e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
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o |
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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)
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Maryland
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27-5017321 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
1603 Orrington Avenue, Suite 820
Evanston, Illinois, 60201
(Address and zip code of principal executive offices)
(847) 859-3940
(Registrants telephone number, including area code)
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 o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of August 3, 2011, the Registrant had outstanding 9,427,021 shares of common stock, $0.001 par
value.
FIDUS INVESTMENT CORPORATION
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FIDUS INVESTMENT CORPORATION
Consolidated Statements of Assets and Liabilities
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June 30, |
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2011 |
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December 31, |
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(unaudited) |
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2010 |
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ASSETS |
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Investments, at fair value |
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Control investments (cost: $28,240,386 and $26,985,897, respectively) |
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$ |
35,069,872 |
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$ |
29,419,402 |
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Affiliate investments (cost: $29,684,777 and $24,413,389, respectively) |
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30,947,477 |
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26,860,320 |
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Non-control/non-affiliate investments (cost: $96,359,928 and $93,907,155, respectively) |
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94,688,439 |
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85,061,756 |
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Total investments at fair value (cost: $154,285,091 and $145,306,441, respectively) |
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160,705,788 |
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141,341,478 |
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Cash and cash equivalents |
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62,253,391 |
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1,757,139 |
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Interest receivable |
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2,467,612 |
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1,141,357 |
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Deferred financing costs (net of accumulated amortization of $952,457 and $812,118, respectively) |
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2,693,731 |
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2,795,257 |
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Prepaid expenses and other assets |
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631,780 |
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341,558 |
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Total assets |
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$ |
228,752,302 |
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$ |
147,376,789 |
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LIABILITIES |
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SBA debentures |
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$ |
96,750,000 |
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$ |
93,500,000 |
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Accrued interest payable |
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1,690,960 |
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1,638,862 |
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Due to affiliates |
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92,641 |
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958 |
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Accounts payable and other liabilities |
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859,472 |
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232,305 |
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Total liabilities |
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99,393,073 |
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95,372,125 |
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NET ASSETS |
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Partners capital |
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52,004,664 |
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Common stock, $0.001 par value (100,000,000 shares authorized; 8,726,521 and
0 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively) |
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8,727 |
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Additional paid-in capital |
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128,937,940 |
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Accumulated net investment income |
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412,562 |
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Total net assets |
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129,359,229 |
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52,004,664 |
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Total liabilities and net assets |
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$ |
228,752,302 |
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$ |
147,376,789 |
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Net asset value per share |
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$ |
14.82 |
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n/a |
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See Notes to Consolidated Financial Statements (unaudited).
2
FIDUS INVESTMENT CORPORATION
Consolidated Statements of Operations (unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Investment Income: |
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Interest and fee income |
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Control investments |
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$ |
853,890 |
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$ |
762,283 |
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$ |
1,673,388 |
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$ |
1,498,500 |
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Affiliate investments |
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1,057,828 |
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519,168 |
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1,924,688 |
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1,027,530 |
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Non-control/non-affiliate investments |
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3,271,050 |
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3,143,026 |
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6,246,134 |
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5,853,782 |
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Total interest and fee income |
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5,182,768 |
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4,424,477 |
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9,844,210 |
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8,379,812 |
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Dividend income |
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Control investments |
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120,300 |
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108,838 |
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236,376 |
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213,853 |
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Non-control/non-affiliate investments |
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64,222 |
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208,148 |
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Total dividend income |
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120,300 |
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173,060 |
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236,376 |
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422,001 |
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Interest on idle funds and other income |
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16,219 |
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18,207 |
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32,464 |
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35,847 |
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Total investment income |
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5,319,287 |
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4,615,744 |
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10,113,050 |
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8,837,660 |
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Expenses: |
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Base management fee |
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999,190 |
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1,036,213 |
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2,035,403 |
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2,072,120 |
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Less: management fee offset |
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(430,208 |
) |
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(10,000 |
) |
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(430,208 |
) |
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(290,000 |
) |
Administrative service expenses |
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22,173 |
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22,173 |
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Interest expense |
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1,394,767 |
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1,249,259 |
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2,719,052 |
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2,337,604 |
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Professional fees |
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90,677 |
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18,550 |
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170,350 |
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50,684 |
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Other general and administrative expenses |
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82,759 |
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351,882 |
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106,121 |
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371,962 |
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Total expenses |
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2,159,358 |
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2,645,904 |
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4,622,891 |
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4,542,370 |
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Net investment income |
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3,159,929 |
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1,969,840 |
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5,490,159 |
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4,295,290 |
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Net realized and unrealized gains (losses) on
investments: |
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Realized loss on non-control/non-affiliate
investments |
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(7,935,430 |
) |
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(2,307 |
) |
Net change in unrealized appreciation
(depreciation) on investments |
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1,437,313 |
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(3,709,146 |
) |
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10,385,661 |
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(9,453,306 |
) |
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Net gain (loss) on investments |
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1,437,313 |
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(3,709,146 |
) |
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2,450,231 |
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(9,455,613 |
) |
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Net increase (decrease) in net assets resulting
from operations |
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$ |
4,597,242 |
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$ |
(1,739,306 |
) |
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$ |
7,940,390 |
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$ |
(5,160,323 |
) |
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Net investment income per share-basic and diluted |
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$ |
0.36 |
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n/a |
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$ |
0.63 |
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n/a |
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Net increase in net assets resulting from operations
per share-basic and diluted |
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$ |
0.53 |
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n/a |
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$ |
0.91 |
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n/a |
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Weighted average number of shares outstanding-basic
and diluted |
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8,726,521 |
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n/a |
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8,726,521 |
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n/a |
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See Notes to Consolidated Financial Statements (unaudited).
3
FIDUS INVESTMENT CORPORATION
Consolidated Statements of Changes in Net Assets (unaudited)
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Accumulated |
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Common Stock |
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Additional |
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Net |
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Total |
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General |
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Limited |
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Number |
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Par |
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Paid In |
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Investment |
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Net |
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Partner |
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Partners |
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Of Shares |
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Value |
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Capital |
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Income |
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Assets |
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Balances at December 31,
2009 |
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$ |
4,504,972 |
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$ |
43,975,979 |
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$ |
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$ |
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$ |
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$ |
48,480,951 |
|
Capital distributions |
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(130,805 |
) |
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(1,369,195 |
) |
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(1,500,000 |
) |
Net investment income |
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529,970 |
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|
3,765,320 |
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4,295,290 |
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Realized loss on
investments |
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(201 |
) |
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(2,106 |
) |
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(2,307 |
) |
Net change in unrealized
depreciation on
investments |
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|
(824,361 |
) |
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(8,628,945 |
) |
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(9,453,306 |
) |
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Balances at June 30, 2010 |
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$ |
4,079,575 |
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$ |
37,741,053 |
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$ |
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$ |
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$ |
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$ |
41,820,628 |
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Balances at December 31,
2010 |
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$ |
5,111,894 |
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$ |
46,892,770 |
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$ |
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|
$ |
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|
$ |
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|
$ |
52,004,664 |
|
Capital contributions |
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|
610,424 |
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|
6,389,576 |
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|
|
|
|
|
|
|
7,000,000 |
|
Capital distributions |
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(130,805 |
) |
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|
(1,369,195 |
) |
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|
(1,500,000 |
) |
Net investment income
through June 20, 2011 |
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|
572,009 |
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|
|
4,505,588 |
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|
|
|
|
|
|
|
5,077,597 |
|
Realized loss on
investments through June
20, 2011 |
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|
(691,997 |
) |
|
|
(7,243,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,935,430 |
) |
Net change in unrealized
appreciation on
investments through June
20, 2011 |
|
|
905,665 |
|
|
|
9,479,996 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,385,661 |
|
Formation transactions |
|
|
(6,377,190 |
) |
|
|
(58,655,302 |
) |
|
|
4,056,521 |
|
|
|
4,057 |
|
|
|
65,028,435 |
|
|
|
|
|
|
|
|
|
Public offering of common
stock, net of expenses |
|
|
|
|
|
|
|
|
|
|
4,670,000 |
|
|
|
4,670 |
|
|
|
63,909,505 |
|
|
|
|
|
|
|
63,914,175 |
|
Net investment income
June 21 to June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412,562 |
|
|
|
412,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2011 |
|
$ |
|
|
|
$ |
|
|
|
|
8,726,521 |
|
|
$ |
8,727 |
|
|
$ |
128,937,940 |
|
|
$ |
412,562 |
|
|
$ |
129,359,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See Notes to Consolidated Financial Statements (unaudited).
4
FIDUS INVESTMENT CORPORATION
Consolidated Statements of Cash Flows (unaudited)
|
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|
|
|
|
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|
Six Months Ended June 30, |
|
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|
2011 |
|
|
2010 |
|
Cash Flows from Operating Activities |
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|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations |
|
$ |
7,940,390 |
|
|
$ |
(5,160,323 |
) |
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Net change in unrealized depreciation (appreciation) on investments |
|
|
(10,385,661 |
) |
|
|
9,453,306 |
|
Realized loss on investments |
|
|
7,935,430 |
|
|
|
2,307 |
|
Interest and dividend income paid-in-kind |
|
|
(2,084,385 |
) |
|
|
(2,216,454 |
) |
Accretion of original issue discount |
|
|
(304,877 |
) |
|
|
(348,292 |
) |
Amortization of deferred financing costs |
|
|
180,339 |
|
|
|
170,578 |
|
Purchase of investments |
|
|
(19,591,858 |
) |
|
|
(12,752,307 |
) |
Principal payments received on debt securities |
|
|
5,035,791 |
|
|
|
1,050,000 |
|
Proceeds from loan origination fees |
|
|
31,250 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Interest receivable |
|
|
(1,326,255 |
) |
|
|
(473,501 |
) |
Prepaid expenses and other assets |
|
|
(290,222 |
) |
|
|
(15,857 |
) |
Accrued interest payable |
|
|
52,098 |
|
|
|
219,495 |
|
Due to affiliates |
|
|
91,683 |
|
|
|
(182,251 |
) |
Accounts payable and other liabilities |
|
|
627,167 |
|
|
|
(32,004 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(12,089,110 |
) |
|
|
(10,285,303 |
) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from initial public offering, net of expenses |
|
|
63,914,175 |
|
|
|
|
|
Proceeds from SBA debentures |
|
|
3,250,000 |
|
|
|
12,500,000 |
|
Payment of deferred financing costs |
|
|
(78,813 |
) |
|
|
(603,125 |
) |
Capital contributions |
|
|
7,000,000 |
|
|
|
|
|
Capital distributions |
|
|
(1,500,000 |
) |
|
|
(1,500,000 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
72,585,362 |
|
|
|
10,396,875 |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
60,496,252 |
|
|
|
111,572 |
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
1,757,139 |
|
|
|
2,671,884 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
62,253,391 |
|
|
$ |
2,783,456 |
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
2,486,616 |
|
|
$ |
1,947,531 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements (unaudited).
