What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-04-30 · 949 added, 770 removed, 2085 unchanged (45% of the section changed)

3 unchanged sentences

(in thousands, except shares and per share data)

March 31, 2020

June 30, 2020

Investments, at fair value:

16 unchanged sentences

Base management fee payable due to affiliate

Income incentive fee payable due to affiliate

Income incentive fee payable, net of incentive fee waiver due to affiliate

Capital gains incentive fee payable due to affiliate

5 unchanged sentences

Common stock, $0.001 par value (100,000,000 shares authorized, 24,437,400 and 24,463,119 shares

issued and outstanding at March 31, 2020 and December 31, 2019, respectively)

outstanding at June 30, 2020 and December 31, 2019, respectively)

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Investment Income:

28 unchanged sentences

Other general and administrative expenses

Total expenses

Total expenses before income incentive fee waiver

Incentive fee waiver - income

Total expenses, net of income incentive fee waiver

Net investment income before income taxes

33 unchanged sentences

Balances at March 31, 2019

Net investment income

Net realized gain (loss) on investments, net of taxes

Net unrealized appreciation (depreciation) on investments

Realized losses on extinguishment of debt

Dividends declared

Balances at June 30, 2019

Balances at December 31, 2019

6 unchanged sentences

Balances at March 31, 2020

Net investment income

Net realized gain (loss) on investments, net of taxes

Net unrealized appreciation (depreciation) on investments

Realized losses on extinguishment of debt

Dividends declared

Balances at June 30, 2020

Amount is greater than zero but less than one

See Notes to Consolidated Financial Statements (unaudited).

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities:

Net increase (decrease) in net assets resulting from operations

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

operating activities:

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net

cash provided by (used for) operating activities:

Net change in unrealized (appreciation) depreciation on investments

14 unchanged sentences

Base management fee payable due to affiliate

Income incentive fee payable due to affiliate

Income incentive fee payable, net of incentive fee waiver due to affiliate

Capital gains incentive fee payable due to affiliate

22 unchanged sentences

Consolidated Schedule of Investments (unaudited)

March 31, 2020

June 30, 2020

thousands, except shares)

1 unchanged sentence

Variable Index

Investment Type

Investment Type (c)

Spread / Floor (d)

9 unchanged sentences

Building Products Manufacturing

Second Lien Debt (k)

Second Lien Debt (j)

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

10 unchanged sentences

Healthcare Services

Second Lien Debt

Preferred Equity (63,331 units) (h)

Warrant (252,588 units) (h)(m)

Second Lien Debt (j)

Preferred Equity (63,331 units) (h)(j)

Warrant (252,588 units) (h)(j)(m)

Mirage Trailers LLC

9 unchanged sentences

Oil & Gas Services

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

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

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

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

Steward Holding LLC (dba Steward Advanced Materials)

5 unchanged sentences

Consolidated Schedule of Investments (unaudited)

March 31, 2020

June 30, 2020

thousands, except shares)

1 unchanged sentence

Variable Index

Investment Type

Investment Type (c)

Spread / Floor (d)

74 unchanged sentences

EBL, LLC (EbLens)

Second Lien Debt (j)(p)

Second Lien Debt (j)

Common Equity (75,000 units) (j)

ECM Industries, LLC

Component Manufacturing

Subordinated Debt (j)

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

French Transit, LLC

10 unchanged sentences

Common Equity (947 shares) (j)

Gurobi Optimization, LLC

Information Technology Services

Common Equity (3 shares)

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2020

June 30, 2020

thousands, except shares)

1 unchanged sentence

Variable Index

Investment Type

Investment Type (c)

Spread / Floor (d)

Gurobi Optimization, LLC

Information Technology Services

Common Equity (3 shares)

Haematologic Technologies, Inc.

5 unchanged sentences

Component Manufacturing

Second Lien Debt

Second Lien Debt (j)

Revolving Loan (j)

15 unchanged sentences

Common Equity (150,000 units)

Ipro Tech, LLC

Information Technology Services

First Lien Debt (j)(ae)

(L + 8.50%) / (2.00%)

K2 Merger Agreement Agent, LLC (fka K2 Industrial Services, Inc.) (n)

Industrial Cleaning & Coatings

Second Lien Debt

Second Lien Debt (j)

The Kyjen Company, LLC (dba Outward Hound)

15 unchanged sentences

Healthcare Services

Subordinated Debt

Subordinated Debt (j)

Common Equity (812,866 units) (j)

15 unchanged sentences

Palmetto Moon, LLC

First Lien Debt

First Lien Debt (j)

Common Equity (499 units) (j)

5 unchanged sentences

Common Equity (10,622 shares) (j)

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2020

thousands, except shares)

Portfolio Company (a)(b)

Variable Index

Investment Type (c)

Spread / Floor (d)

Prime AE Group, Inc.

10 unchanged sentences

Common Equity (113 shares)

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2020

thousands, except shares)

Portfolio Company (a)(b)

Variable Index

Investment Type

Spread / Floor (d)

Rhino Assembly Company, LLC

9 unchanged sentences

Subordinated Debt (j)

Common Equity (400 shares)

Common Equity (400 shares) (j)

Routeware, Inc.

20 unchanged sentences

Component Manufacturing

Common Equity (500 units)

Common Equity (500 units) (j)

The Tranzonic Companies

9 unchanged sentences

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

Warrant (57,469 units) (m)

Vanguard Dealer Services, L.L.C.

Business Services

Common Equity (6,000 units)

Common Equity (2,380 units) (j)

Warrant (57,469 units) (j)(m)

Virginia Tile Company, LLC

Specialty Distribution

Second Lien Debt (k)(p)

Common Equity (17 units)

Second Lien Debt (j)

Common Equity (17 units) (j)

Westerns Smokehouse, LLC

14 unchanged sentences

Total Investments

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

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

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

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

All debt investments are income producing, unless otherwise indicated.

3 unchanged sentences

Certain variable rate investments also include a LIBOR interest rate floor.

For each investment, the Company has provided the spread over the reference rate and the LIBOR floor, if any, as of March 31, 2020.

Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of March 31, 2020.

For each investment, the Company has provided the spread over the reference rate and the LIBOR floor, if any, as of June 30, 2020.

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2020

thousands, except shares)

Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of June 30, 2020.

Generally, payment-in-kind interest can be paid-in-kind or all in cash.

5 unchanged sentences

Investment is held by a Taxable Subsidiary of the Company.

The disclosed commitment represents the unfunded amount as of March 31, 2020.

The disclosed commitment represents the unfunded amount as of June 30, 2020.

The Company is earning 0.50%

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result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Companys obligations under the Credit Facility (see Note 6 to the consolidated financial statements).

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2020

thousands, except shares)

As defined in the 1940 Act, the Company is deemed to be an Affiliated Person of this portfolio

4 unchanged sentences

The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.

Investment in portfolio company that has sold its operations and is in the process of winding down.

Investment in portfolio company that has sold its operations and is in the process of winding

Income producing.

Maturity date, if any, represents mandatory redemption date.

Investment was on non-accrual status as of March 31, 2020, meaning

Investment was on non-accrual status as of June 30, 2020, meaning

the Company has ceased recognizing interest income on the investment.

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which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.

The disclosed commitment represents the unfunded amount as of March 31, 2020.

The disclosed commitment represents the unfunded amount as of June 30, 2020.

The Company is earning 0.75%

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first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.

The disclosed commitment represents the unfunded amount as of March 31, 2020.

The disclosed commitment represents the unfunded amount as of June 30, 2020.

The Company is earning 1.00%

2 unchanged sentences

Investment was on PIK-only

non-accrual status as of March 31, 2020, meaning the Company has ceased recognizing PIK interest income on the investment.

non-accrual status as of June 30, 2020, meaning the Company has ceased recognizing PIK interest income on the investment.

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled

to receive an additional interest amount of 4.50% on its last out tranche of the portfolio companys senior term debt, which was previously syndicated into first out and last out tranches, whereby the

first out tranche will have priority as to the last out tranche with respect to payments of principal, interest and any other amounts due thereunder.

See Notes to Consolidated Financial Statements (unaudited).

2 unchanged sentences

December 31, 2019

thousands, except shares)

(in thousands, except shares)

Portfolio Company (a)(b)

Investment Type (c)

Variable Index

Investment Type

Spread / Floor (d)

51 unchanged sentences

December 31, 2019

thousands, except shares)

(in thousands, except shares)

Portfolio Company (a)(b)

Variable Index

Investment Type (c)

Variable Index

Spread / Floor (d)

27 unchanged sentences

Second Lien Debt (k)

11.50%/0.00%.

Common Equity (5,000 units) (j)

25 unchanged sentences

Preferred Equity (99,889 units)(j)

ControlScan, Inc.

Control Scan, Inc.

Information Technology Services

11 unchanged sentences

Common Equity (573 units) (h)(j)

EBL, LLC (EbLens)

EBL, LLC (Eb Lens)

Second Lien Debt (j)

3 unchanged sentences

December 31, 2019

thousands, except shares)

(in thousands, except shares)

Portfolio Company (a)(b)

80 unchanged sentences

December 31, 2019

thousands, except shares)

(in thousands, except shares)

Portfolio Company (a)(b)

70 unchanged sentences

Warrant (57,469 units) (m)

Vanguard Dealer Services, L.L.C.

Vanguard Dealer Services, LLC.(n)

Business Services

6 unchanged sentences

Portfolio Company (a)(b)

Variable Index

Investment Type (c)

Variable Index

Spread / Floor (d)

110 unchanged sentences

The Company pays a quarterly base management fee and an incentive fee to Fidus Investment Advisors,

LLC (the Investment Advisor) under an investment advisory agreement (the Investment Advisory Agreement).

Accounting Policies

LLC, our investment advisor (the Investment Advisor or Fidus Investment Advisors) under an investment advisory agreement (the Investment Advisory Agreement).

Significant Accounting Policies

Basis of presentation:

The accompanying consolidated financial statements of the Company have been prepared

in accordance with generally accepted accounting principles in the United States of America (GAAP) pursuant to the requirements for reporting on Form 10-Q, Accounting Standards Codification

(ASC) 946, Financial Services Investment Companies (ASC 946), and Articles 6 or 10 of Regulation S-X.

In the opinion of management, the consolidated financial statements reflect

all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented.

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally

accepted accounting principles in the United States of America (GAAP) pursuant to the requirements for reporting on Form 10-Q, Accounting Standards Codification (ASC) 946, Financial

Services Investment Companies (ASC 946), and Articles 6 or 10 of Regulation S-X.

In the opinion of management, the consolidated financial statements reflect all adjustments and

reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented.

Certain prior period amounts have been reclassified to conform to the current period presentation.

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 year ended December 31, 2019.

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 year ended December 31, 2019.

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.

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.

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The failure of a

single product, service or distribution channel, or the loss or the ineffectiveness of a key

single product, service or distribution channel, or the loss or the ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies.

Furthermore, these companies may be more

vulnerable to competition and to overall economic conditions than larger, more established entities.

FIDUS INVESTMENT CORPORATION

1 unchanged sentence

(in thousands, except shares and per share data)

executive or executives within the management team may have a materially adverse impact on such companies.

Furthermore, these companies may be more vulnerable to competition and to overall

economic conditions than larger, more established entities.

Credit risk - Credit risk represents the risk that the Company would incur if the counterparties failed to

166 unchanged sentences

the income tax provision, if any.

There were no material uncertain income tax positions at March 31, 2020 and December 31, 2019.

There were no material uncertain income tax positions at June 30, 2020 and December 31, 2019.

The Companys tax returns are generally subject to examination by U.S.

29 unchanged sentences

The earnings per share calculations for the

three months ended March 31, 2020 and 2019, are computed utilizing the weighted average shares outstanding for the period.

three and six months ended June 30, 2020 and 2019, are computed utilizing the weighted average shares outstanding for the period.

Net asset value per share is calculated using the number of shares outstanding as of the end of the period.

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Program may be suspended, extended, modified or discontinued at any time.

During the three months ended March 31, 2020, the Company repurchased 25,719 shares of common stock on the open market for $268.

The Company did not make any repurchases

of common stock during the three months ended March 31, 2019.

During the three and six months ended June 30, 2020, the Company repurchased zero and 25,719 shares of common stock on the open market for zero and $268, respectively.

The Company did not make any repurchases of common stock during the three and six months ended June 30, 2019, respectively.

Refer to Note 8 for additional information concerning stock repurchases.

4 unchanged sentences

The guidance is effective for annual and interim reporting periods beginning after December 15, 2019.

We adopted the ASU effective January 1, 2020.

The Company adopted the ASU effective January 1, 2020.

No significant changes to the fair value

disclosures were necessary in the notes to the consolidated financial statements in order to comply with ASU 2018-13.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by

reference rate reform if certain criteria are met.

The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022.

The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging

relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging

relationship.

The Company is evaluating the potential impact that the adoption of ASU 2020-04 will have on the Companys consolidated financial statements.

Portfolio Company Investments

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generally reported under the name of the operating company on the consolidated schedules of investments.

As of March 31, 2020, the

Company had active investments in 62 portfolio companies and residual investments in four portfolio companies that have sold their underlying operations.

The aggregate fair value of the total portfolio was $718,940 and the weighted average effective

yield on the Companys debt investments was 12.0% as of such date.

As of March 31, 2020, the Company held equity investments in 90.9% of its portfolio companies and the weighted average fully diluted equity ownership in those portfolio

companies was 4.8%.

The weighted average fully diluted equity ownership was computed using the fully diluted equity ownership for equity investments (including warrants) at cost as of March 31, 2020.

As of December 31, 2019, the Company had active investments in 61 portfolio companies and residual investments in three portfolio

companies that have sold their underlying operations.

The aggregate fair value of the total portfolio was $766,919 and the weighted average effective yield on the Companys debt investments was 12.0% as of such date.

As of December 31,

2019, the Company held equity investments in 93.7% of its portfolio companies and the weighted average fully diluted equity ownership in those portfolio companies was 5.3%.

The weighted average fully diluted equity ownership was computed using the

fully diluted equity ownership for equity investments (including warrants) at cost as of December 31, 2019.

The weighted average

yield of the Companys debt investments is not the same as a return on investment for its stockholders but, rather, relates to a portion of the Companys investment portfolio and is calculated before the payment of all of the

Companys and its subsidiaries fees and expenses.

The weighted average yields were computed using the effective interest rates for debt investments at cost as of March 31, 2020 and December 31, 2019, including accretion

of OID and debt investment origination fees, but excluding investments on non-accrual status, if any.

