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Item 5. Market for Registrant’s Common Equity

2021-02-25 compared with 2020-02-27 · 567 added, 420 removed, 698 unchanged (59% of the section changed)

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timely basis.

On February 12, 2020, our board of directors declared a regular quarterly dividend of $0.39 per share payable on

March 27, 2020 to holders of record as of March 13, 2020.

We may not be able to achieve operating results that will allow us to

make distributions at a specific level or to increase the amount of these distributions from time to time.

If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our

status as a RIC.

On February 9, 2021, our board of directors declared a regular quarterly dividend of $0.31 per share and a supplemental

dividend of $0.07 per share payable on March 26, 2021 to holders of record as of March 12, 2021.

We may not be able to achieve

operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time.

If we do not distribute a certain percentage of our income annually, we will suffer adverse tax

consequences, including possible loss of our status as a RIC.

We cannot assure stockholders that they will receive any distributions at a particular level.

We have adopted a dividend

reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a stockholder elects to receive cash.

As a result, if our board of directors authorizes, and we declare, a cash distribution, then our

stockholders who have not opted out of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.

Under the terms of

our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock.

However, we reserve the right to purchase shares in the open market in connection with the implementation of the plan.

This feature of the plan

means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

To maintain our tax treatment as a RIC, we must, among other things, distribute at least 90.0% of our net ordinary income and our net

short-term capital gains in excess of our net long-term capital losses, if any.

In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of (1) 98.0%

of our net ordinary income for the calendar year, (2) 98.2% of our capital gain net income for the calendar year and (3) any net ordinary income and capital gain net income that we recognized for the preceding calendar year but were not

distributed during such year and on which we paid no U.S.

We have adopted a dividend reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a

stockholder elects to receive cash.

As a result, if our board of directors authorizes, and we declare, a cash distribution, then our stockholders who have not opted out of our dividend reinvestment plan will have their cash distribution

automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock.

reserve the right to purchase shares in the open market in connection with the implementation of the plan.

This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per

share, which could cause our stockholders to experience dilution.

To maintain our tax treatment as a RIC, we must, among other things,

distribute at least 90.0% of our net ordinary income and our net short-term capital gains in excess of our net long-term capital losses, if any.

In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each

calendar year an amount at least equal to the sum of (1) 98.0% of our net ordinary income for the calendar year, (2) 98.2% of our capital gain net income for the calendar year and (3) any net ordinary income and capital gain net

income that we recognized for preceding years, but were not distributed during such years, and on which we paid no U.S.

federal income tax.

We may retain for investment some or all of our net capital gain (i.e., net long-term capital gains in excess of net short-term capital losses) and treat such amounts as

deemed distributions to our stockholders.

If we do this, you will be treated as if you received an actual distribution of the capital gain we retain and then reinvested the net after-tax proceeds in our common

You also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gain deemed distributed to you.

We may retain for investment some or all of our net capital gain (i.e., net long-term capital gains in excess

of net short-term capital losses) and treat such amounts as deemed distributions to our stockholders.

If we do this, you will be treated as if you received an actual distribution of the capital gain we retain and then reinvested the net after-tax proceeds in our common stock.

You also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gain deemed

distributed to you.

Please refer to Material U.S.

Federal Income Tax

Considerations for further information regarding the consequences of our retention of net capital gain.

We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior

securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Regulation and Material U.S.

Federal Income Tax Considerations for further information regarding the consequences of our retention of net capital gain.

We can offer no assurance that we will achieve results that will

permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are

limited by the terms of any of our borrowings.

See Regulation and Material U.S.

Federal Income Tax Considerations.

We may make distributions that are payable in

cash or shares of our common stock at the election of each stockholder.

In accordance with Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may treat distributions of its own stock as

counting towards its RIC distribution requirements if each stockholder may elect to receive his, her, or its entire distribution in either cash or stock of the RIC.

This published guidance applies even if the aggregate amount of cash available to be

distributed to all stockholders is no more than 20% of the aggregate declared distribution.

Under the published guidance, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated

among the shareholders electing to receive cash (with the balance of the distribution paid in stock).

If we decide to make any distributions that are payable in part in shares of our stock, U.S.

stockholders receiving such distributions generally

will be required to include the full amount of the distribution (whether received in cash, shares of our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a

capital gain dividend) to the extent of our current and accumulated earnings and profits.

We may make distributions that are payable in cash or shares of our common stock at the election of each stockholder.

In accordance with

Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may treat distributions of its own stock as counting towards its RIC distribution requirements if each stockholder may elect to receive his,

her, or its entire distribution in either cash or stock of the RIC.

The IRS has issued a revenue procedure indicating that this rule will apply if the total amount of cash to be distributed is not less than 20% of the total distribution.

revenue procedure, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the shareholders electing to receive cash (with the balance of the distribution paid in stock).

we decide to make any distributions that are payable in part in shares of our stock, U.S.

stockholders receiving such distributions generally will be required to include the full amount of the distribution (whether received in cash, shares of our

stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits.

As a result, a U.S.

stockholder may be required to pay tax with respect to such distributions in excess of any cash received.

stockholder sells the

stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale.

stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income

with respect to the distribution, depending on the market price of our stock at the time of the sale.

Furthermore, with respect to non-U.S.

stockholders, we may be required to withhold U.S.

federal tax with respect to such distributions, including in respect of all or a portion of such distributions that are payable in stock.

In addition, if a

significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on such distributions, it may put downward pressure on the trading price of shares of our stock.

federal tax with

respect to such distributions, including in respect of all or a portion of such distributions that are payable in stock.

In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on

such distributions, it may put downward pressure on the trading price of shares of our stock.

Distributions in excess of our current and accumulated profits and earnings would be treated

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307.3 million

For more information regarding our limitations as to SBA debenture issuances, see Regulation

Small Business Administration Regulations.

For more information regarding our limitations as to SBA debenture issuances, see Regulation Small

Business Administration Regulations.

Fees and Expenses

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Base Management Fee

Incentive fees payable under Investment Advisory Agreement

Incentive fees, net of income incentive fee waiver, payable under Investment Advisory

Interest payments on borrowed funds

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the estimated expenses figure reflected in the table above.

