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, 2018

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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      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 29, 2018, the Registrant had outstanding 24,463,119 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

     3  
 

Consolidated Statements of Assets and Liabilities — September  30, 2018 (unaudited) and December 31, 2017

     3  
 

Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2018 (unaudited) and 2017 (unaudited)

     4  
 

Consolidated Statements of Changes in Net Assets — Nine Months Ended September 30, 2018 (unaudited) and 2017 (unaudited)

     5  
 

Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2018 (unaudited) and 2017 (unaudited)

     6  
 

Consolidated Schedules of Investments — September  30, 2018 (unaudited) and December 31, 2017

     7  
 

Notes to Consolidated Financial Statements (unaudited)

     19  
Item 2.  

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

     39  
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     55  
Item 4.  

Controls and Procedures

     56  
PART II — OTHER INFORMATION

 

Item 1.  

Legal Proceedings

     57  
Item 1A.  

Risk Factors

     57
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     57  
Item 3.  

Defaults Upon Senior Securities

     58  
Item 4.  

Mine Safety Disclosures

     58  
Item 5.  

Other Information

     58  
Item 6.  

Exhibits

     59  
Signatures      60  

Exhibit Index

     61  

 

2


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,
2018
(unaudited)
    December 31,
2017
 

ASSETS

   

Investments, at fair value

   

Control investments (cost: $6,983 and $6,294, respectively)

  $ 5,318     $ 4,723  

Affiliate investments (cost: $73,606 and $91,361, respectively)

    133,202       123,011  

Non-control/non-affiliate  investments (cost: $539,184 and $480,139, respectively)

    529,983       468,574  
 

 

 

   

 

 

 

Total investments, at fair value (cost: $619,773 and $577,794, respectively)

    668,503       596,308  

Cash and cash equivalents

    38,072       41,572  

Interest receivable

    6,024       7,411  

Prepaid expenses and other assets

    899       972  
 

 

 

   

 

 

 

Total assets

  $ 713,498     $ 646,263  
 

 

 

   

 

 

 

LIABILITIES

   

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

  $ 209,908     $ 226,660  

Public Notes, net of deferred financing costs (Note 6)

    48,314       —    

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

    36,794       11,175  

Accrued interest and fees payable

    1,280       2,712  

Management and incentive fees payable – due to affiliate

    14,374       11,217  

Administration fee payable and other – due to affiliate

    425       562  

Taxes payable

    530       500  

Accounts payable and other liabilities

    351       164  
 

 

 

   

 

 

 

Total liabilities

    311,976       252,990  
 

 

 

   

 

 

 

Commitments and contingencies (Note 7)

   

NET ASSETS

   

Common stock, $0.001 par value (100,000,000 shares authorized, 24,463,119 and 24,507,940 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)

    24       24  

Additional paid-in capital

    369,963       370,545  

Undistributed net investment income

    864       5,687  

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

    (18,563     (2,001

Accumulated net unrealized appreciation (depreciation) on investments

    49,234       19,018  
 

 

 

   

 

 

 

Total net assets

    401,522       393,273  
 

 

 

   

 

 

 

Total liabilities and net assets

  $ 713,498     $ 646,263  
 

 

 

   

 

 

 

Net asset value per common share

  $ 16.41     $ 16.05  
 

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Operations (unaudited)

(in thousands, except shares and per share data)

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2018     2017     2018     2017  

Investment Income:

       

Interest income

       

Control investments

  $ 63     $ —       $ 181     $ —    

Affiliate investments

    1,730       2,506       5,268       7,219  

Non-control/non-affiliate  investments

    13,621       11,981       40,385       33,935  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    15,414       14,487       45,834       41,154  

Payment-in-kind interest income

       

Control investments

    171       —         486       —    

Affiliate investments

    106       520       613       1,390  

Non-control/non-affiliate  investments

    1,238       1,347       3,425       3,792  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total payment-in-kind  interest income

    1,515       1,867       4,524       5,182  

Dividend income

       

Control investments

    —         —         —         —    

Affiliate investments

    312       325       953       871  

Non-control/non-affiliate  investments

    45       108       37       835  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

    357       433       990       1,706  

Fee income

       

Control investments

    —         —         —         —    

Affiliate investments

    —         79       23       226  

Non-control/non-affiliate  investments

    556       1,139       2,745       3,169  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

    556       1,218       2,768       3,395  

Interest on idle funds and other income

    30       43       101       110  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    17,872       18,048       54,217       51,547  
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

       

Interest and financing expenses

    3,106       2,491       9,234       7,476  

Base management fee

    2,932       2,486       8,438       7,202  

Incentive fee

    3,698       3,008       9,359       7,870  

Administrative service expenses

    366       318       1,112       1,009  

Professional fees

    233       294       1,018       1,004  

Other general and administrative expenses

    226       258       1,212       967  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    10,561       8,855       30,373       25,528  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income taxes

    7,311       9,193       23,844       26,019  

Income tax provision (benefit)

    (170     4       28       29  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    7,481       9,189       23,816       25,990  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

       

Net realized gains (losses):

       

Control investments

    —         —         —         —    

Affiliate investments

    109       (47     842       (21

Non-control/non-affiliate  investments

    (7,345     6,299       (15,996     12,370  

Net change in unrealized appreciation (depreciation):

       

Control investments

    105       —         (94     —    

Affiliate investments

    12,208       4,794       27,946       5,544  

Non-control/non-affiliate  investments

    1,903       (7,903     2,364       (10,677

Income tax (provision) benefit from realized gains on investments

    340       (277     (1,408     (1,662
 

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) on investments

    7,320       2,866       13,654       5,554  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

  $ 14,801     $ 12,055     $ 37,470     $ 31,544  
 

 

 

   

 

 

   

 

 

   

 

 

 

Per common share data:

       

Net investment income per share-basic and diluted

  $ 0.31     $ 0.38     $ 0.97     $ 1.12  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.61     $ 0.49     $ 1.53     $ 1.36  
 

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share

  $ 0.39     $ 0.39     $ 1.17     $ 1.17  
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

    24,463,119       24,481,690       24,474,632       23,201,533  
 

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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FIDUS INVESTMENT CORPORATION

Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except shares)

 

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

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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2017

    24,507,940     $ 24     $ 370,545     $ 5,687     $ (2,001   $ 19,018     $ 393,273  

Repurchases of common stock under Stock Repurchase Program (Note 8)

    (44,821     —         (582     —         —         —         (582

Net increase in net assets resulting from operations

    —         —         —         23,816       (16,562     30,216       37,470  

Dividends declared

    —         —         —         (28,639     —         —         (28,639
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2018

    24,463,119     $ 24     $ 369,963     $ 864     $ (18,563   $ 49,234     $ 401,522  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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FIDUS INVESTMENT CORPORATION

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

    Nine Months Ended September 30,  
    2018     2017  

Cash Flows from Operating Activities:

   