As of June 30, 2020, the

Company had active investments in 64 portfolio companies and residual investments in three portfolio companies that have sold their underlying operations.

The aggregate fair value of the total portfolio was $732,620 and the weighted average

effective yield on the Companys debt investments was 12.0% as of such date.

As of June 30, 2020, the Company held equity investments in 89.6% of its portfolio companies and the weighted average fully diluted equity ownership in those

portfolio companies was 4.7%.

The weighted average fully diluted equity ownership was computed using the fully diluted equity ownership for equity investments (including warrants) at cost as of June 30, 2020.

FIDUS INVESTMENT CORPORATION

1 unchanged sentence

(in thousands, except shares and per share data)

Purchases of debt and equity investments for the three months ended March 31, 2020 and

2019 totaled $68,192 and $80,473, respectively.

Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the three months ended March 31, 2020 and 2019 totaled

$73,772 and $57,352, respectively.

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

As of December 31, 2019, the Company had active investments in 61 portfolio companies

and residual investments in three portfolio companies that have sold their underlying operations.

The aggregate fair value of the total portfolio was $766,919 and the weighted average effective yield on the Companys debt investments was 12.0%

as of such date.

As of December 31, 2019, the Company held equity investments in 93.7% of its portfolio companies and the weighted average fully diluted equity ownership in those portfolio companies was 5.3%.

The weighted average fully diluted

equity ownership was computed using the fully diluted equity ownership for equity investments (including warrants) at cost as of December 31, 2019.

The weighted average yield of the Companys debt investments is not the same as a return on investment for its stockholders but, rather,

relates to a portion of the Companys investment portfolio and is calculated before the payment of all of the Companys and its subsidiaries fees and expenses.

The weighted average yields were computed using the effective

interest rates for debt investments at cost as of June 30, 2020 and December 31, 2019, including accretion of OID and debt investment origination fees, but excluding investments on non-accrual

status, if any.

Purchases of debt and equity investments for the six months ended June 30, 2020 and 2019 totaled $85,097 and

$128,460, respectively.

Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the six months ended June 30, 2020 and 2019 totaled $76,315 and $75,320,

respectively.

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

Second Lien Debt

2 unchanged sentences

Royalty Rights

All investments made by the Company as of March 31, 2020 and December 31, 2019 were made in

portfolio companies headquartered in the U.S.

All investments made by the Company as of June 30, 2020 and December 31, 2019 were made in portfolio

companies headquartered in the U.S.

The following table shows portfolio composition by geographic region at fair value and cost and as a percentage of total investments.

The geographic composition is determined by the location of the

corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio companys business.

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

of net assets.

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.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

The following table shows portfolio composition by type and by geographic region at fair

value as a percentage of net assets.

By Geographic Region

3 unchanged sentences

Royalty Rights

As of March 31, 2020 and December 31, 2019, the Company had no portfolio company investments that

As of June 30, 2020 and December 31, 2019, the Company had no portfolio company investments that

represented more than 10% of the total investment portfolio on a fair value or cost basis.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

As of March 31, 2020 and December 31, 2019, the Company had debt investments in

four and one portfolio companies on non-accrual status, respectively:

March 31, 2020

As of June 30, 2020 and December 31,

2019, the Company had debt investments in two and one portfolio companies on non-accrual status, respectively:

June 30, 2020

December 31, 2019

1 unchanged sentence

Accent Food Services, LLC

EBL, LLC (EbLens)

Mirage Trailers LLC

Virginia Tile Company, LLC

Portfolio company was on PIK-only on

3 unchanged sentences

The table below represents the fair value of control and affiliate investments as of December 31, 2019 and any additions and reductions

made to such investments during the three months ended March 31, 2020, the ending fair value as of March 31, 2020, and the total investment income earned on such investments during the period.

Three Months Ended March 31, 2020

March 31, 2020

Principal Amount -

Debt Investments

made to such investments during the six months ended June 30, 2020, the ending fair value as of June 30, 2020, and the total investment income earned on such investments during the period.

Six Months Ended June 30, 2020

Portfolio Company (1)

June 30, 2020

Additions (2)

Reductions (3)

Net Change in

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portfolio companies into the control or affiliate classification during the period, as applicable.

Gross reductions include decreases in the cost basis of investments resulting from principal repayments or

sales and net unrealized (depreciation) recognized during the period.

Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales

and net unrealized (depreciation) recognized during the period.

Gross reductions also include include transfers of portfolio companies out of the control or affiliate classification during the period, as applicable.

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Portfolio company was transferred to

Non-control/Non-affiliate investments from Affiliate investments during the three months ended March 31, 2020.

Fair Value Measurements

The Board has established and documented processes and methodologies for determining the fair values of portfolio company investments on a

recurring basis in accordance with ASC Topic 820 and consistent with the requirements of the 1940 Act.

Fair value is the price, determined at the measurement date, that would be received in the sale of an asset or paid to transfer a liability in an

orderly transaction between market participants.

Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters.

Where observable prices or inputs are not available or reliable, valuation

techniques described below are applied.

Under ASC Topic 820, portfolio investments recorded at fair value in the consolidated financial statements are classified within the fair value hierarchy based upon the level of judgment associated with the

inputs used to measure their value, as defined below:

Level 1 Inputs are unadjusted, quoted prices in

active markets for identical assets as of the measurement date.

Level 2 Inputs include quoted prices for

similar assets in active markets, or that are quoted prices for identical or similar assets in markets that are not active and inputs that are observable, either directly or indirectly, for substantially the full term, if applicable, of the

Level 3 Inputs include those that are both unobservable and significant to the overall fair

value measurement.

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 entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2

inputs are not available.

Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board, using Level 3 inputs.

The degree of judgment exercised by the Board in determining fair value is

Non-control/Non-affiliate investments from Affiliate investments during the six months ended June 30, 2020.

FIDUS INVESTMENT CORPORATION

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(in thousands, except shares and per share data)

greatest for investments classified as Level 3 inputs.

Due to the inherent uncertainty of determining the fair values of investments that do not have readily available market values, the

Boards estimate of fair values may differ significantly from the values that would have been used had a ready market for the securities existed, and those differences may be material.

In addition, changes in the market environment, portfolio

company performance and other events that may occur over the lives of the investments may cause the amounts ultimately realized on these investments to be materially different than the valuations currently assigned.

Fair Value Measurements

The Board has established and

documented processes and methodologies for determining the fair values of portfolio company investments on a recurring basis in accordance with ASC Topic 820 and consistent with the requirements of the 1940 Act.

Fair value is the price, determined

at the measurement date, that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.

Where available, fair value is based on observable market prices or parameters, or derived

from such prices or parameters.

Where observable prices or inputs are not available or reliable, valuation techniques described below are applied.

Under ASC Topic 820, portfolio investments recorded at fair value in the consolidated financial

statements are classified within the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value, as defined below:

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

Level 2 Inputs include quoted prices for similar assets in active markets, or that are quoted

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

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

An 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 entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not

Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board, using Level 3 inputs.

The degree of judgment exercised by the Board in determining fair value is greatest for

investments classified as Level 3 inputs.

Due to the inherent uncertainty of determining the fair values of investments that do not have readily available market values, the Boards estimate of fair values may differ significantly from the

values that would have been used had a ready market for the securities existed, and those differences may be material.

In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of

the investments may cause the amounts ultimately realized on these investments to be materially different than the valuations currently assigned.

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

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models to estimate the present value of future cash flows of either an individual debt investment or of the underlying portfolio company itself.

The Company evaluates investments in portfolio companies using the most recent portfolio company financial statements and forecasts.

Company also consults with the portfolio companys senior management to obtain further updates on the portfolio companys performance, including information such as industry trends, new product development and other operational issues.

For the Companys debt investments the primary valuation technique used to estimate the fair value is the discounted cash flow

However, if there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other methods in determining the fair value, including the value attributable to the debt investment from the enterprise

value of the portfolio company or the proceeds that would be received in a liquidation analysis.

The Companys discounted cash flow models estimate a range of fair values by applying an appropriate discount rate to the future cash flow streams

of its debt investments, based on future interest and principal payments as set forth in the associated debt investment agreements.

The Company prepares a weighted average cost of capital for use in the discounted cash flow model for each

investment, based on factors including, but not limited to:

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

The Company evaluates investments in portfolio companies using the most recent portfolio

company financial statements and forecasts.

The Company also consults with the portfolio companys senior management to obtain further updates on the portfolio companys performance, including information such as industry trends, new

product development and other operational issues.

For the Companys debt investments the primary valuation technique used to

estimate the fair value is the discounted cash flow method.

However, if there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other methods in determining the fair value, including the value

attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis.

The Companys discounted cash flow models estimate a range of fair values by applying an

appropriate discount rate to the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated debt investment agreements.

The Company prepares a weighted average cost of capital for

use in the discounted cash flow model for each investment, based on factors including, but not limited to:

current pricing and credit metrics for similar proposed or executed investment transactions of private companies;

the portfolio companys historical financial results and outlook;

the portfolio companys current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made.

The Company may also consider the following factors when determining the fair value of debt

the portfolio companys

historical financial results and outlook;

and the portfolio companys current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made.

The Company may also consider the following factors

when determining the fair value of debt investments:

the portfolio companys ability to make future scheduled payments;

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estimated remaining life;

the nature and realizable value of any collateral securing such debt investment;

and changes in the

interest rate environment and the credit markets that generally may affect the price at which similar investments may be made.

The Company estimates the remaining life of its debt investments to generally be the legal maturity date of the

instrument, as the Company generally intends to hold its debt investments to maturity.

However, if the Company has information available to it that the debt investment is expected to be repaid in the near term, it would use an estimated remaining

life based on the expected repayment date.

the nature and realizable value of any collateral securing

such debt investment;

and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made.

The Company estimates the remaining life of its debt investments to generally be

the legal maturity date of the instrument, as the Company generally intends to hold its debt investments to maturity.

However, if the Company has information available to it that the debt investment 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 equity investments, including equity

and warrants, the Company generally uses a market approach, including valuation methodologies consistent with industry practice, to estimate the enterprise value of portfolio companies.

Typically, the enterprise value of a private company is based

on multiples of EBITDA, net income, revenues, or in limited cases, book value.

In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original

transaction multiples, the portfolio 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.

Company may also utilize an income approach when estimating the fair value of its equity securities, either as a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting

methodology to corroborate the fair value ranges determined by the market approach.

The Company typically prepares and analyzes discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company.

The Company considers various factors, including, but not limited to, the portfolio 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.

The fair value of the

Companys royalty rights are calculated based on projected future cash flows and the specific provisions contained in the pertinent agreements.

The determination of the fair value of such royalty rights is not a significant component of the

Companys valuation process.

The Company reviews the fair value hierarchy classifications on a quarterly basis.

Reclassifications

impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur.

There were no transfers among Levels 1, 2, and 3 during

the six months ended June 30, 2020 and 2019.

FIDUS INVESTMENT CORPORATION

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(in thousands, except shares and per share data)

For the Companys equity investments, including equity and warrants, the Company

generally uses a market approach, including valuation methodologies consistent with industry practice, to estimate the enterprise value of portfolio companies.

Typically, the enterprise value of a private company is based on multiples of EBITDA, net

income, revenues, or in limited cases, book value.

In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original transaction multiples, the

portfolio 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.

The Company may also utilize an

income approach when estimating the fair value of its equity securities, either as a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting methodology to corroborate the

fair value ranges determined by the market approach.

The Company typically prepares and analyzes discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company.

The Company considers various

factors, including, but not limited to, the portfolio 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.

The fair value of the Companys royalty rights are

calculated based on projected future cash flows and the specific provisions contained in the pertinent agreements.

The determination of the fair value of such royalty rights is not a significant component of the Companys valuation process.

The Company reviews the fair value hierarchy classifications on a quarterly basis.

Reclassifications impacting Level 3 of the fair

value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur.

There were no transfers among Levels 1, 2, and 3 during the three months ended

March 31, 2020 and 2019.

The following tables present a reconciliation of the beginning and ending balances for fair valued

investments measured using significant unobservable inputs (Level 3) for the three months ended March 31, 2020 and 2019:

The following tables present a reconciliation of the beginning and ending balances for fair

valued investments measured using significant unobservable inputs (Level 3) for the six months ended June 30, 2020 and 2019:

Balance, December 31, 2018

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Accretion of original issue discount

Balance, March 31, 2019

Balance, June 30, 2019

Balance, December 31, 2019

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Accretion of original issue discount

Balance, March 31, 2020

Net change in unrealized (depreciation) of $(73,964) for the three months ended March 31, 2020 was

attributable to Level 3 investments held at March 31, 2020.

Net change in unrealized appreciation of $1,538 for the three months ended March 31, 2019 was attributable to Level 3 investments held at March 31, 2019.

The following tables summarize the significant unobservable inputs by valuation technique used to determine the fair value of the

Companys Level 3 debt and equity investments as of March 31, 2020 and December 31, 2019.

The tables are not intended to be all-inclusive, but instead capture the significant unobservable

inputs relevant to the Companys determination of fair values.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

Balance, June 30, 2020

Net change in unrealized (depreciation) of $(1,508) and $(75,441) for the three and six months ended

June 30, 2020, respectively, was attributable to Level 3 investments held at June 30, 2020.

Net change in unrealized (depreciation) of $(6,335) and $(4,840) for the three and six months ended June 30, 2019 was attributable to

Level 3 investments held at June 30, 2019.

The following tables summarize the significant unobservable inputs by valuation

technique used to determine the fair value of the Companys Level 3 debt and equity investments as of June 30, 2020 and December 31, 2019.

The tables are not intended to be all-inclusive,

but instead capture the significant unobservable inputs relevant to the Companys determination of fair values.

Fair Value at

March 31, 2020

June 30, 2020

(weighted average) (1)

Debt investments:

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Unobservable inputs were weighted by the relative fair value of the instruments.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

Debt investments:

Fair Value at

December 31, 2019

Debt investments:

Valuation Techniques

Unobservable Inputs

Range (weighted

Second Lien Debt

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The Companys borrowings under the Credit Facility (as defined in Note 6), SBA debentures, and Public Notes (as defined in Note 6) are recorded at their respective carrying values.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

The following tables summarize the carrying value and fair value of the Companys debt

obligations as of March 31, 2020 and December 31, 2019.

March 31, 2020

The following tables summarize the carrying value and fair value of the Companys debt obligations as of June 30, 2020 and

December 31, 2019.