5
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments June 30, 2011 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company / Type of |
|
|
|
Rate(4) |
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
Percent of Net |
|
Investment(1)(2)(3) |
|
Industry |
|
Cash/PIK |
|
|
Maturity |
|
|
Amount |
|
|
Cost |
|
|
Fair Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connect-Air International, Inc. |
|
Specialty Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
12.5%/3.0 |
% |
|
|
9/6/2013 |
|
|
$ |
4,380,297 |
|
|
$ |
4,380,297 |
|
|
$ |
4,380,297 |
|
|
|
|
|
Preferred Interest(6) |
|
|
|
|
0.0%/10.0 |
% |
|
|
9/3/2014 |
|
|
|
|
|
|
|
4,879,401 |
|
|
|
4,879,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,259,698 |
|
|
|
9,259,698 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Express Operations, LLC |
|
Transportation Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
11.0%/3.0 |
% |
|
|
2/1/2014 |
|
|
|
8,553,298 |
|
|
|
8,553,298 |
|
|
|
8,553,298 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
0.0%/14.0 |
% |
|
|
2/1/2014 |
|
|
|
10,450,276 |
|
|
|
10,157,000 |
|
|
|
10,450,276 |
|
|
|
|
|
Warrant (213,381 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,699,200 |
|
|
|
|
|
Common Units (51,946 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,390 |
|
|
|
1,107,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,980,688 |
|
|
|
25,810,174 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Control Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,240,386 |
|
|
|
35,069,872 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avrio Technology Group, LLC |
|
Electronic Control |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Supplier |
|
|
13.0%/3.0 |
% |
|
|
10/15/2015 |
|
|
|
8,246,197 |
|
|
|
8,246,197 |
|
|
|
8,246,197 |
|
|
|
|
|
Common Units (1,000 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,246,197 |
|
|
|
9,246,197 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medsurant Holdings, LLC |
|
Healthcare Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
|
|
|
14.0%/0.0 |
% |
|
|
4/12/2016 |
|
|
|
4.250,000 |
|
|
|
3,190,675 |
|
|
|
3,190,675 |
|
|
|
|
|
Preferred Units (40,750 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
Warrant (110,050 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100,500 |
|
|
|
1,100,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,791,175 |
|
|
|
4,791,175 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paramount Building Solutions, LLC |
|
Retail Cleaning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
12.0%/4.0 |
% |
|
|
2/15/2014 |
|
|
|
6,114,584 |
|
|
|
6,114,584 |
|
|
|
6,114,584 |
|
|
|
|
|
Common Units (107,143 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
3,050,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,614,584 |
|
|
|
9,165,384 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westminster Cracker Company, Inc. |
|
Specialty Cracker |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Manufacturer |
|
|
14.0%/4.0 |
% |
|
|
11/17/2014 |
|
|
|
6,932,821 |
|
|
|
6,932,821 |
|
|
|
6,932,821 |
|
|
|
|
|
Common Units (1,100,000 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100,000 |
|
|
|
811,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,032,821 |
|
|
|
7,744,721 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,684,777 |
|
|
|
30,947,477 |
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate
Investments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brook & Whittle Limited |
|
Specialty Printing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
12.0%/4.8 |
% |
|
|
2/9/2014 |
|
|
|
6,166,848 |
|
|
|
6,166,848 |
|
|
|
6,166,848 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
12.0%/2.0 |
% |
|
|
2/9/2014 |
|
|
|
2,097,792 |
|
|
|
1,943,661 |
|
|
|
2,097,792 |
|
|
|
|
|
Warrant (1,011 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,000 |
|
|
|
630,700 |
|
|
|
|
|
Common Shares (148 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,374 |
|
|
|
110,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,505,883 |
|
|
|
9,005,714 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caldwell & Gregory, LLC |
|
Laundry Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
12.5%/1.5 |
% |
|
|
4/23/2015 |
|
|
|
3,439,814 |
|
|
|
3,439,814 |
|
|
|
3,439,814 |
|
|
|
|
|
Preferred Units (11,628 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,162,786 |
|
|
|
1,432,098 |
|
|
|
|
|
Common Units (4,464 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,464 |
|
|
|
258,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,607,064 |
|
|
|
5,130,512 |
|
|
|
4 |
% |
6
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company / Type of |
|
|
|
|
|
Rate(4) |
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
Percent of Net |
|
Investment(1)(2)(3) |
|
Industry |
|
|
Cash/PIK |
|
|
Maturity |
|
|
Amount |
|
|
Cost |
|
|
Fair Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino Signs & Graphics, LLC |
|
Niche Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
|
|
|
|
|
2.0%/0.0 |
% |
|
|
12/31/2016 |
|
|
$ |
4,500,000 |
|
|
$ |
4,500,000 |
|
|
$ |
359,637 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairchild Industrial Products Company |
|
Industrial Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.0%/0.0 |
% |
|
|
7/24/2014 |
|
|
|
650,000 |
|
|
|
650,000 |
|
|
|
650,000 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
13.0%/3.0 |
% |
|
|
7/24/2014 |
|
|
|
8,500,000 |
|
|
|
8,500,000 |
|
|
|
8,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,150,000 |
|
|
|
9,150,000 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodrich Quality Theaters, Inc. |
|
Movie Theaters |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.8%/0.0 |
% |
|
|
3/31/2015 |
|
|
|
12,500,000 |
|
|
|
11,933,172 |
|
|
|
12,500,000 |
|
|
|
|
|
Warrant (71 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000 |
|
|
|
2,002,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,683,172 |
|
|
|
14,502,200 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Product Achievements, LLC |
|
Healthcare Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
13.0%/2.5 |
% |
|
|
12/21/2016 |
|
|
|
6,253,906 |
|
|
|
6,222,797 |
|
|
|
6,222,797 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interactive Technology Solutions, LLC |
|
Government IT Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.0%/3.0 |
% |
|
|
12/31/2015 |
|
|
|
5,103,617 |
|
|
|
5,103,617 |
|
|
|
5,103,617 |
|
|
|
|
|
Common Units (499 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
|
|
366,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,603,617 |
|
|
|
5,469,717 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan-Pro Holdings, LLC |
|
Commercial Cleaning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.5%/2.5 |
% |
|
|
3/18/2015 |
|
|
|
7,386,391 |
|
|
|
7,432,556 |
|
|
|
7,432,556 |
|
|
|
|
|
Preferred Equity (750,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000 |
|
|
|
608,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,182,556 |
|
|
|
8,041,156 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K2 Industrial Services, Inc. |
|
Industrial Cleaning & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Coatings |
|
|
14.0%/1.5 |
% |
|
|
2/27/2014 |
|
|
|
8,000,000 |
|
|
|
8,000,000 |
|
|
|
8,240,000 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nobles Manufacturing, Inc. |
|
Aerospace & Defense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Manufacturing |
|
|
13.0%/3.0 |
% |
|
|
4/6/2016 |
|
|
|
6,825,000 |
|
|
|
6,825,000 |
|
|
|
6,825,000 |
|
|
|
|
|
Preferred Equity (1,300,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300,000 |
|
|
|
1,300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125,000 |
|
|
|
8,125,000 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simplex Manufacturing Co. |
|
Aerospace & Defense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
Manufacturing |
|
|
13.0%/0.0 |
% |
|
|
10/31/2013 |
|
|
|
4,550,000 |
|
|
|
4,244,154 |
|
|
|
4,262,200 |
|
|
|
|
|
Warrant (24 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710,000 |
|
|
|
187,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,954,154 |
|
|
|
4,449,900 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBG Anesthesia Management, LLC |
|
Healthcare Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
|
|
|
|
|
13.5%/0.0 |
% |
|
|
11/10/2014 |
|
|
|
11,000,000 |
|
|
|
10,813,354 |
|
|
|
11,000,000 |
|
|
|
|
|
Warrant (263 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276,070 |
|
|
|
317,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,089,424 |
|
|
|
11,317,600 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Inspection Resources, Inc. |
|
Oil & Gas Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
14.0%/0.0 |
% |
|
|
3/12/2014 |
|
|
|
4,000,000 |
|
|
|
3,894,355 |
|
|
|
3,832,300 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
17.5%/0.0 |
% |
|
|
3/12/2014 |
|
|
|
648,471 |
|
|
|
648,471 |
|
|
|
648,471 |
|
|
|
|
|
Warrant (6 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,435 |
|
|
|
193,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,736,261 |
|
|
|
4,674,206 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Control/Non-Affiliate
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,359,928 |
|
|
|
94,688,439 |
|
|
|
73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,285,091 |
|
|
$ |
160,705,788 |
|
|
|
124 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All debt investments are income producing. Equity investments are non-income producing unless otherwise noted. |
|
(2) |
|
See Note 3 to the Consolidated Financial Statements for portfolio composition by geographic location. |
|
(3) |
|
Equity ownership may be held in shares or units of companies related to the portfolio companies. |
|
(4) |
|
Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any. |
|
(5) |
|
See Note 2 Significant Accounting Policies, Investment Classification for definitions of Control and Affiliate classifications. |
|
(6) |
|
Income producing. |
|
(7) |
|
Investment is held by a wholly-owned subsidiary of the Company. |
See Notes to Consolidated Financial Statements (unaudited).
7
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company / Type of |
|
|
|
|
|
Rate(4) |
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
Percent of Net |
|
Investment(1)(2)(3) |
|
Industry |
|
|
Cash/PIK |
|
|
Maturity |
|
|
Amount |
|
|
Cost |
|
|
Fair Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connect-Air International, Inc. |
|
Specialty Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.5%/3.0 |
% |
|
|
9/6/2013 |
|
|
$ |
4,314,967 |
|
|
$ |
4,314,967 |
|
|
$ |
4,314,967 |
|
|
|
|
|
Preferred Interest(6) |
|
|
|
|
|
|
0.0%/10.0 |
% |
|
|
9/3/2014 |
|
|
|
|
|
|
|
4,643,025 |
|
|
|
4,643,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,957,993 |
|
|
|
8,957,993 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Express Operations, LLC |
|
Transportation Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
0.0%/14.0 |
% |
|
|
2/1/2014 |
|
|
|
8,348,609 |
|
|
|
8,348,609 |
|
|
|
8,348,609 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
0.0%/14.0 |
% |
|
|
2/1/2014 |
|
|
|
9,757,158 |
|
|
|
9,408,905 |
|
|
|
9,757,159 |
|
|
|
|
|
Warrant (213,381 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,022,010 |
|
|
|
|
|
Common Units (51,946 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,390 |
|
|
|
333,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,027,905 |
|
|
|
20,461,409 |
|
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Control Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,985,897 |
|
|
|
29,419,402 |
|
|
|
57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avrio Technology Group, LLC |
|
Electronic Control |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Supplier |
|
|
13.0%/3.0 |
% |
|
|
10/15/2015 |
|
|
|
8,124,876 |
|
|
|
8,124,876 |
|
|
|
8,124,876 |
|
|
|
|
|
Common Units (1,000 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,124,876 |
|
|
|
9,124,876 |
|
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paramount Building Solutions, LLC |
|
Retail Cleaning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.0%/4.0 |
% |
|
|
2/15/2014 |
|
|
|
5,993,043 |
|
|
|
5,993,043 |
|
|
|
6,052,975 |
|
|
|
|
|
Common Units (107,143 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
3,887,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,493,043 |
|
|
|
9,939,975 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westminster Cracker Company, Inc. |
|
Specialty Cracker |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Manufacturer |
|
|
14.0%/4.0 |
% |
|
|
11/17/2014 |
|
|
|
6,795,470 |
|
|
|
6,795,470 |
|
|
|
6,795,470 |
|
|
|
|
|
Common Units (1,000,000 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,795,470 |
|
|
|
7,795,470 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,413,389 |
|
|
|
26,860,320 |
|
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate
Investments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brook & Whittle Limited |
|
Specialty Printing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.0%/4.8 |
% |
|
|
2/9/2014 |
|
|
|
6,020,894 |
|
|
|
6,020,894 |
|
|
|
6,020,894 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.0%/2.0 |
% |
|
|
2/9/2014 |
|
|
|
2,076,936 |
|
|
|
1,894,690 |
|
|
|
2,076,938 |
|
|
|
|
|
Warrant (1,011 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,000 |
|
|
|
384,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,200,583 |
|
|
|
8,482,532 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caldwell & Gregory, LLC |
|
Laundry Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.5%/1.5 |
% |
|
|
4/23/2015 |
|
|
|
8,059,822 |
|
|
|
8,059,822 |
|
|
|
8,059,822 |
|
|
|
|
|
Preferred Units (11,628 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,162,786 |
|
|
|
1,376,490 |
|
|
|
|
|
Common Units (4,464 units)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,464 |
|
|
|
219,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,227,072 |
|
|
|
9,655,712 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino Signs & Graphics, LLC |
|
Niche Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
|
|
|
|
|
2.0%/0.0 |
% |
|
|
12/31/2016 |
|
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
1,163,828 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairchild Industrial Products Company |
|
Industrial Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
13.0%/0.0 |
% |
|
|
7/24/2014 |
|
|
|
650,000 |
|
|
|
650,000 |
|
|
|
650,000 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
13.0%/4.0 |
% |
|
|
7/24/2014 |
|
|
|
8,500,000 |
|
|
|
8,500,000 |
|
|
|
8,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,150,000 |
|
|
|
9,150,000 |
|
|
|
18 |
% |
8
FIDUS INVESTMENT CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company / Type of |
|
|
|
|
|
Rate(4) |
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
Percent of Net |
|
Investment(1)(2)(3) |
|
Industry |
|
|
Cash/PIK |
|
|
Maturity |
|
|
Amount |
|
|
Cost |
|
|
Fair Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodrich Quality Theaters, Inc. |
|
Movie Theaters |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.8%/0.0 |
% |
|
|
3/31/2015 |
|
|
$ |
12,500,000 |
|
|
$ |
11,859,958 |
|
|
$ |
12,500,000 |
|
|
|
|
|
Warrant (71 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000 |
|
|
|
2,080,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,609,958 |
|
|
|
14,580,000 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interactive Technology Solutions, LLC |
|
Government IT Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.0%/3.0 |
% |
|
|
12/31/2015 |
|
|
|
5,027,500 |
|
|
|
5,027,500 |
|
|
|
5,027,500 |
|
|
|
|
|
Common Units (499 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,527,500 |
|
|
|
5,527,500 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan-Pro Holdings, LLC |
|
Commercial Cleaning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
12.5%/2.5 |
% |
|
|
3/18/2015 |
|
|
|
7,340,513 |
|
|
|
7,340,513 |
|
|
|
7,340,513 |
|
|
|
|
|
Preferred Equity (750,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000 |
|
|
|
663,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,090,513 |
|
|
|
8,003,513 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K2 Industrial Services, Inc. |
|
Industrial Cleaning & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
Coatings |
|
|
14.0%/1.5 |
% |
|
|
2/27/2014 |
|
|
|
8,000,000 |
|
|
|
8,000,000 |
|
|
|
8,240,000 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pure Earth, Inc. |
|
Environmental Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Equity (6,300 shares)(8) |
|
|
|
|
|
|
10.0%/4.0 |
% |
|
|
3/3/2013 |
|
|
|
|
|
|
|
6,104,575 |
|
|
|
|
|
|
|
|
|
Preferred Equity (50,000 shares)(8) |
|
|
|
|
|
|
0.0%/15.0 |
% |
|
|
N/A |
|
|
|
|
|
|
|
516,913 |
|
|
|
|
|
|
|
|
|
Warrant (767,375 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,307,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,928,945 |
|
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simplex Manufacturing Co. |
|
Aerospace Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan(9) |
|
|
|
|
|
|
N/A |
|
|
|
1/13/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
|
|
|
|
|
14.0%/0.0 |
% |
|
|
10/31/2013 |
|
|
|
4,550,000 |
|
|
|
4,182,280 |
|
|
|
4,139,000 |
|
|
|
|
|
Warrant (24 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,892,280 |
|
|
|
4,289,000 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBG Anesthesia Management, LLC |
|
Healthcare Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan |
|
|
|
|
|
|
13.5%/0.0 |
% |
|
|
11/10/2014 |
|
|
|
11,000,000 |
|
|
|
10,786,012 |
|
|
|
11,000,000 |
|
|
|
|
|
Warrant (263 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276,070 |
|
|
|
456,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,062,082 |
|
|
|
11,456,200 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa Inspection Resources, Inc. |
|
Oil & Gas Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
14.0%/0.0 |
% |
|
|
3/12/2014 |
|
|
|
4,000,000 |
|
|
|
3,876,315 |
|
|
|
3,865,000 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
17.5%/0.0 |
% |
|
|
3/12/2014 |
|
|
|
648,471 |
|
|
|
648,471 |
|
|
|
648,471 |
|
|
|
|
|
Warrant (6 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,718,221 |
|
|
|
4,513,471 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Control/Non-Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,907,155 |
|
|
|
85,061,756 |
|
|
|
164 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
145,306,441 |
|
|
$ |
141,341,478 |
|
|
|
272 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All debt investments are income producing. Equity investments are non-income producing unless otherwise noted. |
|
(2) |
|
See Note 3 to the Consolidated Financial Statements for portfolio composition by geographic location. |
|
(3) |
|
Equity ownership may be held in shares or units of companies related to the portfolio companies. |
|
(4) |
|
Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any. |
|
(5) |
|
See Note 2 Significant Accounting Policies, Investment Classification for definitions of Control and Affiliate classifications. |
|
(6) |
|
Income producing. |
|
(7) |
|
Investment is held by a wholly-owned subsidiary of the Company. |
|
(8) |
|
Investment was on non-accrual status at December 31, 2010. |
|
(9) |
|
The entire commitment was unfunded at December 31, 2010. As such, no interest is being earned on this investment. |
See Notes to Consolidated Financial Statements (unaudited).
