%/1.50%        9/3/2022        11,602        11,551        11,602     

Common Equity (197,369 shares) (j)

                 750        928     
              

 

 

    

 

 

    
                 12,301        12,530        3

NGT Acquisition Holdings, LLC

                    

(dba Techniks Industries)

  

Component Manufacturing

                 

Subordinated Note

        12.00%/0.00%        3/21/2022        11,000        10,949        10,949     

Common Equity (378 units) (j)

                 500        500     
              

 

 

    

 

 

    
                 11,449        11,449        3

 

7


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Industry

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

Assets
 

Oaktree Medical Centre, P.C.

(dba Pain Management Associates)

   Healthcare Services                 

Senior Secured Loan (j)

        11.50%/0.00%        1/1/2018      $ 571      $ 640      $ 631    

Senior Secured Loan (j)

        7.00%/12.00%        1/1/2018        6,646        7,167        5,177    

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

        11.50%/0.00%        1/1/2018        2,500        2,759        2,743    
              

 

 

    

 

 

   
                 10,566        8,551       2

OMC Investors, LLC

                   

(dba Ohio Medical Corporation)

   Healthcare Products                 

Subordinated Note

        12.00%/0.00%        7/15/2021        10,000        9,931        8,453    

Common Equity (5,000 shares)

                 500        216    
              

 

 

    

 

 

   
                 10,431        8,669       2

Palmetto Moon, LLC

   Retail                 

Senior Secured Loan

        11.50%/0.00%        10/31/2021        6,205        6,173        6,205    

Common Equity (499 units) (j)

                 499        250    
              

 

 

    

 

 

   
                 6,672        6,455       2

Plymouth Rock Energy, LLC

   Business Services                 

Senior Secured Loan (k)

        11.00%/0.00%        6/30/2019        5,745        5,745        5,745       1
Pugh Lubricants, LLC    Specialty Distribution                 

Subordinated Note (k)

        12.25%/0.00%        5/10/2022        18,581        18,500        18,581    

Common Equity (6,285 units) (h)(j)

                 612        857    
              

 

 

    

 

 

   
                 19,112        19,438       5

Restaurant Finance Co, LLC

   Restaurants                 

Senior Secured Loan (k)(p)

        15.00%/4.00%        7/31/2020        9,342        9,314        4,240       1
Revenue Management Solutions, LLC    Information Technology Services                 

Subordinated Note (k)

        11.50%/1.00%        7/4/2022        8,815        8,740        8,815    

Subordinated Note (j)

        7.00%/6.50%        7/4/2022        803        793        803    

Common Equity (2,250,000 units)

                 2,250        2,407    
              

 

 

    

 

 

   
                 11,783        12,025       3

Rohrer Corporation

   Packaging                 

Common Equity (389 shares)

                 750        869       0

Simplex Manufacturing Co.

   Aerospace & Defense Manufacturing                 

Subordinated Note

        14.00%/0.00%        11/1/2017        4,050        4,050        4,050    

Warrant (29 shares) (m)

                 1,155        3,445    
              

 

 

    

 

 

   
                 5,205        7,495       2

Six Month Smiles Holdings, Inc.

   Healthcare Products                 

Subordinated Note (j)

        6.00%/8.50%        7/31/2020        9,355        9,337        7,412       2

Software Technology, LLC

   Information Technology Services                 

Subordinated Note (k)

        11.00%/0.00%        6/23/2023        8,750        8,711        8,750    

Common Equity (11 units)

                 1,125        1,155    
              

 

 

    

 

 

   
                 9,836        9,905       3

The Wolf Organization, LLC

   Building Products Manufacturing                 

Common Equity (175 shares)

                 1,445        3,568       1

Thermoforming Technology Group LLC

   Capital Equipment Manufacturing                 

Subordinated Note

        12.50%/0.00%        9/14/2021        14,700        14,647        14,700    

Common Equity (3,500 units) (h)(j)

                 350        483    
              

 

 

    

 

 

   
                 14,997        15,183       4

Tile Redi, LLC

   Building Products Manufacturing                 

Senior Secured Loan (j)(r)

        11.30%/0.00%        6/16/2022        10,194        10,096        10,096       3

Toledo Molding & Die, Inc.