Net increase in net assets resulting from operations

  $ 37,470     $ 31,544  

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

   

Net change in unrealized (appreciation) depreciation on investments

    (30,216     5,133  

Net realized (gain) loss on investments

    15,154       (12,349

Interest and dividend income paid-in-kind

    (4,610     (5,784

Accretion of original issue discount

    (208     (330

Accretion of loan origination fees

    (624     (1,179

Purchase of investments

    (144,614     (155,577

Proceeds from sales and repayments of investments

    92,052       132,724  

Proceeds from loan origination fees

    871       907  

Amortization of deferred financing costs

    1,164       957  

Changes in operating assets and liabilities:

   

Interest receivable

    1,387       (1,542

Prepaid expenses and other assets

    40       (329

Accrued interest and fees payable

    (1,432     (2,539

Management and incentive fees payable – due to affiliate

    3,157       1,624  

Administration fee payable and other – due to affiliate

    (137     (98

Taxes payable

    30       (190

Accounts payable and other liabilities

    187       (207
 

 

 

   

 

 

 

Net cash (used for) operating activities

    (30,329     (7,235
 

 

 

   

 

 

 

Cash Flows from Financing Activities:

   

Proceeds from stock offerings, net of expenses

    —         32,330  

Proceeds received from SBA debentures

    27,000       34,000  

Repayments of SBA debentures

    (43,800     (41,700

Proceeds received from issuance of Public Notes

    50,000       —    

Proceeds received from (repayments of) borrowings under Credit Facility, net

    25,500       —    

Payment of deferred financing costs

    (2,650     (1,119

Dividends paid to stockholders, including expenses

    (28,639     (26,491

Repurchases of common stock under Stock Repurchase Program

    (582     —    
 

 

 

   

 

 

 

Net cash provided by (used for) financing activities

    26,829       (2,980
 

 

 

   

 

 

 

Net (decrease) in cash and cash equivalents

    (3,500     (10,215

Cash and cash equivalents:

   

Beginning of period

    41,572       57,083  
 

 

 

   

 

 

 

End of period

  $ 38,072     $ 46,868  
 

 

 

   

 

 

 
Supplemental disclosure of cash flow information:    

Cash payments for interest

  $ 9,502     $ 9,058  

Cash payments for taxes, net of tax refunds received

  $ 1,406     $ 1,881  

Non-cash financing activities:

   

Shares issued under dividend reinvestment plan

  $ —       $ 569  

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

September 30, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)          

 

Industry

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

Control Investments (t)

             

FDS Avionics Corp. (dba Flight Display Systems)

  Aerospace & Defense Manufacturing            

Second Lien Debt

      4.00%/11.00     4/1/2020     $ 6,034     $ 6,026     $ 5,109    

Revolving Loan ($50 commitment)

      4.00%/11.00     4/1/2020       209       209       209    

Common Equity (7,478 shares) (j)

            748       —      
         

 

 

   

 

 

   
            6,983       5,318       1
         

 

 

   

 

 

   

Total Control Investments

          $ 6,983     $ 5,318       1
         

 

 

   

 

 

   

Affiliate Investments (l)

             
Apex Microtechnology, Inc.   Electronic Components Supplier            

Warrant (2,293 shares) (m)

          $ 220     $ 1,218    

Common Equity (11,690 shares)

            1,168       5,956    
         

 

 

   

 

 

   
            1,388       7,174       2
FAR Research Inc.   Specialty Chemicals            

Common Equity (1,396 units)

            1,396       3,315       1
Fiber Materials, Inc.   Aerospace & Defense Manufacturing            

Second Lien Debt

      12.00%/0.00     5/30/2022     $ 4,044       4,031       4,044    

Common Equity (10 units)

            1,000       2,244    
         

 

 

   

 

 

   
            5,031       6,288       1
Medsurant Holdings, LLC   Healthcare Services            

Second Lien Debt

      13.00%/0.00     6/30/2020       8,823       8,790       8,823    

Preferred Equity (126,662 units) (h)

            1,346       3,026    

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

            4,516       11,027    
         

 

 

   

 

 

   
            14,652       22,876       6

Microbiology Research Associates, Inc.

  Healthcare Services            

Subordinated Debt

      11.00%/1.50     3/13/2022       8,765       8,750       8,360    

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

            1,939       2,294    
         

 

 

   

 

 

   
            10,689       10,654       3
Mirage Trailers LLC   Utility Equipment Manufacturing            

Second Lien Debt (k)(f)

      13.61%/1.50     11/25/2020       6,085       6,046       6,085    

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

            2,177       3,113    
         

 

 

   

 

 

   
            8,223       9,198       2
Pfanstiehl, Inc.   Healthcare Products            

Subordinated Debt

      10.50%/0.00     9/29/2022       6,208       6,196       6,208    

Common Equity (8,500 units) (j)

            850       13,963    
         

 

 

   

 

 

   
            7,046       20,171       5
Pinnergy, Ltd.   Oil & Gas Services            

Second Lien Debt (k)

      12.00%/0.00     1/24/2020       4,000       3,991       4,000    

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

            3,000       32,118    

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

            3,000       3,000    
         

 

 

   

 

 

   
            9,991       39,118       10

Steward Holding LLC (dba Steward Advanced Materials)

  Aerospace & Defense Manufacturing            

Second Lien Debt

      12.00%/2.25     5/12/2021       7,525       7,508       7,525    

Common Equity (1,000,000 units)

            1,000       1,090    
         

 

 

   

 

 

   
            8,508       8,615       2
Trantech Radiator Products, Inc.   Utility Equipment Manufacturing            

Second Lien Debt (j)

      14.25%/0.00     12/31/2019       5,994       5,994       5,705    

Common Equity (6,875 shares) (j)

            688       88    
         

 

 

   

 

 

   
            6,682       5,793       1
         

 

 

   

 

 

   

Total Affiliate Investments

          $ 73,606     $ 133,202       33
         

 

 

   

 

 

   

 

7


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)          

 

Industry

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

Non-control/Non-affiliate Investments

             
Accent Food Services, LLC   Vending Equipment Manufacturing            

Second Lien Debt (k)

      10.00%/3.00   5/30/2022   $  29,639     $  29,527     $  28,160    

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

            800       559    
         

 

 

   

 

 

   
            30,327       28,719       7
Allied 100 Group, Inc.   Healthcare Products            

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

            1,250       1,684       0

American AllWaste LLC (dba WasteWater Transport Services)

  Environmental Industries            

Second Lien Debt (j)

      11.00%/1.50   11/30/2023     11,780       11,716       11,716    

Delayed Draw Commitment ($2,276 commitment) (i)(j)

      11.00%/1.50   11/30/2019     —         (9     —      

Preferred Equity (500 units) (j)

            500       500    
         

 

 

   

 

 

   
            12,207       12,216       3

AVC Investors, LLC (dba Auveco)