9
FIDUS INVESTMENT CORPORATION
Notes to Consolidated Financial Statements (unaudited)
Note 1. Organization and Nature of Business
Fidus Investment Corporation, a Maryland corporation (FIC, together with its
subsidiaries, the Company), was formed on February 14, 2011 for the purposes of (i) acquiring
100% of the limited partnership interests of Fidus Mezzanine Capital, L.P. (the Fund) and 100% of
the membership interests of the Funds general partner, Fidus Mezzanine Capital GP, LLC (FMCGP),
(ii) raising capital in an initial public offering which priced on June 20, 2011 and (iii)
thereafter operating as an externally managed, closed-end, non-diversified business development
company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In
addition, for tax purposes, the Company intends to elect 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 mezzanine debt and equity financing solutions to lower
middle-market companies. The Fund commenced operations on May 1, 2007, and on October 22, 2007,
was granted a license to operate as a Small Business Investment Company (SBIC) under the
authority of the United States Small Business Administration (SBA). The SBIC license allows the
Fund to obtain leverage by issuing SBA-guaranteed debentures (SBA debentures), subject to the
issuance of a leverage commitment by the SBA and other customary procedures. As an SBIC, the Fund
is 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 it may invest and the structure of those investments.
On June 20, 2011, the following formation transactions (the Formation Transactions)
were consummated:
|
|
|
FIC acquired 100% of the limited partnership interests in
the Fund through a merger of a wholly-owned subsidiary of
FIC with and into the Fund, in which the limited
partnership interests were exchanged for 3,702,778 shares
of common stock in FIC. The Fund became FICs wholly-owned
subsidiary, retained its SBIC license, and continues to
hold its existing investments and make new investments; and |
|
|
|
|
FIC acquired 100% of the equity interests in FMCGP, the
former general partner of the Fund, through the merger of
FMCGP with and into Fidus Investment GP, LLC, a
wholly-owned subsidiary of the Company in exchange for
353,743 shares of common stock in FIC. |
On June 20, 2011, FIC announced the pricing of its initial public offering (the
Offering) of 4,670,000 shares of its common stock at the offering price of $15.00 per share
resulting in net proceeds of $63,914,175, after deducting underwriting fees totaling $4,532,010 and
transaction costs associated with the offering totaling $1,603,815. The transaction costs were
primarily for accounting, legal and other professional services and were recorded as a reduction to
additional paid-in capital. As of June 30, 2011, the Company had 8,726,521 shares of common stock
outstanding.
The management agreement between the Fund and Fidus Capital, LLC (the Funds former investment
advisor) was terminated in conjunction with the Formation Transactions. For all periods subsequent
to the consummation of the Formation Transactions and the Offering, the Company will pay a
quarterly base management fee and an incentive fee to Fidus Investment Advisors, LLC (the
Investment Advisor) under an investment advisory agreement (the Investment Advisory Agreement).
The investment professionals of the Investment Advisor are the same as those of Fidus Capital,
LLC.
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), as established by the Financial Accounting Standards Board (FASB). These
consolidated financial statements reflect the guidance in the Accounting Standards Codification
(ASC), which is the single source of authoritative GAAP recognized by the FASB. 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 periods 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
period ended December 31, 2010.
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.
10
Consolidation: In accordance with Regulation S-X and the Audit and Accounting Guide for
Investment Companies issued by the American Institute of Certified Public Accountants (AICPA),
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 the
accounts of the Company and its wholly-owned investment company subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Fair value of financial instruments: The Company applies fair value to substantially all
of its financial instruments in accordance with ASC Topic 820 Fair Value Measurements and
Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure fair value
and requires disclosures for fair value measurements. The Company believes that the carrying
amounts of its financial instruments, consisting of cash and cash equivalents, receivables, SBA
debentures, accounts payable and accrued liabilities approximate the fair values of such items due
to their short maturity or comparable interest rates. The Company accounts for its portfolio
investments at fair value. See Note 4 to the consolidated financial statements.
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.
Deferred financing costs: Deferred financing costs include SBA debenture commitment and
leverage fees which have been capitalized and are amortized on a straight-line basis into interest
expense over the term of the debenture agreement (10 years). Deferred financing costs also include
costs related to the Companys revolving credit facility. These costs have been capitalized and are
amortized into interest expense over the term of the credit facility.
Revenue recognition: The Companys revenue recognition policies are as follows:
Investments and related investment income. Realized gains or losses on portfolio
investments are calculated based upon the difference between the net proceeds from the disposition
and the cost basis of the investment. Changes in the fair value of investments, as determined by
our board of directors through the application of the Companys valuation policy, are included as
changes in unrealized appreciation or depreciation of investments in the consolidated statement of
operations.
Interest, fee and dividend income. Interest and dividend income is recorded on
the accrual basis to the extent that the Company expects to collect such amounts. Interest and
dividend income is accrued based upon the outstanding principal amount and contractual terms of
debt and preferred equity investments. Distributions of earnings from portfolio companies are
evaluated to determine if the distribution is income or a return of capital.
The Company has investments in our portfolio that contain a payment-in-kind interest or
dividends provision, which represents contractual interest or dividends that are added to the
principal balance and is recorded as income. The Company stops accruing payment-in-kind interest
when it is determined that payment-in-kind interest is no longer collectible. To maintain RIC tax
treatment, substantially all of this income must be paid out to stockholders in the form of
distributions, even though the Company has not yet collected the cash.
In connection with the Companys debt investments, the Company will sometimes receive warrants
or other equity-related securities (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 based on the effective
interest method over the life of the debt security.
Prior to the Formation Transactions, and in accordance with the prior limited partnership
agreement, the Company historically recorded transaction fees provided in
connection with the Companys investments as a direct offset to management fee expense. After
completion of the Formation Transactions, all transaction fees received in
connection with the Companys investments are recognized as income. Such fees typically include
fees for services, including structuring and advisory services,
11
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 received. Fee income from structuring and advisory services and prepayment penalties for the
three and six months ended June 30, 2011 totaled $140,417.
The Company also typically receives upfront loan origination or closing fees in connection
with investments. After completion of the Formation Transactions, such upfront loan origination and closing fees are capitalized as unearned
income on our balance sheet and amortized as additional interest income over the life of the
investment.
Non-accrual. Loans or preferred equity securities are placed on non-accrual
status when principal, interest or dividend payments become materially past due, or when there is
reasonable doubt that principal, interest or dividends will be collected. Interest payments
received on non-accrual loans may be recognized as income or applied to principal depending upon
managements judgment. Non-accrual loans are restored to accrual status when past due principal,
interest or dividends are paid and, in managements judgment, are likely to remain current.
Income taxes: The Company intends to qualify and elect for the tax treatment applicable
to RICs under Subchapter M of the Code, and, among other things, intends to make the required
distributions to its stockholders as specified therein. In order to qualify as a RIC, the Company
is required to timely distribute to its stockholders at least 90% of investment company taxable
income, as defined by 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 and pay a 4% excise tax on such income. Any such carryover
taxable income must be distributed through a dividend declared prior to filing the final tax return
related to the year which generated such taxable income.
The Company has certain indirect wholly-owned taxable subsidiaries, each of which
generally holds one of its portfolio investments listed on the consolidated schedule of
investments. The taxable subsidiaries are consolidated for financial reporting purposes, such that
the Companys consolidated financial statements reflect the Companys investment in the portfolio
companies owned by the taxable subsidiaries. The purpose of the taxable subsidiaries is to permit
the Company to hold equity investments in portfolio companies that are organized as limited
liability companies (LLCs) (or other forms of pass through entities) in order to comply with the
source income requirements contained in the RIC tax provisions. The taxable subsidiaries are not
consolidated with the Company for income tax purposes and may generate either income from any tax
distributions received from the portfolio company or income tax expense as a result of their
ownership of the portfolio companies. Any such income or expense is reflected in the consolidated
statements of operations.
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 Companys tax returns to determine whether the tax positions are
more-likely-than-not to be sustained by the applicable tax authority. 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 Companys policy to recognize accrued interest and penalties related to
uncertain tax benefits in income tax expense. There were no material uncertain income tax positions
at June 30, 2011 and December 31, 2010. The 2008 through 2010 tax years remain subject to
examination by U.S. federal and most state tax authorities.
Allocations and distributions of the Fund: Prior to the consummation of the Formation
Transactions, net profits and losses were generally allocated to the partners as follows: first,
100% to all partners in proportion to their respective commitments until the cumulative amount of
net profit allocated to the limited partners equals the preferred return, as defined in the
partnership agreement; second, 100% to the general partner until the general partner has been
allocated on a cumulative basis an amount of net profit equal to 20% of the cumulative amounts
previously allocated to all partners pursuant to (a) above; and thereafter, 80% to all partners in
proportion to their respective commitments, and 20% to the general partner.
In addition, prior to the consummation of the Formation Transactions, distributions from
the Company were made in the following order and amounts: first, 100% to all partners in proportion
to their respective commitments until the limited partners have received distributions equal to
their funded capital contributions related to investments or partnership expenses, as of the date
of distribution; Second, 100% to all partners in proportion to their respective commitments until
the limited partners have received current or prior distributions equal to the preferred return, as
defined in the partnership agreement, as of the date of distribution; third, to the general partner
until the general partner has received current or prior distributions (including tax distributions
attributable to its carried interest, as defined in the partnership agreement) equal to 20% of the
cumulative distributions made to all partners pursuant to (2) above; and any remaining balance was
distributed 80% to all partners in proportion to their respective commitments, and 20% to the
general partner. The partnership agreement also included, among other things, provisions for
in-kind distributions, escrow of certain distributions and tax distributions. The Companys ability
to make distributions is limited by the SBIC Act. In the six months ended June 30, 2011 and 2010,
the Company made distributions totaling $1,500,000 to its partners in each period.
Dividends: Dividends and distributions to common stockholders are recorded on the ex-dividend
date. The amount, if any, to be paid as a dividend, is determined by the board of directors each
quarter and is generally based upon the earnings estimated by management. Net realized capital
gains, if any, are distributed at least annually.
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 Companys
stockholders who have not opted out of the DRIP at least three days prior to the dividend payment
date will have their cash dividend automatically reinvested into additional shares of the Companys common stock. The
Company has the option to satisfy the share
12
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 will be valued based upon the final closing price of the
Companys common stock on the date determined by the Board of Directors. 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. As of June 30, 2011, there have been no dividends declared or distributed to the
Companys stockholders.
Earnings and net asset value per share: The earnings per share and weighted average
shares outstanding calculations for the three and six months ended June 30, 2011, are based on the
assumption that the number of shares issued in the Formation Transactions and the Offering in June
2011 (8,726,521 shares of common stock) had been issued on January 1, 2011. For historical periods
prior to January 1, 2011, the Company did not have common shares outstanding or an equivalent and
therefore earnings per share and weighted average shares outstanding information for historical
periods prior to January 1, 2011 are not provided.
Recent accounting pronouncements: In May 2011 the FASB issued Accounting Standards
Update (ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting
Standards (IFRSs). ASU 2011-04 represents the converged guidance of the FASB and the
International Accounting Standards Board (IASB) (together the Boards) on fair value
measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have
resulted in common requirements for measuring fair value and for disclosing information about fair
value measurements, including a consistent meaning of the term fair value and enhanced disclosure
requirements for investments that do not have readily determinable fair values. The Boards have
concluded the common requirements will result in greater comparability of fair value measurements
presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs.
The amendments to the FASB Codification in ASU 2011-04 are to be applied prospectively. For public
entities, the amendments are effective during interim and annual periods beginning after December
15, 2011. Early application by public entities is not permitted. The Company is currently
assessing the impact of ASU 2011-04 on its future consolidated financial statements.