For the year ended December 31, 2019, we accrued capital gains incentive fees of $3.3 million in accordance with U.S.

GAAP, which equals 0.82% of net assets attributable to common

For the year ended December 31, 2020, we accrued capital gains incentive fees (reversal) of ($1.7) million in accordance with U.S.

GAAP, which equals (0.43)% of net assets attributable

to common stock;

such amount has not been included in the estimated expenses figure reflected in the table above.

For the year ended December 31, 2020, the Investment Advisor, in consultation with the Board, agreed to voluntarily waive $0.4 million

of the income incentive fee.

The incentive fee consists of two parts:

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As of December 31, 2020, we had outstanding SBA debentures of $147.0 million;

$182.5 million outstanding of our Public Notes;

we had $25.0 million of outstanding borrowings under our senior secured revolving credit agreement with certain lenders party thereto and ING Capital, LLC, as administrative agent (the

Credit Facility), which has total commitment of $100.0 million.

Interest payments on borrowed funds is based on estimated annual interest and fee expenses on outstanding SBA debentures, Public Notes and borrowings under the Credit

Facility as of December 31, 2019 with a weighted average stated interest rate of 4.665% as of that date.

$307.3 million outstanding of our Notes;

we had no outstanding borrowings under our senior secured revolving credit agreement with certain lenders party thereto and ING Capital, LLC, as administrative agent (the Credit Facility),

which has total commitment of $100.0 million.

Interest payments on borrowed funds is based on estimated annual interest and fee expenses on outstanding SBA debentures, Notes and borrowings under the Credit Facility as of December 31, 2020

with a weighted average stated interest rate of 4.680% as of that date.

We also pay a commitment fee between 0.5% and 3.0% per annum based the unutilized commitment under our Credit Facility.

We have estimated

the annual interest expense on borrowed funds and caution you that our actual interest expense will depend on prevailing interest rates and our rate of borrowing, which may be substantially higher than the estimate provided in this table.

We have estimated the annual interest expense on borrowed

funds and caution you that our actual interest expense will depend on prevailing interest rates and our rate of borrowing, which may be substantially higher than the estimate provided in this table.

Other expenses represent our estimated annual operating expenses, as a percentage of net assets attributable to

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You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

resulting entirely

from net realized capital gains (all of which is subject to our incentive fee on capital gains)

The foregoing table is to assist you in understanding the various costs and expenses that an

investor in our common stock will bear directly or indirectly.

resulting entirely from net realized capital gains (all of which is subject to our incentive fee on capital gains)

The foregoing table is to assist you in understanding the various costs and expenses that an investor in our

common stock will bear directly or indirectly.

While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%.

Assuming a 5.0% annual return,

the incentive fee under the Investment Advisory Agreement would either not be payable or have an insignificant impact on the expense amounts shown above.

If we achieve sufficient returns on our investments, including through the realization of

capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher.

In addition, while the example assumes reinvestment of all distributions at net asset value, if our board of directors

authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total dollar amount of the

distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution.

Assuming a 5.0% annual return, the incentive fee

under the Investment

Advisory Agreement would either not be payable or have an insignificant impact on the expense amounts shown above.

If we achieve sufficient returns on our investments, including through the

realization of capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher.

In addition, while the example assumes reinvestment of all distributions at net asset value, if our board of

directors authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total dollar amount of

the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution.

See Part II, Item 5 for additional information regarding our dividend

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

During the year ended December 31, 2018, we repurchased 44,821 shares of common stock on the open

market for $0.6 million.

We did not make any repurchases of common stock during the years ended December 31, 2019 and 2017.

Refer to Note 9 to our consolidated financial statements for additional information concerning stock repurchases.

During the years ended December 31, 2020 and 2018, we repurchased 25,719 and 44,821 shares of common

stock on the open market for $0.3 and $0.6 million, respectively.

We did not make any repurchases of common stock during the year ended December 31, 2019.

Refer to Note 9 to our consolidated financial statements for additional information

concerning stock repurchases.

Selected Consolidated Financial Data

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All other 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

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Total investments, fair value

Total assets (5)

Borrowings (5)

Total net assets

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update

(ASU) 2015-03, InterestImputation of interest (Subtopic 835-30):

Simplifying the Presentation of Debt Issuance

Costs , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset.

We adopted ASU 2015-03 as of January 1, 2016.

Prior to adoption, we recorded deferred financing costs as an asset on the consolidated statements of assets and liabilities.

Upon adoption of ASU 2015-03, we reclassified these deferred costs to a direct offset of the related debt liability on the consolidated statements of assets and liabilities.

In the table above, the new guidance has been

applied retrospectively to fiscal year 2015 to conform presentation.

Represents principal balance outstanding.

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

Fund I, Fund II and Fund III are collectively referred to as the Funds.

Fund I, Fund II and Fund III received their SBIC licenses on October 22, 2007, 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.

September 9, 2019, Fund I completed a wind-down plan, relinquished its SBIC license, and can no longer issue additional SBA debentures.

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.

As of September 9, 2019, Fund I completed a wind-down plan, relinquished its SBIC license, and can no longer issue additional

SBA debentures.

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.

We have certain wholly-owned

taxable subsidiaries (the Taxable Subsidiaries), each of which generally holds one or more of our portfolio investments listed on the consolidated schedules of investments.

The Taxable Subsidiaries are consolidated for financial

reporting purposes, such that our consolidated financial statements reflect our investment in the portfolio company investments owned by the Taxable Subsidiaries.

The purpose of the Taxable Subsidiaries is to permit us to hold equity investments in

portfolio companies that are taxed as partnerships for U.S.

federal income tax purposes (such as entities organized as limited liability companies (LLCs) or other forms of pass through entities) while complying with the source-of-income requirements contained in the RIC tax provisions.

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

We have certain wholly-owned taxable subsidiaries (the Taxable Subsidiaries), each of which generally holds one or more of our

portfolio investments listed on the consolidated schedules of investments.