   Component Manufacturing                 

Subordinated Note (j)

        10.50%/0.00%        12/18/2018        10,000        9,954        10,000       3

TransGo, LLC

   Component Manufacturing                 

Subordinated Note

        13.25%/0.00%        8/28/2022        9,500        9,458        9,500    

Common Equity (1,000 units)

                 1,000        793    
              

 

 

    

 

 

   
                 10,458        10,293       3

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Industry

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

Assets
 

United Biologics, LLC

   Healthcare Services                 

Subordinated Note

        12.00%/2.00%        4/30/2018      $ 8,831      $ 8,814      $ 8,831    

Preferred Equity (98,377 units) (h)(j)

                 1,069        430    

Warrant (57,469 units) (m)

                 566        120    
              

 

 

    

 

 

   
                 10,449        9,381       2

US GreenFiber, LLC

   Building Products Manufacturing                 

Subordinated Note (k)

        12.00%/2.00%        3/1/2019        14,074        14,055        13,660    

Common Equity (2,522 units) (h)(j)

                 586        109    
              

 

 

    

 

 

   
                 14,641        13,769       3

US Pack Logistics LLC

   Transportation services                 

Subordinated Note (k)

        12.00%/1.75%        3/28/2023        7,250        7,222        7,250    

Common Equity (5,833 units) (h)(j)

                 583        806    

Common Equity (9,458 units) (h)(j)

                 946        946    
              

 

 

    

 

 

   
                 8,751        9,002       2

Vanguard Dealer Services, L.L.C.

   Business Services                 

Subordinated Note

        12.25%/0.00%        1/30/2021        11,450        11,413        11,450    

Common Equity (6,000 shares)

                 600        956    
              

 

 

    

 

 

   
                 12,013        12,406       3

Virginia Tile Company, LLC

   Specialty Distribution                 

Subordinated Note (k)

        12.25%/0.00%        4/7/2022        12,000        11,969        12,000    

Common Equity (17 units)

                 342        1,510    
              

 

 

    

 

 

   
                 12,311        13,510       3

Viverae, Inc.

   Healthcare Services                 

Subordinated Note

        12.00%/1.25%        2/23/2021        10,014        9,965        9,965    

Preferred Equity (309,142 shares)

                 500        500    
              

 

 

    

 

 

   
                 10,465        10,465       3

Worldwide Express Operations, LLC

   Transportation services                 

Subordinated Note (j)(o)

        10.20%/0.00%        2/3/2025        10,000        9,862        10,000    

Common Equity (4,000 units) (h)(j)

                 4,000        4,236    
              

 

 

    

 

 

   
                 13,862        14,236       4
              

 

 

    

 

 

   

Total Non-control/Non-affiliate Investments

                 430,149        425,394       109
              

 

 

    

 

 

   

Total Investments

               $ 542,102      $ 560,909       143
              

 

 

    

 

 

   

 

(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 September 30, 2017. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(e) The Company’s investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the board of directors, using significant unobservable Level 3 inputs.
(f) 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 + 11.50% and is subject to a 12.50% interest rate floor. The Company has provided the interest rate in effect as of September 30, 2017.
(g) Income producing. Maturity date, if any, represents mandatory redemption date.
(h) Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.
(i) The entire commitment was unfunded at September 30, 2017. The Company is earning 0.50% interest on the unfunded balance of the commitment.
(j) 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).

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2017

(In thousands, except shares)

 

(k) 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).
(l) 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.
(m) 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.
(n) Investment in portfolio company that has sold its operations and is in the process of winding down.
(o) 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 + 8.75% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of September 30, 2017.
(p) Investment was on non-accrual status as of September 30, 2017, meaning the Company has ceased recognizing interest income on the investment.
(q) Warrant entitles the Company to purchase 9.59% of the outstanding principal of Junior Subordinated Notes prior to exercise, and is non-income producing.
(r) 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 + 10.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of September 30, 2017.
(s) A portion of the investment is held by a wholly-owned subsidiary of the Company, other than the Funds.

See Notes to Consolidated Financial Statements (unaudited).

 

10


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)

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

Affiliate Investments (l)

                   

Apex Microtechnology, Inc.