June 30, 2020

December 31, 2019

Carrying Value (1)

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Level 1 input.

The following table summarizes the inputs used to value the Companys

debt obligations if measured at fair value as of March 31, 2020 and December 31, 2019.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

The following table summarizes the inputs used to value the Companys debt obligations

if measured at fair value as of June 30, 2020 and December 31, 2019.

Valuation Inputs

June 30, 2020

December 31, 2019

Related Party Transactions

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The base management fee under the Investment Advisory

Agreement was $3,272 for the three months ended March 31, 2020 and $2,871 for the three months ended March 31, 2019.

As of March 31, 2020 and December 31, 2019, the base management fee payable was $3,272 and

$3,334, respectively.

The incentive fee consists of two parts.

The first 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 excise taxes on realized gains).

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as market discount, debt

instruments with PIK income, preferred stock with PIK 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 collects.

Pre-incentive fee net investment income does not include any realized capital gains, taxes associated with such 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

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

an incentive fee in a quarter where the Company incurs a loss.

For example, if the Company generates 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 a net loss on investments.

Agreement was $3,193 and $6,465 for the three and six months ended June 30, 2020, respectively and $3,016 and $5,887, for the three and six months ended June 30, 2019, respectively.

June 30, 2020 and December 31, 2019, the base management fee payable was $3,193 and $3,334, respectively.

The incentive fee

consists of two parts.

The first 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 excise taxes on realized gains).

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as market discount, debt instruments with PIK income, preferred stock with PIK 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 collects.

Pre-incentive fee net investment

income does not include any realized capital gains, taxes associated with such 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 generates 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 a net loss on investments.

Pre-incentive fee net investment income, expressed as a rate of return on the value of the

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net investment income does not exceed the hurdle rate of 2.0%;

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

100.0% of the Companys pre-incentive fee net investment income with

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The income incentive fee is appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the calendar quarter.

The income incentive fee was $1,855 for

the three months ended March 31, 2020 and $2,485 for the three months ended March 31, 2019.

As of March 31, 2020 and December 31, 2019, the income incentive fee payable was $1,855 and $1,497 respectively.

The income incentive fee

was $2,113 and $3,968, for the three and six months ended June 30, 2020, respectively, and $1,299 and $3,784, for the three and six months ended June 30, 2019, respectively.

The Investment Advisor, in

consultation with the Board, agreed to voluntarily waive $423 of the income incentive fee for the three and six months ended June 30, 2020.

There was no income incentive fee waiver for the three and six months ended June 30, 2019.

June 30, 2020 and December 31, 2019, the income incentive fee payable (net of the income incentive fee waiver) was $1,690 and $1,497, respectively.

The second part of the incentive fee is a capital gains incentive fee that is determined and paid in arrears as of the end of each fiscal year

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such amount, less the aggregate amount of any capital gains incentive fees paid in all prior years.

As of March 31, 2020 and December 31, 2019, the capital gains incentive fee payable in cash was $0 (as cumulative aggregate realized

capital gains and losses on investments plus aggregate unrealized capital depreciation on investments plus realized losses on extinguishment of debt was negative as of each period).

The aggregate amount of capital gains incentive fees paid from the

IPO through March 31, 2020 was $348.

As of June 30, 2020 and December 31, 2019, the capital gains incentive fee payable in cash was $0 (as cumulative aggregate realized capital

gains and losses on investments plus aggregate unrealized capital depreciation on investments plus realized losses on extinguishment of debt was negative as of each period).

The aggregate amount of capital gains incentive fees paid from the IPO

through June 30, 2020 was $348.

In addition, the Company accrues, but does not pay in cash, a capital gains incentive fee in

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The capital gains incentive fee accrued (reversed)

during the three months ended March 31, 2020 was $(8,878), and $355 for the three months ended March 31, 2019.

As of March 31, 2020 and December 31, 2019, the accrued capital gains incentive fee payable was $3,837 and $12,715,

respectively.

Unless terminated earlier as described below, the Investment Advisory Agreement will continue in effect from year to year

if approved annually by the Board 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 Independent Directors.

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.

of a majority of the Companys outstanding voting securities may also terminate the Investment Advisory Agreement without penalty.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

during the three and six months ended June 30, 2020 was $(263) and $(9,141), respectively, and $(1,289) and $(934) for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020 and December 31, 2019, the

accrued capital gains incentive fee payable was $3,574 and $12,715, respectively.

Unless terminated earlier as described below, the

Investment Advisory Agreement will continue in effect from year to year if approved annually by the Board 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 directors who are not interested persons of the Company, as such term is defined under Section 2(a)(19) of the 1940 Act (the Independent Directors).

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 also entered into an administration agreement

(the Administration Agreement) with the Investment Advisor.

The Company also entered into an administration agreement (the Administration Agreement) with the

Investment Advisor.

On June 4, 2020, the Board approved the renewal of the Administration Agreement through June 20, 2021.

Under the Administration Agreement, the Investment Advisor

furnishes the Company with office facilities and equipment, provides clerical, bookkeeping, and record keeping services at such facilities and provides the Company with other administrative services necessary to conduct its day-to-day operations.

Under the Administration Agreement, the Investment Advisor furnishes the Company with office facilities and

equipment, provides clerical, bookkeeping, and record keeping services at such facilities and provides the Company with other administrative services necessary to conduct its

day-to-day operations.

The Company reimburses the Investment Advisor for the allocable portion of overhead expenses incurred in performing its obligations under the

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Under the Administration Agreement,

administrative service expenses for the three months ended March 31, 2020 were $466, and $399 for the three months ended March 31, 2019.

As of March 31, 2020 and December 31, 2019, the accrued administrative service expense was

$558 and $528, respectively.

administrative service expenses for the three and six months ended June 30, 2020 were $364 and $830, respectively, and $378 and $777 for the three and six months ended June 30, 2019.

As of June 30, 2020 and December 31, 2019, the

accrued administrative service expense was $506 and $528, respectively.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

Fidus Equity Fund I, L.P.

On February 25, 2020, the Company entered into a Limited

Partnership Agreement (the Agreement) with Fidus Equity Fund I, L.P.

Pursuant to the Agreement, we will serve as the General Partner of FEF I.

Owned by third-party investors, FEF I was formed to purchase 50% of

select equity investments from us.

On February 25, 2020, we sold 50% of our equity investments in 20 portfolio companies to FEF I and received net proceeds of $35.9 million, resulting in a realized gain, net of estimated taxes, of

approximately $20.4 million.

We will not receive any fees from FEF I for any services provided in our capacity as the General Partner of FEF I.

On February 25, 2020, the Company entered into

a Limited Partnership Agreement (the Agreement) with Fidus Equity Fund I, L.P.

Pursuant to the Agreement, the Company will serve as the General Partner of FEF I.

Owned by third-party investors, FEF I was formed

to purchase 50% of select equity investments from the Company.

On February 25, 2020, the Company sold 50% of its equity investments in 20 portfolio companies to FEF I and received net proceeds of $35,903, resulting in a realized gain, net of

estimated taxes, of $20,404.

The Company will not receive any fees from FEF I for any services provided in its capacity as the General Partner of FEF I.

Revolving Credit

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Credit Facility.

Under the Amended Credit Agreement, (i) revolving commitments by lenders were increased from $90,000 to $100,000,

with an accordion feature that allows for an increase in total commitments up to $250,000, subject to satisfaction of certain conditions at the time of any such future increase, (ii) the maturity date of the Credit Facility was extended from

June 16, 2019 to April 24, 2023, and (iii) borrowings under the credit facility bear interest, at our election, at a rate per annum equal to (a) 3.00% (or 2.75% if certain conditions are satisfied, including if (x) no equity

interests are included in the borrowing base, (y) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans is greater than or equal to 35%, and (z) the contribution to the borrowing

base of eligible portfolio investments that are performing first lien bank loans, performing last out loans, or performing second lien loans is greater than or equal to 60%) plus the one, two, three or six month LIBOR rate, as applicable, or

(b) 2.00% (or 1.75% if the above conditions are satisfied) plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5%, (C) three month LIBOR plus 1.0%, and (D) zero.

The Company pays a commitment fee that

varies depending on the size of the unused portion of the Credit Facility:

3.00% per annum on the unused portion of the credit facility at or below 35% of the commitments and 0.50% per annum on any remaining unused portion of the Credit Facility

between the total commitments and the 35% minimum utilization.

The Amended Credit Agreement also modifies certain covenants in the credit facility, including to provide for a minimum asset coverage ratio of 2.00 to 1 (on a regulatory basis).

Credit Facility is secured by a first priority security interest in all of our assets, excluding the assets of our SBIC subsidiaries.

On June 26, 2020, the Company amended the Amended Credit Agreement, however the material terms were unchanged.

Among other revisions, the amendment to the Amended Credit Agreement modifies certain covenants therein, including

to amend the minimum consolidated interest coverage ratio to be 2.25 to 1.00 for the four quarter period ending on June 30, 2020, 2.00 to 1.00 for the four quarter periods ending on each of September 30, 2020 and December 31, 2020,

and 1.75 to 1.00 for each four quarter period ending at the end of each quarter thereafter.

Under the Amended Credit Agreement,

(i) revolving commitments by lenders were increased from $90,000 to $100,000, with an accordion feature that allows for an increase in total commitments up to $250,000, subject to satisfaction of certain conditions at the time of any such

future increase, (ii) the maturity date of the Credit Facility was extended from June 16, 2019 to April 24, 2023, and (iii) borrowings under the credit facility bear interest, at our election, at a rate per annum equal to

(a) 3.00% (or 2.75% if certain conditions are satisfied, including if (x) no equity interests are included in the borrowing base, (y) the contribution to the borrowing base of eligible portfolio investments that are performing first

lien bank loans is greater than or equal to 35%, and (z) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans, performing last out loans, or performing second lien loans is greater

than or equal to 60%) plus the one, two, three or six month LIBOR rate, as applicable, or (b) 2.00% (or 1.75% if the above conditions are satisfied) plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5%,

The Company pays a commitment fee that varies depending on the size of the unused portion of the Credit Facility:

3.00% per annum on the unused portion of the credit facility at or below 35%

of the commitments and 0.50% per annum on any remaining unused portion of the Credit Facility between the total commitments and the 35% minimum utilization.

The Amended Credit Agreement also modifies certain covenants in the credit facility,

including to provide for a minimum asset coverage ratio of 2.00 to 1 (on a regulatory basis).

The Credit Facility is secured by a first priority security interest in all of our assets, excluding the assets of our SBIC subsidiaries.

Amounts available to borrow under the Credit Facility are subject to a minimum borrowing/collateral base that applies an advance rate to

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These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility.

As of March 31, 2020 and December 31,

As of June 30, 2020 and December 31,

2019, the Company was in compliance in all material respect with the terms of the Credit Facility.

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uses debenture leverage provided through the SBA to fund a portion of its investment purchases.

Under the SBA debenture program, the SBA

commits to purchase debentures issued by SBICs;

such debentures have 10-year terms with the entire principal balance due at maturity and are guaranteed by the SBA.

Interest on SBA debentures is payable

semi-annually on March 1 and September 1.

As of June 30, 2020 and December 31, 2019, approved and unused SBA debenture commitments were $11,500 and $17,500, 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.

FIDUS INVESTMENT CORPORATION

1 unchanged sentence

(in thousands, except shares and per share data)

Under the SBA debenture program, the SBA commits to purchase debentures issued by SBICs;

debentures have 10-year terms with the entire principal balance due at maturity and are guaranteed by the SBA.

Interest on SBA debentures is payable semi-annually on March 1 and September 1.

March 31, 2020 and December 31, 2019, approved and unused SBA debenture commitments were $11,500 and $17,500, 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.

of March 31, 2020 and December 31, 2019, the Companys issued and outstanding SBA debentures mature as follows:

Interest Rate

As of June 30, 2020 and December 31, 2019, the Companys issued and

outstanding SBA debentures mature as follows:

Total outstanding SBA debentures

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facilities the Company may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities.

As of March 31, 2020, the aggregate amount outstanding of the senior securities issued by the Company was $217,250, for which our asset

As of June 30, 2020, the aggregate amount outstanding of the senior securities issued by the Company was $225,250, for which our asset

coverage was 267.0%.

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Interest and Financing Expenses

Interest and fees related to the Companys debt for the three months ended March 31, 2020 and 2019 which are included in

interest and financing expenses on the consolidated statements of operations, were as follows:

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Interest and fees related to the Companys debt for the three and six months ended June 30, 2020 and 2019 which are

included in interest and financing expenses on the consolidated statements of operations, were as follows:

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

Stated interest expense

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Total interest and financing expenses

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Stated interest expense

Amortization of deferred financing costs

Total interest and financing expenses

Weighted average stated interest rate, period end

1 unchanged sentence

Realized Losses on Extinguishment of Debt

During the three months ended March 31, 2020 and 2019, the Company prepaid $7,000 and $19,750 of SBA debentures, respectively, which were

During the six months ended June 30, 2020 and 2019, the Company prepaid $7,000 and $19,750 of SBA debentures, respectively, which were

scheduled to mature on dates ranging from 2024 to 2028 and 2021 to 2025, respectively.

As a result of the prepayments, the Company recognized realized losses on extinguishment of debt of $125 and $189, respectively, equal to the write-off of the related unamortized deferred financing costs, during the three months ended March 31, 2020 and 2019.

Deferred Financing Costs

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Deferred financing costs related to the

Credit Facility, SBA debentures, and Public Notes as of March 31, 2020 and December 31, 2019 were as follows:

March 31, 2020

Credit Facility, SBA debentures, and Public Notes as of June 30, 2020 and December 31, 2019 were as follows:

June 30, 2020

December 31, 2019

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Credit Facility and Public Notes liabilities on the consolidated statements of assets and liabilities.

The following table summarizes the outstanding debt net of unamortized deferred financing costs as of March 31, 2020 and December 31,

March 31, 2020

The following table summarizes the outstanding debt net of unamortized deferred financing costs as of June 30, 2020 and December 31,

June 30, 2020

December 31, 2019

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Debt, net of deferred financing costs

As of March 31, 2020, the Companys debt liabilities are scheduled to mature as follows (1) :

As of June 30, 2020, the Companys debt liabilities are scheduled to mature as follows (1) :

The table above presents scheduled maturities of the Companys outstanding debt liabilities as of a point

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The Company had outstanding commitments to portfolio companies to fund various undrawn revolving loans, other debt

investments and capital commitments totaling $4,757 as of March 31, 2020 and December 31, 2019.

investments and capital commitments totaling $4,857 and $4,757 as of June 30, 2020 and December 31, 2019, respectively.