The Taxable Subsidiaries are consolidated for financial reporting purposes, such that our consolidated financial statements reflect our investment in the portfolio company

investments owned by the Taxable Subsidiaries.

The purpose of the Taxable Subsidiaries is to permit us to hold equity investments in portfolio companies that are taxed as partnerships for U.S.

federal income tax purposes (such as entities organized

as limited liability companies (LLCs) or other forms of pass through entities) while complying with the source-of-income requirements contained

in the RIC tax provisions.

The Taxable Subsidiaries are not consolidated with us for U.S.

federal corporate income tax

purposes, and each Taxable Subsidiary will be subject to U.S.

federal corporate income tax purposes, and each Taxable Subsidiary will be subject to U.S.

federal corporate income tax on its taxable income.

Any such income or expense is reflected in the consolidated statements of operations.

Any such income

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 severely impacted global

economic activity and caused 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,

restricting travel and hospitality, and temporarily closing or limiting operations at many corporate offices, retail stores, restaurants, fitness clubs and manufacturing facilities and factories in affected jurisdictions.

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 January 2, 2021 to February 25, 2021.

However, as the discussion in this Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations relates to the Companys financial statements for the year ended December 31, 2020, the analysis

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

In that regard, for example, as of December 31, 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 during the

months that followed our December 31, 2020 valuation, 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 control.

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

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

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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 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.

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.

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.

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 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 to:

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 to:

organization;

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of 61 active portfolio companies and three portfolio companies that have sold their underlying operations.

As of December 31, 2018, seven portfolio companies debt investments bore interest at a variable rate, which represented

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.

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Specialty Distribution

Business Services

Information Technology Services

Business Services

Healthcare Products

Healthcare Services

Component Manufacturing

Healthcare Services

Aerospace & Defense Manufacturing

Oil & Gas Services

Vending Equipment Manufacturing

Promotional Products

Transportation Services

Consumer Products

Promotional Products

Building Products Manufacturing

Transportation Services

Oil & Gas Services

Environmental Industries

Oil & Gas Distribution

Industrial Cleaning & Coatings

Utility Equipment Manufacturing

Oil & Gas Distribution

Vending Equipment Manufacturing

Specialty Chemicals

Capital Equipment Manufacturing

Percentage is less than 0.1% of respective total.

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We expect some loss of principal.

The following table shows the distribution

of our investments on the 1 to 5 investment rating scale at fair value and cost as of December 31, 2019 and 2018 (dollars in millions):

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

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

Investment Rating

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2020 and 2019 was 2.0 and 2.0, respectively, on a fair value basis and 2.2 and 2.1, respectively, on a cost basis.

As of December 31, 2019 and December 31, 2018, we had debt investments in one and two portfolio companies on non-accrual status, respectively (dollars in millions):

December 31, 2019

December 31, 2018

As of December 31, 2020 and December 31, 2019, we had debt investments in one portfolio company on

non-accrual status (dollars in millions):

Portfolio Company

Accent Food Services, LLC

K2 Industrial Services, Inc.

US GreenFiber, LLC

Frontline Food Services, LLC (f/k/a Accent Food Services, LLC)

EBL, LLC (EbLens)

Portfolio company was no longer held at period end.

Interest earned while on

non-accrual was paid in full at exit.

Portfolio company was on PIK-only on

non-accrual status at period end, meaning the Company has ceased recognizing PIK interest income on the investment.

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

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Interest income

Payment-in-kind interest

Payment-in-kind

interest income

Dividend income

Interest on idle funds and other income

Interest on idle funds

Total investment income

NM = Not meaningful

For the year ended December 31, 2020, total investment income was $85.1 million, an increase of $8.0 million or 10.4%, from the

$77.1 million of total investment income for the year ended December 31, 2019.

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

$6.9 million increase in total interest income (including payment-in-kind interest income) resulting from higher weighted average debt yield and higher average debt investment balances outstanding, during 2020 as compared to 2019.

$1.0 million increase in dividend income, during 2020 as compared to 2019, due to increased levels of

distributions received from equity investments.

$0.2 million increase in fee income resulting from an increase in debt amendment fee income partially offset

by a decrease in origination and prepayment fees income during 2020 as compared to 2019.

For the year ended December 31, 2019, total investment income was $77.1 million,

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by an increase in debt amendment fee income and origination fees, during 2019 as compared to 2018.

For the year ended

December 31, 2018, total investment income was $76.4 million, an increase of $7.8 million or 11.4%, from the $68.6 million of total investment income for the year ended December 31, 2017.

As reflected in the table above, the

increase is primarily attributable to the following:

$5.4 million increase in total interest income (including payment-in-kind interest income) resulting from higher average debt investment balances outstanding, partially offset by a decrease in weighted average debt yield, during 2018 as compared to 2017.

$2.1 million increase in dividend income, during 2018 as compared to 2017, due to increased levels of

distributions received from equity investments.

$0.3 million increase in fee income resulting from an increase in prepayment fee income, and partially

offset by a decrease in debt amendment fee income, during 2018 as compared to 2017.

Below is a summary of the changes in total expenses, including income tax provision, for the years ended December 31, 2020, 2019, and

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Other general and administrative expenses

Total expenses, before income tax provision

Total expenses, before incentive fee waiver

Incentive fee waiver - income

Total expenses, net of incentive fee waiver before income tax provision

Income tax provision

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NM = Not meaningful

For the year ended December 31, 2019, total expenses, including income tax provision, were

$45.1 million, an increase of $3.7 million or 9.1%, from the $41.4 million of total expenses, including income tax provision, for the year ended December 31, 2018.

As reflected in the table above, the increase is primarily

attributable to the following:

For the year ended December 31, 2020, total expenses, including income tax provision, were $45.5 million, an increase of

$0.4 million or 0.7%, from the $45.1 million of total expenses, including income tax provision, for the year ended December 31, 2019.

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

$2.6 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.

$2.0 million decrease in the income incentive fee due to a $4.7 million decrease in pre-incentive fee net investment income during 2019, as compared to the same period in 2018.