Note 3. Portfolio Company Investments
The Companys 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
often receives nominally priced equity warrants and/or makes direct equity investments. The
Companys warrants or equity investments may be in a holding company related to the portfolio
company. In addition, the Company periodically makes equity investments in its portfolio companies
through a wholly-owned taxable subsidiary which owns the equity securities of the underlying
operating company. In both situations, the name of the operating company is reflected on the
consolidated schedule of investments.
As of June 30, 2011, the Company had debt and equity investments in 19 portfolio companies
with an aggregate fair value of $160,705,788 and a weighted average effective yield on its debt
investments of 15.1%. At June 30, 2011, the Company held equity ownership in 78.9% of its portfolio
companies and the average fully diluted equity ownership in those portfolio companies was 9.2%. As
of December 31, 2010, the Company held debt and equity investments in 17 portfolio companies with
an aggregate fair value of $141,341,478 and a weighted average effective yield on its debt
investments of 15.0%. At December 31, 2010, the Company held equity ownership in 82.4% of its
portfolio companies and the average fully diluted equity ownership in those portfolio companies was
8.8%. The weighted average yields were computed using the effective interest rates for all debt
investments at cost as of June 30, 2011 and December 31, 2010, including accretion of original
issue discount but excluding any debt investments on non-accrual status.
Purchases of debt and equity investments for the six months ended June 30, 2011 and 2010
totaled $19,591,858 and $12,752,307, respectively. Repayments of portfolio investments for the six
months ended June 30, 2011 and 2010 totaled $5,035,791 and $1,050,000, respectively.
13
Investments by type with corresponding percentage of total portfolio investments
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured loans |
|
$ |
22,748,183 |
|
|
|
14.7 |
% |
|
$ |
19,468,293 |
|
|
|
13.4 |
% |
Subordinated notes |
|
|
115,144,488 |
|
|
|
74.7 |
|
|
|
104,864,032 |
|
|
|
72.2 |
|
Equity |
|
|
13,077,415 |
|
|
|
8.5 |
|
|
|
17,452,154 |
|
|
|
12.0 |
|
Warrants |
|
|
3,315,005 |
|
|
|
2.1 |
|
|
|
3,521,962 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
154,285,091 |
|
|
|
100.0 |
% |
|
$ |
145,306,441 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured loans |
|
$ |
18,812,512 |
|
|
|
11.7 |
% |
|
$ |
16,302,829 |
|
|
|
11.6 |
% |
Subordinated notes |
|
|
116,336,668 |
|
|
|
72.4 |
|
|
|
106,323,193 |
|
|
|
75.2 |
|
Equity |
|
|
15,425,273 |
|
|
|
9.6 |
|
|
|
13,622,546 |
|
|
|
9.6 |
|
Warrants |
|
|
10,131,335 |
|
|
|
6.3 |
|
|
|
5,092,910 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
160,705,788 |
|
|
|
100.0 |
% |
|
$ |
141,341,478 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
All investments made by the Company as of June 30, 2011 and December 31, 2010 were made
in portfolio companies located in the United States. The following tables show portfolio
composition by geographic region at cost and fair value 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 companys
business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest |
|
$ |
49,143,793 |
|
|
|
31.9 |
% |
|
$ |
40,796,916 |
|
|
|
28.1 |
% |
Southwest |
|
|
31,331,533 |
|
|
|
20.3 |
|
|
|
30,239,168 |
|
|
|
20.8 |
|
Northeast |
|
|
22,142,321 |
|
|
|
14.3 |
|
|
|
29,452,499 |
|
|
|
20.3 |
|
Southeast |
|
|
28,162,417 |
|
|
|
18.3 |
|
|
|
26,467,585 |
|
|
|
18.2 |
|
West |
|
|
23,505,027 |
|
|
|
15.2 |
|
|
|
18,350,273 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
154,285,091 |
|
|
|
100.0 |
% |
|
$ |
145,306,441 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest |
|
$ |
51,430,997 |
|
|
|
32.0 |
% |
|
$ |
43,401,076 |
|
|
|
30.7 |
% |
Southwest |
|
|
39,649,764 |
|
|
|
24.7 |
|
|
|
34,914,855 |
|
|
|
24.7 |
|
Northeast |
|
|
22,220,152 |
|
|
|
13.8 |
|
|
|
21,805,502 |
|
|
|
15.4 |
|
Southeast |
|
|
28,544,465 |
|
|
|
17.8 |
|
|
|
26,809,225 |
|
|
|
19.0 |
|
West |
|
|
18,860,410 |
|
|
|
11.7 |
|
|
|
14,410,820 |
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
160,705,788 |
|
|
|
100.0 |
% |
|
$ |
141,341,478 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2011, the Company had one portfolio company investment that represented more
than 10% of the total investment portfolio. Such investment represented 16.1% of the fair value of
the portfolio and 12.3% of cost as of June 30, 2011. At December 31, 2010, the Company had two
portfolio company investments that each represented more than 10% of the total investment
portfolio. Such investments represented 24.8% of the fair value of the portfolio and 21.1% of cost
as of December 31, 2010.
As of June 30, 2011, there were no investments on non-accrual status. As of December 31,
2010, there was one investment on non-accrual status which comprised 0.0% of the total portfolio on
a fair value basis, and 5.5% of the total portfolio on a cost basis. The investment on non-accrual
status at December 31, 2010 was written off in the first quarter of 2011.
Note 4. Fair Value Measurements
The Company has established and documented processes and methodologies for determining
the fair values of portfolio company investments on a recurring basis in accordance with ASC Topic
820. Fair value is the price that would be received in the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Where
available, fair value is based on observable market prices or parameters or derived from such
prices or parameters. Where observable prices or inputs are not available or reliable, valuation
techniques are applied. Because the Companys portfolio investments generally do not have readily
ascertainable market values, the Company values its portfolio investments at fair value, as
determined in good faith by the Board of Directors (Board), based on input of management and an
independent valuation firm, and under a valuation policy and a consistently applied valuation
process.
Portfolio investments recorded at fair value in the consolidated financial statements are
classified based upon the level of judgment associated with the inputs used to measure their value,
as defined below:
14
Level 1 Investments whose values are based on unadjusted, quoted prices for identical
assets in an active market.
Level 2 Investments whose values are based on quoted prices for similar assets in
markets that are not active or model inputs that are observable, either directly or indirectly, for
substantially the full term of the investment.
Level 3 Investments whose values are based on inputs that are both unobservable and
significant to the overall fair value measurement. The inputs into the determination of fair value
are based upon the best information available and may require significant management judgment or
estimation.
An investments categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. The Companys investment
portfolio is comprised 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. Accordingly,
the degree of judgment exercised by the Company in determining fair value is greatest for
investments classified as Level 3. As of June 30, 2011 and December 31, 2010, all of the Companys
portfolio company investments are classified as Level 3. The fair value of the Companys total
portfolio investments at June 30, 2011 and December 31, 2010 were $160,705,788 and $141,341,478,
respectively.
With respect to investments for which market quotations are not readily available, the Companys
board of directors undertakes a multi-step valuation process each quarter, as described below:
|
|
|
the quarterly valuation process begins with each portfolio company or investment being initially
evaluated and rated by the investment professionals of the Companys investment advisor responsible for the
portfolio investment; |
|
|
|
|
preliminary valuation conclusions are then documented and discussed with the investment committee; |
|
|
|
|
the board of directors also engages one or more independent valuation firms to conduct
independent appraisals of our investments for which market quotations are not readily available.
The Company will consult with independent valuation firm(s) relative to each portfolio company at least
once in every calendar year, and for new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. As of June 30, 2011, the Board consulted with the
independent valuation firm in arriving at the Companys determination of fair value on eight of
its portfolio company investments representing 53.3% of the total portfolio investments at fair
value. As of December 31, 2010, the previous general partner consulted with the independent
valuation firm in arriving at the Companys determination of fair value on 16 of its portfolio
company investments representing 100.0% of the total portfolio investments at fair value; |
|
|
|
|
the audit committee of the board of directors reviews the preliminary valuations of the
investment advisor and of the independent valuation firms and responds and supplements the
valuation recommendations to reflect any comments; and |
|
|
|
|
the board of directors discusses the valuations and determines the fair value of each investment
in our portfolio in good faith, based on the input of the investment advisor, the independent
valuation firms and the audit committee. |
In making the good faith determination of the value of portfolio investments, the Company
starts with the cost basis of the security, which includes the amortized original issue discount
and PIK interest or dividends, if any. The transaction price is typically the best estimate of fair
value at inception. When evidence supports a subsequent change to the carrying value from the
original transaction price, adjustments are made to reflect the expected exit values. The Company
performs detailed valuations of its debt and equity investments on an individual basis, using
market, income and yield approaches as appropriate.
Under the market approach, the Company typically uses the enterprise value methodology to
determine the fair value of an investment. There is no one methodology to estimate enterprise value
and, in fact, for any one portfolio company, enterprise value is generally best expressed as a
range of values, from which the Company derives a single estimate of enterprise value. In
estimating the enterprise value of a portfolio company, the Company analyzes various factors
consistent with industry practice, including but not limited to original transaction multiples, the
portfolio companys historical and projected financial results, applicable market trading and
transaction comparables, applicable market yields and leverage levels, the nature and realizable
value of any collateral, the markets in which the portfolio company does business, and comparisons
of financial ratios of peer companies that are public. Typically, the enterprise value of private
companies are based on multiples of EBITDA, cash flows, net income, revenues, or in limited cases,
book value.
Under the income approach, the Company prepares and analyzes discounted cash flow models
based on projections of the future free cash flows (or earnings) of the portfolio company. In
determining the fair value under the income approach, the Company considers various factors,
including but not limited to the portfolio companys projected financial results, applicable market
trading and transaction
comparables, applicable market yields and leverage levels, the markets in which the portfolio
company does business, and comparisons of financial ratios of peer companies that are public.
Under the yield approach, the Company uses discounted cash flow models to determine the
present value of the future cash flow streams of its debt investments, based on future interest and
principal payments as set forth in the associated loan agreements. In determining fair value under
the yield approach, the Company also considers the following factors: applicable market yields and
leverage levels, credit quality, prepayment penalties, estimated remaining life, the nature and
realizable value of any collateral, the portfolio companys ability to
15
make payments, and changes
in the interest rate environment and the credit markets that generally may affect the price at
which similar investments may be made. The Company estimates the remaining life of its debt
investments to generally be the legal maturity date of the instrument, as the Company generally
intends to hold its loans to maturity. However, if the Company has information available to it that
the loan is expected to be repaid in the near term, it would use an estimated remaining life based
on the expected repayment date.
For the Companys Control investments, the Company determines the fair value of debt and
equity investments using a combination of market and income approaches. The valuation approaches
for the Companys Control investments estimate the value of the investment if it were to sell, or
exit, the investment, assuming the highest and best use of the investment by market participants.
In addition, these valuation approaches consider the value associated with the Companys ability to
influence the capital structure of the portfolio company, as well as the timing of a potential
exit.
For the Companys Affiliate or Non-Control/Non-Affiliate equity investments, the Company
uses a combination of market and income approaches as described above to determine the fair value.
For Affiliate or Non-Control/Non-Affiliate debt investments, the Company generally uses
the yield approach to determine fair value, as long as it is appropriate. If there is deterioration
in credit quality or a debt investment is in workout status, the Company may consider other factors
in determining the fair value, including the value attributable to the debt investment from the
enterprise value of the portfolio company or the proceeds that would be received in a liquidation
analysis.
Due to the inherent uncertainty in the valuation process, the Boards estimate of fair value
may differ materially from the values that would have been used had a ready market for the
securities existed. In addition, changes in the market environment, portfolio company performance
and other events that may occur over the lives of the investments may cause the gains or losses
ultimately realized on these investments to be materially different than the valuations currently
assigned.
The Companys investments are subject to market risk. Market risk is the potential for
changes in the value of investments due to market changes. Market risk is directly impacted by the
volatility and liquidity in the markets in which the investments are traded.