Such outstanding commitments are summarized in the following table:

March 31, 2020

June 30, 2020

December 31, 2019

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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 any such legal proceedings cannot be predicted with certainty, the Company does not believe any such legal proceedings will have a material adverse

effect on the Companys consolidated financial statements.

FIDUS INVESTMENT CORPORATION

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(in thousands, except shares and per share data)

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 any such legal proceedings cannot be predicted with certainty, the Company does not believe any such legal proceedings will have a

material adverse effect on the Companys consolidated financial statements.

Public Offerings of Common Stock

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Incorporated through which the Company could sell, by means of at-the-market offerings from time to time, shares of the Companys common stock having an aggregate offering price of up to $50,000 (the ATM Program).

were no issuances of common stock under the ATM program during the last two fiscal years and for the three months ended March 31, 2020.

were no issuances of common stock under the ATM program during the last two fiscal years and for the six months ended June 30, 2020.

Repurchase Program

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of its outstanding common stock.

During the three months ended March 31, 2020, the Company repurchased 25,719 shares of common stock, respectively, on the open market for $268.

The Company did not make any repurchases of common stock during the

three months ended March 31, 2019.

The Companys NAV per share increased by approximately $0.01 for the three months ended March 31, 2020, as a result of the share repurchases.

The following table summarizes the Companys share

repurchases under the Stock Repurchase Program for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

During the three and six months ended June 30, 2020, the Company repurchased 0 and 25,719 shares of common stock, respectively, on the open market for zero and $268, respectively.

The Company did not make any

repurchases of common stock during the three and six months ended June 30, 2019.

The Companys NAV per share increased by approximately zero and $0.01 for the three and six months ended June 30, 2020, as a result of the share

The following table summarizes the Companys share repurchases under the Stock Repurchase Program for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

Repurchases of Common Stock

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Refer to Note 9 for additional information regarding the issuance of shares under the DRIP.

The Company had 24,437,400 and 24,463,119 shares of common stock outstanding as of March 31, 2020 and December 31, 2019,

The Company had 24,437,400 and 24,463,119 shares of common stock outstanding as of June 30, 2020 and December 31, 2019,

respectively.

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The following table summarizes the dividends paid during the

last two fiscal years and for the three months ended March 31, 2020.

Date Declared

last two fiscal years and for the six months ended June 30, 2020.

Fiscal Year Ended December 31, 2018:

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10/29/2019 (1)

Fiscal Year Ended March 31, 2020:

Six Months Ended June 30, 2020:

Special dividend.

During the three months ended March 31, 2020 and the years ended December 31, 2019 and 2018, the

Company directed the DRIP program plan administrator to repurchase shares on the open market in order to satisfy the DRIP obligation to deliver shares of common stock in lieu of issuing new shares.

Accordingly, the Company purchased and reissued

shares to satisfy the DRIP obligation as follows:

During the six months ended June 30, 2020 and the years ended December 31, 2019 and 2018, the Company directed

the DRIP program plan administrator to repurchase shares on the open market in order to satisfy the DRIP obligation to deliver shares of common stock in lieu of issuing new shares.

Accordingly, the Company purchased and reissued shares to satisfy

the DRIP obligation as follows:

Fiscal Year Ended December 31, 2018:

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October 1, 2019 through December 31, 2019

Three Months Ended March 31, 2020:

January 1, 2020 through March 31, 2020

FIDUS INVESTMENT CORPORATION

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(in thousands, except shares and per share data)

Six Months Ended June 30, 2020:

January 1, 2020 through March 31, 2020

April 1, 2020 through June 30, 2020

Financial Highlights

The following is a schedule of financial highlights for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

The following is a schedule of financial highlights for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

Per share data:

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certain per share data based on weighted average shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date, or other rounding.

Annualized with the exception of the Income Incentive Fee Waiver.

Total return based on market value equals the change in the market value of the Companys common stock per

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that may be paid by an investor.

The total expenses to average net assets ratio is calculated using the total expenses caption as presented on

the consolidated statements of operations, which includes incentive fee and excludes the income tax provision.

The total expenses to average net assets ratio is calculated using the total expenses before income incentive

fee waiver caption as presented on the consolidated statements of operations, which includes incentive fee and excludes the income tax provision.

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

The net investment income to average net assets ratio is calculated using the net investment income caption as

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Non-operating changes include any items that affect net asset value per share other than increase from investment operations, such as the effects of share issuances and repurchases and other miscellaneous

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

The ratio of waived incentive fees to average net assets was (0.11%) and zero for the six months ended

June 30, 2020 and 2019, respectively.

The following is a schedule of supplemental expense ratios to average net assets:

Three Months Ended March 31,

Six Months Ended June 30,

Ratio to average net assets:

Expenses other than incentive fee

Incentive fee (3)

Incentive fee, net of incentive fee waiver

Total expenses (3)(5)

Subsequent Events

On April 29, 2020, the Board declared a regular quarterly dividend of $0.30 per share payable on June 26, 2020 to stockholders of

record as of June 12, 2020.

On April 30, 2020, the Company invested $12,500 in subordinated debt and common equity of

ECM Industries, LLC, a global manufacturer and supplier of electrical products through a wide range of premium brands.

We evaluated events subsequent to March 31, 2020 through April 30, 2020.

March 11, 2020, the World Health Organization declared the novel coronavirus (COVID-19) as a pandemic, and on March 13, 2020 the United States declared a national emergency with respect

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets.

global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

Such actions are creating disruption in

global supply chains and adversely impacting a number of industries.

The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

The rapid development and fluidity of this

situation precludes any prediction as to the ultimate adverse impact of COVID-19.

Nevertheless, COVID-19 presents material uncertainty and risks with respect to the

underlying value of the Companys portfolio companies, the Companys business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, increased costs of operations,

changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments.

Accordingly, the

Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.

The potential impact to our results will depend to a large extent on future developments and new information that may emerge

regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our control.

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 Investment Corporations consolidated financial statements and related notes appearing in our annual report on Form 10-K for the year ended December 31, 2019, filed

with the U.S.

Securities and Exchange Commission (SEC) on February 27, 2020.

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, our, Fidus and FIC refer to Fidus Investment Corporation and its consolidated subsidiaries.

Forward Looking Statements

Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.

These forward-looking statements are not historical facts, but rather are based on current

expectations, estimates and projections about Fidus Investment Corporation, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions.

Words such as anticipates, expects,

intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets,

projects and variations of these words and similar expressions are intended to identify forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q

involve risks and uncertainties, including statements as to:

our future operating results;

our business prospects and the prospects of our portfolio companies;

On July 2, 2020, the Company exited its debt investment in Hoonuit, LLC.

The Company received payment in full of $7,308 on its first lien

debt, which includes a prepayment penalty.

On July 24, 2020, we exited our debt and equity investments in Microbiology Research

Associates, Inc.

We received payment in full of $8,997 on our subordinated debt investment.

We sold our common equity investment for a realized gain of approximately $1,366.

On August 3, 2020, the Board declared a regular quarterly dividend of $0.30 per share payable on September 25, 2020 to stockholders

of record as of September 11, 2020.

Subsequent to June 30, 2020, the global outbreak of the coronavirus (COVID-19)

pandemic, and the related effect on the U.S.

and global economies, has continued to have adverse consequences for the business operations of some of the Companys portfolio companies.

The ultimate economic fallout from the pandemic, and the

long-term impact on economies, markets, industries and individual issuers, remain uncertain.

The operational and financial performance of the issuers of securities in which the Company invests depends on future developments, including the duration

and spread of the outbreak, and such uncertainty may in turn adversely affect the value and liquidity of the Companys investments and negatively impact the Companys performance.

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 Investment Corporations consolidated financial statements and related notes appearing in our annual report on Form 10-K for the year ended December 31, 2019, filed with the

SEC on February 27, 2020.

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,

our, Fidus and FIC refer to Fidus Investment Corporation and its consolidated subsidiaries.

Forward Looking

This Quarterly Report on Form 10-Q contains forward-looking statements that involve

substantial risks and uncertainties.

These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about Fidus Investment Corporation, our current and prospective portfolio

investments, our industry, our beliefs, and our assumptions.

Words such as anticipates, expects, intends, plans, will, may, continue, believes,

seeks, estimates, would, could, should, targets, projects and variations of these words and similar expressions are intended to identify forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:

our future operating results and the impact of the COVID-19 pandemic

our business prospects and the prospects of our portfolio companies, including our and their ability to achieve

our respective objectives as a result of the current COVID-19 pandemic;

the impact of investments that we expect to make;

pandemics or other serious public health events, such as the recent global outbreak of COVID-19 (more commonly known as the Coronavirus);

pandemics or other serious public health events, such as the recent global outbreak of COVID-19;

our contractual arrangements and relationships with third parties;

the dependence of our future success on the general economy and its impact on the industries in which we invest

and the impact of the COVID-19 pandemic thereon;

the ability of our portfolio companies to achieve their objectives;

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the adequacy of our cash resources and working capital;

the timing of cash flows, if any, from the operations of our portfolio companies.

These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond

our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

an economic downturn could impair our portfolio companies ability to continue to operate, which could lead

to the loss of some or all of our investments in such portfolio companies;

a contraction of available credit and/or an inability to access the equity markets could impair our lending and

investment activities;

the timing of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon;

the ability of the Investment Advisor to locate suitable investments for us and to monitor and administer our

investments and the impacts of the COVID-19 pandemic thereon.

These statements

are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted

in the forward-looking statements, including without limitation:

an economic downturn, including as a result of the current COVID-19

pandemic, could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

a contraction of available credit and/or an inability to access the equity markets, including as a result of the COVID-19 pandemic, could impair our lending and investment activities;

interest rate volatility could adversely affect our results, particularly because we use leverage as part of our

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We completed our initial public offering, or IPO, in June 2011.

elected to be treated as business development company, or BDC, under the 1940 Act and our investment activities are managed by Fidus Investment Advisors, LLC, our investment advisor, and supervised by our board of directors, a majority of whom are

independent of us.

elected to be treated as business development company, or BDC, under the 1940 Act and our investment activities are managed by Fidus Investment Advisors, our investment advisor, and supervised by the Board, a majority of whom are independent of us.

On March 29, 2013, we commenced operations of a wholly-owned subsidiary, Fund II.

On April 18, 2018, we commenced operations of another wholly-owned subsidiary, Fund III.

Fund II and Fund III are collectively referred to

as the Funds.

Fund II and Fund III are collectively referred to as the

Fund II and Fund III received their SBIC licenses on May 28, 2013, and March 21, 2019, respectively.

We plan to continue to operate the Funds as SBICs, subject to SBA approval, and to utilize the proceeds of the sale of SBA-guaranteed debentures to enhance returns to our stockholders.

We have also made, and

continue to make, investments directly through FIC.

to continue to operate the Funds as SBICs, subject to SBA approval, and to utilize the proceeds of the sale of SBA-guaranteed debentures to enhance returns to our stockholders.

We have also made, and continue

to make, investments directly through FIC.

We believe that utilizing FIC and the Funds as investment vehicles provides us with access to a broader array of investment opportunities.

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or expense is reflected in the consolidated statements of operations.

COVID-19 Update

On March 11, 2020, the World Health Organization declared the novel coronavirus, or COVID-19, as a

pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

The outbreak of COVID-19 has, and continues, to severely

impact global economic activity and cause significant volatility and negative pressure in financial markets.

The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting

quarantines, mandating business and school closures and restricting travel.

Such actions are creating disruption in global supply chains and adversely impacting a number of industries.

The outbreak could have a continued adverse impact on economic

and market conditions and trigger a period of global economic slowdown.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19.

Nevertheless, COVID-19 presents material uncertainty and risks with respect to the underlying value of the Companys portfolio companies, the Companys business, financial condition, results of

operations and cash flows, such as the potential negative impact to financing arrangements, company decisions to delay, defer and/or modify the character of dividends in order to preserve liquidity, increased costs of operations, changes in law

and/or regulation, and uncertainty regarding government and regulatory policy.

We have evaluated subsequent events from July 1, 2020

through August 6, 2020.

However, as the discussion in this Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations relates to the Companys financial statements for the quarter-ended June 30,

2020, the analysis contained herein may not fully account for impacts relating to the COVID-19 pandemic.

In that regard, for example, as of June 30, 2020, the Company valued its portfolio investments in

conformity with GAAP based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time.

Due to the overall volatility that the COVID-19 pandemic has

caused, any valuations conducted now or in the future in conformity with GAAP could result in a lower fair value of our portfolio.

The potential impact to our results going forward will depend to a large extent on future developments and new

information that may emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our

Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.

We seek to create a diversified investment portfolio that primarily includes debt investments and, to a lesser extent, equity securities.

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First Lien Debt .

To a lesser extent, we also structure some of our debt investments

as senior secured or first lien debt investments.

First lien debt investments are secured by a first priority lien on existing and future assets of the borrower and may take the form of term loans or revolving lines of credit.

First lien debt is

typically senior on a lien basis to other liabilities in the issuers capital structure and has the benefit of a first-priority security interest in assets of the issuer.

The security interest ranks above the security interest of any second

lien lenders in those assets.

To a lesser extent, we also

structure some of our debt investments as senior secured or first lien debt investments.

First lien debt investments are secured by a first priority lien on existing and future assets of the borrower and may take the form of term loans or revolving

lines of credit.

First lien debt is typically senior on a lien basis to other liabilities in the issuers capital structure and has the benefit of a first-priority security interest in assets of the issuer.

The security interest ranks above the

security interest of any second lien lenders in those assets.

Our first lien debt may include stand-alone first lien loans, last out first lien loans, or unitranche loans.

Stand-alone first lien loans are traditional first lien loans.

All lenders in the

facility have equal rights to the collateral that is subject to the first-priority security interest.

Last out first lien loans have a secondary priority behind super-senior first out first lien loans in the collateral

securing the loans in certain circumstances.

The arrangements for a last out first lien loan are set forth in an agreement among lenders, which provides lenders with first out and last out payment

streams based on a single lien on the collateral.

Since the first out lenders generally have priority over the last out lenders for receiving payment under certain specified events of default, or upon the occurrence of other

triggering events under intercreditor agreements or agreements among lenders, the last out lenders bear a greater risk and, in exchange, receive a higher effective interest rate, through arrangements among the lenders, than the

first out lenders or lenders in stand-alone first lien loans.