$1.2 million net increase in the income incentive fee comprised of a $1.6 million increase in the

income incentive fee due to a $3.8 million increase in pre-incentive fee net investment income during 2020 offset by

a one-time $0.4 million income incentive fee waiver, as compared to the same period in 2019.

$0.6 million increase in professional fees during 2020 as compared to 2019.

$0.5 million increase in base management fee due to higher average total assets during 2020 as compared to

$0.4 million increase in the capital gains incentive fee due to a $2.2 million increase in net gain on

$5.0 million decrease in the capital gains incentive fee due to a $25.0 million decrease in net gain on

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

$0.1 million decrease in other general and administrative expenses during 2019 resulting from the write-off of deferred equity offering costs related to our previous Form N-2 registration statement in 2018.

For the year ended December 31, 2019, total expenses, including income tax provision, were $45.1 million, an increase of

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outstanding and an increase in weighted average interest rate on borrowings during 2019 as compared to 2018.

$2.0 million decrease in the income incentive fee due to a $4.7 million decrease in pre-incentive fee net investment income during 2019, as compared to the same period in 2018.

$1.0 million increase in base management fee due to higher average total assets during 2019 as compared to

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investments (net realized gains (losses) plus net change in unrealized appreciation (depreciation) on investments) during 2019, as compared to the same period in 2018.

$0.5 million increase in the income incentive fee due to a $2.7 million increase in pre-incentive fee net investment income during 2018, as compared to the same period in 2017.

$0.2 million increase in other general and administrative expenses during 2018 resulting from the write-off of deferred equity offering costs related to our previous Form N-2 registration statement.

Net Investment Income

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2018, respectively.

Net investment income decreased by $3.1 million, or 8.8%, during fiscal 2019 as compared to fiscal 2018, as a

result of the $0.7 million increase in total investment income compared to a $3.8 million increase in total expenses, including income tax provision.

Net investment income increased by $1.3 million, or 3.7%, during fiscal 2018 as compared to fiscal 2017, as a result of the

$7.8 million increase in total investment income compared to only a $6.5 million increase in total expenses, including income tax provision.

Net investment income increased by $7.6 million, or 24.0%, during fiscal 2020 as compared to fiscal 2019, as a

result of the $8.0 million increase in total investment income compared to a $0.4 million increase in total expenses, including the income incentive fee waiver and income tax provision.

Net investment income decreased by $3.1 million, or 8.8%, during fiscal 2019 as compared to fiscal 2018, as a result of the

$0.7 million increase in total investment income compared to a $3.8 million increase in total expenses, including income tax provision.

Net Gain (Loss) on Investments

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Gains (Losses)

Pfanstiehl, Inc.

Sold 50% of equity investment

Fiber Materials, Inc.

Sale of portfolio company

Microbiology Research Associates, Inc.

Exit of portfolio company

Medsurant Holdings, LLC

Sold 50% of equity investment

Revenue Management Solutions, LLC

Sold 50% of equity investment

Worldwide Express Operations, LLC

Sold 50% of equity investment

Gurobi Optimization, LLC

Sold 50% of equity investment

ControlScan, Inc.

Exit of portfolio company

Pugh Lubricants, LLC

Exit of portfolio company

Hub Acquisition Sub, LLC (dba Hub Pen)

Sold 50% of equity investment

Global Plasma Solutions, Inc.

Sale of equity investment

Midwest Transit Equipment, Inc.

Sold 50% of equity investment

Pinnergy, Ltd.

Sale of equity investment

Alzheimers Research and Treatment Center, LLC

Sold 50% of equity investment

Exit of portfolio company

BCM One Group Holdings, Inc.

Sold 50% of equity investment

Software Technology, LLC

Sold 50% of equity investment

LNG Indy, LLC (dba Kinetrex Energy)

Sold 50% of equity investment

New Era Technology, Inc.

Escrow distribution

Wheel Pros, Inc.

Sold 50% of equity investment

Apex Microtechnology, Inc.

Escrow distribution

Allied 100 Group, Inc.

Sold 50% of equity investment

Restaurant Finance Co, LLC

Escrow distribution

Vanguard Dealer Services, L.L.C.

Escrow distribution

Allredi, LLC (fka Marco Group International OpCo, LLC)

Sold 50% of equity investment

Palisade Company, LLC

Sold 50% of equity investment

Frontline Food Services, LLC (f/k/a Accent Food Services, LLC)

Write-off of debt and equity investments

Net realized gain (loss) on investments

Income tax provision from realized gains on investments

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

As it relates to realization events, we define an exit of a portfolio company as situations where

we have completely exited our position in all of the portfolio companys securities and no longer carry the portfolio company on our schedule of investments.

We define a sale of a portfolio company, distinguished from an exit, as

situations where the underlying operations of a portfolio company have been sold, but where we retain a residual ownership interest in the legacy entity (we generally distinguish these residual portfolio company investments from active

portfolio company investments).

For the year ended December 31, 2019, the total net realized loss on investments,

before income tax provision on realized gains, was $(1.2) million.

Income tax (provision) benefit from realized gains on investments was $(0.1) million for the year ended December 31, 2019.

Significant realized gains (losses) for the year ended

December 31, 2019 are summarized below (dollars in millions):

Portfolio Company

Realization Event

Gains (Losses)

The Wolf Organization, LLC

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portfolio company investments).

For the year ended December 31, 2018, the total net realized loss on investments, before income

tax provision on realized gains, was $(10.3) million.

For the year ended December 31, 2018, the total net realized loss on investments,

before income tax provision on realized gains, was $(10.3) million.

Income tax (provision) benefit from realized gains on investments was $(0.8) million for the year ended December 31, 2018.

Significant realized gains (losses) for the year ended

December 31, 2018 are summarized below (dollars in millions):

Significant realized gains (losses) for the year

ended December 31, 2018 are summarized below (dollars in millions):

Portfolio Company

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portfolio company investments).

For the year ended December 31, 2017, the total net realized gain on investments,

before income tax provision on realized gains, was $17.9 million.

Income tax (provision) benefit from realized gains on investments was $(2.2) million for the year ended December 31, 2017.