    Electronic Components Supplier                    

Warrant (2,293 shares) (m)

              $ 220      $ 345     

Common Equity (11,690 shares)

                1,168        1,876     
             

 

 

    

 

 

    
                1,388        2,221        1

FAR Research Inc.

    Specialty Chemicals                    

Senior Secured Loan (k)

       11.75%/1.00%        3/31/2019      $ 7,271        7,256        7,271     

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

       11.75%/1.00%        3/31/2019        138        134        138     

Common Equity (1,396 units)

                1,395        1,012     
             

 

 

    

 

 

    
                8,785        8,421        2

Fiber Materials, Inc.

   
Aerospace & Defense
Manufacturing

 
                 

Subordinated Note

       12.00%/1.00%        5/30/2022        4,003        3,984        3,984     

Common Equity (10 units)

                1,000        1,000     
             

 

 

    

 

 

    
                4,984        4,984        1

Inflexxion, Inc.

    Business Services                    

Senior Secured Loan

       7.00%/6.00%        12/16/2019        4,196        4,182        3,579     

Revolving Loan ($500 commitment) (j)

       7.00%/6.00%        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

Malabar International

   
Aerospace & Defense
Manufacturing

 
                 

Subordinated Note (k)

       11.25%/2.00%        11/13/2021        7,617        7,607        7,617     

Preferred Equity (1,494
shares) (g)

       6.00%/0.00%        5/12/2022           1,997        5,367     
             

 

 

    

 

 

    
                9,604        12,984        4

Medsurant Holdings, LLC

    Healthcare Services                    

Subordinated Note

       12.25%/0.00%        6/18/2021        6,267        6,221        6,267     

Preferred Equity (126,662
units) (h)

                1,346        1,505     

Warrant (505,176 units) (h)(m)

                4,516        5,199     
             

 

 

    

 

 

    
                12,083        12,971        4

Microbiology Research Associates, Inc.

    Healthcare Services                    

Subordinated Note

       11.00%/1.50%        3/13/2022        8,538        8,516        8,538     

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

                1,939        2,593     
             

 

 

    

 

 

    
                10,455        11,131        3

Mirage Trailers LLC

   
Utility Equipment
Manufacturing

 
                 

Senior Secured Loan (k)(f)

       12.50%/0.00%        11/25/2020        8,208        8,138        8,208     

Common Equity (2,500,000 shares)

                2,480        2,721     
             

 

 

    

 

 

    
                10,618        10,929        3

Pfanstiehl, Inc.

    Healthcare Products                    

Subordinated Note

       10.50%/0.00%        9/29/2021        6,208        6,189        6,208     

Common Equity (8,500 units) (j)

                850        13,750     
             

 

 

    

 

 

    
                7,039        19,958        6

Pinnergy, Ltd.

    Oil & Gas Services                    

Subordinated Note (k)

       0.00%/10.00%        1/24/2020        8,414        8,394        8,414     

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

                3,000        3,000     

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

                3,000        3,000     
             

 

 

    

 

 

    
                14,394        14,414        4

Safety Products Group, LLC (n)

   
Safety Products
Manufacturing

 
                 

Preferred Equity (749 units) (h)(j)

                —          22     

Common Equity (676 units) ($2,852 commitment) (h)(j)

                —          —       
             

 

 

    

 

 

    
                —          22        0

SES Investors, LLC (dba SES Foam)

   
Building Products
Manufacturing

 
                 

Senior Secured Loan

       11.00%/0.00%        3/8/2022        10,474        10,424        10,424     

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

       6.00%/0.00%        3/8/2022        1,000        993        993     

Common Equity (6,000 units) (h)(j)

                600        600     
             

 

 

    

 

 

    
                12,017        12,017        3

 

11


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)

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

Steward Holding LLC

(dba Steward Advanced Materials)

     Aerospace & Defense Manufacturing                    

Subordinated Note

        12.00%/2.25%        5/12/2021      $ 7,181      $ 7,154      $ 7,181     

Common Equity (1,000,000 units)

                 1,000        678     
              

 

 

    

 

 

    
                 8,154        7,859        2

Trantech Radiator Products, Inc.