  Specialty Distribution            

Second Lien Debt (k)

      11.50%/0.00   7/3/2023     22,500       22,401       22,500    

Common Equity (5,000 units) (j)

            500       669    
         

 

 

   

 

 

   
            22,901       23,169       6

B&B Roadway and Security Solutions, LLC

  Component Manufacturing            

Second Lien Debt

      10.50%/1.50   8/27/2023     10,090       10,040       10,090    

Common Equity (50,000 units) ($133 commitment) (h)(j)

            500       387    
         

 

 

   

 

 

   
            10,540       10,477       3
Caldwell & Gregory, LLC   Laundry Services            

Subordinated Debt

      0.00%/12.00   5/31/2022     3,316       3,316       3,316    

Common Equity (500,000 units) (h)

            500       839    

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

            242       371    
         

 

 

   

 

 

   
            4,058       4,526       1

Cardboard Box LLC (dba Anthony’s Coal Fired Pizza)

  Restaurants            

Common Equity (521,021 units) (j)

            520       125       0

Consolidated Infrastructure Group Holdings, LP

  Business Services            

Common Equity (298 units)

            379       275       0
ControlScan, Inc.   Information Technology Services            

Subordinated Debt (j)

      11.00%/0.00   1/28/2023     6,750       6,723       6,750    

Common Equity (3,704 shares) (j)

            4       637    

Preferred Equity (100 shares) (j)

            996       996    
         

 

 

   

 

 

   
            7,723       8,383       2

CRS Solutions Holdings, LLC (dba CRS Texas)

  Business Services            

Second Lien Debt

      10.50%/1.00   9/14/2023     9,050       9,010       9,050    

Common Equity (750,000 units) (j)

            750       758    
         

 

 

   

 

 

   
            9,760       9,808       2
EBL, LLC (EbLens)   Retail            

Second Lien Debt (j)

      12.00%/1.00   1/13/2023     9,365       9,293       9,365    

Common Equity (75,000 units) (j)

            750       754    
         

 

 

   

 

 

   
            10,043       10,119       3

Global Plasma Solutions, Inc.

  Component Manufacturing            

First Lien Debt (j)(v)

      7.35%/0.00   9/21/2023     8,800       8,722       8,722    

Preferred Equity (947 shares) (j)

            360       360    

Common Equity (947 shares) (j)

            15       15    
         

 

 

   

 

 

   
            9,097       9,097       2
Gurobi Optimization, LLC   Information Technology Services            

Subordinated Debt (k)

      11.00%/0.00   6/19/2023     20,000       19,915       20,000    

Common Equity (5 shares)

            1,500       1,893    
         

 

 

   

 

 

   
            21,415       21,893       5

Hilco Plastics Holdings, LLC (dba Hilco Technologies)

  Component Manufacturing            

Second Lien Debt

      11.50%/1.50   12/31/2019     9,895       9,874       9,348    

Preferred Equity (1,000,000 units) (h)(j)

            1,000       1,089    

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

            473       255    
         

 

 

   

 

 

   
            11,347       10,692       3

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)          

 

Industry

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

Hub Acquisition Sub, LLC (dba Hub Pen)

  Promotional products            

Second Lien Debt (k)

      12.25%/0.00     9/23/2021     $ 25,000     $ 24,909     $ 25,000    

Common Equity (7,500 units)

            263       1,353    
         

 

 

   

 

 

   
            25,172       26,353       7

Hunter Defense Technologies, Inc.

  Aerospace & Defense Manufacturing            

First Lien Debt (j)(w)

      9.39%/0.00     3/29/2023       10,000       9,900       9,900       2

IBH Holdings, LLC (fka Inflexxion, Inc.)

  Business Services            

Common Equity (150,000 units)

            —         —         0

inthinc Technology Solutions, Inc. (n)

  Information Technology Services            

Royalty Rights

        4/24/2020         185       —         0

K2 Industrial Services, Inc.

 

Industrial Cleaning &

Coatings

           

Second Lien Debt (p)

      11.75%/5.25     4/25/2022       10,454       10,423       6,851    

Second Lien Debt (p)

      11.75%/10.25     4/25/2022       2,261       2,255       —      

Common Equity (1,673 shares)

            1,268       —      
         

 

 

   

 

 

   
            13,946       6,851       2

The Kyjen Company, LLC (dba Outward Hound)

  Consumer Products            

Second Lien Debt (k)

      12.00%/0.00     6/8/2024       14,500       14,436       13,532    

Common Equity (750 shares) (j)

            750       703    
         

 

 

   

 

 

   
            15,186       14,235       4

LNG Indy, LLC (dba Kinetrex Energy)

  Oil & Gas Distribution            

Second Lien Debt (k)

      11.50%/0.00     9/28/2021       5,000       4,985       5,000    

Common Equity (1,000 units)

            1,000       1,626    
         

 

 

   

 

 

   
            5,985       6,626       2

Marco Group International OpCo, LLC

 

Industrial Cleaning &

Coatings

           

Second Lien Debt

      10.50%/0.75     1/21/2023       12,110       12,063       12,110    

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

            750       758    
         

 

 

   

 

 

   
            12,813       12,868       3
Mesa Line Services, LLC   Utilities: Services            

Second Lien Debt (j)

      10.50%/0.50     5/31/2023       9,162       9,110       9,162    

Delayed Draw Commitment ($4,000 commitment) (i)(j)

      10.50%/1.00     5/31/2019       —         (6     —      

Common Equity (500 shares) (j)

            500       660    
         

 

 

   

 

 

   
            9,604       9,822       2

Midwest Transit Equipment, Inc.

  Transportation services            

Subordinated Debt (j)

      13.00%/0.00     6/23/2022       12,005       11,403       12,605    

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

            361       293    

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

            381       427    
         

 

 

   

 

 

   
            12,145       13,325       3
New Era Technology, Inc.   Information Technology Services            

Common Equity (197,369 shares) (j)

            750       852       0

NGT Acquisition Holdings, LLC (dba Techniks Industries)

  Component Manufacturing            

Subordinated Debt

      12.50%/2.00     3/21/2022       11,167       11,127       10,346    

Common Equity (378 units) (j)

            500       182    
         

 

 

   

 

 

   
            11,627       10,528       3

Oaktree Medical Centre, P.C. (dba Pain Management Associates)

  Healthcare Services            

First Lien Debt (j)(u)

      14.50%/0.00     1/1/2018       571       649       684    

First Lien Debt (j)(u)

      10.00%/12.00     1/1/2018       7,507       8,094       8,528    

Revolving Loan (j)(u)

      14.50%/0.00     1/1/2018       2,500       2,700       2,988    
         

 

 

   

 

 

   
            11,443       12,200       3

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)          

 

Industry

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

OMC Investors, LLC (dba Ohio Medical Corporation)

  Healthcare Products            

Second Lien Debt

      12.00%/0.00     7/15/2021     $ 10,000     $ 9,949     $ 8,763    

Common Equity (5,000 units)