Significant realized gains (losses) for the year

ended December 31, 2017 are summarized below (dollars in millions):

Portfolio Company

Realization Event

Gains (Losses)

Malabar International

Exit of portfolio company

Worldwide Express Operations, LLC

Sale of portfolio company

Lightning Diversion Systems, LLC

Exit of portfolio company

EBL, LLC (EbLens)

Sale of portfolio company

Brook & Whittle Limited

Exit of portfolio company

Anatrace Products, LLC

Sale of portfolio company

Carlson Systems Holdings, Inc.

Escrow distribution

FTH Acquisition Corp.

Exit of portfolio company

FDS Avionics Corp.

(dba Flight Display Systems)

Restructuring

Net realized gain (loss) on investments

Income tax provision from realized gains on investments

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

As it relates to realization events, we define an exit of a portfolio company as situations where

we have completely exited our position in all of the portfolio companys securities and no longer carry the portfolio company on our schedule of investments.

We define a sale of a portfolio company, distinguished from an exit, as

portfolio company investments).

During the years ended December 31, 2019, 2018 and 2017, we recorded a net change

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

During the years ended December 31, 2020, 2019, and 2018, we recorded a net change in

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

Year Ended December 31,

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During the year ended December 31, 2020, we repaid

$41.0 million of SBA debentures which would have matured during the period September 1, 2021 through March 1, 2025.

Our remaining outstanding SBA debentures continue to mature in 2024 and subsequent years through 2029, which will

$16.5 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 year ended December 31, 2020, we experienced a net increase in cash and cash equivalents in the amount of $109.3 million.

During that period, we were provided $56.0 million of cash from operating activities, which included proceeds received from sales and repayments of investments of $210.8 million, which were partially offset by the funding of

$190.0 million of investments.

During the same period, we received proceeds from the issuances of SBA debentures of $6.0 million and proceeds from the issuance of our 2026 Notes of $125.0 million;

which were partially offset by

repayments of SBA debentures of $16.5 million, net repayments of $25.0 million from borrowings under our Credit Facility, cash dividends paid to stockholders of $32.5 million, and the payment of deferred financing costs related to our

debt financings of $3.4 million and repurchases of common stock under the Stock Repurchase Program (as defined below) of $0.3 million.

For the year ended December 31, 2019, we experienced a net decrease in cash and cash equivalents in the amount of $27.0 million.

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of $6.4 million.

For the year ended December 31, 2018, we experienced a net increase in cash and cash

equivalents in the amount of $0.4 million.

During that period, we used $8.1 million of cash for operating activities, which included the funding of $212.3 million of investments, which were partially offset by proceeds received from

sales and repayments of investments of $188.3 million.

During the same period, we received proceeds from the issuances of SBA debentures of $27.0 million, net proceeds of $25.0 million from borrowings under our Credit Facility and

proceeds from the issuance of our Public Notes of $50.0 million;

which were partially offset by repayments of SBA debentures of $67.3 million, cash dividends paid to stockholders of $39.2 million, the payment of deferred financing

costs related to our debt financings of $2.7 million and repurchases of common stock under the Stock Repurchase Program (as defined below) of $0.6 million.

For the year ended December 31, 2017, we experienced a net decrease in cash and cash equivalents of $15.5 million.

period, we used $28.2 million of cash for operating activities, which included $214.7 million used for purchases of investments, which is partially offset by proceeds of $163.7 million from sales and repayments of investments.

the same period, we received net proceeds from secondary offerings of shares of our common stock off of our effective shelf registration statement of $32.3 million, proceeds from the issuances of SBA debentures of $49.0 million, and

proceeds from net borrowings under the Credit Facility of $11.5 million, which were partially offset by repayment of SBA debentures of $41.7 million, cash dividends paid to stockholders of $36.8 million and the payment of deferred

financing costs of $1.6 million.

For the year ended December 31, 2018, we experienced a net increase in cash and cash equivalents in the amount

of $0.4 million.

During that period, we used $8.1 million of cash for operating activities, which included the funding of $212.3 million of investments, which were partially offset by proceeds received from sales and repayments of

investments of $188.3 million.

During the same period, we received proceeds from the issuances of SBA debentures of $27.0 million, net proceeds of $25.0 million from borrowings under our Credit Facility and proceeds from the issuance

of our Public Notes of $50.0 million;

which were partially offset by repayments of SBA debentures of $67.3 million, cash dividends paid to stockholders of $39.2 million, the payment of deferred financing costs related to our debt

financings of $2.7 million and repurchases of common stock under the Stock Repurchase Program (as defined below) of $0.6 million.

Capital Resources

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

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

SBA debentures

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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

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

cannot exceed $350.0 million.

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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 December 31, 2019, Fund I, Fund II and Fund III had zero,

$150.0 million and $7.5 million of outstanding SBA debentures, respectively.

As of December 31, 2020, Fund II and Fund III had $133.5 million

and $13.5 million of outstanding SBA debentures, respectively.

As of September 9, 2019, Fund I completed a wind-down plan, relinquished its SBIC license and can no longer issue additional SBA debentures.

Subject to SBA

regulatory requirements and approval, Fund III may access up to $167.5 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

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

In June 2014, we entered into the Credit Facility to provide additional funding for our investment and operational activities.

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

2014, we entered into the Credit Facility to provide additional funding for our investment and operational activities.

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

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.

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

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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.

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

available to borrow under the Credit Facility are subject to a minimum borrowing/collateral base that applies an advance rate to certain investments held by us, excluding investments held by the Funds.

We are subject to limitations with respect to

the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan size, payment frequency and status and collateral interests, as well as restrictions on portfolio company leverage, which may

also affect the borrowing base and therefore amounts available to borrow.

We have made customary representations and warranties and we are required to comply with

various covenants, reporting requirements and other customary requirements for similar credit facilities.

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

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

certain investments held by us, excluding investments held by the Funds.

We are subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan size,

payment frequency and status and collateral interests, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow.

We have made customary representations and warranties and we are required to comply with various covenants, reporting requirements and other

customary requirements for similar credit facilities.

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

December 31, 2019, we were in compliance with all covenants of the Credit Facility and there were $25.0 million of borrowings outstanding under the Credit Facility.