Financial instruments classified as Level 3 in the fair value hierarchy represent the
Companys investments in portfolio companies, see the consolidated schedules of investments for
further description. The following table presents a reconciliation of activity for the Level 3
financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
Subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
Notes |
|
|
Equity |
|
|
Warrants |
|
|
Total |
|
Balance, December 31, 2009 |
|
$ |
14,801,858 |
|
|
$ |
89,203,733 |
|
|
$ |
17,690,221 |
|
|
$ |
1,204,444 |
|
|
$ |
122,900,256 |
|
Realized loss on investments |
|
|
|
|
|
|
|
|
|
|
(2,307 |
) |
|
|
|
|
|
|
(2,307 |
) |
Net unrealized appreciation (depreciation) |
|
|
(1,792,239 |
) |
|
|
454,000 |
|
|
|
(6,841,818 |
) |
|
|
(1,273,249 |
) |
|
|
(9,453,306 |
) |
Purchases of investment securities |
|
|
250,000 |
|
|
|
11,750,000 |
|
|
|
2,307 |
|
|
|
750,000 |
|
|
|
12,752,307 |
|
Repayments of investments received |
|
|
(200,000 |
) |
|
|
(850,000 |
) |
|
|
|
|
|
|
|
|
|
|
(1,050,000 |
) |
Interest and dividend income paid-in-kind |
|
|
|
|
|
|
1,922,244 |
|
|
|
294,210 |
|
|
|
|
|
|
|
2,216,454 |
|
Accretion of original issue discount |
|
|
83,534 |
|
|
|
136,963 |
|
|
|
127,795 |
|
|
|
|
|
|
|
348,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
$ |
13,143,153 |
|
|
$ |
102,616,940 |
|
|
$ |
11,270,408 |
|
|
$ |
681,195 |
|
|
$ |
127,711,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
16,302,829 |
|
|
$ |
106,323,193 |
|
|
$ |
13,622,546 |
|
|
$ |
5,092,910 |
|
|
$ |
141,341,478 |
|
Realized loss on investments |
|
|
|
|
|
|
|
|
|
|
(6,627,973 |
) |
|
|
(1,307,457 |
) |
|
|
(7,935,430 |
) |
Net unrealized appreciation (depreciation) |
|
|
(770,207 |
) |
|
|
(266,981 |
) |
|
|
6,177,467 |
|
|
|
5,245,382 |
|
|
|
10,385,661 |
|
Purchases of investment securities |
|
|
3,399,500 |
|
|
|
13,075,000 |
|
|
|
2,016,858 |
|
|
|
1,100,500 |
|
|
|
19,591,858 |
|
Repayments of investments received |
|
|
(250,000 |
) |
|
|
(4,785,791 |
) |
|
|
|
|
|
|
|
|
|
|
(5,035,791 |
) |
Interest and dividend income paid-in-kind |
|
|
|
|
|
|
1,848,010 |
|
|
|
236,375 |
|
|
|
|
|
|
|
2,084,385 |
|
Loan origination fees received |
|
|
|
|
|
|
(31,250 |
) |
|
|
|
|
|
|
|
|
|
|
(31,250 |
) |
Accretion of original issue discount |
|
|
130,390 |
|
|
|
174,487 |
|
|
|
|
|
|
|
|
|
|
|
304,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011 |
|
$ |
18,812,512 |
|
|
$ |
116,336,668 |
|
|
$ |
15,425,273 |
|
|
$ |
10,131,335 |
|
|
$ |
160,705,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total change in unrealized appreciation (depreciation) included in the consolidated
statements of operations attributable to Level 3 investments still held at June 30, 2011 and 2010,
was $2,456,717 and $(9,453,306), respectively.
Note 5. Related Party Transactions
Prior management agreement: Prior to the consummation of the Formation Transactions, the
Company had entered into a management agreement with Fidus Capital, LLC to manage the day-to-day
operational and investment activities of the Company. The Fund paid Fidus Capital, LLC, each
fiscal quarter in advance, 0.5% of the sum of (i) the Funds Regulatory Capital (as defined in the
SBIC Act), (ii) any Permitted Distribution as defined by the previous partnership agreement, and
(iii) an assumed two tiers (two times) of outstanding SBA
16
debenture leverage on the sum of clauses
(i) and (ii) up to the maximum amount as determined by the SBA, currently $150.0 million. Under the
previous agreement, gross management fees for the three and six months ended June 30, 2011 were
$922,542 and $1,958,755 and were partially offset by the management fee offset (transaction fees
received in connection with the Funds investments) of $430,208 and $430,208, respectively. Gross
management fees under the previous management agreement for three and six months ended June 30,
2010 totaled $1,036,213 and $2,072,120 and were partially offset by the management fee offset of
$10,000 and $290,000, respectively.
New management and incentive fee agreement: Concurrent with the Formation Transactions, the
Company entered into the Investment Advisory Agreement with the Investment Advisor. Pursuant to
the Investment Advisory Agreement and subject to the overall supervision of our board of directors,
the Investment Advisor provides investment advisory services to the Company. For providing these
services, the Investment Advisor receives a fee, consisting of two components a base management
fee and an incentive fee. The base management fee is calculated at an annual rate of 1.75% based on
the average value of total assets (other than cash or cash equivalents but including assets
purchased with borrowed amounts) at the end of the two most recently completed calendar quarters.
However, for services rendered prior to the Companys first full quarter of operations, the base
management fee is payable monthly in arrears. For services rendered after such time, the base
management fee is payable quarterly in arrears. Up to and including the first full calendar
quarter of the Companys operations, the base management fee is calculated based on the initial
value of the Companys total assets (other than cash or cash equivalents but including asset with
borrowed amounts) at the closing of the Formation Transactions. The base management fee under the
new agreement totaled $76,648 for the period June 21, 2011 through June 30, 2011.
The incentive fee has two parts. One part is calculated and payable quarterly in arrears
based on the Companys pre-incentive fee net investment income for the quarter. Pre-incentive fee
net investment income means interest income, dividend income and any other income (including any
other fees such as commitment, origination, structuring, diligence and consulting fees or other
fees that the Company receives from portfolio companies but excluding fees for providing managerial
assistance) accrued during the calendar quarter, minus operating expenses for the quarter
(including the base management fee, any expenses payable under the Administration Agreement
(defined below) and any interest expense and dividends paid on any outstanding preferred stock, but
excluding the incentive fee and any organizing and offering costs). Pre-incentive fee net
investment income includes, in the case of investments with a deferred interest feature (such as
market discount, debt instruments with payment-in-kind interest, preferred stock with
payment-in-kind dividends and zero-coupon securities), accrued income the Company has not yet
received in cash. The Investment Advisor is not under any obligation to reimburse the Company for
any part of the incentive fee it receives that was based on accrued interest that the Company never
actually receives.
Pre-incentive fee net investment income does not include any realized capital gains,
realized capital losses or unrealized capital appreciation or depreciation. Because of the
structure of the incentive fee, it is possible that the Company may pay an incentive fee in a
quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net
investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will
pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to
realized and unrealized capital losses.
Pre-incentive fee net investment income, expressed as a rate of return on the value of
the Companys net assets (defined as total assets less indebtedness and before taking into account
any incentive fees payable during the period) at the end of the immediately preceding calendar
quarter, is compared to a fixed hurdle rate of 2.0% per quarter. If market interest rates rise,
the Company may be able to invest funds in debt instruments that provide for a higher return, which
would increase the Companys pre-incentive fee net investment income and make it easier for the
Investment Advisor to surpass the fixed hurdle rate and receive an incentive fee based on such net
investment income. The Companys pre-incentive fee net investment income used to calculate this
part of the incentive fee is also included in the total assets (other than cash and cash
equivalents but including assets purchased with borrowed amounts) used to calculate the 1.75% base
management fee.
The Company pays the Investment Advisor an incentive fee with respect to pre-incentive
fee net investment income in each calendar quarter as follows:
|
|
|
no incentive fee in any calendar quarter in which the
pre-incentive fee net investment income does not exceed the
hurdle rate of 2.0%; |
|
|
|
|
100.0% of the Companys pre-incentive fee net investment
income with respect to that portion of such pre-incentive
fee net investment income, if any, that exceeds the hurdle
rate but is less than 2.5% in any calendar quarter. This
portion of the pre-incentive fee net investment income
(which exceeds the hurdle rate but is less than 2.5%) is
referred to as the catch-up provision. The catch-up is
meant to provide the Investment Advisor with 20.0% of the
pre-incentive fee net investment income as if a hurdle rate
did not apply if this net investment income exceeds 2.5% in
any calendar quarter; and |
|
|
|
|
20.0% of the amount of the Companys pre-incentive fee net
investment income, if any, that exceeds 2.5% in any
calendar quarter. |
The sum of these calculations yields the income incentive fee. This amount is
appropriately adjusted for any share issuances or repurchases during the quarter. The Investment
Advisor waived the income incentive fee of $82,512 for the period June 21, 2011 through June 30, 2011.
17
The second part of the incentive fee is a capital gains incentive fee that is determined and
payable in arrears as of the end of each fiscal year (or upon termination of the Investment
Advisory Agreement, as of the termination date), and equals 20.0% of the net realized capital gains
as of the end of the fiscal year. In determining the capital gains incentive fee payable to the
Investment Advisor, the Company calculates the cumulative aggregate realized capital gains and
cumulative aggregate realized capital losses since the Companys inception, and the aggregate
unrealized capital depreciation as of the date of the calculation, as applicable, with respect to
each of the investments in the Companys portfolio. For this purpose, cumulative aggregate realized
capital gains, if any, equal the sum of the differences between the net sales price of each
investment, when sold, and the original cost of such investment. Cumulative aggregate realized
capital losses equals the sum of the amounts by which the net sales price of each investment, when
sold, is less than the original cost of such investment. Aggregate unrealized capital depreciation
equals the sum of the difference, if negative, between the valuation of each investment as of the
applicable calculation date and the original cost of such investment. At the end of the applicable
year, the amount of capital gains that serves as the basis for the calculation of the capital gains
incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate
realized capital losses, less aggregate unrealized capital depreciation, with respect to the
Companys portfolio of investments. If this number is positive at the end of such year, then the
capital gains incentive fee for such year equals 20.0% of such amount, less the aggregate amount of
any capital gains incentive fees paid in all prior years.
The Company will accrue the capital gain incentive fee if, on a cumulative basis, the sum of
net realized gains/(losses) plus net unrealized appreciation/(depreciation) is positive. No capital
gain incentive fee was accrued as of June 30, 2011.
The sum of the income incentive fee and the capital gain incentive fee will be the incentive
fee and reported in the consolidated statement of operations.
Unless terminated earlier as described below, the Investment Advisory Agreement will continue
in effect for a period of two years from its effective date. It will remain in effect from year to
year thereafter if approved annually by the Companys board of directors or by the affirmative vote
of the holders of a majority of the Companys outstanding voting securities, and, in either case,
if also approved by a majority of the Companys directors who are not interested persons. The
Investment Advisory Agreement automatically terminates in the event of its assignment, as defined
in the 1940 Act, by the Investment Advisor and may be terminated by either party without penalty
upon not less than 60 days written notice to the other. The holders of a majority of the Companys
outstanding voting securities may also terminate the Investment Advisory Agreement without penalty.
Administration Agreement: The Company has also entered into an administration agreement (the
Administration Agreement) with the Investment Advisor. Under the Administration Agreement, the
Investment Advisor has agreed to furnish the Company with office facilities and equipment, provide
it clerical, bookkeeping and record keeping services at such facilities and provide the Company
with other administrative services necessary to conduct its day-to-day operations. The Company
reimburses the Investment Advisor for the allocable portion (subject to review and approval of the
Board) of overhead and other expenses incurred in performing its obligations under the
Administration Agreement, including rent, the fees and expenses associated with performing
compliance functions, and the Companys allocable portion of the cost of its chief financial
officer and chief compliance officer and their respective staffs. Under the Administration
Agreement, the Investment Advisor also provides managerial assistance to those portfolio companies
to which the Company is required to provide such assistance. Under the Administration Agreement,
accrued administrative expenses for services provided for the period June 21, 2011 through June 30,
2011 totaled $22,173.
Note 6. Debt
Credit facility: In April 2009, the Fund obtained an $8,000,000 unsecured line of credit with
American Bank & Trust. In June 2010, the Fund amended its unsecured line of credit, decreasing the
committed amount to $5,000,000 and extending the term to June 3, 2011. In June, 2011, the Fund
amended the agreement to extend the term to September 3, 2011. On June 27, 2011, the Company repaid
the line of credit in full and terminated the agreement. Interest accrued monthly at an annual
rate of 6%. There were no principal borrowings outstanding on the unsecured line of credit as of
June 30, 2011 and December 31, 2010, respectively. For the three months ended June 30, 2011 and
2010, interest and fee amortization expense on the unsecured line of credit amounted to $35,322 and
$1,667, respectively. For the six months ended June 30, 2011 and 2010, interest and fee
amortization expense on the unsecured line of credit amounted to $39,572 and $11,667, respectively.
SBA debentures: The Company uses debenture leverage provided through the SBA to fund a
portion of its investment portfolio. The SBA made an initial commitment to issue $100,000,000 in
the form of debenture securities to the Company on or before September 30, 2012, and during 2010
made a commitment to issue an additional $30,000,000 on or before September 30, 2014. Unused
commitments at June 30, 2011 and December 31, 2010 were $33,250,000 and $36,500,000, respectively.
The SBA may limit the amount that may be drawn each year under these commitments, and each issuance
of leverage is conditioned on the Companys full compliance, as determined by the SBA, with the
terms and conditions set forth in the SBIC Act.
18
As of June 30, 2011 and December 31, 2010, the Company has issued SBA debentures which
mature as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooling |
|
Maturity |
|
|
Fixed |
|
|
June 30, |
|
|
December 31, |
|
Date(1) |
|
Date |
|
|
Interest Rate |
|
|
2011 |
|
|
2010 |
|
3/26/2008 |
|
|
3/1/2018 |
|
|
|
6.188 |
% |
|
$ |
24,750,000 |
|
|
$ |
24,750,000 |
|
9/24/2008 |
|
|
9/1/2018 |
|
|
|
6.442 |
|
|
|
11,950,000 |
|
|
|
11,950,000 |
|
3/25/2009 |
|
|
3/1/2019 |
|
|
|
5.337 |
|
|
|
19,750,000 |
|
|
|
19,750,000 |
|
9/23/2009 |
|
|
9/1/2019 |
|
|
|
4.950 |
|
|
|
10,000,000 |
|
|
|
10,000,000 |
|
3/24/2010 |
|
|
3/1/2020 |
|
|
|
4.825 |
|
|
|
13,000,000 |
|
|
|
13,000,000 |
|
9/22/2010 |
|
|
9/1/2020 |
|
|
|
3.932 |
|
|
|
12,500,000 |
|
|
|
12,500,000 |
|
3/29/2011 |
|
|
3/1/2021 |
|
|
|
4.801 |
|
|
|
1,550,000 |
|
|
|
1,550,000 |
|
(2) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
3,250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
96,750,000 |
|
|
$ |
93,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The SBA has two scheduled pooling dates for debentures (in March
and in September). Certain debentures drawn during the reporting
periods may not be pooled until the subsequent pooling date. |
|
(2) |
|
In April 2011, the Company issued $3,250,000 in SBA debentures
which will pool in September 2011, at which time the current
short-term interim interest rate will reset to a higher long-term
fixed interest rate. |
Interest on SBA debentures is payable semi-annually on March 1 and September 1. For the three
months ended June 30, 2011 and 2010, interest and fee amortization expense on outstanding SBA
debentures amounted to $1,359,445 and $1,247,592 respectively. For the six months ended June 30,
2011 and 2010, interest and fee amortization expense on outstanding SBA debentures amounted to
$2,679,480 and $2,325,937 respectively. As of June 30, 2011 and December 31, 2010, accrued
interest payable totaled $1,690,960 and $1,638,862, respectively. The weighted average fixed
interest rate for all SBA debentures as of both June 30, 2011 and December 31, 2010 was 5.3%.