            500       149    
         

 

 

   

 

 

   
            10,449       8,912       2
Palmetto Moon, LLC   Retail            

First Lien Debt

      11.50%/2.50     10/31/2021       5,527       5,502       5,527    

Common Equity (499 units) (j)

            494       247    
         

 

 

   

 

 

   
            5,996       5,774       1

Plymouth Rock Energy, LLC

  Business Services            

Second Lien Debt (k)

      12.00%/0.00     6/30/2019       7,018       7,018       7,018       2
Power Grid Components, Inc.   Specialty Distribution            

Second Lien Debt (k)

      11.00%/1.00     5/20/2023       11,253       11,203       11,203    

Preferred Equity (392 shares) (j)

            392       392    

Common Equity (9,695 shares) (j)

            358       358    
         

 

 

   

 

 

   
            11,953       11,953       3
Pugh Lubricants, LLC   Specialty Distribution            

Second Lien Debt (k)

      12.25%/0.00     5/10/2022       18,581       18,518       18,581    

Common Equity (6,125 units) (h)(j)

            612       939    
         

 

 

   

 

 

   
            19,130       19,520       5

Restaurant Finance Co, LLC

  Restaurants            

Second Lien Debt (k)(p)

      15.00%/4.00     7/31/2020       9,342       9,314       2,236       1

Revenue Management Solutions, LLC

  Information Technology Services            

Subordinated Debt (k)

      11.50%/1.00     7/4/2022       8,905       8,846       9,084    

Common Equity (2,250,000 shares)

            2,250       3,619    
         

 

 

   

 

 

   
            11,096       12,703       3
Rhino Assembly Company, LLC   Specialty Distribution            

Second Lien Debt (k)

      12.00%/1.00     2/11/2023       7,501       7,467       7,501    

Delayed Draw Commitment ($1,042 commitment) (i)(j)

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

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

            750       1,097    
         

 

 

   

 

 

   
            8,217       8,598       2

Road Safety Services, Inc.

  Business Services            

Second Lien Debt

      11.25%/1.50     3/18/2024       10,030       9,982       9,982    

Common Equity (655 units)

            621       621    
         

 

 

   

 

 

   
            10,603       10,603       3
Rohrer Corporation   Packaging            

Common Equity (400 shares)

            780       842       0

SES Investors, LLC (dba SES Foam)

  Building Products Manufacturing            

Second Lien Debt

      13.00%/0.00     12/29/2020       4,095       4,066       2,785    

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

            600       —      
         

 

 

   

 

 

   
            4,666       2,785       1

Simplex Manufacturing Co.

  Aerospace & Defense Manufacturing            

Subordinated Debt

      14.00%/0.00     7/31/2019       4,050       4,050       4,050    

Warrant (29 shares) (m)

            1,155       2,593    
         

 

 

   

 

 

   
            5,205       6,643       2
SimplyWell, Inc.   Healthcare Services            

Second Lien Debt

      12.00%/1.25     2/23/2021       10,141       10,107       10,141    

Preferred Equity (309,142 shares)

            500       545    
         

 

 

   

 

 

   
            10,607       10,686       3

Software Technology, LLC

  Information Technology Services            

Subordinated Debt (k)

      11.00%/0.00     6/23/2023       10,000       9,962       10,000    

Common Equity (12 shares)

            1,291       1,283    
         

 

 

   

 

 

   
            11,253       11,283       3

SpendMend, LLC

  Business Services            

Second Lien Debt (k)

      11.00%/1.00     7/8/2023       10,375       10,326       10,375    

Common Equity (1,000,000 units)

            1,000       1,255    
         

 

 

   

 

 

   
            11,326       11,630       3

The Wolf Organization, LLC

  Building Products Manufacturing            

Common Equity (175 shares)

            1,445       5,192       1

 

10


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)          

 

Industry

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

Thermoforming Technology Group LLC (dba Brown Machine Group)

  Capital Equipment Manufacturing            

Second Lien Debt (k)

      12.50%/0.00     9/14/2021     $ 23,200     $ 23,127     $ 23,370    

Common Equity (3,760 units) (h)(j)

            230       813    
         

 

 

   

 

 

   
            23,357       24,183       6
Tile Redi, LLC   Building Products Manufacturing            

First Lien Debt (j)(r)

      12.34%/0.00     6/16/2022       10,194       10,117       10,054       3
Toledo Molding & Die, Inc.   Component Manufacturing            

Second Lien Debt (j)

      10.50%/0.00     12/18/2018       10,000       9,992       10,000       2
TransGo, LLC   Component Manufacturing            

Second Lien Debt

      13.25%/0.00     8/28/2022       9,500       9,466       9,500    

Common Equity (1,000 units)

            998       893    
         

 

 

   

 

 

   
            10,464       10,393       3
The Tranzonic Companies   Specialty Distribution            

Subordinated Debt (j)

      10.00%/1.50     3/27/2025       5,643       5,591       5,140    

Preferred Equity (5,000 units) (j)

            500       424    

Common Equity (1 units) (j)

            —         —      
         

 

 

   

 

 

   
            6,091       5,564       1
UBEO, LLC   Business Services            

Subordinated Debt (j)

      11.00%/0.00     10/3/2024       7,100       7,034       7,034    

Common Equity (Units) (705,000 units) (j)

            705       705    
         

 

 

   

 

 

   
            7,739       7,739       2
United Biologics, LLC   Healthcare Services            

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

            1,008       90    

Warrant (57,469 units) (m)

            566       62    
         

 

 

   

 

 

   
            1,574       152       0
US GreenFiber, LLC   Building Products Manufacturing            

Second Lien Debt (k)

      12.00%/2.00     3/1/2019       14,363       14,359       12,182    

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

            586       —      
         

 

 

   

 

 

   
            14,945       12,182       3
US Pack Logistics LLC   Transportation services            

Second Lien Debt (k)

      12.00%/1.75     3/28/2023       7,379       7,361       7,380    

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

            555       824    

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

            927       1,026    
         

 

 

   

 

 

   
            8,843       9,230       2

Vanguard Dealer Services, L.L.C.

  Business Services            

Common Equity (6,000 units)

            154       820    

Common Equity (2,380 units) (j)

            327       325    
         

 

 

   

 

 

   
            481       1,145       0
Virginia Tile Company, LLC   Specialty Distribution            

Second Lien Debt (k)

      12.25%/0.00     4/7/2022       12,000       11,977       12,000    

Common Equity (17 units)

            342       1,603    
         

 

 

   

 

 

   
            12,319       13,603       3

Worldwide Express Operations, LLC

  Transportation services            

Second Lien Debt (j)(o)

      11.10%/0.00     2/3/2025       10,000       9,881       10,000    

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

            4,000       4,617    
         

 

 

   

 

 

   
            13,881       14,617       4
         

 

 

   

 

 

   

Total Non-control/Non-affiliate Investments

          $ 539,184     $ 529,983       132
         

 

 

   

 

 

   
Total Investments           $ 619,773     $ 668,503       166
         

 

 

   

 

 

   

 

 

(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, 2018. 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, 2018.