Agreements among lenders also typically provide greater voting rights to the last out lenders than the intercreditor agreements to which second lien lenders often

Many of our debt investments also include excess cash flow sweep features, whereby principal repayment may be required

before maturity if the portfolio company achieves certain defined operating targets.

Stand-alone first lien loans are traditional first

All lenders in the facility have equal rights to the collateral that is subject to the first-priority security interest.

Last out first lien loans have a secondary priority behind super-senior first out first lien

loans in the collateral securing the loans in certain circumstances.

The arrangements for a last out first lien loan are set forth in an agreement among lenders, which provides lenders with first out and

last out payment streams based on a single lien on the collateral.

Since the first out lenders generally have priority over the last out lenders for receiving payment under certain specified events of default, or

upon the occurrence of other triggering events under intercreditor agreements or agreements among lenders, the last out lenders bear a greater risk and, in exchange, receive a higher effective interest rate, through arrangements among

the lenders, than the first out lenders or lenders in stand-alone first lien loans.

Agreements among lenders also typically provide greater voting rights to the last out lenders than the intercreditor agreements to which

second lien lenders often are subject.

Many of our debt investments also include excess cash flow sweep features, whereby principal

repayment may be required before maturity if the portfolio company achieves certain defined operating targets.

Additionally, our debt investments typically have principal prepayment penalties in the early years of the debt investment.

The majority of our debt investments

provide for a fixed interest rate.

of our debt investments provide for a fixed interest rate.

Equity Securities .

Our equity securities typically consist of either a direct minority equity

investment in common or preferred stock or membership/partnership interests of a portfolio company, or we may receive warrants to buy a minority equity interest in a portfolio company in connection with a debt investment.

Warrants we receive with

our debt investments typically require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest.

Our equity investments are typically not

control-oriented investments, and in many cases, we acquire equity securities as part of a group of private equity investors in which we are not the lead investor.

We may structure such equity investments to include provisions protecting our rights

as a minority-interest holder, as well as a put, or right to sell such securities back to the issuer, upon the occurrence of specified events.

In many cases, we may also seek to obtain registration rights in connection with these equity

interests, which may include demand and piggyback registration rights.

Our equity securities typically consist of either a

direct minority equity investment in common or preferred stock or membership/partnership interests of a portfolio company, or we may receive warrants to buy a minority equity interest in a portfolio company in connection with a debt investment.

Warrants we receive with our debt investments typically require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest.

Our equity investments are

typically not control-oriented investments, and in many cases, we acquire equity securities as part of a group of private equity investors in which we are not the lead investor.

We may structure such equity investments to include provisions

protecting our rights as a minority-interest holder, as well as a put, or right to sell such securities back to the issuer, upon the occurrence of specified events.

In many cases, we may also seek to obtain registration rights in

connection with these equity interests, which may include demand and piggyback registration rights.

Our equity investments typically are made in connection with debt investments to the same portfolio companies.

We generate revenue in the form of interest and fee income on debt investments and dividends, if any, on equity investments.

Our debt investments, whether in the form of second lien, subordinated or first lien loans, typically have terms of five to seven years and most bear interest at a fixed rate, but some bear interest at a floating rate.

In some instances, we receive

payments on our debt investments based on scheduled amortization of the outstanding balances.

In addition, we may receive repayments of some of our debt investments prior to their scheduled maturity dates, which may include prepayment penalties.

frequency or volume of these repayments fluctuates significantly from period to period.

We generate revenue in the form of interest and fee income on debt

investments and dividends, if any, on equity investments.

Our debt investments, whether in the form of second lien, subordinated or first lien loans, typically have terms of five to seven years and most bear interest at a fixed rate, but some bear

interest at a floating rate.

In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances.

In addition, we may receive repayments of some of our debt investments prior to their scheduled

maturity dates, which may include prepayment penalties.

The frequency or volume of these repayments fluctuates significantly from period to period.

Our portfolio activity may reflect the proceeds of sales of securities.

In some cases, our investments provide for deferred interest payments or PIK interest.

In some cases, our

investments provide for deferred interest payments or PIK interest.

The principal amount of debt investments and any accrued but unpaid interest generally become due at the maturity date.

In addition, we may generate revenue in the form of commitment, origination, amendment, or structuring fees and fees for

providing managerial assistance.

Debt investment origination fees, OID and market discount or premium, if any, are capitalized, and we accrete or amortize such amounts into interest income.

We record prepayment penalties on debt investments as fee

income when earned.

In addition, we may generate revenue in the form of

commitment, origination, amendment, or structuring fees and fees for providing managerial assistance.

Debt investment origination fees, OID and market discount or premium, if any, are capitalized, and we accrete or amortize such amounts into

interest income.

We record prepayment penalties on debt investments as fee income when earned.

Interest and dividend income is recorded on the accrual basis to the extent that we expect to collect such amounts.

Interest is accrued daily based on the outstanding principal amount and the contractual terms of the debt

Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution, and is generally recognized when received.

Distributions of earnings from portfolio companies

are evaluated to determine if the distribution is a distribution of earnings or a return of capital.

Distributions of earnings are included in dividend income while a return of capital is recorded as a reduction in the cost basis of the investment.

Interest is accrued daily based on the

outstanding principal amount and the contractual terms of the debt investment.

Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution, and is generally recognized

when received.

Distributions of earnings from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital.

Distributions of earnings are included in dividend income while a return of

capital is recorded as a reduction in the cost basis of the investment.

Estimates are adjusted as necessary after the relevant tax forms are received from the portfolio company.

Debt investments or preferred equity investments (for which we are accruing PIK dividends) 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.

dividend payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on managements judgment.

Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, payments are likely to remain current.

See Critical Accounting

Policies and Use of Estimates Revenue Recognition.

We recognize realized gains or losses on investments based on the

difference between the net proceeds from the disposition and the cost basis of the investment, without regard to unrealized gains or losses previously recognized.

We record current period changes in fair value of investments that are measured at

fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

All investment professionals of our investment advisor and/or its

affiliates, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses allocable to personnel who provide these services to us, are provided and paid for by our

investment advisor and not by us.

We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating

Debt investments or preferred equity investments (for which we are

accruing PIK dividends) 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 and dividend payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on

managements judgment.

Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, payments are likely to remain

See Critical Accounting Policies and Use of Estimates Revenue Recognition.

We recognize realized gains or

losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment, without regard to unrealized gains or losses previously recognized.

We record current period changes in fair value of

investments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

All investment professionals of the Investment Advisor and/or its affiliates, when and to the extent engaged in providing

investment advisory and management services to us, and the compensation and routine overhead expenses allocable to personnel who provide these services to us, are provided and paid for by the Investment Advisor and not by us.

We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to:

organization;

calculating our net asset value (including the cost and expenses of any independent valuation firm);

fees and expenses incurred by our investment advisor under the Investment Advisory Agreement or payable to third

parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated

with, evaluating and making investments, including dead deal costs;

fees and expenses incurred by the Investment Advisor under the Investment Advisory Agreement or payable to

third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or

associated with, evaluating and making investments, including dead deal costs;

interest payable on debt, if any, incurred to finance our investments;

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administration fees and expenses, if any, payable under the Administration Agreement (including payments under

the Administration Agreement between us and our investment advisor based upon our allocable portion of our investment advisors overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion

the Administration Agreement between us and the Investment Advisor based upon our allocable portion of the Investment Advisors overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion

of the cost of our officers, including our chief compliance officer, our chief financial officer, and their respective staffs);

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costs of any reports, proxy statements or other notices to stockholders, including printing and mailing costs;

our allocable portion of any fidelity bond, directors and officers/errors and omissions liability insurance, and

any other insurance premiums;

our allocable portion of any fidelity bond, directors and officers/errors and omissions liability insurance,

and any other insurance premiums;

direct costs and expenses of administration, including printing, mailing, long distance telephone, copying,

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proxy voting expenses;

all other expenses reasonably incurred by us or our investment advisor in connection with administering our

all other expenses reasonably incurred by us or the Investment Advisor in connection with administering our

Portfolio Composition, Investment Activity and Yield

During the three months ended March 31, 2020 and 2019, we invested $68.2 million and $80.5 million, respectively, in debt and

equity investments including three and four new portfolio companies, respectively.

During the three months ended March 31, 2020 and 2019, we received proceeds from sales or repayments, including principal, return of capital dividends and net

realized gains (losses), of $73.8 million and $57.4 million, respectively, including exits of one and three portfolio companies, respectively.

During the six months ended June 30, 2020 and 2019, we invested $85.1 million and $128.5 million, respectively, in debt and

equity investments including five and nine new portfolio companies, respectively.

During the six months ended June 30, 2020 and 2019, we received proceeds from sales or repayments, including principal, return of capital dividends and net

realized gains (losses), of $76.3 million and $75.3 million, respectively, including exits of one and four portfolio companies, respectively.

The following table summarizes investment purchases and sales and repayments of investments by

type for the three months ended March 31, 2020 and 2019 (dollars in millions).

type for the six months ended June 30, 2020 and 2019 (dollars in millions).

Purchases of Investments

Sales and Repayments of Investments

Six Months Ended June 30,

Second Lien Debt

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Royalty Rights

As of March 31, 2020, the fair value of our investment portfolio totaled $718.9 million and

consisted of 62 active portfolio companies and four portfolio companies that have sold their underlying operations.

As of March 31, 2020, 19 portfolio companies debt investments bore interest at a variable rate, which represented

As of June 30, 2020, the fair value of our investment portfolio totaled $732.6 million and consisted

of 64 active portfolio companies and three portfolio companies that have sold their underlying operations.

As of June 30, 2020, 20 portfolio companies debt investments bore interest at a variable rate, which represented

$210.3 million, or 32.0%, of our debt investment portfolio on a fair value basis, and the remainder of our debt investment portfolio was comprised of fixed rate investments.

Overall, the portfolio had net unrealized depreciation of $(13.7)

million as of March 31, 2020.

As of March 31, 2020, our average active portfolio company investment at amortized cost was $11.8 million, which excludes investments in the four portfolio companies that have sold their underlying

As of December 31, 2019, the fair value of our investment portfolio totaled

$766.9 million and consisted of 61 active portfolio companies and three portfolio companies that have sold their underlying operations.

As of December 31, 2019, 17 portfolio companies debt investments bore interest at a variable

rate, which represented $181.3 million, or 28.7%, of our debt investment portfolio on a fair value basis, and the remainder of our debt investment portfolio was comprised of fixed rate investments.

Overall, the portfolio had net unrealized

appreciation of $62.4 million as of December 31, 2019.

As of December 31, 2019, our average active portfolio company investment at amortized cost was $11.5 million, which excludes investments in the three portfolio companies that

have sold their underlying operations.

The weighted average yield on debt investments as of both March 31, 2020 and

December 31, 2019 was 12.0%.

The weighted average yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of

all of our and our subsidiaries fees and expenses.

The weighted average yields were computed using the effective interest rates for debt investments at cost as of March 31, 2020 and December 31, 2019, respectively, including the

accretion of OID and debt investment origination fees, but excluding investments on non-accrual status, if any.

The following table shows the portfolio composition by investment type at fair value and cost and as a percentage of total investments

(dollars in millions):

million as of June 30, 2020.

As of June 30, 2020, our average active portfolio company investment at amortized cost was $11.6 million, which excludes investments in the three portfolio companies that have sold their underlying

As of December 31, 2019, the fair value of our investment portfolio totaled $766.9 million and consisted of 61

active portfolio companies and three portfolio companies that have sold their underlying operations.

As of December 31, 2019, 17 portfolio companies debt investments bore interest at a variable rate, which represented $181.3 million,

or 28.7%, of our debt investment portfolio on a fair value basis, and the remainder of our debt investment portfolio was comprised of fixed rate investments.

Overall, the portfolio had net unrealized appreciation of $62.4 million as of

December 31, 2019.

As of December 31, 2019, our average active portfolio company investment at amortized cost was $11.5 million, which excludes investments in the three portfolio companies that have sold their underlying operations.

The weighted average yield on debt investments as of both June 30, 2020 and December 31, 2019 was 12.0%.

The weighted average

yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of all of our and our subsidiaries fees and

The weighted average yields were computed using the effective interest rates for debt investments at cost as of June 30, 2020 and December 31, 2019, respectively, including the accretion of OID and debt investment origination

fees, but excluding investments on non-accrual status, if any.

The following table shows the portfolio composition by investment type at fair value and

cost and as a percentage of total investments (dollars in millions):

Second Lien Debt

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Royalty Rights

All investments made by us as of March 31, 2020 and December 31, 2019 were made in portfolio

All investments made by us as of June 30, 2020 and December 31, 2019 were made in portfolio

companies headquartered in the U.S.

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Aerospace & Defense Manufacturing

Vending Equipment Manufacturing

Promotional Products

Transportation Services

Oil & Gas Services

Building Products Manufacturing

Oil & Gas Services

Transportation Services

Environmental Industries

Vending Equipment Manufacturing

Industrial Cleaning & Coatings

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In addition to

various risk management and monitoring tools, our investment advisor uses an internally developed investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio.

various risk management and monitoring tools, the Investment Advisor uses an internally developed investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio.

five-level numeric rating scale.

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The following table shows the distribution of our investments on the 1 to 5 investment

rating scale at fair value and cost as of March 31, 2020 and December 31, 2019 (dollars in millions):

rating scale at fair value and cost as of June 30, 2020 and December 31, 2019 (dollars in millions):

Investment Rating

Based on our investment rating system, the weighted average rating of our portfolio as of March 31, 2020

Based on our investment rating system, the weighted average rating of our portfolio as of June 30, 2020

and December 31, 2019 was 2.1 and 2.0, respectively, on a fair value basis and 2.3 and 2.1, respectively, on a cost basis.

As of March 31, 2020 and December 31, 2019, we had debt investments in four

and one portfolio companies on non-accrual status, respectively (dollars in millions):

March 31, 2020

December 31, 2019

As of June 30, 2020 and December 31, 2019, we had debt investments in two and

one portfolio companies on non-accrual status, respectively (dollars in millions):

Portfolio Company

Accent Food Services, LLC

EBL, LLC (EbLens)

Mirage Trailers LLC

Virginia Tile Company, LLC

Portfolio company was on PIK-only on

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Discussion and Analysis of Results of Operations

Comparison of three months ended March 31, 2020 and 2019

Comparison of three and six months ended June 30, 2020 and 2019

Investment Income

is a summary of the changes in total investment income for the three months ended March 31, 2020 as compared to the same period in 2019 (dollars in millions):

is a summary of the changes in total investment income for the three months ended June 30, 2020 as compared to the same period in 2019 (dollars in millions):

Three Months Ended

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statements of operations.