Deferred financing costs as of June 30, 2011 and December 31, 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
SBA debenture commitment fees |
|
$ |
1,300,000 |
|
|
$ |
1,300,000 |
|
SBA debenture leverage fees |
|
|
2,346,188 |
|
|
|
2,267,375 |
|
Line of credit fees |
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
3,646,188 |
|
|
|
3,607,375 |
|
Accumulated amortization |
|
|
(952,457 |
) |
|
|
(812,118 |
) |
|
|
|
|
|
|
|
Net deferred financing costs |
|
$ |
2,693,731 |
|
|
$ |
2,795,257 |
|
|
|
|
|
|
|
|
Note 7. Commitments and Contingencies
Commitments: As of June 30, 2011 the Company had one outstanding conditional loan commitment
to a portfolio company for $4,500,000 which had not been funded and can only be drawn upon under
certain conditions. At December 31, 2010, the Company had one outstanding revolver commitment to a
portfolio company for $500,000, all of which was unfunded. Such commitments involve elements of
credit risk in excess of the amounts recognized in the consolidated statements of assets and
liabilities.
Indemnifications: In the normal course of business, the Company enters into contracts
and agreements that contain a variety of representations and warranties that provide
indemnifications under certain circumstances. The Companys maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made against the Company
that have not yet occurred. The Company expects the risk of future obligation under these
indemnifications to be remote.
Legal proceedings: In the normal course of business, the Company may be subject to legal
and regulatory proceedings that are generally incidental to its ongoing operations. While the
outcome of these legal proceedings cannot be predicted with certainty, the Company does not believe
these proceedings will have a material adverse effect on the Companys consolidated financial
statements.
19
Note 8. Financial Highlights
The following is a schedule of financial highlights for the six months ended June 30, 2011 and
2010:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2011 |
|
|
2010(1) |
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset
value at beginning of period(2) |
|
$ |
13.28 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
0.63 |
|
|
|
N/A |
|
Net realized loss on investments |
|
|
(0.91 |
) |
|
|
N/A |
|
Net unrealized appreciation on investments |
|
|
1.19 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
Total increase from investment operations |
|
|
0.91 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Capital contributions from partners |
|
|
0.80 |
|
|
|
|
|
Capital distributions to partners |
|
|
(0.17 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
14.82 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
Market value at end of period |
|
$ |
14.81 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period: |
|
|
8,726,521 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Ratio to average net assets (annualized)(2): |
|
|
|
|
|
|
|
|
Total expenses |
|
|
7.5 |
% |
|
|
20.1 |
% |
Net investment income |
|
|
8.9 |
% |
|
|
19.0 |
% |
Total return(3) |
|
|
(1.3 |
)% |
|
|
(11.4 |
)% |
|
|
|
(1) |
|
Per share data for the six months ended June 30, 2010 is not
presented as there were no shares of the Company outstanding
during the period. |
|
(2) |
|
Net asset value as of January 1, 2011 and average net assets for
the six months ended June 30, 2011 are presented as if the
Offering and Formation Transactions had occurred on January 1,
2011. See Note 2 for a further description of the basis of
presentation of the Companys financial statements. |
|
(3) |
|
The total return for the six months ended June 30, 2011 equals
the change in the ending market value of the Companys common
stock from the Offering price of $15.00 per share plus dividends
paid per share during the period, divided by the Offering price
and is not annualized. Total return for the six months ended June
30, 2010 equals the net increase (decrease) in net
asset resulting from operations during the period divided by
average net assets and is not annualized. |
Note 9. Subsequent Events
On July 14, 2011, the Companys underwriters purchased 700,500 shares of the Companys common
stock at the public offering price of $15.00 per share to cover over-allotments resulting in
proceeds to the Company of $9,771,975, net of underwriting fees of $735,525.
On
July 28, 2011, the Companys board of directors declared an
initial quarterly dividend of $0.32 per share payable on September
26, 2011 to stockholders of record as of September 12, 2011.
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with Fidus Mezzanine Capital, L.P.s consolidated financial
statements and related notes appearing in our prospectus dated June 20, 2011, filed with the SEC on
June 22, 2011. The information contained in this section should also be read in conjunction with
our unaudited consolidated financial statements and related notes thereto appearing elsewhere in
this quarterly report on Form 10-Q.
Except as otherwise specified, references to we, us, and our refer to Fidus Mezzanine
Capital, L.P. and its consolidated subsidiaries for periods prior to the Formation Transactions on
June 20, 2011, and refer to Fidus Investment Corporation and its consolidated subsidiaries for
periods after the Formation Transactions.
The information in this section contains forward-looking statements that involve risks and
uncertainties. Please see Risk Factors and Special Note Regarding Forward-Looking Statements
appearing in our prospectus dated June 20, 2011, filed with the SEC on June 22, 2011 for a
discussion of the uncertainties, risks and assumptions associated with these statements.
Business Overview
We provide customized mezzanine debt and equity financing solutions to lower middle-market
companies, which we define as U.S. based companies having revenues between $10.0 million and $150.0
million. We were formed to continue and to expand the business of Fidus Mezzanine Capital, L.P., a
fund formed in February 2007 that is licensed by the SBA as an SBIC and to make investments in
portfolio companies directly at the parent level. Our investment objective is to provide attractive
risk-adjusted returns by generating both current income from our debt investments and capital
appreciation from our equity related investments. Our investment strategy includes partnering with
business owners, management teams and financial sponsors by providing customized financing for
ownership transactions, recapitalizations, strategic acquisitions, business expansion and other
growth initiatives. We seek to maintain a diversified portfolio of investments in order to help
mitigate the potential effects of adverse economic events related to particular companies, regions
or industries.
On June 20, 2011, Fidus Investment Corporation acquired all of the limited partnership
interests of Fidus Mezzanine Capital, L.P. and membership interests of Fidus Mezzanine Capital GP,
LLC, its general partner, through the Formation Transactions, resulting in Fidus Mezzanine Capital,
L.P. becoming our wholly-owned SBIC subsidiary. Immediately following the Formation Transactions,
we elected to be treated as a business development company under the 1940 Act and our investment
activities have been managed by Fidus Investment Advisors (our Investment Advisor) and supervised
by our board of directors, a majority of whom are independent of us and our Investment Advisor.
We plan to continue to operate Fidus Mezzanine Capital, L.P. as an SBIC and to utilize
the proceeds of the sale of SBA debentures to enhance returns to our stockholders. We may also make
investments directly though Fidus Investment Corporation. We believe that utilizing both entities
as investment vehicles may provide us with access to a broader array of investment opportunities.
Given our access to lower cost capital through the SBAs SBIC debenture program, we expect that the
majority of our investments will initially be made through Fidus Mezzanine Capital, L.P. As of June
30, 2011, we had investments in 19 portfolio companies with an aggregate fair value of $160.7
million and cost of $154.3 million.
Portfolio Composition, Investment Activity and Yield
During the six months ended June 30, 2011, we invested $19.6 million in three new and
three existing portfolio companies. The new investments consisted primarily of senior term loans
($3.1 million, or 16.5%), subordinated notes ($13.1 million, or 68.3%), warrants ($1.1 million, or
5.8%) and equity securities ($1.8 million, or 9.4%). During the six months ended June 30, 2011, we
received proceeds from repayments of principal of $5.0 million. During the year ended December 31,
2010, we invested $31.7 million in three new and five existing portfolio companies. The new
investments consisted primarily of subordinated notes ($25.4 million, or 80.4%), senior secured
loans ($4.0 million, or 12.5%), warrants ($0.8 million, or 2.4%) and equity securities ($1.5
million, or 4.7%). Additionally, we received proceeds from repayments of principal of $14.3 million during
the year ended December 31, 2010.
As of June 30, 2011, our investment portfolio totaled $160.7 million and consisted of 19
portfolio companies. As of June 30, 2011, our debt portfolio was entirely comprised of fixed rate
investments. Overall, the portfolio had a net unrealized appreciation of $6.4 million as of June
30, 2011. Our average portfolio company investment at amortized cost was $8.1 million as of June
30, 2011.
As of December 31, 2010, our investment portfolio totaled $141.3 million and consisted of
17 portfolio companies. As of December 31, 2010, our debt portfolio was entirely comprised of
fixed-rate investments. Overall, the portfolio had a net unrealized depreciation of $4.0 million as
of December 31, 2010. Our average portfolio company investment at amortized cost was $8.5 million
as of December 31, 2010.
The weighted average yield on debt investments at their cost basis at June 30, 2011 and
December 31, 2010 was 15.1% and 15.0%, respectively. Yields are computed using interest rates as of
the balance sheet date and include amortization of original issue discount. Yields do not include
debt investments that were on non-accrual status as of the balance sheet date.
21
The following table shows the portfolio composition by investment type at cost and fair value
as a percentage of total investments:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, 2011 |
|
December 31, 2010 |
Cost |
|
|
|
|
|
|
|
|
Senior secured loans |
|
|
14.7 |
% |
|
|
13.4 |
% |
Subordinated notes |
|
|
74.7 |
|
|
|
72.2 |
|
Equity |
|
|
8.5 |
|
|
|
12.0 |
|
Warrants |
|
|
2.1 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
Senior secured loans |
|
|
11.7 |
% |
|
|
11.6 |
% |
Subordinated notes |
|
|
72.4 |
|
|
|
75.2 |
|
Equity |
|
|
9.6 |
|
|
|
9.6 |
|
Warrants |
|
|
6.3 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
The following table shows the portfolio composition by geographic region at cost and fair
value as a percentage of total investments. The geographic composition is determined by the
location of the corporate headquarters of the portfolio company.
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, 2011 |
|
December 31, 2010 |
Cost |
|
|
|
|
|
|
|
|
Midwest |
|
|
31.9 |
% |
|
|
28.1 |
% |
Southwest |
|
|
20.3 |
|
|
|
20.8 |
|
Northeast |
|
|
14.3 |
|
|
|
20.3 |
|
Southeast |
|
|
18.3 |
|
|
|
18.2 |
|
West |
|
|
15.2 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
Midwest |
|
|
32.0 |
% |
|
|
30.7 |
% |
Southwest |
|
|
24.7 |
|
|
|
24.7 |
|
Northeast |
|
|
13.8 |
|
|
|
15.4 |
|
Southeast |
|
|
17.8 |
|
|
|
19.0 |
|
West |
|
|
11.7 |
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
22
The following tables show the industry composition of our portfolio at cost and fair
value:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, 2011 |
|
December 31, 2010 |
Cost |
|
|
|
|
|
|
|
|
Transportation services |
|
|
12.4 |
% |
|
|
12.4 |
% |
Movie theaters |
|
|
8.2 |
|
|
|
8.7 |
|
Healthcare services |
|
|
10.3 |
|
|
|
7.6 |
|
Niche manufacturing |
|
|
2.9 |
|
|
|
3.1 |
|
Retail cleaning |
|
|
4.9 |
|
|
|
5.1 |
|
Laundry services |
|
|
3.0 |
|
|
|
6.3 |
|
Industrial products |
|
|
5.9 |
|
|
|
6.3 |
|
Electronic components supplier |
|
|
6.0 |
|
|
|
6.3 |
|
Specialty distribution |
|
|
6.0 |
|
|
|
6.2 |
|
Printing services |
|
|
5.5 |
|
|
|
5.6 |
|
Industrial cleaning & coatings |
|
|
5.2 |
|
|
|
5.5 |
|
Commercial cleaning |
|
|
5.3 |
|
|
|
5.6 |
|
Specialty cracker manufacturer |
|
|
5.2 |
|
|
|
5.4 |
|
Government information technology services |
|
|
3.6 |
|
|
|
3.8 |
|
Oil & gas services |
|
|
3.1 |
|
|
|
3.2 |
|
Aerospace & defense manufacturing |
|
|
8.5 |
|
|
|
3.4 |
|
Healthcare products |
|
|
4.0 |
|
|
|
|
|
Environmental services |
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, 2011 |
|
December 31, 2010 |
Fair Value |
|
|
|
|
|
|
|
|
Transportation services |
|
|
16.0 |
% |
|
|
14.5 |
% |
Movie theaters |
|
|
9.0 |
|
|
|
10.3 |
|
Healthcare services |
|
|
10.0 |
|
|
|
8.1 |
|
Niche manufacturing |
|
|
0.2 |
|
|
|
0.8 |
|
Retail cleaning |
|
|
5.7 |
|
|
|
7.0 |
|
Laundry services |
|
|
3.2 |
|
|
|
6.8 |
|
Industrial products |
|
|
5.7 |
|
|
|
6.5 |
|
Electronic components supplier |
|
|
5.8 |
|
|
|
6.5 |
|
Specialty distribution |
|
|
5.8 |
|
|
|
6.4 |
|
Printing services |
|
|
5.6 |
|
|
|
6.0 |
|
Industrial cleaning & coatings |
|
|
5.1 |
|
|
|
5.8 |
|
Commercial cleaning |
|
|
5.0 |
|
|
|
5.7 |
|
Specialty cracker manufacturer |
|
|
4.8 |
|
|
|
5.5 |
|
Government information technology services |
|
|
3.4 |
|
|
|
3.9 |
|
Oil & gas services |
|
|
2.9 |
|
|
|
3.2 |
|
Aerospace & defense manufacturing |
|
|
7.9 |
|
|
|
3.0 |
|
Healthcare products |
|
|
3.9 |
|
|
|
|
|
Environmental services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
23
Portfolio Asset Quality
We utilize an internally developed investment rating system for our portfolio of
investments. Investment Rating 1 is used for investments that involve the least amount of risk in
our portfolio and the portfolio company is performing above expectations. Investment Rating 2 is
used for investments that are performing substantially within our expectations and the portfolio
companys risk factors are neutral or favorable. Each new portfolio investment enters our portfolio
with Investment Rating 2. Investment Rating 3 is used for investments performing below expectations
and require closer monitoring, but with respect to which we expect a full return of original
capital invested and collection of all interest. Investment Rating 4 is used for investments
performing materially below expectations, and have the potential for some loss of investment
return. Investment Rating 5 is used for investments performing substantially below our expectations
and where we expect a loss of principal.