     Utility Equipment Manufacturing                    

Subordinated Note (j)

        12.00%/2.25%        5/31/2018        6,994        6,988        6,994     

Common Equity (6,875 shares) (j)

                 688        242     
              

 

 

    

 

 

    
                 7,676        7,236        2

World Wide Packaging, LLC

     Consumer Products                    

Common Equity (1,517,573 units) (h)(j)

                 499        2,898        1
              

 

 

    

 

 

    

Total Affiliate Investments

                 113,995        132,013        37
              

 

 

    

 

 

    

Non-control/Non-affiliate Investments

                    

Accent Food Services, LLC

     Vending Equipment Manufacturing                    

Subordinated Note

        10.00%/1.25%        5/30/2022        14,516        14,436        14,436     

Common Equity (7,500 units) (h)(j)

                 750        750     
              

 

 

    

 

 

    
                 15,186        15,186        4

ACFP Management, Inc. (n)

     Restaurants                    

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

                 —          —          0

Allied 100 Group, Inc.

     Healthcare Products                    

Subordinated Note (k)

        11.50%/0.00%        5/26/2020        13,000        12,960        13,000     

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

                 1,250        1,201     
              

 

 

    

 

 

    
                 14,210        14,201        4

Anatrace Products, LLC

     Healthcare Products                    

Subordinated Note

        13.00%/1.25%        6/23/2021        6,500        6,483        6,500     

Common Equity (360,000 shares) (j)

                 —          259     
              

 

 

    

 

 

    
                 6,483        6,759        2

Brook & Whittle Limited

     Printing Services                    

Subordinated Note

        12.00%/4.80%        6/30/2017        8,031        8,031        8,198     

Subordinated Note

        12.00%/2.00%        6/30/2017        2,342        2,342        2,342     

Warrant (1,051 shares) (m)

                 285        263     

Common Equity-Series A (148 shares)

                 110        37     

Common Equity-Series D (527 shares)

                 52        125     
              

 

 

    

 

 

    
                 10,820        10,965        3

Caldwell & Gregory, LLC

     Laundry Services                    

Subordinated Note

        11.50%/1.00%        11/30/2018        1,555        1,545        1,555     

Subordinated Note

        0.00%/12.00%        5/31/2019        4,583        4,460        4,583     

Common Equity (500,000 units) (h)

                 500        650     

Warrant (242,121 units) (h)(m)

                 242        315     
              

 

 

    

 

 

    
                 6,747        7,103        2

Cardboard Box LLC

                    

(dba Anthony’s Coal Fired Pizza)

     Restaurants                    

Common Equity (521,021 units) (j)

                 520        240        0

Carlson Systems Holdings, Inc. (n)

     Specialty Distribution                    

Common Equity (15,000 units) (j)

                 —          73        0

 

12


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)

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

Cavallo Bus Lines Holdings, LLC

   Transportation services                

Subordinated Note

        12.00 %/3.00%      4/26/2021      $ 8,250      $ 8,218     $ 8,250        2

Comprehensive Logistics Co., Inc.

   Business Services                

Subordinated Note (k)

        11.50 %/4.50%      11/22/2021        15,075        15,001       15,001        4

EBL, LLC (EbLens)

   Retail                

Common Equity (750,000 units) (h)(j)

                750       2,044        1

FDS Avionics Corp.

                  

(dba Flight Display Systems)

   Aerospace & Defense Manufacturing                

Subordinated Note

        12.25 %/0.00%      4/1/2020        5,200        5,184       4,237     

Common Equity (200 units) (j)

                2,000       312     
             

 

 

   

 

 

    
                7,184       4,549        1

FTH Acquisition Corp. VII

   Information Technology Services                

Subordinated Note

        13.00 %/0.00%      3/9/2017        8,178        8,178       7,937     

Preferred Equity (887,122 shares)

                887       444     
             

 

 

   

 

 

    
                9,065       8,381        2

Grindmaster Corporation

   Consumer Products                

Subordinated Note

        11.50 %/0.00%      10/31/2019        10,500        10,474       10,500        3

Hilco Plastics Holdings, LLC

                  

(dba Hilco Technologies)

   Component Manufacturing                

Subordinated Note

        11.50 %/1.00%      7/15/2022        8,022        7,984       7,984     

Common Equity (72,507 units) (h)(j)

                500       500     
             

 

 

   

 

 

    
                8,484       8,484        2

Hub Acquisition Sub, LLC

                  

(dba Hub Pen)

   Promotional products                

Subordinated Note (k)

        12.25 %/0.00%      9/23/2021        11,350        11,301       11,350     

Common Equity (7,500 units)

                750       1,010     
             

 

 

   

 

 

    
                12,051       12,360        3

Ice House America, LLC

   Vending Equipment Manufacturing                

Subordinated Note (j)

        12.00 %/3.00%      1/1/2020        4,237        4,090       4,237     

Warrant (1,957,895 units) (h)(j)(m)

                216       101     
             

 

 

   

 

 

    
                4,306       4,338        1

inthinc Technology Solutions, Inc.