 

11


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

September 30, 2018

(in thousands, except shares)

 

(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 disclosed commitment represents the unfunded amount as of September 30, 2018. The Company is earning 0.50% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.

(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.

(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, 2018.

(p)

Investment was on non-accrual status as of September 30, 2018, 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, 2018.

(s)

A portion of the investment is held by a wholly-owned subsidiary of the Company, other than the Funds.

(t)

As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control” this portfolio company because it owns 25% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.

(u)

The debt investment continues to pay interest, including the default rate, while the portfolio company pursues refinancing options.

(v)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 5.00% and is subject to a 2.00% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.54% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(w)

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 + 7.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of September 30, 2018.

See Notes to Consolidated Financial Statements (unaudited).

 

12


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2017

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

 

Industry

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

Control Investments (t)

             

FDS Avionics Corp. (dba Flight Display Systems)

  Aerospace & Defense Manufacturing            

Second Lien Debt

      4.00%/11.00     4/1/2020     $ 5,556     $ 5,546     $ 4,348    

Common Equity (7,478 shares) (j)

            748       375    
         

 

 

   

 

 

   
            6,294       4,723       1
         

 

 

   

 

 

   

Total Control Investments

          $ 6,294     $ 4,723       1
         

 

 

   

 

 

   

Affiliate Investments (l)

             

Apex Microtechnology, Inc.

  Electronic Components Supplier            

Warrant (2,293 shares) (m)

          $ 220     $ 543    

Common Equity (11,690 shares)

            1,169       2,857    
         

 

 

   

 

 

   
            1,389       3,400       1
FAR Research Inc.   Specialty Chemicals            

Common Equity (1,396 units)

            1,396       1,447       0
Fiber Materials, Inc.   Aerospace & Defense Manufacturing            

Second Lien Debt

      12.00%/1.00     5/30/2022     $ 4,044       4,028       4,044    

Common Equity (10 units)

            1,000       1,838    
         

 

 

   

 

 

   
            5,028       5,882       1
Inflexxion, Inc.   Business Services            

First Lien Debt

      5.00%/5.00     12/16/2019       4,478       4,468       2,647    

Revolving Loan (j)

      5.00%/5.00     12/16/2019       275       273       163    

Preferred Equity (252,046 units)

            252       —      

Preferred Equity (308,987 units)

            309       —      

Preferred Equity (1,400 units)

            1,400       —      

Preferred Equity (550,000 units)

            200       —      
         

 

 

   

 

 

   
            6,902       2,810       1
Medsurant Holdings, LLC   Healthcare Services            

Second Lien Debt

      12.25%/0.75     6/30/2020       8,824       8,776       8,824    

Preferred Equity (126,662 units) (h)

            1,346       2,753    

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

            4,516       10,048    
         

 

 

   

 

 

   
            14,638       21,625       5
Microbiology Research Associates, Inc.   Healthcare Services            

Subordinated Debt

      11.00%/1.50     3/13/2022       8,667       8,649       8,667    

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

            1,939       3,788    
         

 

 

   

 

 

   
            10,588       12,455       3
Mirage Trailers LLC   Utility Equipment Manufacturing            

Second Lien Debt (k)(f)

      12.88%/1.50     11/25/2020       6,017       5,964       6,017    

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

            2,340       2,939    
         

 

 

   

 

 

   
            8,304       8,956       2
Pfanstiehl, Inc.   Healthcare Products            

Subordinated Debt

      10.50%/0.00     9/29/2021       6,208       6,193       6,208    

Common Equity (8,500 units) (j)

            850       9,070    
         

 

 

   

 

 

   
            7,043       15,278       4
Pinnergy, Ltd.   Oil & Gas Services            

Second Lien Debt (k)

      0.00%/10.00     1/24/2020       9,300       9,286       9,300    

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

            3,000       15,621    

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

            3,000       3,000    
         

 

 

   

 

 

   
            15,286       27,921       7
Rhino Assembly Company, LLC   Specialty Distribution            

Second Lien Debt

      12.00%/1.00     2/11/2023       3,514       3,498       3,498    

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

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

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

            750       750    
         

 

 

   

 

 

   
            4,248       4,248       1

 

13


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2017

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

 

Industry

  Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 
Safety Products Group, LLC (n)  

Safety Products

Manufacturing

           

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

          $ —       $ 12    

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

            —         —      
         

 

 

   

 

 

   
            —         12       0

Steward Holding LLC (dba Steward Advanced Materials)

  Aerospace & Defense Manufacturing            

Second Lien Debt

      12.00%/3.25     5/12/2021     $ 7,382       7,360       7,382    

Common Equity (1,000,000 units)

            1,000       500    
         

 

 

   

 

 

   
            8,360       7,882       2
Trantech Radiator Products, Inc.   Utility Equipment Manufacturing            

Second Lien Debt (j)

      14.25%/0.00     5/31/2018       6,994       6,992       6,694    

Common Equity (6,875 shares) (j)

            688       13    
         

 

 

   

 

 

   
            7,680       6,707       2
World Wide Packaging, LLC   Consumer Products            

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

            499       4,388       1
         

 

 

   

 

 

   

Total Affiliate Investments

          $ 91,361     $  123,011       30
         

 

 

   

 

 

   

Non-control/Non-affiliate Investments

             
Accent Food Services, LLC   Vending Equipment Manufacturing            

Second Lien Debt (k)

      10.00%/3.00     5/30/2022     $ 28,983     $ 28,846     $ 28,984    

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

            800       635    
         

 

 

   

 

 

   
            29,646       29,619       8
Allied 100 Group, Inc.   Healthcare Products            

Subordinated Debt (k)

      11.50%/0.00     5/26/2020       13,000       12,973       13,000    

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

            1,249       1,425    
         

 

 

   

 

 

   
            14,222       14,425       4
Caldwell & Gregory, LLC   Laundry Services            

Subordinated Debt

      0.00%/12.00     5/31/2022       3,035       3,035       3,035    

Common Equity (500,000 units) (h)

            500       625    

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

            242       268    
         

 

 

   

 

 

   
            3,777       3,928       1

Cardboard Box LLC (dba Anthony’s Coal Fired Pizza)

  Restaurants            

Common Equity (521,021 units) (j)

            520       85       0
Cavallo Bus Lines Holdings, LLC  

Transportation

services

           

Second Lien Debt

      12.75%/0.00     4/26/2021       7,395       7,370       6,572       2
Comprehensive Logistics Co., Inc.   Business Services            

Subordinated Debt (k)

      11.50%/4.50     11/22/2021       15,775       15,716       15,775       4

Consolidated Infrastructure Group Holdings, LP

  Business Services            

Second Lien Debt

      11.25%/1.50     11/30/2022       2,002       1,993       1,993    

Common Equity (298 shares)

            500       500    
         

 

 

   

 

 

   
            2,493       2,493       1
ControlScan, Inc.   Information Technology Services            

Subordinated Debt (j)

      11.00%/0.00     1/28/2023       6,750       6,719       6,719    

Common Equity (3,704 shares) (j)

            4       4    

Preferred Equity (100 shares) (j)

            996       996    
         

 

 

   

 

 

   
            7,719       7,719       2
EBL, LLC (EbLens)   Retail            

Second Lien Debt (j)

      12.00%/1.00     1/13/2023       9,294       9,210       9,210    

Common Equity (75,000 units) (j)

            750       750    
         

 

 

   

 

 

   
            9,960       9,960       3

 

14


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2017

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

 

Industry

  Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 
Gurobi Optimization, LLC   Information Technology Services            

Subordinated Debt (k)

      11.00%/0.00     6/19/2023     $ 20,000     $ 19,901     $ 19,901    

Common Equity (5 shares)

            1,500       1,500    
         

 

 

   

 

 

   
            21,401       21,401       5

Hilco Plastics Holdings, LLC (dba Hilco Technologies)

  Component Manufacturing            

Subordinated Debt

      11.50%/4.00     7/15/2022       8,228       8,198       7,207    

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

            500       163    
         

 

 

   

 

 

   
            8,698       7,370       2

Hub Acquisition Sub, LLC (dba Hub Pen)

  Promotional products            

Second Lien Debt (k)

      12.25%/0.00     9/23/2021       16,750       16,685       16,750    

Common Equity (7,500 units)

            276       902    
         

 

 

   

 

 

   
            16,961       17,652       4
Ice House America, LLC   Vending Equipment Manufacturing            

Second Lien Debt (j)

      12.00%/3.00     1/1/2020       4,367       4,269       4,367    

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

            215       234    
         

 

 

   

 

 

   
            4,484       4,601       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            

Second Lien Debt (k)

      17.00%/0.00     6/30/2018       4,000       3,999       4,000    

Subordinated Debt

      13.00%/0.00     6/30/2018       510       509       510    

Preferred Equity (66,138 shares) (g)

      0.00%/15.00     6/30/2018         1,238       1,152    

Warrant (63,492 shares) (m)

            67       —      
         

 

 

   

 

 

   
            5,813       5,662       1
K2 Industrial Services, Inc.  

Industrial Cleaning &

Coatings

           

Second Lien Debt

      11.75%/2.50     4/25/2022       10,304       10,270       10,304    

Second Lien Debt

      11.75%/7.25     4/25/2022       2,181       2,174       2,181    

Common Equity (1,673 shares)

            1,268       457    
         

 

 

   

 

 

   
            13,712       12,942       3

The Kyjen Company, LLC (dba Outward Hound)

  Consumer Products            

Second Lien Debt (k)

      12.00%/0.00     6/8/2024       14,500       14,428       14,428    

Common Equity (750 shares) (j)

            750       750    
         

 

 

   

 

 

   
            15,178       15,178       4

LNG Indy, LLC (dba Kinetrex Energy)

  Oil & Gas Distribution            

Second Lien Debt (k)

      11.50%/0.00     9/28/2021       5,000       4,980       5,000    

Common Equity (1,000 units)

            1,000       1,137    
         

 

 

   

 

 

   
            5,980       6,137       2
Marco Group International OpCo, LLC  

Industrial Cleaning &

Coatings

           

Second Lien Debt

      10.50%/0.75     1/21/2023       12,041       11,986       11,986    

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

            750       750    
         

 

 

   

 

 

   
            12,736       12,736       3
Mesa Line Services, LLC   Utilities: Services            

Second Lien Debt (j)

      10.50%/1.00     5/31/2023       9,108       9,048       9,048    

Delayed Draw Commitment ($4,000 commitment) (i)(j)

      10.50%/1.00     5/31/2019       —         (13     —      

Common Equity (500 shares) (j)

            500       500    
         

 

 

   

 

 

   
            9,535       9,548       2

 

15


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2017

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

 

Industry

  Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 
Midwest Transit Equipment, Inc.   Transportation services            

Subordinated Debt (j)

      13.00%/0.00     6/23/2022     $ 12,005     $  11,286     $  12,005    

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

            361       80    

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

            381       405    
         

 

 

   

 

 

   
            12,028       12,490       3
New Era Technology, Inc.   Information Technology Services            

Second Lien Debt (j)

      11.00%/1.50     9/3/2022       11,646       11,598       11,646    

Common Equity (197,369 shares) (j)

            750       828    
         

 

 

   

 

 

   
            12,348       12,474       3

NGT Acquisition Holdings, LLC (dba Techniks Industries)

  Component Manufacturing            

Subordinated Debt

      12.50%/0.00     3/21/2022       11,000       10,952       11,000    

Common Equity (378 units) (j)

            500       470    
         

 

 

   

 

 

   
            11,452       11,470       3

Oaktree Medical Centre, P.C. (dba Pain Management Associates)

  Healthcare Services            

First Lien Debt (j)

      11.50%/0.00     1/1/2018       571       648       631    

First Lien Debt (j)

      7.00%/12.00     1/1/2018       6,849       7,437       6,438    

Revolving Loan (j)

      11.50%/0.00     1/1/2018       2,500       2,835       2,743    
         

 

 

   

 

 

   
            10,920       9,812       2

OMC Investors, LLC (dba Ohio Medical Corporation)

  Healthcare Products            

Second Lien Debt

      12.00%/0.00     7/15/2021       10,000       9,936       8,438    

Common Equity (5,000 shares)

            500       214    
         

 

 

   

 

 

   
            10,436       8,652       2
Palmetto Moon, LLC   Retail            

First Lien Debt

      11.50%/1.00     10/31/2021       6,187       6,158       6,187    

Common Equity (499 units) (j)

            499       286    
         

 

 

   

 

 

   
            6,657       6,473       2
Plymouth Rock Energy, LLC   Business Services            

Second Lien Debt (k)

      11.00%/0.00     6/30/2019       5,545       5,545       5,545       1
Pugh Lubricants, LLC   Specialty Distribution            

Second Lien Debt (k)

      12.25%/0.00     5/10/2022       18,581       18,505       18,581    

Common Equity (6,125 units) (h)(j)

            612       931    
         

 

 

   

 

 

   
            19,117       19,512       5
Restaurant Finance Co, LLC   Restaurants            

Second Lien Debt (k)(p)

      15.00%/4.00     7/31/2020       9,342       9,314       2,046       1
Revenue Management Solutions, LLC   Information Technology Services            

Subordinated Debt (k)

      11.50%/1.00     7/4/2022       8,838       8,766       8,838    

Subordinated Debt (j)