The following table shows the distribution of our investments on the 1 to 5 investment
rating scale at fair value as of June 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Investments at |
|
|
Percent of |
|
|
Investments at |
|
|
Percent of |
|
Investment Rating |
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
1 |
|
$ |
26,555 |
|
|
|
16.5 |
% |
|
$ |
27,330 |
|
|
|
19.3 |
% |
2 |
|
|
118,001 |
|
|
|
73.5 |
|
|
|
97,739 |
|
|
|
69.2 |
|
3 |
|
|
15,790 |
|
|
|
9.8 |
|
|
|
15,108 |
|
|
|
10.7 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
360 |
|
|
|
0.2 |
|
|
|
1,164 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
160,706 |
|
|
|
100.0 |
% |
|
$ |
141,341 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon our investment rating system, the weighted average rating of our portfolio as
of both June 30, 2011 and December 31, 2010 was 1.9. As of June 30, 2011, we had no investments on
non-accrual status. As of December 31, 2010, we had one investment on non-accrual which represented
0.0% of the total fair value of our portfolio and 5.5% of the total cost of our portfolio.
Results of Operations
Comparison of three months ended June 30, 2011 and June 30, 2010
Investment Income
For the three months ended June 30, 2011, total investment income was $5.3 million, an
increase of $0.7 million, or 15.2% over the $4.6 million of total investment income for the three
months ended June 30, 2010. The increase was attributable to a $0.8 million increase in interest
and fee income from investments. The increase in interest and fee income is primarily due to higher
average levels of outstanding debt investments during the three months ended June 30, 2011 compared
to the prior year period. Additionally, the Company recorded $0.1 million in fee income during the
three months ended June 30, 2001 compared with zero in the respective prior year period.
Expenses
For the three months ended June 30, 2011, total expenses were $2.2 million, a decrease of
$0.5 million, or 18.4%, from the $2.6 million of total expenses for the three months ended June 30,
2010. The decrease in total expenses was primarily attributable to a decrease in the management fee
after offset and a decrease in other expenses partially offset by an increase in interest expense.
The management fee after offset decreased $0.5 million, or 44.6%, primarily due to an increase in
management fee offset resulting from higher new investment activity during the three months ended
June 30, 2011 than the comparable period in 2010. Other expenses decreased $0.3 million primarily
due to the write-off of accrued dividends receivable in the second quarter of 2010 related to an
investment placed on non-accrual. Interest expense increased $0.1 million as a result of higher
average balances of SBA debentures outstanding during the three months ended June 30, 2011 than the
comparable period in 2010.
Net Investment Income
As a result of the $0.7 million increase in total investment income and the $0.5 million
decrease in total expenses, net investment income for the three months ended June 30, 2011 was $3.2
million, or $1.2 million higher than the comparable period in 2010.
24
Net Increase in Net Assets Resulting From Operations
During the three months ended June 30, 2011, we recorded net unrealized appreciation on
investments of $1.4 million comprised of unrealized appreciation on investments in six portfolio
companies totaling $2.7 million and unrealized depreciation on investments in five portfolio
companies totaling $1.3 million. During the three months ended June 30, 2010, we recorded net
unrealized depreciation of $3.7 million. For the three months ended June 30, 2011 and 2010, the
total realized loss on investments was zero.
As a result of these events, our net increase in net assets resulting from operations
during the three months ended June 30, 2011, was $4.6 million, or an increase of $6.3 million
compared to a net decrease in net assets resulting from operations of $1.7 million during the three
months ended June 30, 2010.
Comparison of six months ended June 30, 2011 and June 30, 2010
Investment Income
For the six months ended June 30, 2011, total investment income was $10.1 million, an
increase of $1.3 million, or 14.4% over the $8.8 million of total investment income for the six
months ended June 30, 2010. The increase was attributable to a $1.5 million increase in interest
and fee income from investments, partially offset by a $0.2 million decrease in dividend income.
The increase in interest and fee income is primarily due to higher average levels of outstanding
debt investments in the six months ended June 30, 2011 compared to the prior year period.
Additionally, the Company recorded $0.1 million in fee income during the six months ended June 30,
2001 compared with zero in the prior year. The decrease in dividend income is primarily
attributable to one equity investment in a portfolio company that was placed on non-accrual status
in 2010.
Expenses
For the six months ended June 30, 2011, total expenses were $4.6 million, an increase of
1.8%, over the $4.5 million of total expenses for the six months ended June 30, 2010. The net
increase in total expenses was primarily attributable to increased interest expense of $0.4 million
partially offset by a decrease in management fee after offset of $0.2 million and a decrease in
other expenses. Interest expense increased $0.4 million as a result of higher average balances of
SBA debentures outstanding during the six months ended June 30, 2011 than the comparable period in
2010. The management fee after management fee offset decreased $0.2 million, or 10.0%, primarily
due to an increase in management fee offset resulting from higher new investment activity during
the six months ended June 30, 2011 than the comparable period in 2010. Other expenses decreased
$0.3 million primarily due to the write-off of accrued dividends receivable in the second quarter
of 2010 related to an investment placed on non-accrual.
Net Investment Income
As a result of the $1.3 million increase in total investment income and a $0.1 million
increase in total expenses, net investment income for the six months ended June 30, 2011 was $5.5
million, which was $1.2 million higher than the comparable period in 2010.
Net Increase in Net Assets Resulting From Operations
For the six months ended June 30, 2011, the total realized loss on investments was $7.9
million resulting from one non-control/non-affiliate investment. For the six months ended June 30,
2010, the total realized loss on investments was nominal.
During the six months ended June 30, 2011, we recorded net unrealized appreciation on
investments of $10.4 million comprised of net unrealized appreciation on investments in five
portfolio companies totaling $5.0 million and net unrealized depreciation on investments in seven
portfolio companies totaling $2.5 million. In addition, we recorded net unrealized depreciation
reclassification adjustments of $7.9 million related to a realized loss on the
non-control/non-affiliate investment noted above. For the six months ended June 30, 2010, we
recorded $9.5 million in unrealized depreciation.
As a result of these events, our net increase in net assets resulting from operations
during the six months ended June 30, 2011, was $7.9 million, or an increase of $13.1 million
compared to a net decrease in net assets resulting from operations of $5.2 million during the six
months ended June 30, 2010.
Liquidity and Capital Resources
Cash Flows
For the six months ended June 30, 2011, we experienced a net increase in cash and cash
equivalents in the amount of $60.5 million. During that period, we used $12.1 million in cash from
operating activities, primarily due to new investments in portfolio companies of $19.6 million,
partially offset by $5.0 million in portfolio company investment repayments. During the same
period, we generated $72.6 million from financing activities, consisting primarily of proceeds from
the Offering of $63.9 million, net of expenses, capital contributions from
25
partners totaling $7.0 million and proceeds from SBA debentures of $3.3 million net of
financing costs partially offset by capital distributions to partners of $1.5 million.
For the six months ended June 30, 2010, we experienced a net increase in cash and cash
equivalents in the amount of $0.1 million. During that period, we used $10.3 million in cash for
operating activities primarily to fund $12.8 million in new investments which were partially offset
by $1.1 million in repayments. During the same period, we generated $10.4 million from financing
activities consisting of $12.5 million in new SBA debenture borrowing partially offset by the
payment of $0.6 million in deferred financing costs and $1.5 million in capital distributions.
Capital Resources
As of June 30, 2011, we had $62.3 million in cash and cash equivalents, and our net assets
totaled $129.4 million. We intend to generate additional cash primarily from future offerings of
securities, future borrowings as well as cash flows from operations, including income earned from
investments in our portfolio companies and, to a lesser extent, from the temporary investment of
cash in U.S. government securities and other high-quality debt investments that mature in one year
or less. Our primary use of funds will be investments in portfolio companies and cash distributions
to our shareholders.
We anticipate that we will continue to fund our investment activities through a combination of
debt and additional equity capital. We are a licensed SBIC, and have the ability to issue
debentures guaranteed by the SBA at favorable interest rates. Under the Small Business Investment
Act and the SBA rules applicable to SBICs, an SBIC can have outstanding at any time debentures
guaranteed by the SBA in an amount up to twice its regulatory capital, which generally is the
amount raised from private investors. The maximum statutory limit on the dollar amount of
outstanding debentures guaranteed by the SBA issued by a single SBIC as of June 30, 2011 was $150.0
million. Debentures guaranteed by the SBA have fixed interest rates that approximate prevailing
10-year Treasury Note rates plus a spread and have a maturity of ten years with interest payable
semi-annually. The principal amount of the debentures is not required to be paid before maturity
but may be pre-paid at any time. As of June 30, 2011, Fidus Mezzanine Capital, L.P. had $96.8
million of outstanding indebtedness guaranteed by the SBA, which had a weighted average interest
rate of 5.3%. Based on its $75.0 million of regulatory capital as of June 30, 2011, Fidus Mezzanine
Capital, L.P. has the current capacity to issue up to an additional $53.2 million of debentures
guaranteed by the SBA.
Distributions
In order to maintain our status as a RIC and to avoid corporate level tax on the income we
distribute to our stockholders, we are required under the Code to distribute at least 90% of our
net ordinary income and net short-term capital gains in excess of net long-term capital losses, if
any, to our net stockholders on an annual basis. Additionally, we must distribute at least 98% of
our net income (both ordinary income and net capital gains in excess of capital losses) on an
annual basis and any net ordinary income and net capital gains for preceding years that were not
distributed during such years and on which we previously paid no U.S. federal income tax to avoid a
U.S. federal excise tax. We intend to distribute quarterly dividends to our stockholders as
determined by our Board.
We may not be able to achieve operating results that will allow us to make distributions at a
specific level or to increase the amount of our distributions from time to time. In addition, we
may be limited in our ability to make distributions due to the asset coverage requirements
applicable to us as a business development company under the 1940 Act. If we do not distribute a
certain percentage of our income annually, we will suffer adverse tax consequences, including the
possible loss of our RIC status. We cannot assure stockholders that they will receive any
distributions.
To the extent our taxable earnings fall below the total amount of our distributions for that
fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders
for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be
the original capital invested by the stockholder rather than our income or gains. Stockholders
should read any written disclosure accompanying a dividend payment carefully and should not assume
that the source of any distribution is our ordinary income or gains.
We have adopted an opt out dividend reinvestment plan for our common stockholders. As a
result, if we declare a distribution, then stockholders cash distributions will be automatically
reinvested in additional shares of our common stock unless a stockholder specifically opts out of
our dividend reinvestment plan. If a stockholder opts out, that stockholder will receive cash
distributions. Although distributions paid in the form of additional shares of our common stock
will generally be subject to U.S. federal, state and local taxes in the same manner as cash
distributions, stockholders participating in our dividend reinvestment plan will not receive any
corresponding cash distributions with which to pay any such applicable taxes.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions
affecting amounts reported in the financial statements. We have identified investment valuation and
revenue recognition as our most critical accounting estimates. We continuously evaluate our
estimates, including those related to the matters described below. These estimates are based on the
information that is currently available to us and on various other
26
assumptions that we believe to be reasonable under the circumstances. Actual results could
differ materially from those estimates under different assumptions or conditions. A discussion of
our critical accounting policies follows.
Valuation of Portfolio Investments
We conduct the valuation of our investments, pursuant to which our net asset value is
determined, at all times consistent with generally accepted accounting principles, or GAAP, and
the 1940 Act.
Our investments generally consist of illiquid securities including debt and equity
investments in lower middle-market companies. Investments for which market quotations are readily
available are valued at such market quotations. Because we expect that there will not be a readily
available market for substantially all of the investments in our portfolio, we value substantially
all of our portfolio investments at fair value as determined in good faith by our board of
directors using a documented valuation policy and consistently applied valuation process. Due to
the inherent uncertainty of determining the fair value of investments that do not have a readily
available market value, the fair value of our investments may differ significantly from the values
that would have been used had a readily available market value existed for such investments, and
the difference could be material.