February 2, 2018, we closed the public offering of approximately $43.5 million in aggregate principal amount of our 5.875% notes 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 estimated 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 December 31, 2019, 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 due 2024, or the February 2024 Notes. On February 19, 2019, the underwriters exercised their option to purchase an additional $9.0 million in aggregate principal of the February

As of December 31, 2020, we were in compliance with all

covenants of the Credit Facility and there were no borrowings outstanding under the Credit Facility.

On February 2, 2018, we closed the public offering of approximately $43.5 million in aggregate principal amount of our 5.875% notes

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 estimated 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 December 31, 2020, the outstanding principal balance of the 2023 Notes was $50.0 million.

Subsequent to December 31, 2020, the Company redeemed, in full, the

issued and outstanding 2023 Notes.

See Recent Developments for more information.

On February 8, 2019, we closed the public offering of approximately $60.0 million

in aggregate principal amount of our 6.000% notes due 2024, or the February 2024 Notes. On February 19, 2019, the underwriters exercised their option to purchase an additional $9.0 million in aggregate principal of the February

The total net proceeds to us from the February 2024 Notes, including the exercise of the underwriters option, after deducting underwriting discounts of approximately $2.1 million and estimated offering expenses of

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outstanding principal balance of the February 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 due 2024, or the November 2024 Notes (and collectively with the 2023 Notes and the February 2024 Notes, the Public Notes).

October 23, 2019, the underwriters exercised their option to purchase an additional $8.3 million in aggregate principal of the November 2024 Notes.

The total net proceeds to us from the November 2024 Notes, including the exercise of the

underwriters option, after deducting underwriting discounts of approximately $1.9 million and estimated 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 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 December 31, 2019, 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;

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 December 31,

2019, the weighted average stated interest rates for our SBA debentures, the Public Notes and the Credit Facility were 3.392%, 5.749% and 4.788%, respectively.

As of December 31, 2019, we had $75.0 million of unutilized commitment under

our Credit Facility.

As of December 31, 2019, the weighted average stated interest rate on total debt outstanding was 4.665%.

BDC, we are generally required to meet an asset coverage ratio of at least 200.0% (or 150.0% on and after April 29, 2020) (defined as the ratio which the value of our consolidated total assets, less all consolidated liabilities and indebtedness

not represented by senior securities, bears to the aggregate amount of senior securities representing indebtedness), which includes borrowings and any preferred stock we may issue in the future.

Subsequent to December 31, 2020, the Company redeemed, in part, the issued and outstanding February 2024 Notes.

See Recent Developments for more

On October 16, 2019, we closed the public offering of approximately $55.0 million in aggregate principal amount of

our 5.375% notes due 2024, or the November 2024 Notes (and collectively with the 2023 Notes and the February 2024 Notes, the Public Notes).

On October 23, 2019, the underwriters exercised their option to purchase an

additional $8.3 million in aggregate principal of the November 2024 Notes.

The total net proceeds to us from the November 2024 Notes, including the exercise of the underwriters option, after deducting underwriting discounts of

approximately $1.9 million and estimated offering expenses of $0.3 million, were approximately $61.1 million.

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 December 31, 2020, the outstanding principal balance of the November 2024 Notes was approximately $63.3 million.

On December 23, 2020, we closed the offering of approximately $125.0 million in aggregate principal amount of our 4.75% notes due

2026, or the 2026 Notes (collectively with the Public Notes, the Notes).

The total net proceeds to us from the 2026 Notes after deducting underwriting discounts of approximately $2.5 million and estimated offering

expenses of $0.4 million, were approximately $122.1 million.

The 2026 Notes will mature on January 31, 2026 and bear

interest at a rate of 4.75%.

The 2026 Notes may be redeemed in whole or in part at any time or from time to time at our option subject to a make whole provision if redeemed more than three months prior to maturity.

Interest on the 2026 Notes is

payable on January 31 and July 31 of each year, beginning July 31, 2021.

We do not intent to list the 2026 Notes on any securities exchange or automated dealer quotation system.

The 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 December 31, 2020, the weighted

average stated interest rates for our SBA debentures and the Notes were 3.297% and 5.342%, respectively.

As of December 31, 2020, we had $100.0 million of unutilized commitment under our Credit Facility.

As of December 31, 2020, the

weighted average stated interest rate on total debt outstanding was 4.680%.

As a BDC, we are generally required to meet an asset coverage

ratio of at least 150.0% (defined as the ratio which the value of our consolidated total assets, less all consolidated liabilities and indebtedness not represented by senior securities, bears to the aggregate amount of senior securities representing

indebtedness), which includes borrowings and any preferred stock we may issue in the future.

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.

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 December 31, 2019, the aggregate amount outstanding of the senior securities issued by the

Company was $207.3 million, for which our asset coverage was 298.9%.

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.

Securities and Exchange Commission (SEC)

to allow us to exclude any indebtedness guaranteed by the SBA and issued by the Funds from the 150.0% asset coverage requirements, which, in turn, will enable us to fund more investments with debt capital.

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

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

During the year

ended December 31, 2018, we repurchased 44,821 shares of common stock on the open market for $0.6 million.

We did not make any repurchases of common stock during the years ended December 31, 2019 and 2017.

Refer to Note 8 to our

consolidated financial statements for additional information concerning stock repurchases.

During the years

ended December 31, 2020 and 2018, the Company repurchased 25,719 and 44,821 shares, respectively, of common stock on the open market for $0.3 and $0.6 million, respectively.

The Company did not make any repurchases of common stock during

the year ended December 31, 2019.

Refer to Note 8 to our consolidated financial statements for additional information concerning stock repurchases.

Critical Accounting Policies and Use of Estimates

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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:

With respect to investments for which

market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

our quarterly valuation process begins with each portfolio company or investment being initially evaluated and

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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.

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

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

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:

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

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;

and the portfolio companys current leverage and credit quality as

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

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;

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.

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.

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

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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.

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.

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

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Interest and dividend income .

Interest and dividend income are recorded on the accrual basis to the extent that we expect to collect

such amounts.