For the three months ended March 31, 2020, total investment income was

$20.0 million, a decrease of $(0.3) million or (1.7%), from the $20.3 million of total investment income for the three months ended March 31, 2019.

For the three months ended June 30, 2020, total investment income was

$20.4 million, an increase of $2.3 million or 13.1%, from the $18.1 million of total investment income for the three months ended June 30, 2019.

As reflected in the table above, the decrease is primarily attributable to the

$0.8 million increase in total interest income (including payment-in-kind interest income) resulting from higher average debt investment balances outstanding, partially offset by a small decrease in weighted average debt yield, during 2020 as compared to 2019.

$3.1 million increase in total interest income (which includes a $1.8 million decrease in payment-in-kind interest income) resulting from higher average debt investment balances outstanding, during 2020 as compared to 2019.

$(0.4) million decrease in fee income resulting from a a decrease in structuring fees due to a comparative

decrease in new investments, a decrease in prepayment fee income, partially offset by an increase in amendment fee income, during 2020 as compared to 2019.

$(0.6) million decrease in dividend income, during 2020 as compared to 2019, due to decreased levels of

distributions received from equity investments.

Below is a summary of the changes in total investment income for the

six months ended June 30, 2020 as compared to the same period in 2019 (dollars in millions):

Six Months Ended

% Change (1)(2)

Interest income

Payment-in-kind interest

Dividend income

Interest on idle funds and other income

Total investment income

NM = Not meaningful

Percent change calculated based on underlying dollar amounts in thousands as presented on the consolidated

statements of operations.

For the six months ended June 30, 2020, total investment income was $40.4 million,

an increase of $2.0 million or 5.3%, from the $38.4 million of total investment income for the six months ended June 30, 2019.

As reflected in the table above, the increase is primarily attributable to the following:

$3.9 million increase in total interest income (which includes a $3.3 million decrease in payment-in-kind interest income) resulting from higher average debt investment balances outstanding, during 2020 as compared to 2019.

$(0.8) million decrease in dividend income, during 2020 as compared to 2019, due to decreased levels of

distributions received from equity investments.

$(1.2) million decrease in fee income resulting from a decrease in prepayment fee income, a decrease in

structuring fees due to a comparative decrease in new investments, partially offset by an increase in amendment fee income, during 2020 as compared to 2019.

summary of the changes in total expenses, including income tax provision, for the three months ended March 31, 2020 as compared to the same period in 2019 (dollars in millions):

structuring fees due to a comparative decrease in new investments, offset by an increase in amendment fee income, during 2020 as compared to 2019.

summary of the changes in total expenses, including income tax provision, for the three months ended June 30, 2020 as compared to the same period in 2019 (dollars in millions):

Three Months Ended

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Other general and administrative expenses

Total expenses, before income incentive fee waiver

Incentive fee waiver - income

Total expenses, before income tax provision

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statements of operations.

For the three months ended March 31, 2020, total expenses, including income tax

provision, were $2.6 million, a decrease of $(8.1) million or (76.1%), from the $10.7 million of total expenses for the three months ended March 31, 2019.

For the three months ended June 30, 2020, total expenses, including income tax

provision, were $11.1 million, an increase of $2.6 million or 32.2%, from the $8.5 million of total expenses for the three months ended June 30, 2019.

As reflected in the table above, changes across periods were primarily

attributable to the following:

$1.0 million increase in the capital gains incentive fee due to a $5.1 million decrease in net (loss)

on investments (net realized gains (losses), plus net change in unrealized appreciation (depreciation) on investments, plus realized losses on extinguishment of debt) during 2020 as compared to the same period in 2019.

$0.8 million increase in interest and financing expenses due to an increase in average borrowings

outstanding and an increase in weighted average interest rate on borrowings during 2020 as compared to 2019.

outstanding during 2020 as compared to 2019.

$0.4 million net increase in the income incentive fee comprised of a $0.8 million increase in the

income incentive fee due to a $1.5 million increase in pre-incentive fee net investment income during 2020 offset by a one-time $0.4 income incentive fee

waiver, as compared to the same period in 2019.

$0.2 million increase in base management fee due to higher average total assets during 2020 as compared to

$(0.6) million decrease in the income incentive fee due to a $(2.0) million decrease in pre-incentive fee net investment income during 2020, as compared to the same period in 2019.

$(9.3) million decrease in the capital gains incentive fee due to a $(46.2) million decrease in net

gain on investments (net realized gains (losses), plus net change in unrealized appreciation (depreciation) on investments, plus realized losses on extinguishment of debt) during 2020 due largely to economic uncertainty and impact of COVID-19, as compared to the same period in 2019.

$0.2 million increase in professional fees due to increased legal, audit and tax compliance costs during

2020 as compared to 2019.

Below is a summary of the changes in total expenses, including income tax provision for the

six months ended June 30, 2020 as compared to the same period in 2019 (dollars in millions):

Six Months Ended

% Change (1)(2)

Interest and financing expenses

Base management fee

Incentive fee - income

Incentive fee - capital gains

Administrative service expenses

Professional fees

Other general and administrative expenses

Total expenses, before income incentive fee waiver

Incentive fee waiver - income

Total expenses, before income tax provision

Income tax provision (benefit)

Total expenses, including income tax provision

NM = Not meaningful

Percent change calculated based on underlying dollar amounts in thousands as presented on the consolidated

statements of operations.

For the six months ended June 30, 2020, total expenses, including income tax provision,

were $13.7 million, a decrease of $(5.5) million, or (28.4)%, from the $19.2 million of total expenses, including income tax provision, for the six months ended June 30, 2019.

As reflected in the table above, the decrease is primarily

attributable to the following:

$2.0 million increase in interest and financing expenses due to an increase in average borrowings

outstanding during 2020 as compared to 2019.

$0.6 million increase in base management fee due to higher average total assets during 2020 as compared to

$0.2 million increase in professional fees due to increased legal, audit and tax compliance costs during

2020 as compared to 2019.

$(0.2) million net decrease in the income incentive fee comprised of a $0.2 increase in the income incentive fee

due to the Q2 2019 fee amount not exceeding the 2.5% hurdle rate, partially offset by a $(0.6) million decrease in pre-incentive fee net investment income and a

one-time $0.4 million incentive fee waiver during 2020 as compared to the same period in 2019.

$(8.2) million decrease in the capital gains incentive fee due to a $(41.1) million increase in net

(loss) on investments (net realized gains (losses), plus net change in unrealized appreciation (depreciation) on investments, plus realized losses on extinguishment of debt), as compared to the same period in 2019.

Net Investment Income

Net investment income increased by $7.8 million, or 81.4%, to $17.4 million during the three months ended March 31, 2020 as

compared to the same period in 2019, as a result of the $(8.1) million decrease in total expenses including income tax provision, partially offset by the $(0.3) decrease in total investment income.

Net investment income decreased by $(0.3) million, or (3.7)%, to $9.3 million during the three months ended June 30, 2020 as compared

to the same period in 2019, as a result of the $2.6 million increase in total expenses, including incentive fee waiver and income tax provision, partially offset by the $2.3 increase in total investment income.

Net investment income increased by $7.5 million, or 38.8%, to $26.7 million during the six months ended June 30, 2020 as

compared to the same period in 2019, as a result of the $2.0 million increase in total investment income and a decrease in total expenses, including incentive fee waiver and income tax provision, of $(5.5) million.

Net Gain (Loss) on Investments

For the three months ended March 31, 2020, the total net realized loss on investments, before income tax provision on realized gains, was

$31.4 million.

Income tax (provision) benefit from realized gains on investments was $(1.1) for the three months ended March 31, 2020.

Significant realized gains (losses) for the three months ended March 31, 2020 are summarized below

(dollars in millions):

For the three and six months ended June 30, 2020, the total net realized gain on investments, before income tax provision on realized

gains, was $0.2 million and $31.6 million, respectively.

Income tax (provision) benefit from realized gains on investments was $(0) and $(1.1) for the three and six months ended June 30, 2020, respectively.

Significant realized gains

(losses) for the three and six months ended June 30, 2020 are summarized below (dollars in millions):

Period Ended June 30, 2020

Portfolio Company

Realization Event

Gains (Losses)

Pfanstiehl, Inc.

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Sold 50% of equity investment

New Era Technology, Inc.

Escrow distribution

Apex Microtechnology, Inc.

Escrow distribution

Allied 100 Group, Inc.

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Escrow distribution

Marco Group International OpCo, LLC

Sold 50% of equity investment

New Era Technology, Inc.

Escrow distribution

Palisade Company, LLC

Sold 50% of equity investment

Sale of portfolio company

Net realized gain (loss) on investments

Income tax provision from realized gains on investments

Income tax (provision) benefit from realized gains on investments

Net realized gain (loss), net of income tax provision, on investments

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portfolio company investments).

For the three months ended March 31, 2019, the total net

realized loss on investments, before income tax provision on realized gains, was $(1.6) million.

Income tax (provision) from realized gains on investments was zero for the three months ended March 31, 2019.

Significant realized gains (losses)

for the three months ended March 31, 2019 are summarized below (dollars in millions):

For the three and six months ended June 30, 2019, the total net realized loss on

investments, before income tax provision on realized gains, was $(0.1) million and $(1.7) million, respectively.

Income tax provision from realized gains on investments was $0.3 million and $0.3 million for the three and six months ended

June 30, 2019, respectively.

Significant realized gains (losses) for the three and six months ended June 30, 2019 are summarized below (dollars in millions):

Period Ended June 30, 2019

Portfolio Company

Realization Event

Gains (Losses)

K2 Industrial Services, Inc.

Malabar International

Escrow distribution

Trantech Radiator Products, Inc.

Exit of portfolio company

1 unchanged sentence

Exit of portfolio company

K2 Industrial Services, Inc.

Exit of portfolio company

Net realized gain (loss) on investments

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portfolio company investments).

During the three months ended March 31, 2020 and 2019, we recorded a net change in

unrealized appreciation (depreciation) on investments attributable to the following (dollars in millions):

During the three and six months ended June 30, 2020 and 2019, we recorded a net

change in unrealized appreciation (depreciation) on investments attributable to the following (dollars in millions):

Three Months Ended

Six Months Ended

Unrealized Appreciation (Depreciation)

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Net Increase in Net Assets Resulting From Operations

Net increase (decrease) in net assets resulting from operations during the three months ended March 31, 2020 and 2019 was $(27.0) million

Net increase (decrease) in net assets resulting from operations during the three months ended June 30, 2020 and 2019 was $8.0 million

and $3.2 million, respectively, as a result of the events described above.

Net increase in net assets resulting from operations

during the six months ended June 30, 2020 and 2019 was $(19.0) million and $14.6 million, respectively, as a result of the events described above.

Liquidity and Capital Resources

As of March 31, 2020, we had $27.2 million in cash and cash equivalents and our net assets totaled $375.5 million.

As of June 30, 2020, we had $19.3 million in cash and cash equivalents and our net assets totaled $376.2 million.

that our current cash and cash equivalents on hand, our Credit Facility, our continued access to SBA-guaranteed debentures, and our anticipated cash flows from investments will provide adequate capital

2 unchanged sentences

short-term and long-term basis, our primary use of funds will be investments in portfolio companies and cash distributions to our stockholders.

During the three months ended March 31, 2020, we repaid $7.0 million of SBA debentures which

would have matured during the period September 1, 2024 through September 1, 2028.

Our remaining outstanding SBA debentures continue to mature in 2025 and subsequent years through 2030, which will require repayment on or before the

respective maturity dates.

For the three months ended March 31, 2020, we experienced a net increase in cash and cash equivalents in the amount of $12.2 million.

During that period, we used $13.1 million of cash for operating activities, which included the funding of $68.2 million of investments, which were offset by proceeds received from sales and repayments of investments of $73.8 million.

During the same period, received net borrowings of $10.0 million under our Credit Facility, partially offset by cash dividends paid to stockholders of $9.5 million, net repayments of SBA debentures of $1.0 million, repurchases of

common stock under the Stock Repurchase Program of $0.3 million, and the payment of deferred financing costs related to our debt financings of $0.1 million.

During the six months ended June 30, 2020, we repaid $7.0 million of SBA debentures which would

have matured during the period September 1, 2024 through September 1, 2028.

Our remaining outstanding SBA debentures continue to mature in 2025 and subsequent years through 2030, which will require repayment on or before the respective

maturity dates.

For the six months ended June 30, 2020, we experienced a net increase in cash and cash equivalents in the amount of $4.3 million.

During that period, $4.9 million of cash was provided by operating activities, which included the funding of $85.1 million of investments, which were offset by proceeds received from sales and repayments of investments of

$76.3 million.

During the same period, we received net borrowings of $18.0 million under our Credit Facility, partially offset by cash dividends paid to stockholders of $16.9 million, net repayments of SBA debentures of

$1.0 million, payment of deferred financing costs related to our debt financings of $0.5 million, and repurchases of common stock under the Stock Repurchase Program of $0.3 million.

Capital Resources

anticipate that we will continue to fund our investment activities on a long-term basis through a combination of additional debt and equity capital.

We anticipate that we will continue to fund our investment activities on a long-term basis through a combination of additional debt and equity

SBA debentures

are licensed SBICs, 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.

The SBA regulations currently limit the amount that is available to be borrowed by any SBIC and guaranteed by the SBA to 300.0% of an SBICs regulatory capital or

$175.0 million, whichever is less.

For three or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350.0 million.

SBA debentures 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 Funds are licensed SBICs, 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.

The SBA regulations currently limit the amount that is

available to be borrowed by any SBIC and guaranteed by the SBA to 300.0% of an SBICs regulatory capital or $175.0 million, whichever is less.

For three or more SBICs under common control, the maximum amount of outstanding SBA debentures

cannot exceed $350.0 million.

SBA debentures 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 SBA debentures is not required to be paid before maturity but may be pre-paid at any time.

As of March 31, 2020, Fund II and Fund III had $143.0 million and $13.5 million of outstanding SBA debentures, respectively.

Subject to SBA regulatory requirements and approval,

Fund III may access up to $161.5 million of additional SBA debentures under the SBIC debenture program.

For more information on the SBA debentures, please refer to Note 6 to our consolidated financial statements.

As of June 30, 2020, Fund II and Fund III had $143.0 million and

$13.5 million of outstanding SBA debentures, respectively.