With respect to investments for which market quotations are not readily available, our
board of directors undertakes a multi-step valuation process each quarter, as described below:
|
|
|
our quarterly valuation process begins with each portfolio company or investment being initially
evaluated and rated by the investment professionals of our investment advisor responsible for the
portfolio investment; |
|
|
|
|
preliminary valuation conclusions are then documented and discussed with the investment committee; |
|
|
|
|
our board of directors also engages one or more independent valuation firms to conduct
independent appraisals of our investments for which market quotations are not readily available.
We will consult with independent valuation firm(s) relative to each portfolio company at least
once in every calendar year, and for new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment; |
|
|
|
|
the audit committee of our board of directors reviews the preliminary valuations of our
investment advisor and of the independent valuation firms and responds and supplements the
valuation recommendations to reflect any comments; and |
|
|
|
|
the board of directors discusses the valuations and determines the fair value of each investment
in our portfolio in good faith, based on the input of our investment advisor, the independent
valuation firms and the audit committee. |
In making the good faith determination of the value of portfolio investments, we start
with the cost basis of the security, which includes the amortized original issue discount and
payment-in-kind interest or dividends, if any. The transaction price is typically the best estimate
of fair value at inception. When evidence supports a subsequent change to the carrying value from
the original transaction price, adjustments are made to reflect the expected exit values. We
perform detailed valuations of our debt and equity investments on an individual basis, using
market, income and yield approaches as appropriate.
Under the market approach, we typically use the enterprise value methodology to determine
the fair value of an investment. There is no one methodology to estimate enterprise value, and, in
fact, for any one portfolio company, enterprise value is generally best expressed as a range of
values, from which we derive a single estimate of enterprise value. In estimating the enterprise
value of a portfolio company, we analyze various factors consistent with industry practice,
including but not limited to original transaction multiples, the portfolio companys historical and
projected financial results, applicable market trading and transaction comparables, applicable
market yields and leverage levels, the nature and realizable value of any collateral, the markets
in which the portfolio company does business, and comparisons of financial ratios of peer companies
that are public. Typically, the enterprise value of private companies are based on multiples of
EBITDA, cash flows, net income, revenues, or in limited cases, book value.
Under the income approach, we prepare and analyze discounted cash flow models based on
projections of the future free cash flows (or earnings) of the portfolio company. In determining
the fair value under the income approach, we consider various factors, including but not limited to
the portfolio companys projected financial results, applicable market trading and transaction
comparables, applicable market yields and leverage levels, the markets in which the portfolio
company does business, and comparisons of financial ratios of peer companies that are public.
Under the yield approach, we use discounted cash flow models to determine the present
value of the future cash flow streams of our debt investments, based on future interest and
principal payments as set forth in the associated loan agreements. In determining fair value under
the yield approach, we also consider the following factors: applicable market yields and leverage
levels, credit quality, prepayment penalties, the nature and realizable value of any collateral,
the portfolio companys ability to make payments and changes in the interest rate environment and
the credit markets that generally may affect the price at which similar investments may be made.
We classify our investments in accordance with the 1940 Act. See Note 2 to the
consolidated financial statements for definitions of Control, Affiliate and Non-Control
Non-Affiliate included elsewhere in this report. For our Control investments, we determine the
fair
27
value of debt and equity investments using a combination of market and income approaches. The
valuation approaches for our Control investments estimate the value of the investment if we were to
sell, or exit, the investment, assuming the highest and best use of the investment by market
participants. In addition, these valuation approaches consider the value associated with our
ability to influence the capital structure of the portfolio company, as well as the timing of a
potential exit.
For our Affiliate or Non-Control/Non-Affiliate equity investments, we use a combination
of market and income approaches as described above to determine the fair value. For our Affiliate
or Non-Control/Non-Affiliate debt investments, we generally use the yield approach to determine
fair value, as long as it is appropriate. If there is deterioration in credit quality or a debt
investment is in workout status, we may consider other factors in determining the fair value,
including the value attributable to the debt investment from the enterprise value of the portfolio
company or the proceeds that would be received in a liquidation analysis.
Determination of fair value involves subjective judgments and estimates. Accordingly, the
notes to our financial statements express the uncertainties with respect to the possible effect of
such valuations, and any changes in such valuations, on the financial statements.
Revenue Recognition
The Companys revenue recognition policies are as follows:
Investments and related investment income. Realized gains or losses on portfolio
investments are calculated based upon the difference between the net proceeds from the disposition
and the cost basis of the investment. Changes in the fair value of investments, as determined by
our board of directors through the application of our valuation policy, are included as changes in
unrealized appreciation or depreciation of investments in the consolidated statement of operations.
Interest, fee and dividend income. Interest and dividend income is recorded on
the accrual basis to the extent that we expect to collect such amounts. Interest and dividend
income is accrued based upon the outstanding principal amount and contractual terms of debt and
preferred equity investments. Distributions of earnings from portfolio companies are evaluated to
determine if the distribution is income or a return of capital.
We have investments in our portfolio that contain a payment-in-kind interest or dividends
provision, which represents contractual interest or dividends that are added to the principal
balance and is recorded as income. We stop accruing payment-in-kind interest when it is determined
that payment-in-kind interest is no longer collectible. To maintain RIC tax treatment,
substantially all of this income must be paid out to stockholders in the form of distributions,
even though we have not yet collected the cash.
In connection with our debt investments, we will sometimes receive warrants or other
equity-related securities (Warrants). We determine 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 are treated as original issue
discount (OID), and accreted into interest income based on the effective interest method over the
life of the debt security.
We also typically receive upfront debt origination or closing fees in connection with debt
investments. Such upfront debt origination and closing fees are capitalized as unearned income on
our balance sheet and amortized as additional interest income over the life of the investment.
Prior to the Formation Transactions, and in accordance with the prior limited partnership
agreement, we historically recorded transaction fees for structuring and advisory services provided
in connection with our investments as a direct offset to management fee expense. After completion
of the Formation Transactions, all structuring and advisory service fees received in connection
with our investments are recognized as income. Such fees typically include fees for services,
including structuring and advisory services, provided to portfolio companies. We recognize 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 received.
Non-accrual. Loans or preferred equity securities are placed on non-accrual
status when principal, interest or dividend payments become materially past due, or when there is
reasonable doubt that principal, interest or dividends will be collected. Interest payments
received on non-accrual loans may be recognized as income or applied to principal depending upon
managements judgment. Non-accrual loans are restored to accrual status when past due principal,
interest or dividends are paid and, in managements judgment, are likely to remain current.
Recently Issued Accounting Standards
In May 2011 the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs. ASU 2011-04 represents the converged guidance of the FASB and the IASB (the Boards) on fair
value measurement. The collective efforts of the Boards and their staffs, reflected in ASU
2011-04, have
28
resulted in common requirements for measuring fair value and for disclosing
information about fair value measurements, including a consistent meaning of the term fair value
and enhanced disclosure requirements for investments that do not have readily determinable fair
values. The Boards have concluded the common requirements will result in greater comparability of
fair value measurements presented and disclosed in financial statements prepared in accordance with
U.S. GAAP and IFRSs. The amendments to the FASB Codification in ASU
2011-04 are to be applied
prospectively. For public entities, the amendments are effective during interim and annual periods
beginning after December 15, 2011. Early application by public entities is not permitted. The
Company is currently assessing the impact of ASU 2011-04 on its future consolidated financial
statements.
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financial needs of our portfolio companies. As of June 30, 2011, we had one
off-balance sheet arrangement with a portfolio company consisting of $4.5 million of unfunded
commitments to provide debt financing. As of December 31, 2010, we had one off-balance sheet
arrangement with a different portfolio company consisting of $0.5 million of unfunded commitments
to provide debt financing. Such commitments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in our balance sheets.
Related Party Transactions
Concurrent with the Formation Transactions, we entered into a number of business relationships
with affiliated or related parties, including the following:
|
|
|
We entered into the Investment Advisory Agreement with Fidus
Investment Advisors, LLC to manage the day-to-day operating and
investing activity of the Company. Edward Ross, our chairman and
chief executive officer, Cary Schaefer, our chief financial officer
and chief compliance officer, and Thomas Lauer, one of our directors,
are all managers of Fidus Investment Advisors, LLC. |
|
|
|
|
We entered into the Administration Agreement with Fidus Investment
Advisors, LLC to provide us with the office facilities and
administrative services necessary to conduct day-to-day operations. |
|
|
|
|
We entered into a license agreement with Fidus Partners, LLC, pursuant
to which Fidus Partners, LLC has granted us a non-exclusive,
royalty-free license to use the name Fidus. |
|
|
|
|
Certain of our directors, management, and other parties affiliated
with us purchased an aggregate of 407,764 shares of common stock at
the initial public offering price per share of $15.00. We received the
proceeds from the sale of these shares, net of $56,551 in underwriting
commissions. |
In addition, we have adopted a formal joint code of ethics that governs the conduct of our and
Fidus Investment Advisors officers, directors and employees. Our officers and directors also
remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including changes in interest rates. Changes in
interest rates affect both our cost of funding and the valuation of our investment portfolio. Our
risk management systems and procedures are designed to identify and analyze our risk, to set
appropriate policies and limits and to continually monitor these risks and limits by means of
reliable administrative and information systems and other policies and programs. In the future, our
investment income may also be affected by changes in various interest rates, including LIBOR and
prime rates, to the extent of any debt investments that include floating interest rates. As of June
30, 2011, all of our debt investments bore interest at fixed rates and all of our pooled SBA
debentures bore interest at fixed rates. Assuming that the balance sheets as of June 30, 2011, and
December 31, 2010 were to remain constant, a hypothetical 1.0% change in interest rates would not
have a material effect on our level of interest income from debt investments.
Because we currently borrow, and plan to borrow in the future, money to make investments,
our net investment income is dependent upon the difference between the rate at which we borrow
funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance
that a significant change in market interest rates will not have a material adverse effect on our
net investment income. In periods of rising interest rates, our cost of funds would increase, which
could reduce our net investment income if there is not a corresponding increase in interest income
generated by our investment portfolio.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms and that such information is accumulated and communicated to
our management, including
29
our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief
Financial Officer carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on the
evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective. It should
be noted that any system of controls, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the
design of any control system is based in part upon certain assumptions about the likelihood of
future events. Because of these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. There were no changes in our internal control over financial
reporting during the second quarter of 2011 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Although we may, from time to time, be involved in litigation arising out of our operations in
the normal course of business or otherwise, we are currently not a party to any pending material
legal proceedings.
Item 1A. Risk Factors.
In addition to other information set forth in this report, you should carefully consider the
Risk Factors discussed in our prospectus dated June 20, 2011 and filed with the SEC on June 22,
2011 which could materially affect our business, financial condition and/or operating results.
Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In connection with the Formation Transactions consummated on June 20, 2011 described elsewhere
in this report, we issued and exchanged 3,702,778 shares of our common stock at $15.00 per share
for 100% of the limited partnership interests in Fidus Mezzanine Capital, L.P. and 353,743 shares
of our common stock at $15.00 per share for 100% of the equity interests of Fidus Mezzanine Capital
GP, LLC, the former general partner of Fidus Mezzanine Capital, L.P. These shares were offered and
exchanged pursuant to an exemption from registration under Rule 506 of Regulation D of the
Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
None
Item 4. [Removed and Reserved].
Item 5. Other Information.
None
30
Item 6. Exhibits.
|
|
|
Number |
|
Exhibit |
31.1
|
|
Chief Executive Officer Certification Pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Chief Financial Officer Certification Pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
FIDUS INVESTMENT CORPORATION
|
|
Date: August 4, 2011 |
|
/s/ EDWARD H. ROSS
|
|
|
|
Edward H. Ross |
|
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Date: August 4, 2011 |
|
/s/
CARY L. SCHAEFER
|
|
|
|
Cary L. Schaefer |
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
32
EXHIBIT INDEX
|
|
|
Number |
|
Exhibit |
31.1
|
|
Chief Executive Officer Certification Pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Chief Financial Officer Certification Pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
33
exv31w1
Exhibit 31.1
Fidus Investment Corporation Chief Executive Officer Certification
Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Edward H. Ross, as Chief Executive Officer of Fidus Investment Corporation, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Fidus Investment Corporation; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Dated: August 4, 2011
|
|
|
|
|
|
|
/s/ EDWARD H. ROSS
|
|
Edward H. Ross |
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
exv31w2
Exhibit 31.2
Fidus Investment Corporation Chief Financial Officer Certification
Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Cary L. Schaefer, as Chief Financial Officer of Fidus Investment Corporation, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Fidus Investment Corporation; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Dated: August 4, 2011
|
|
|
|
|
|
|
/s/ CARY L. SCHAEFER
|
|
Cary L. Schaefer |
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
exv32w1
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
In connection with the Quarterly Report on Form 10-Q of Fidus Investment Corporation (the
Company) for the quarterly period ended June 30, 2011, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Edward H. Ross, Chief Executive Officer of the
Company, and I, Cary L. Schaefer, Chief Financial Officer of the Company, each certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
my knowledge:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company as of the dates and for the periods expressed in the
Report. |
|
|
|
|
|
|
|
|
Date: August 4, 2011 |
/s/ EDWARD H. ROSS
|
|
|
Edward H. Ross |
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
/s/ CARY L. SCHAEFER
|
|
|
Cary L. Schaefer |
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|