Interest and dividend income are recorded on the

accrual basis to the extent that we expect to collect such amounts.

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

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

distribution, and is generally recognized when received.

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

Distributions of earnings are included in dividend

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

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

Dividend income is recorded as dividends are declared or at the point an

obligation exists for the portfolio company to make a distribution, and is generally recognized when received.

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

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

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

portfolio company.

Certain of our investments contain a PIK income provision.

The PIK income, computed at the contractual rate specified in

the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of operations.

Generally, PIK can be

paid-in-kind or all in cash.

The PIK income, computed at the

contractual rate specified in the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of

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

We stop accruing PIK income when there is reasonable doubt that PIK income will be collected.

PIK income that has been contractually

capitalized to the principal balance of the investment prior to the non-accrual designation date is not reserved against interest or dividend income, but rather is assessed through the valuation of the

investment (with corresponding adjustments to unrealized depreciation, as applicable).

PIK income is included in our taxable income and, therefore, affects the amount we are required to pay to our stockholders in the form of dividends in order to

maintain our tax treatment as a RIC and to avoid paying corporate-level U.S.

that has been contractually capitalized to the principal balance of the investment prior to the non-accrual designation date is not reserved against interest or dividend income, but rather is assessed through

the valuation of the investment (with corresponding adjustments to unrealized depreciation, as applicable).

PIK income is included in our taxable income and, therefore, affects the amount we are required to pay to our stockholders in the form of

dividends in order to maintain our tax treatment as a RIC and to avoid paying corporate-level U.S.

federal income tax, even though we have not yet collected the cash.

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Upon the prepayment of a debt investment, any prepayment penalties are recorded as fee income when earned.

We also typically receive debt investment origination or closing fees in connection with

Such debt investment origination and closing fees are capitalized as unearned income and offset against investment cost basis on our consolidated statements of assets and liabilities and accreted into interest income over the term of

the investment.

Upon the prepayment of a debt investment, any unaccreted debt investment origination and closing fees are accelerated into interest income.

Recently Issued Accounting Standards

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.

The guidance is effective for annual and interim reporting periods

beginning after December 15, 2019.

Company elected to change the manner in which it presents the recognition of management services fees income.

Previously, the Company classified management services fees as a component of interest on idle funds and other income on the Consolidated

Statement of Operations.

Comparative prior periods presented have been reclassified retrospectively to conform to the revised presentation.

There is no change in historical net increase in net assets resulting from operations due to this change in

presentation.

We also typically receive debt investment origination or closing fees in connection with investments.

Such debt investment

origination and closing fees are capitalized as unearned income and offset against investment cost basis on our consolidated statements of assets and liabilities and accreted into interest income over the term of the investment.

Upon the prepayment

of a debt investment, any unaccreted debt investment origination and closing fees are accelerated into interest income.

Recently Issued Accounting

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.

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

We 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.

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.

SEC Rule 12b-2 Update

In March 2020, the SEC adopted a final rule under SEC Release No.

34-88365 (the Final

Rule), amending the accelerated filer and large accelerated filer definitions in Exchange Act Rule 12b-2.

The amendments include a provision under which a BDC will be excluded from the accelerated

filer and large accelerated filer definitions if the BDC has (1) a public float of $75 million or more, but less than $700 million, and (2) has annual investment income of less than $100 million.

addition, BDCs are subject to the same transition provisions for accelerated filer and large accelerated filer status as other issuers, but instead substituting investment income for revenue.

The amendments will reduce the number of issuers required

to comply with the auditor attestation on the internal control over financial reporting requirement provided under Section 404(b) of the Sarbanes-Oxley Act of 2002.

The Final Rule applies to annual report filings due on or after

April 27, 2020.

As a result, the Company is no longer an accelerated filer.

SEC Rule 1-02(w)(2) Update

In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the

financial statements of certain of their portfolio companies or certain acquired funds (the Final Rules).

The Final Rules adopted a new definition of significant subsidiary set forth in Rule

1-02(w)(2) of Regulation S-X under the Securities Act.

Rules 3-09 and 4-08(g) of

Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment companys periodic reports for any portfolio company

that meets the definition of significant subsidiary. The Final Rules adopt a new definition of significant subsidiary applicable only to investment companies that (i) modifies the investment test and the income test, and

(ii) eliminates the asset test currently in the definition of significant subsidiary in Rule 1-02(w) of Regulation S-X.

The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an

investment company.

The Final Rules became effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date.

The Company has elected to early adopt this rule change as of December 31, 2020.

SEC Regulation S-K Update

In November 2020, the SEC issued a final rule that modernized and simplifies Managements Discussion and Analysis of Financial Condition

and Results of Operations and certain financial disclosure requirements in Regulation S-K (the Amendments).

Specifically, the Amendments:

(i) eliminate Item 301 of Regulation S-K (Selected Financial Data);

(ii) simplify Item 302 of Regulation S-K (Supplementary Financial Information);

and (iii) amend certain aspects of Item 303 of Regulation S-K (Managements Discussion and Analysis of Financial Condition and Results of Operations).

The Amendments became effective on February 10, 2021 and compliance will be required for the registrants fiscal

year ending on or after August 9, 2021.

Early adoption of the Amendments is permitted on an item-by-item basis after the effective date;

however, a registrant must

fully comply with each adopted item in its entirety.

The Company is currently evaluating the impact of the Amendments on its consolidated financial statements.

Off-Balance Sheet Arrangements

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Portfolio Company - Investment

American AllWaste LLC (dba WasteWater Transport Services) - Delayed Draw Commitment - Term Loan-B

B&B Roadway and Security Solutions, LLC - Common Equity (Units)

Combined Systems, Inc.

- Revolving Loan

Elements Brands, LLC - Revolving Loan

FDS Avionics Corp.

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French Transit, LLC - Revolving Loan

Mesa Line Services, LLC - Delayed Draw Term Loan Commitment

Rhino Assembly Company, LLC - Delayed Draw Commitment

Safety Products Group, LLC - Common Equity (Units)

UBEO, LLC - Delayed Draw Term Loan Commitment

Portfolio company was no longer held at period end.

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Contractual Obligations

December 31, 2019, our future fixed commitments (1) for cash payments are as follows:

As of December 31, 2020, our future fixed commitments (1) for cash payments are

(Dollars in millions)

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and, as it relates to our Credit Facility, changes in the underlying variable reference interest rates.

As of December 31, 2019, the weighted average stated interest rates for our SBA debentures, the Public Notes and the Credit Facility were

3.392%, 5.749% and 4.788%, respectively.

As of December 31, 2020, the weighted average stated interest rates for our SBA debentures and the Notes were 3.297% and 5.342%,

respectively.

As of December 31, 2020, we had $100.0 million of unutilized commitment under our Credit Facility.

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Management Fee.

Under the Administration Agreement, our investment advisor furnishes us with office

facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our

Under the Administration Agreement, our investment advisor furnishes us with office facilities and

equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our

day-to-day operations.

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us a non-exclusive, royalty-free license to use the name Fidus.

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

The relief permits FIC and Fund I, each of which has elected to be treated as a BDC, to operate effectively as one company, specifically allowing them to:

(1) engage in certain transactions with each other;

(2) invest in

securities in which the other is or proposes to be an investor;

(3) file consolidated reports with the SEC;

and (4) be subject to modified consolidated asset coverage requirements for senior securities issued by a BDC and its SBIC

Fund II and Fund III have not elected to be treated as BDCs and are not party to this exemptive relief.

The fourth exemption described above allows us to exclude any indebtedness guaranteed by the SBA and issued by Fund I from the asset

coverage requirements applicable to us.

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, Fund I 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, and Fund I, have also adopted a code of business conduct that is applicable to all

officers, directors and employees of Fidus and our investment advisor.

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.

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.

receive any fees from FEF I for any services provided in our capacity as the General Partner of FEF I.

The Investment Advisor, in consultation with the Board, agreed to voluntarily waive $0.4 of the income incentive

fee for the year ended December 31, 2020.

There was no income incentive fee waiver for the year ended December 31, 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 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 the Investment Advisors officers, directors and employees.

Additionally, the 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.

Recent Developments

On January 10, 2020, we received a distribution on our equity investment in Fiber Materials Inc., resulting in a realized gain of

approximately $9.8 million.

On January 29, 2020, we exited our debt investment in Hunter Defense Technologies, Inc.

payment in full of $9.2 million on our first lien debt.

On January 31, 2020, we invested $11.0 million in a revolving loan

and first lien debt of Combined Systems, Inc., a leading designer, manufacturer, and marketer of non-lethal security products for the global defense and law enforcement markets.

On February 7, 2020, we invested $15.0 million in first lien debt of Routeware, Inc., a leading provider of highly integrated fleet

automation software and systems for waste haulers and municipalities.

On February 12, 2020, our board of directors declared a

regular quarterly dividend of $0.39 per share payable on March 27, 2020 to stockholders of record as of March

On January 11,

2021, we exited our debt investment in Bandon Fitness (Texas), Inc.

We received payment in full of $15.6 million on our first lien debt, which includes a prepayment fee.

On January 14, 2021, we exited our debt investment in Alzheimers Research and Treatment Center, LLC.

We received payment in full of

$6.6 million on our first lien debt, which includes a prepayment fee.

On January 19, 2021, we redeemed $50.0 million of

the aggregate principal amount on the 2023 Notes, resulting in a realized loss on extinguishment of debt of approximately $0.8 million.

On January 22, 2021, we invested $11.0 million in first lien debt and $0.5 million in common equity of GP&C Operations, LLC

(dba Garlock Printing and Converting), a converter of plastic film into flexible packaging solutions.

On January 26, 2021, we exited

our debt investment in Ohio Medical, LLC.

We received payment in full of $10.0 million on our second lien debt.

We subsequently invested $5.0 million in a new second lien debt investment in Ohio Medical, LLC.

On February 9, 2021, the Board declared a regular quarterly dividend of $0.31 per share and supplemental dividend of $0.07 per share

payable March 26, 2021 to stockholders of record as of March 12, 2021.

On February 10, 2021, we invested $6.5 million

in first lien debt and made a commitment up to $2.0 million of additional first lien debt of Wonderware Holdings, LLC (dba CORE Business Technologies), a provider of revenue management and payments solutions for government, healthcare and

On February 11, 2021, we invested $8.9 million in first lien debt and made a commitment up to $0.4 million of

additional first lien debt of Xeeva, Inc., a global provider of intelligent, cloud-based indirect spend management software solutions.

February 12, 2021, we exited our debt and equity investments in FDS Avionics Corp.

(dba Flight Display Systems).

Flight Display Systems was acquired and combined with Calculex Inc.

and Argon Corporation under a new holding company, Spectra

A&D Holdings (Spectra).

We received payment in full of $5.1 million on our second lien and revolving debt.

We sold our preferred and a portion of our common equity investments for a realized gain of approximately

$1.0 million.

In conjunction with the transaction, we invested $8.0 million in first lien debt and $4.1 million in preferred equity, of which $2.0 million was rolled over from our original common equity investment in Flight

Display Systems.

On February 16, 2021, we redeemed $50.0 million of the $69.0 million aggregate principal amount on the

February 2024 Notes, resulting in a realized loss on extinguishment of debt of approximately $1.1 million.

On February 19,

2021, we exited our debt investment in Wheel Pros, Inc.

We received payment in full of $20.4 million on our second lien debt, which includes a prepayment fee.

Subsequent to December 31, 2020, the global outbreak of the COVID-19 pandemic has adversely affected some of the Companys investments and continues to have adverse consequences on the U.S.

and global economies.

The ultimate economic fallout from the pandemic, and the

long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain.

At the time of this filing, there is no indication of a reportable subsequent event impacting the Companys financial statements for the

year ended December 31, 2020.

The Company cannot predict the extent to which its financial condition and results of operations will be adversely 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.

The Company continues to observe and respond to the evolving COVID-19

environment and its potential impact on areas across its business.

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-K

Item 5. Market for Registrant’s Common Equity