Subject to SBA regulatory requirements and approval, Fund III may access up to $161.5 million of additional SBA debentures under the SBIC debenture program.

For more information on

the SBA debentures, please refer to Note 6 to our consolidated financial statements.

Credit Facility

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April 24, 2019, we entered into the Amended Credit Agreement, which amends, restates, and replaces the Credit Facility.

The Credit Facility is secured by substantially all of our assets, excluding the assets of the Funds.

Under the Amended Credit Agreement, (i) revolving commitments by lenders were increased from $90.0 million to $100.0 million,

with an accordion feature that allows for an increase in total commitments up to $250.0 million, subject to satisfaction of certain conditions at the time of any such future increase, (ii) the maturity date of the credit facility was

extended from June 16, 2019 to April 24, 2023, and (iii) borrowings under the Credit Facility bear interest, at our election, at a rate per annum equal to (a) 3.00% (or 2.75% if certain conditions are satisfied, including if

(x) no equity interests are included in the borrowing base, (y) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans is greater than or equal to 35%, and (z) the

contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans, performing last out loans, or performing second lien loans is greater than or equal to 60%) plus the one, two, three or six month LIBOR

rate, as applicable, or (b) 2.00% (or 1.75% if the above conditions are satisfied) plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5%, (C) three month LIBOR plus 1.0%, and (D) zero.

commitment fee that varies depending on the size of the unused portion of the Credit Facility:

3.00% per annum on the unused portion of the Credit Facility at or below 35% of the commitments and 0.50% per annum on any remaining unused portion of the

Credit Facility between the total commitments and the 35% minimum utilization.

The Amended Credit Agreement also modifies certain covenants in the Credit Facility, including to provide for a minimum asset coverage ratio of 2.00 to 1 (on a regulatory

On June 26, 2020, the Company amended the Amended Credit Agreement, however the material terms were unchanged.

other revisions, the amendment to the Amended Credit Agreement modifies certain covenants therein, including to amend the minimum consolidated interest coverage ratio to be 2.25 to 1.00 for the four quarter period ending on June 30, 2020, 2.00

to 1.00 for the four quarter periods ending on each of September 30, 2020 and December 31, 2020, and 1.75 to 1.00 for each four quarter period ending at the end of each quarter thereafter.

The Credit Facility is secured by substantially

all of our assets, excluding the assets of the Funds.

Under the Amended Credit Agreement, (i) revolving commitments by lenders were

increased from $90.0 million to $100.0 million, with an accordion feature that allows for an increase in total commitments up to $250.0 million, subject to satisfaction of certain conditions at the time of any such future increase,

(ii) the maturity date of the credit facility was extended from June 16, 2019 to April 24, 2023, and (iii) borrowings under the Credit Facility bear interest, at our election, at a rate per annum equal to (a) 3.00% (or 2.75%

if certain conditions are satisfied, including if (x) no equity interests are included in the borrowing base, (y) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans is greater

than or equal to 35%, and (z) the contribution to the borrowing base of eligible portfolio investments that are performing first lien bank loans, performing last out loans, or performing second lien loans is greater than or equal to 60%) plus

the one, two, three or six month LIBOR rate, as applicable, or (b) 2.00% (or 1.75% if the above conditions are satisfied) plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5%, (C) three month LIBOR plus

1.0%, and (D) zero.

We pay a commitment fee that varies depending on the size of the unused portion of the Credit Facility:

3.00% per annum on the unused portion of the Credit Facility at or below 35% of the commitments and 0.50% per annum on

any remaining unused portion of the Credit Facility between the total commitments and the 35% minimum utilization.

The Amended Credit Agreement also modifies certain covenants in the Credit Facility, including to provide for a minimum asset coverage

ratio of 2.00 to 1 (on a regulatory basis).

The Credit Facility is secured by a first priority security interest in all of our assets, excluding the assets of our SBIC subsidiaries.

6 unchanged sentences

These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility.

As of March 31, 2020, we were in compliance with all

As of June 30, 2020, we were in compliance with all

covenants of the Credit Facility.

1 unchanged sentence

due 2023, or the 2023 Notes. On February 22, 2018, the underwriters exercised their option to purchase an additional $6.5 million in aggregate principal of the 2023 Notes.

The total net proceeds to us from the 2023 Notes,

including the exercise of the underwriters option, after deducting underwriting discounts of approximately $1.5 million and offering expenses of $0.4 million, were approximately $48.1 million.

The total net proceeds to us from the 2023 Notes, including

the exercise of the underwriters option, after deducting underwriting discounts of approximately $1.5 million and offering expenses of $0.4 million, were approximately $48.1 million.

The 2023 Notes will mature on February 1, 2023 and bear interest at a rate of 5.875%.

The 2023 Notes may be redeemed in whole or in part

at any time or from time to time at our option on or after February 1, 2020.

Interest on the 2023 Notes is payable quarterly on February 1, May 1, August 1 and November 1 of each year.

The 2023 Notes are listed on the NASDAQ

Global Select Market under the trading symbol FDUSL. As of March 31, 2020, the outstanding principal balance of the 2023 Notes was $50.0 million.

The 2023 Notes may be redeemed in whole or in part at any time or from time to time at our option on or after February 1, 2020.

Interest on the 2023 Notes is payable quarterly on February 1, May 1, August 1 and November 1 of

The 2023 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSL. As of June 30, 2020, the outstanding principal balance of the 2023 Notes was $50.0 million.

On February 8, 2019, we closed the public offering of approximately $60.0 million in aggregate principal amount of our 6.000% notes

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Interest on the 2024 Notes is payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning May 15, 2019.

2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSZ. As of March 31, 2020, the outstanding principal balance of the 2024 Notes was $69.0 million.

2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSZ. As of June 30, 2020, the outstanding principal balance of the 2024 Notes was $69.0 million.

On October 16, 2019, we closed the public offering of approximately $55.0 million in aggregate principal amount of our 5.375% notes

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$1.9 million and offering expenses of $0.3 million, were approximately $61.1 million.

The November 2024 Notes will mature on November 1, 2024 and bear interest at a rate of

The November 2024 Notes will mature

on November 1, 2024 and bear interest at a rate of 5.375%.

The November 2024 Notes may be redeemed in whole or in part at any time or from time to time at our option on or after November 1, 2021.

Interest on the November 2024 Notes is payable quarterly on February 1, May 1,

August 1 and November 1 of each year, beginning February 1, 2020.

The November 2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSG. As of March 31, 2020, the outstanding principal

balance of the November 2024 Notes was approximately $63.3 million.

The Public Notes are unsecured obligations and rank pari passu

with our future unsecured indebtedness;

Interest on the November 2024 Notes is

payable quarterly on February 1, May 1, August 1 and November 1 of each year, beginning February 1, 2020.

The November 2024 Notes are listed on the NASDAQ Global Select Market under the trading symbol FDUSG. As

of June 30, 2020, the outstanding principal balance of the November 2024 Notes was approximately $63.3 million.

Notes are unsecured obligations and rank pari passu with our future unsecured indebtedness;

effectively subordinated to all of our existing and future secured indebtedness;

and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries,

financing vehicles, or similar facilities we may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities.

As of March 31, 2020, the weighted average stated interest rates for our SBA debentures, Public Notes, and the Credit Facility were

and structurally subordinated to all existing and future indebtedness and

other obligations of any of our subsidiaries, financing vehicles, or similar facilities we may form in the future, with respect to claims on the assets of any such subsidiaries, financing vehicles, or similar facilities.

As of June 30, 2020, the weighted average stated interest rates for our SBA debentures, Public Notes, and the Credit Facility were

3.333%, 5.749%, and 3.315% respectively.

As of March 31, 2020, we had $65.0 million of unutilized commitment under our Credit Facility, and we were subject to a 0.500% fee on such amount.

As of March 31, 2020, the weighted average

As of June 30, 2020, we had $57.0 million of unutilized commitment under our Credit Facility, and we were subject to a 0.500% fee on such amount.

As of June 30, 2020, the weighted average

stated interest rate on total debt outstanding was 4.484%.

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This requirement limits the amount that we may borrow.

We have received exemptive relief from the U.S.

Securities and

Exchange Commission (SEC) to allow us to exclude any indebtedness guaranteed by the SBA and issued by the Funds from the 200.0% asset coverage requirements, which, in turn, will enable us to fund more investments with debt capital.

Recent legislation, however, modifies the required minimum asset coverage ratio from 200.0% to 150.0%, if certain requirements are met.

Under the legislation, we are allowed to increase our leverage capacity if stockholders representing at least a

majority of the votes cast, when a quorum is present, approve a proposal to do so.

We have received exemptive relief from the SEC to allow us to

exclude any indebtedness guaranteed by the SBA and issued by the Funds from the 200.0% asset coverage requirements, which, in turn, will enable us to fund more investments with debt capital.

Recent legislation, however, modifies the required minimum

asset coverage ratio from 200.0% to 150.0%, if certain requirements are met.

Under the legislation, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when a quorum is present,

approve a proposal to do so.

If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval.

Alternatively, the legislation allows

the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such approval.

On April 29, 2019, our Board, including a majority of the non-interested directors, approved a

minimum asset coverage ratio of 150% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

As a result, we will become subject to the 150% asset coverage ratio effective as of April 29, 2020.

At present time, we do not intend to seek

stockholder approval to reduce our asset coverage requirement.

As of March 31, 2020, the aggregate amount outstanding of the senior securities issued by the Company was $217.3 million, for which our asset coverage was 272.9%.

The SBA-guaranteed debentures are not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC effective March 27, 2012.

The asset coverage ratio for a

class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.

As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share.

We may, however, sell

our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our board of directors, including Independent Directors, determines that such sale is in

the best interests of us and our stockholders, and if our stockholders approve such sale.

On June 19, 2019, our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of

one year ending on the earlier of June 19, 2020 or the date of our 2020 Annual Meeting of Stockholders.

We expect to present to our stockholders a similar proposal at our 2020 Annual Meeting of Stockholders.

Our stockholders specified that the

cumulative number of shares sold in each offering during the one-year period ending on the earlier of June 19, 2020 or the date of our 2020 Annual Meeting of Stockholders may not exceed 25.0% of our

outstanding common stock immediately prior to each such sale.

Alternatively, the legislation allows the majority of the Independent Directors to approve

an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such approval.

On April 29, 2019, the Board, including a majority of the Independent Directors, approved a minimum asset coverage ratio of 150% under

Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

As a result, we became subject to the 150% asset coverage ratio effective as of April 29, 2020.

At present time, we do not intend to seek stockholder approval to reduce our asset coverage

As of June 30, 2020, the aggregate amount outstanding of the senior securities issued by the Company was $225.3 million, for which our asset coverage was 267.0%.

The SBA-guaranteed

debentures are not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC effective March 27, 2012.

The asset coverage ratio for a class of senior securities representing indebtedness

is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.

As a BDC, we are generally not permitted to issue and sell our common stock at a price below

net asset value per share.

We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if the Board, including the Independent

Directors, determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve such sale.

On June 4, 2020, our stockholders voted to allow us to sell or otherwise issue common stock at a price below

net asset value per share for a period of one year ending on the earlier of June 4, 2021 or the date of our 2021 Annual Meeting of Stockholders.

We expect to present to our stockholders a similar proposal at our 2021 Annual Meeting of

Stockholders.

Our stockholders specified that the cumulative number of shares sold in each offering during the one-year period ending on the earlier of June 4, 2021 or the date of our 2021 Annual Meeting

of Stockholders may not exceed 25.0% of our outstanding common stock immediately prior to each such sale.

Stock Repurchase Program

We have an open market stock repurchase program (the Stock Repurchase Program) under which we may acquire up to $5.0 million

of our outstanding common stock.

Under the Stock Repurchase Program, we may, but are not obligated to, repurchase outstanding common stock in the open market from time to time provided that we comply with the prohibitions under our insider trading

policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints.

The timing, manner, price and amount of any share

repurchases will be determined by our management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate

We have an open market stock repurchase program (the Stock Repurchase Program) under which we may acquire up to

$5.0 million of our outstanding common stock.

Under the Stock Repurchase Program, we may, but are not obligated to, repurchase outstanding common stock in the open market from time to time provided that we comply with the prohibitions under our

insider trading policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints.

The timing, manner, price and

amount of any share repurchases will be determined by our management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate

considerations.

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During the three

months ended March 31, 2020, we repurchased 25,719 shares of common stock on the open market for $0.3 million.

We did not make any repurchases of common stock during the three months ended March 31, 2019.

Refer to Note 8 to our

consolidated financial statements for additional information concerning stock repurchases.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions affecting amounts

reported in the financial statements.

and six months ended June 30, 2020, we repurchased zero and 25,719 shares of common stock on the open market for zero and $0.3 million, respectively.

We did not make any repurchases of common stock during the three and six months ended

June 30, 2019.

Refer to Note 8 to our consolidated financial statements for additional information concerning stock repurchases.

Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with GAAP 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.

estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ materially from those estimates under different

assumptions or conditions.

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 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

As a BDC, we report our assets and liabilities at fair value at all times consistent with GAAP and the 1940 Act.

Accordingly, we are required

to periodically determine the fair value of all of our portfolio investments.

Our investments generally consist of illiquid securities

including debt and equity investments in lower middle-market companies.

Portfolio Investments

As a BDC, we report our assets and liabilities at fair value at all times consistent with GAAP and the 1940

Accordingly, we are required to periodically determine the fair value of all of our portfolio investments.

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

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:

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 the Board using a documented valuation policy and consistently

applied valuation process.

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, the Board 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 of our

rated by the investment professionals of the Investment Advisor responsible for the portfolio investment;

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

Investment Advisor;

our board of directors engages one or more independent valuation firm(s) to conduct independent appraisals of a

selection of our portfolio investments for which market quotations are not readily available.

Each portfolio company investment is generally appraised by the valuation firm(s) at least once every calendar year and each new portfolio company

investment is appraised at least once in the twelve-month period following the initial investment.

In certain instances, we may determine that it is not cost-effective, and as a result it is not in our stockholders best interest, to request

the independent appraisal of certain portfolio company investments.

Such instances include, but are not limited to, situations where we determine that the fair value of the portfolio company investment is relatively insignificant to the fair value

of the total portfolio.

Our board of directors consulted with the independent valuation firm(s) in arriving at our determination of fair value for 16 and 13 of our portfolio company investments representing 24.2% and 30.9% of the total portfolio

investments at fair value (exclusive of new portfolio company investments made during the three months ended March 31, 2020 and December 31, 2019, respectively) as of March 31, 2020 and December 31, 2019, respectively;

the audit committee of our board of directors reviews the preliminary valuations of our investment advisor and of

the independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments;

our 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 firm(s) 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.