   Information Technology Services                

Subordinate Note ($5,000 commitment)

        12.50 %/0.00%      4/24/2020        4,000        3,984       4,000     

Subordinated Note

        0.00 %/12.50%      4/24/2020        1,178        1,039       1,141     

Royalty Rights

          4/24/2020           185       —       
             

 

 

   

 

 

    
                5,208       5,141        1

IOS Acquisitions, Inc. (n)

   Oil & Gas Services                

Common Equity (2,152 units) (j)

                103       17        0

Jacob Ash Holdings, Inc.

   Apparel Distribution                

Subordinated Note (k)

        13.00 %/4.00%      6/30/2018        4,000        3,997       4,000     

Subordinated Note

        13.00 %/0.00%      6/30/2018        778        773       778     

Preferred Equity (66,138 shares) (g)

        0.00 %/15.00%      6/30/2018           1,071       1,075     

Warrant (63,492 shares) (m)

                67       —       
             

 

 

   

 

 

    
                5,908       5,853        2

K2 Industrial Services, Inc.

   Industrial Cleaning & Coatings                

Tranche A Loan

        11.75 %/2.50%      4/25/2022        10,047        10,005       10,005     

Tranche B Loan

        11.75 %/7.25%      4/25/2022        2,027        2,019       2,019     

Common Equity (1,673 shares)

                1,268       553     
             

 

 

   

 

 

    
                13,292       12,577        4

Lightning Diversion Systems, LLC

   Aerospace & Defense Manufacturing                

Senior Secured Loan (k)

        10.50 %/0.00%      9/16/2021        21,204        21,114       21,204     

Revolving Loan ($250 commitment) (i)

        10.50 %/0.00%      9/16/2021        —          (1     —       

Common Equity (600,000 units)

                —         2,637     
             

 

 

   

 

 

    
                21,113       23,841        7

 

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)

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

LNG Indy, LLC

(dba Kinetrex Energy)

     Oil & Gas Distribution                    

Subordinated Note (k)

        11.50%/0.00%        9/28/2021      $ 5,000      $ 4,975      $ 4,975     

Common Equity (1,000 units)

                 1,000        1,000     
              

 

 

    

 

 

    
                 5,975        5,975        2

Oaktree Medical Centre, P.C.

                    

(dba Pain Management Associates)

     Healthcare Services                    

Senior Secured Loan (j)

        11.50%/0.00%        1/1/2018        571        614        633     

Senior Secured Loan (j)

        7.00%/12.00%        1/1/2018        6,078        6,405        4,663     

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

        11.50%/0.00%        1/1/2018        2,500        2,526        2,768     
              

 

 

    

 

 

    
                 9,545        8,064        2

OMC Investors, LLC

                    

(dba Ohio Medical Corporation)

     Healthcare Products                    

Subordinated Note

        12.00%/0.00%        7/15/2021        10,000        9,917        9,383     

Common Equity (5,000 shares)

                 500        358     
              

 

 

    

 

 

    
                 10,417        9,741        3

Palmetto Moon, LLC

     Retail                    

Senior Secured Loan

        11.50%/0.00%        10/31/2021        6,402        6,364        6,364     

Common Equity (499 units)

                 499        499     
              

 

 

    

 

 

    
                 6,863        6,863        2

Plymouth Rock Energy, LLC

     Business Services                    

Senior Secured Loan

        11.75%/0.00%        5/14/2017        6,000        5,995        6,000        2

Pugh Lubricants, LLC

     Specialty Distribution                    

Subordinated Note (k)

        12.25%/0.00%        5/10/2022        12,256        12,197        12,197     

Common Equity (5,000 units) (h)(j)

                 500        500     
              

 

 

    

 

 

    
                 12,697        12,697        4

Restaurant Finance Co, LLC

     Restaurants                    

Senior Secured Loan (k)

        12.00%/4.00%        7/31/2020        9,154        9,126        7,377        2

Rohrer Corporation

     Packaging                    

Subordinated Note (k)

        11.00%/1.50%        1/18/2022        16,614        16,539        16,539     

Common Equity (389 shares)

                 750        750     
              

 

 

    

 

 

    
                 17,289        17,289        5

Simplex Manufacturing Co.

     Aerospace & Defense Manufacturing                    

Subordinated Note (o)

        14.00%/0.00%        12/9/2016        4,050        4,050        4,050     

Warrant (28 shares) (m)

                 1,041        3,787     
              

 

 

    

 

 

    
                 5,091        7,837        2

Six Month Smiles Holdings, Inc.

     Healthcare Products                    

Subordinated Note (j)

        6.00%/8.50%        7/31/2020        8,777        8,754        8,106        2

Software Technology, LLC

     Information Technology Services                    

Subordinated Note (k)

        11.00%/0.00%        6/23/2023        8,750        8,706        8,706     

Common Equity (11 units)

                 1,125        1,125     
              

 

 

    

 

 

    
                 9,831        9,831        3

The Wolf Organization, LLC

     Building Products Manufacturing                    

Common Equity (175 shares)

                 1,455        3,102        1

Thermoforming Technology Group LLC

     Capital Equipment Manufacturing                    

Subordinated Note

        12.50%/0.00%        9/14/2021        14,700        14,637        14,700     

Common Equity (3,500 units) (h)(j)

                 350        353     
              

 

 

    

 

 

    
                 14,987        15,053        4

Toledo Molding & Die, Inc.

     Component Manufacturing                    

Subordinated Note (j)

        10.50%/0.00%        12/18/2018        10,000        9,926        10,000        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)

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

United Biologics, LLC

   Healthcare Services                 

Subordinated Note

        12.00 %/2.00%      4/30/2018      $ 8,698      $ 8,659      $ 8,698     

Preferred Equity (98,377 units) (h)(j)

                1,069        729     

Warrant (57,469 units) (m)

                566        191     
             

 

 

    

 

 

    
                10,294        9,618        3

US GreenFiber, LLC

   Building Products Manufacturing                 

Subordinated Note (k)

        12.50 %/0.00%      1/2/2019        14,000        13,968        14,000     

Common Equity (1,667 units) (h)(j)

                500        574     
             

 

 

    

 

 

    
                14,468        14,574        4

US Pack Logistics LLC

   Transportation services                 

Subordinated Note (k)

        12.00 %/1.75%      9/27/2020        14,027        13,923        14,027     

Common Equity (5,357 units) (h)(j)

                583        675     
             

 

 

    

 

 

    
                14,506        14,702        4

Vanguard Dealer Services, L.L.C.

   Business Services                 

Subordinated Note

        12.25 %/0.00%      1/30/2021        11,450        11,405        11,450     

Common Equity (6,000 shares)

                600        907     
             

 

 

    

 

 

    
                12,005        12,357        3

Virginia Tile Company, LLC

   Specialty Distribution                 

Subordinated Note (k)

        12.25 %/0.00%      4/7/2022        12,000        11,962        12,000     

Common Equity (17 units)

                342        1,220     
             

 

 

    

 

 

    
                12,304        13,220        4

Worldwide Express Operations, LLC

   Transportation services                 

Subordinated Note

        11.50 %/1.00%      8/1/2020        17,468        17,368        17,559     

Common Equity (2,500,000 units) (h)(j)

                2,500        6,613     
             

 

 

    

 

 

    
                19,868        24,172        7
             

 

 

    

 

 

    

Total Non-control/Non-affiliate Investments

                386,519        392,441        111
             

 

 

    

 

 

    

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 Company’s investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the board of directors, using significant unobservable Level 3 inputs.
(f) 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 + 11.50% and is subject to a 12.50% interest rate floor. The Company has provided the interest rate in effect as of December 31, 2016.
(g) Income producing. Maturity date, if any, represents mandatory redemption date.
(h) Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.
(i) The entire commitment was unfunded at December 31, 2016. As such, no interest is being earned on this investment.
(j) 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).
(k) 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).
(l) 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.

 

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FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

 

(m) 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.
(n) Investment in portfolio company that has sold its operations and is in the process of winding down.
(o) 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).

 

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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. 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.

 

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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.

 

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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 the Company expects 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 interest 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.

 

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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 that is 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 the income tax provision, if any. There were no material uncertain income tax positions at September 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 2014 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 nine months ended September 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.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

On October 30, 2017, the Board extended the Program through December 31, 2018, 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 nine months ended September 30, 2017 or 2016.

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. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company completed its evaluation of the impact of this ASU and concluded that the majority of its income streams are specifically excluded from the scope of the ASU as they relate to financial instruments that are within the scope of other topics, and in general the impact of the ASU is not material to the Company’s consolidated financial position or disclosures.

In October 2016, the SEC adopted new rules and amended rules to Regulation S-X (collectively, the “Reporting Rules”) intended to modernize the reporting and disclosures of information by BDCs. The adopted amendments to Regulation S-X include an update to the disclosures for investments in and advances to affiliates, presentation changes to the statement of operations and schedule of investments, and the requirement to include a standardized schedule containing detailed information about derivative investments (among other changes). The amendments to Regulation S-X are effective for reporting periods ending after August 1, 2017. The Company adopted the Reporting Rules effective August 1, 2017. The amendments do not have a material effect on the Company’s consolidated financial position or disclosures.

Note 3. Portfolio Company Investments

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

As of September 30, 2017, the Company had active investments in 58 portfolio companies and residual investments in five portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $560,909 and the weighted average effective yield on the Company’s debt investments was 13.3% as of such date. As of September 30, 2017, the Company held equity investments in 87.3% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 6.8%.

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 September 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 nine months ended September 30, 2017 and 2016, totaled $155,577 and $104,379, respectively. Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the nine months ended September 30, 2017 and 2016 totaled $132,724 and $91,936, respectively.

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

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

 

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

Subordinated notes

   $     437,599        78.0   $     363,646        69.4   $     447,813        82.6   $     364,543        72.9

Senior secured loans

     27,996        5.0       79,758        15.2       31,499        5.8       83,426        16.7  

Equity

     79,058        14.1       70,849        13.5       54,596        10.1       45,207        9.0  

Warrants

     16,256        2.9       10,201        1.9       8,009        1.5       7,153        1.4  

Royalty rights

     —          —         —          —         185        —         185        —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 560,909        100.0   $ 524,454        100.0   $ 542,102        100.0   $ 500,514        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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

Midwest

   $     163,422        29.1   $     166,412        31.6   $     154,072        28.3   $     153,456        30.7

Southeast

     132,981        23.7       122,633        23.4       141,769        26.2       130,107        26.0  

Northeast

     118,148        21.1       98,470        18.8       114,406        21.1       94,481        18.9  

West

     50,647        9.0       73,703        14.1       35,623        6.6       63,717        12.7  

Southwest

     95,711        17.1       63,236        12.1       96,232        17.8       58,753        11.7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 560,909        100.0   $ 524,454        100.0   $ 542,102        100.0   $ 500,514        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The following table shows portfolio composition by type and by geographic region at fair value as a percentage of net assets.

 

By Type

   

By Geographic Region

 
     September 30,
2017
    December 31,
2016
         September 30,
2017
    December 31,
2016
 

Subordinated notes

     111.7     102.7   Midwest      41.7     46.9

Senior secured loans

     7.1       22.4     Southeast      33.9       34.6  

Equity

     20.1       20.0     Northeast      30.1       27.8  

Warrants

     4.1       2.9     West      12.8       20.8  

Royalty rights

     —         —       Southwest      24.5       17.9  
  

 

 

   

 

 

      

 

 

   

 

 

 

Total

     143.0     148.0   Total      143.0     148.0
  

 

 

   

 

 

      

 

 

   

 

 

 

As of September 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 September 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 $4,240, 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 additions and reductions made to such investments during the nine months ended September 30, 2017, the ending fair value as of September 30, 2017, and the total investment income earned on such investments during the period.

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

 

Portfolio Company (1)

  December 31,
2016

Fair Value
    Purchases
(Cost)