      7.00%/6.50     7/4/2022       817       806       817    

Common Equity (2,250,000 units)

            2,250       2,571    
         

 

 

   

 

 

   
            11,822       12,226       3
Rohrer Corporation   Packaging            

Common Equity (389 shares)

            750       878       0

SES Investors, LLC (dba SES Foam)

  Building Products Manufacturing            

Second Lien Debt

      13.00%/0.00     12/29/2020       4,095       4,056       3,229    

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

            600       —      
         

 

 

   

 

 

   
            4,656       3,229       1

 

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FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2017

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

 

Industry

  Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 
Simplex Manufacturing Co.   Aerospace & Defense Manufacturing            

Subordinated Debt

      14.00%/0.00     11/1/2018     $ 4,050     $ 4,050     $ 4,050    

Warrant (29 shares) (m)

            1,155       3,240    
         

 

 

   

 

 

   
            5,205       7,290       2
SimplyWell, Inc.   Healthcare Services            

Second Lien Debt

      12.00%/1.25     2/23/2021       10,046       10,001       10,001    

Preferred Equity (309,142 shares)

            500       500    
         

 

 

   

 

 

   
            10,501       10,501       3
Six Month Smiles Holdings, Inc.   Healthcare Products            

Second Lien Debt (j)(p)

      0.00%/14.50     7/31/2020       9,395       9,377       5,041       1
Software Technology, LLC   Information Technology Services            

Subordinated Debt (k)

      11.00%/0.00     6/23/2023       8,750       8,712       8,749    

Common Equity (11 units)

            1,125       1,183    
         

 

 

   

 

 

   
            9,837       9,932       3
The Wolf Organization, LLC   Building Products Manufacturing            

Common Equity (175 shares)

            1,445       4,223       1

Thermoforming Technology Group LLC (dba Brown Machine Group)

  Capital Equipment Manufacturing            

Second Lien Debt (k)

      12.50%/0.00     9/14/2021       19,700       19,626       19,700    

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

            169       360    
         

 

 

   

 

 

   
            19,795       20,060       5
Tile Redi, LLC   Building Products Manufacturing            

First Lien Debt (j)(r)

      11.34%/0.00     6/16/2022       10,194       10,102       10,102       3
Toledo Molding & Die, Inc.   Component Manufacturing            

Second Lien Debt (j)

      10.50%/0.00     12/18/2018       10,000       9,964       10,000       3
TransGo, LLC   Component Manufacturing            

Second Lien Debt

      13.25%/0.00     8/28/2022       9,500       9,460       9,500    

Common Equity (1,000 units)

            1,000       847    
         

 

 

   

 

 

   
            10,460       10,347       3
United Biologics, LLC   Healthcare Services            

Second Lien Debt

      12.00%/2.00     4/30/2018       8,876       8,866       8,876    

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

            1,069       879    

Warrant (57,469 units) (m)

            566       234    
         

 

 

   

 

 

   
            10,501       9,989       3
US GreenFiber, LLC   Building Products Manufacturing            

Second Lien Debt (k)

      12.00%/2.00     3/1/2019       14,147       14,131       13,014    

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

            586       —      
         

 

 

   

 

 

   
            14,717       13,014       3
US Pack Logistics LLC   Transportation services            

Second Lien Debt (k)

      12.00%/1.75     3/28/2023       7,282       7,257       7,282    

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

            583       1,078    

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

            945       966    
         

 

 

   

 

 

   
            8,785       9,326       2
Vanguard Dealer Services, L.L.C.   Business Services            

Second Lien Debt

      12.25%/0.00     1/30/2021       11,450       11,416       11,450    

Common Equity (6,000 shares)

            600       946    
         

 

 

   

 

 

   
            12,016       12,396       3
Virginia Tile Company, LLC   Specialty Distribution            

Second Lien Debt (k)

      12.25%/0.00     4/7/2022       12,000       11,971       12,000    

Common Equity (17 units)

            342       1,493    
         

 

 

   

 

 

   
            12,313       13,493       4

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2017

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

 

Industry

  Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 
Worldwide Express Operations, LLC   Transportation services            

Second Lien Debt (j)(o)

      10.20%/0.00     2/3/2025     $ 10,000     $ 9,867     $ 10,000    

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

            4,000       4,233    
         

 

 

   

 

 

   
            13,867       14,233       4
         

 

 

   

 

 

   
Total Non-control/Non-affiliate Investments           $ 480,139     $  468,574       121
         

 

 

   

 

 

   
Total Investments           $ 577,794     $ 596,308       152
         

 

 

   

 

 

   

 

(a)

See Note 3 to the consolidated financial statements for portfolio composition by geographic location.

(b)

Equity ownership may be held in shares or units of companies related to the portfolio companies.

(c)

All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.

(d)

Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of December 31, 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 December 31, 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 disclosed commitment represents the unfunded amount as of December 31, 2017. The Company is earning 0.50% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.

(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.

(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 six-month LIBOR, which is reset semi-annually. The interest rate is set as six-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 December 31, 2017.

(p)

Investment was on non-accrual status as of December 31, 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 December 31, 2017.

(s)

A portion of the investment is held by a wholly-owned subsidiary of the Company, other than the Funds.

(t)

As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control” this portfolio company because it owns 25% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.

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 (“FIC,” and together with its subsidiaries, the “Company”), a Maryland Corporation, operates as an externally managed, closed-end, non-diversified business development company (“BDC”) under the Investment Company Act of 1940 (“1940 Act”). FIC completed its initial public offering, or IPO, in June 2011. 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”).

The Company provides customized debt and equity financing solutions to lower middle-market companies, and may make investments directly or through its two wholly-owned investment company subsidiaries, Fidus Mezzanine Capital, L.P. (“Fund I”) and Fidus Mezzanine Capital II, L.P. (“Fund II”) (collectively Fund I and Fund II are referred to as the “Funds”). The Funds are licensed by the U.S. Small Business Administration (the “SBA”) as small business investment companies (“SBIC”). 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.

We believe that utilizing both FIC and the Funds as investment vehicles provides us with access to a broader array of investment opportunities. Given our access to lower cost capital through the SBA’s SBIC debenture program, we expect that the majority of our investments will continue to be made through the Funds until the Funds reach their borrowing limit under the program. For three or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350,000.

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.

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”).

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, 2017.

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.

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 - In contrast to investment-grade bonds (the market prices of which change primarily as a reaction to changes in interest rates), the market prices of high-yield bonds (which are also affected by changes in interest rates) are influenced much more by credit factors and financial results of the issuer as well as general economic factors that influence the financial markets as a whole. The portfolio companies in which the Company invests may be unseasoned, unprofitable and/or have little established operating history or earnings. These companies may also lack technical, marketing, financial, and other resources or may be dependent upon the success of one product or service, a unique distribution channel, or the effectiveness of a manager or management team, as compared to larger, more established entities. The failure of a single product, service or distribution channel, or the loss or the ineffectiveness of a key

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

 

executive or executives within the management team may have a materially adverse impact on such companies. Furthermore, these companies may be more vulnerable to competition and to overall economic conditions than larger, more established entities.

 

   

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. Issues of high-yield debt securities in which the Company invests are more likely to default on interest or principal than are issues of investment-grade securities.

 

   

Liquidity risk - Liquidity risk represents the possibility that the Company may not be able to sell its investments quickly or at a reasonable price (given the lack of an established market).

 

   

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 market 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 through the stated maturity date.

 

   

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 defined terms at defined 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 U.S. Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These expenses are included in prepaid assets and are charged to additional paid-in capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.

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

Interest 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

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

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 after 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 and are generally non-recurring. 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 10th 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 company investments 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 included in the income tax provision, if any. There were no material uncertain income tax positions at September 30, 2018 and December 31, 2017. 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 2015 through 2017 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 two 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, 2018 and 2017, 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 Program: The Company has an open market stock repurchase program (the “Stock Repurchase Program”) under which the Company may acquire up to $5,000 of its outstanding common stock. Under the Stock Repurchase Program, the Company may, but is not obligated to, repurchase outstanding common stock in the open market from time to time provided that the Company complies with the prohibitions under its insider trading policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints. The timing, manner, price and amount of any share repurchases will be determined by the Company’s management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate considerations. On October 30, 2018, the Board extended the Program through December 31, 2019, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not require the Company to repurchase any specific

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

number of shares and the Company cannot assure that any shares will be repurchased under the Stock Repurchase Program. The Stock Repurchase Program may be suspended, extended, modified or discontinued at any time. During the nine months ended September 30, 2018, the Company repurchased 44,821 shares of common stock on the open market for $582. The Company did not make any repurchases of common stock during the nine months ended September 30, 2017. Refer to Note 8 for additional information concerning stock repurchases.

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 adopted the ASU effective January 1, 2018. The majority of the Company’s 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 adopting the ASU is not material to the Company’s consolidated financial position or disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial position or disclosures.

In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification, which amends certain SEC disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, U.S. GAAP requirements, or changes in the information environment. As it pertains to the Company, the amendments include certain presentation changes to the net assets section of the consolidated statements of assets and liabilities and the consolidated statements of changes in net assets (among other changes). The amendments are effective for all filings submitted on or after November 5, 2018. The Company will adopt the amendments effective November 5, 2018. 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, 2018, the Company had active investments in 65 portfolio companies and residual investments in one portfolio company that has sold its underlying operations. The aggregate fair value of the total portfolio was $668,503 and the weighted average effective yield on the Company’s debt investments was 12.6% as of such date. As of September 30, 2018, the Company held equity investments in 90.9% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 6.3%.

As of December 31, 2017, the Company had active investments in 60 portfolio companies and residual investments in three portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $596,308 and the weighted average effective yield on the Company’s debt investments was 13.0% as of such date. As of December 31, 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 7.7%.

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, 2018 and December 31, 2017, including accretion of OID 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, 2018 and 2017 totaled $144,614 and $155,577, 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, 2018 and 2017 totaled $92,052 and $132,724, respectively.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

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

 

     Fair Value     Cost  
     September 30,     December 31,     September 30,     December 31,  
     2018     2017     2018     2017  

Second Lien Debt

   $ 386,401        57.8   $ 341,279        57.3   $ 406,735        65.6   $ 357,585        62.0

Subordinated Debt

     102,893        15.4       126,481        21.2       102,913        16.6       126,465        21.9  

First Lien Debt

     46,403        6.9       28,911        4.8       45,684        7.4       31,921        5.5  

Equity

     116,815        17.5       84,585        14.2       56,815        9.2       53,915        9.3  

Warrants

     15,991        2.4       15,052        2.5       7,441        1.2       7,723        1.3  

Royalty Rights

     —          —         —          —         185        —         185        —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 668,503        100.0   $ 596,308        100.0   $ 619,773        100.0   $ 577,794        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

All investments made by the Company as of September 30, 2018 and December 31, 2017 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,     December 31,     September 30,     December 31,  
     2018     2017     2018     2017  

Midwest

   $ 188,625        28.2   $ 167,967        28.2   $ 181,748        29.4   $ 161,809        28.1

Southeast

     178,023        26.6       130,237        21.8       157,021        25.3       130,694        22.6  

Northeast

     76,852        11.5       107,814        18.1       69,472        11.2       105,267        18.2  

West

     63,345        9.5       63,396        10.6       53,915        8.7       53,970        9.3  

Southwest

     161,658        24.2       126,894        21.3       157,617        25.4       126,054        21.8  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 668,503        100.0   $ 596,308        100.0   $ 619,773        100.0   $ 577,794        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,     December 31,          September 30,     December 31,  
     2018     2017          2018     2017  
Second Lien Debt      96.2     86.7   Midwest      47.0     42.7
Subordinated Debt      25.6       32.2     Southeast      44.3       33.1  
First Lien Debt      11.6       7.4     Northeast      19.1       27.4  
Equity      29.1       21.5     West      15.8       16.1  
Warrants      4.0       3.8     Southwest      40.3       32.3  
Royalty Rights      —         —           
  

 

 

   

 

 

      

 

 

   

 

 

 
Total      166.5     151.6   Total      166.5     151.6
  

 

 

   

 

 

      

 

 

   

 

 

 

As of September 30, 2018 and December 31, 2017, the Company had no portfolio company investments that represented more than 10% of the total investment portfolio on a fair value or cost basis.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

As of September 30, 2018 and December 31, 2017, the Company had debt investments in two portfolio companies on non-accrual status, respectively:

 

     September 30, 2018     December 31, 2017  
     Fair           Fair        

Portfolio Company

   Value     Cost     Value     Cost  

K2 Industrial Services, Inc.

   $ 6,851     $ 12,678     $ —   (2)     $ —   (2)  

Restaurant Finance Co, LLC

     2,236       9,314       2,046       9,314  

Six Month Smiles Holdings, Inc.

     —   (1)       —   (1)       5,041       9,377  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 9,087     $ 21,992     $ 7,087     $ 18,691  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Portfolio company was no longer held at period end.

(2)

Portfolio company debt investments were not on non-accrual status at period end.

Consolidated Schedule of Investments In and Advances To Affiliates

The table below represents the fair value of control and affiliate investments as of December 31, 2017 and any additions and reductions made to such investments during the nine months ended September 30, 2018, the ending fair value as of September 30, 2018, and the total investment income earned on such investments during the period.

 

                                  Nine Months Ended September 30, 2018  

Portfolio Company (1)

  September 30,
2018

Principal
Amount -

Debt
Investments
    December 31,
2017
Fair Value
    Gross
Additions (2)
    Gross
Reductions (3)
    September 30,
2018 Fair
Value
    Net
Realized
Gains
(Losses)