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.

Consistent with the policies and methodologies adopted by our board of directors, we perform detailed valuations of our debt and equity

investments, including an analysis on the Companys unfunded debt investment commitments, using both the market and income 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.

Under the income approach, we typically prepare and analyze discounted cash flow models to estimate the present value of future cash flows of either an individual debt investment or of the underlying portfolio company itself.

We evaluate investments in portfolio companies using the most recent portfolio company financial statements and forecasts.

We also consult

with the portfolio companys senior management to obtain further updates on the portfolio companys performance, including information such as industry trends, new product development and other operational issues.

For our debt investments the primary valuation technique used to estimate the fair value is

the discounted cash flow method.

However, if there is deterioration in credit quality or a debt investment is in workout status, we may consider other methods in determining the fair value, including the value attributable to the debt investment

from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis.

Our discounted cash flow models estimate a range of fair values by applying an appropriate discount rate to the future cash flow

streams of our debt investments, based on future interest and principal payments as set forth in the associated debt investment agreements.

We prepare a weighted average cost of capital for use in the discounted cash flow model for each investment,

based on factors including, but not limited to:

the Board engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of

our portfolio investments for which market quotations are not readily available.

Each portfolio company investment is generally appraised by the valuation firm(s) at least once every calendar year and each new portfolio company investment is

appraised at least once in the twelve-month period following the initial investment.

In certain instances, we may determine that it is not cost-effective, and as a result it is not in our stockholders best interest, to request the independent

appraisal of certain portfolio company investments.

Such instances include, but are not limited to, situations where we determine that the fair value of the portfolio company investment is relatively insignificant to the fair value of the total

The Board consulted with the independent valuation firm(s) in arriving at our determination of fair value for 17 and 13 of our portfolio company investments representing 25.4% and 30.9% of the total portfolio investments at fair value

(exclusive of new portfolio company investments made during the three months ended June 30, 2020 and December 31, 2019, respectively) as of June 30, 2020 and December 31, 2019, respectively;

the audit committee of the Board reviews the preliminary valuations of the Investment Advisor and of the

independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments;

the Board 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 firm(s) and the audit committee.

making the good faith determination of the value of portfolio investments, we start with the cost basis of the security.

The transaction price is typically the best estimate of fair value at inception.

When evidence supports a subsequent change to

the carrying value from the original transaction price, adjustments are made to reflect the expected exit values.

Consistent with the

policies and methodologies adopted by the Board, we perform detailed valuations of our debt and equity investments, including an analysis on the Companys unfunded debt investment commitments, using both the market and income approaches as

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.

Under the income approach, we typically prepare and analyze discounted cash flow models to estimate the present value of future cash

flows of either an individual debt investment or of the underlying portfolio company itself.

We evaluate investments in portfolio

companies using the most recent portfolio company financial statements and forecasts.

We also consult with the portfolio companys senior management to obtain further updates on the portfolio companys performance, including information

such as industry trends, new product development and other operational issues.

For our debt investments the primary valuation technique

used to estimate the fair value is the discounted cash flow method.

However, if there is deterioration in credit quality or a debt investment is in workout status, we may consider other methods in determining the fair value, including the value

attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis.

Our discounted cash flow models estimate a range of fair values by applying an appropriate

discount rate to the future cash flow streams of our debt investments, based on future interest and principal payments as set forth in the associated debt investment agreements.

We prepare a weighted average cost of capital for use in the discounted

cash flow model for each investment, based on factors including, but not limited to:

current pricing and credit metrics for similar proposed or executed investment transactions of private companies;

the portfolio companys historical financial results and outlook;

portfolio companys current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made.

We may also consider the following factors when determining the fair value of debt investments:

portfolio companys ability to make future scheduled payments;

the portfolio companys historical financial

results and outlook;

and the portfolio companys current leverage and credit quality as compared to leverage and credit quality as of the date the investment was made.

We may also consider the following factors when determining the fair value

of debt investments:

the portfolio companys ability to make future scheduled payments;

prepayment penalties and other fees;

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the nature and realizable value of any collateral securing such debt investment;

and changes in the interest rate

environment and the credit markets that generally may affect the price at which similar investments may be made.

We estimate the remaining life of our debt investments to generally be the legal maturity date of the instrument, as we generally intend

to hold debt investments to maturity.

However, if we have information available to us that the debt investment is expected to be repaid in the near term, we would use an estimated remaining life based on the expected repayment date.

For our equity investments, including equity securities and warrants, we generally use a market approach, including valuation methodologies

consistent with industry practice, to estimate the enterprise value of portfolio companies.

in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made.

We estimate the remaining life of our debt investments to generally be the legal maturity date of the instrument,

as we generally intend to hold debt investments to maturity.

However, if we have information available to us that the debt investment is expected to be repaid in the near term, we would use an estimated remaining life based on the expected repayment

For our equity investments, including equity securities and warrants, we generally use a market approach, including valuation

methodologies consistent with industry practice, to estimate the enterprise value of portfolio companies.

Typically, the enterprise value of a private company is based on multiples of EBITDA, net income, revenues, or in limited cases, book value.

In estimating

the enterprise value of a portfolio company, 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.

We may also utilize an income approach when estimating the fair value of our equity securities, either as

a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting methodology to corroborate the fair value ranges determined by the market approach.

We typically prepare and analyze

discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company.

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.

The fair value of our royalty rights are calculated based on projected future cash flows and the specific provisions contained in the

pertinent royalty agreement.

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.

We may also utilize an income approach when estimating the fair value of our equity securities,

either as a primary methodology if consistent with industry practice or if the market approach is otherwise not applicable, or as a supporting methodology to corroborate the fair value ranges determined by the market approach.

We typically prepare

and analyze discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company.

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.

The fair value of our royalty rights are calculated based on projected future cash flows and

the specific provisions contained in the pertinent royalty agreement.

The determination of the fair value of such royalty rights is not a significant component of our valuation process.

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Net change in

unrealized appreciation or depreciation on the consolidated statements of operations includes changes in the fair value of investments from the prior period, as determined by our board of directors through the application of our valuation policy, as

well as reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.

unrealized appreciation or depreciation on the consolidated statements of operations includes changes in the fair value of investments from the prior period, as determined by the Board through the application of our valuation policy, as well as

reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.

Interest and dividend income .

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federal income tax, even though we have not yet collected the cash.

Debt investments or preferred

equity investments (for which we are accruing PIK dividends) 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.

Any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on full non-accrual

Debt investments or preferred equity investments (for which we are accruing PIK

dividends) 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

Any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on full non-accrual status.

Interest and dividend payments received on non-accrual investments may be recognized as interest or dividend income or applied to the investment principal balance based on managements judgment.

Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, are likely to remain current.

investments are restored to accrual status when past due principal, interest or dividends are paid and, in managements judgment, are likely to remain current.

In connection with our debt investments, we will sometimes receive warrants or other equity-related securities (Warrants).

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In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820)

Changes to the Disclosure Requirements for Fair Value Measurement , which is intended to improve fair value disclosure requirements by removing disclosures that are not cost-beneficial, clarifying disclosures specific requirements,

and adding relevant disclosure requirements.

adding relevant disclosure requirements.

The guidance is effective for annual and interim reporting periods beginning after December 15, 2019.

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disclosures were necessary in the notes to the consolidated financial statements in order to comply with ASU 2018-13.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by

reference rate reform if certain criteria are met.

The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022.

The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging

relationship.

The Company is evaluating the potential impact that the adoption of ASU 2020-04 will have on the Companys consolidated financial statements.

Off-Balance Sheet Arrangements

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We had off-balance sheet arrangements consisting of outstanding commitments to fund various undrawn revolving loans, other debt investments and capital

commitments totaling $4.8 million as of March 31, 2020 and December 31, 2019.

commitments totaling $4.9 and 4.8 million as of June 30, 2020 and December 31, 2019, respectively.

Such outstanding commitments are summarized in the following table (dollars in millions):

March 31, 2020

June 30, 2020

December 31, 2019

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Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

We have entered into the Investment Advisory Agreement with Fidus Investment Advisors, LLC, as our investment

Pursuant to the agreement our investment advisor manages our day-to-day operating and investing activities.

We pay our investment advisor a fee for its services

under the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee.

entered into a number of business relationships with affiliated or related parties, including the following:

We have entered into the Investment Advisory Agreement with Fidus Investment Advisors as our investment advisor.

Pursuant to the agreement, the Investment Advisor manages our day-to-day operating and investing activities.

We pay the Investment Advisor a fee for its services under

the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee.

See Note 5 to our consolidated financial statements.

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Lauer, our President, are managers of

Fidus Investment Advisors, LLC.

In May 2015, Fidus Investment Advisors, LLC entered into a combination with Fidus Partners, LLC (the Combination), by which members of Fidus Investment Advisors LLC and Fidus Partners, LLC

(Partners) contributed all of their respective membership interest in Fidus Investment Advisors LLC and Partners to a newly formed limited liability company, Fidus Group Holdings, LLC (Holdings).

As a result, Fidus Investment

Advisors LLC is a wholly-owned subsidiary of Holdings, which is a limited liability company organized under the laws of Delaware.

We entered into the Administration Agreement with Fidus Investment Advisors, LLC to provide us with the office

Fidus Investment Advisors.

In May 2015, Fidus Investment Advisors entered into a combination with Fidus Partners, LLC (the Combination), by which members of Fidus Investment Advisors and Fidus Partners, LLC (Partners)

contributed all of their respective membership interest in Fidus Investment Advisors and Partners to a newly formed limited liability company, Fidus Group Holdings, LLC (Holdings).

As a result, Fidus Investment Advisors is a wholly-owned

subsidiary of Holdings, which is a limited liability company organized under the laws of Delaware.

We entered into the Administration Agreement with Fidus Investment Advisors to provide us with the office

facilities and administrative services necessary to conduct day-to-day operations.

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receive any fees from FEF I for any services provided in our capacity as the General Partner of FEF I.

In connection

with the IPO and our election to be regulated as a BDC, we applied for and received exemptive relief from the SEC on March 27, 2012 to allow us to take certain actions that would otherwise be prohibited by the 1940 Act, as applicable to BDCs.

Effective June 30, 2014, pursuant to separate exemptive relief from the SEC, any SBA debentures issued by Fund II and Fund III are not considered senior securities for purposes of the asset coverage requirements.

While we may co-invest with investment entities managed by our investment advisor or its affiliates,

to the extent permitted by the 1940 Act and the rules and regulations thereunder, the 1940 Act imposes significant limits on co-investment.

The SEC staff has granted us relief sought in an exemptive

application that expands our ability to co-invest in portfolio companies with other funds managed by our investment advisor or its affiliates (Affiliated Funds) in a manner consistent with our

investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the Order).

Pursuant to the Order, we are permitted to co-invest with our affiliates if a required majority (as defined in Section 57(o) of the 1940 Act) or our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching by us or

our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

In addition, we and our investment advisor have each adopted a joint code of ethics pursuant to

Rule 17j-1 under the 1940 Act that governs the conduct of our and our investment advisors officers, directors and employees.

Additionally, our investment advisor has adopted a code of ethics

pursuant to rule 204A-1 under the Advisers Act and in accordance with Rule 17j-1(c) under the 1940 Act.

We have also adopted a code of business

conduct that is applicable to all officers, directors and employees of Fidus and our investment advisor.

Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.

The Investment Advisor, in consultation with the Board, agreed to voluntarily waive $0.4 of the income incentive

fee for the three and six months ended June 30, 2020.

There was no income incentive fee waiver for the three and six months ended June 30, 2019.

In connection with the IPO and our election to be regulated as a BDC, we applied for and received exemptive relief from the SEC on

March 27, 2012 to allow us to take certain actions that would otherwise be prohibited by the 1940 Act, as applicable to BDCs.

Effective June 30, 2014, pursuant to separate exemptive relief from the SEC, any SBA debentures issued by Fund II

and Fund III are not considered senior securities for purposes of the asset coverage requirements.

While we may co-invest with investment entities managed by the Investment Advisor or its affiliates, to the extent permitted by the 1940 Act and the rules and regulations thereunder, the 1940 Act imposes significant limits on co-investment.

The SEC staff has granted us relief sought in an exemptive application that expands our ability to co-invest in portfolio companies with other funds managed by

the Investment Advisor or its affiliates (Affiliated Funds) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to

compliance with certain conditions (the Order).

Pursuant to the Order, we are permitted to co-invest with our affiliates if a required majority (as defined in Section 57(o) of the

1940 Act) or the Independent Directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid,

are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent

with our investment objective and strategies.

In addition, we and the Investment Advisor have each adopted a joint code of ethics

pursuant to Rule 17j-1 under the 1940 Act that governs the conduct of our and the Investment Advisors officers, directors and employees.

Additionally, the Investment Advisor has adopted a code

of ethics pursuant to rule 204A-1 under the Investment Advisers Act of 1940, as amended, and in accordance with Rule 17j-1(c) under the 1940 Act.

have also adopted a code of business conduct that is applicable to all officers, directors and employees of Fidus and the Investment Advisor.

Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland

General Corporation Law.

Recent Developments

2020, our Board declared a regular quarterly dividend of $0.30 per share payable on June 26, 2020 to stockholders of record as of June 12, 2020.

On April 30, 2020, we invested $12.5 million in subordinated debt and common equity of ECM Industries, LLC, a global

manufacturer and supplier of electrical products through a wide range of premium brands.

On July 2, 2020, the Company exited its debt investment in Hoonuit, LLC.

The Company received payment in full of $7.3 million on its

first lien debt, which includes a prepayment penalty.

On July 24, 2020, we exited our debt and equity investments in Microbiology

Research Associates, Inc.

We received payment in full of $9.0 million on our subordinated debt investment.

We sold our common equity investment for a realized gain of approximately $1.4 million.

On August 3, 2020, the Board declared a regular quarterly dividend of $0.30 per share payable on September 25, 2020 to stockholders

of record as of September 11, 2020.

Subsequent to June 30, 2020, the global outbreak of the

COVID-19 pandemic, and the related effect on the U.S.

and global economies, has continued to have adverse consequences for the business operations of some of the Companys portfolio companies.

ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, remain uncertain.

The operational and financial performance of the issuers of securities in which the Company invests

depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn adversely affect the value and liquidity of the Companys investments and negatively impact the Companys performance.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements