UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
 
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to
 
Commission file number: 814-00939
________________ 
HMS Income Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
 
45-3999996
(I.R.S. Employer
Identification No.)
 
 
 
2800 Post Oak Boulevard
Suite 5000
Houston, Texas
(Address of Principal Executive Offices)
 
77056-6118
(Zip Code)
 
(888) 220-6121
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and formal fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o 
 
Accelerated filer o 
 
Non-accelerated filer þ 
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller
reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo þ
 
The issuer had 58,505,563 shares of common stock outstanding as of October 31, 2015.





TABLE OF CONTENTS
 
PART I — FINANCIAL INFORMATION 
Item 1.
Condensed Consolidated Financial Statements:
 
 
Condensed Consolidated Balance Sheets
 
Condensed Consolidated Statements of Operations
 
Condensed Consolidated Statements of Changes in Net Assets
 
Condensed Consolidated Statements of Cash Flows
 
Condensed Consolidated Schedules of Investments
 
Notes to the Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II — OTHER INFORMATION 
 
 
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
 
 
Signatures
 
Exhibit Index
 
  




PART I — FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

HMS Income Fund, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)
 
September 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Portfolio investments at fair value:
 
 
 
Non-Control/Non-Affiliate investments (amortized cost: $870,584 and $465,663 as of September 30, 2015 and December 31, 2014, respectively)
$
844,062

 
$
451,917

Affiliate investments (amortized cost: $17,035 and $7,420 as of September 30, 2015 and December 31, 2014, respectively)
18,299

 
7,424

Control investments (amortized cost: $14,336 and $14,521 as of September 30, 2015 and December 31, 2014, respectively)
14,336

 
14,521

Total portfolio investments (amortized cost: $901,955 and $487,604 as of September 30, 2015 and December 31, 2014, respectively)
876,697

 
473,862

 
 
 
 
Cash and cash equivalents
18,634

 
19,868

Interest receivable
7,922

 
4,328

Receivable for securities sold
2,489

 
3,014

Prepaid and other assets
1,512

 
338

Deferred offering costs (net of accumulated amortization of $8,073 and $4,428 as of September 30, 2015 and December 31, 2014, respectively)
1,330

 
2,388

Deferred financing costs (net of accumulated amortization of $1,022 and $582 as of September 30, 2015 and December 31, 2014, respectively)
5,155

 
2,426

Total assets
$
913,739

 
$
506,224

 
 
 
 
LIABILITIES
 

 
 

Accounts payable and other liabilities
$
517

 
$
246

Payable for unsettled trades
3,196

 
6,249

Stockholder distributions payable
3,181

 
1,760

Due to affiliates
5,736

 
4,530

Payable for securities purchased
38,966

 
50,512

Notes payable
395,000

 
182,864

Total liabilities
446,596

 
246,161

 
 
 
 
Commitments and Contingencies (Note 11)
 
 
 
 
 
 
 
NET ASSETS
 

 
 

Common stock, $.001 par value; 150,000,000 shares authorized, 55,912,465 and 30,967,120 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
56

 
31

Additional paid-in capital
491,186

 
273,774

Accumulated net investment income, net of stockholder distributions
1,160

 

Net unrealized (depreciation)
(25,259
)
 
(13,742
)
Total net assets
467,143

 
260,063

 
 
 
 
Total liabilities and net assets
$
913,739

 
$
506,224

 
 
 
 
Net asset value per share
$
8.35

 
$
8.40


See notes to the condensed consolidated financial statements.

1



HMS Income Fund, Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share amounts)
(Unaudited) 
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
INVESTMENT INCOME:
 

 
 

 
 

 
 

Interest, fee and dividend income:
 

 
 

 
 

 
 

Non-Control/Non-Affiliate investments
$
16,753

 
$
5,610

 
$
43,023

 
$
10,481

Affiliate investments
340

 
37

 
774

 
37

Control investments
232

 

 
702

 

Total interest, fee and dividend income
17,325

 
5,647

 
44,499

 
10,518

EXPENSES:
 

 
 

 
 

 
 

Interest expense
3,161

 
1,135

 
7,643

 
1,857

Base management and incentive fees
4,433

 
1,642

 
12,462

 
3,349

Administrative services expenses
517

 
371

 
1,434

 
1,084

Professional fees
117

 
131

 
426

 
419

Insurance
48

 
49

 
145

 
144

Other general and administrative
178

 
166

 
604

 
409

Expenses before fee and expense waivers
8,454

 
3,494

 
22,714

 
7,262

Waiver of management and incentive fees
(155
)
 
(821
)
 
(1,442
)
 
(1,675
)
Waiver of administrative services expenses
(517
)
 
(371
)
 
(1,434
)
 
(1,084
)
Expense support payment from Adviser

 
(328
)
 

 
(328
)
Total expenses, net of fee and expense waivers
7,782

 
1,974

 
19,838

 
4,175

 
 
 
 
 
 
 
 
NET INVESTMENT INCOME
9,543

 
3,673

 
24,661

 
6,343

 
 
 
 
 
 
 
 
NET REALIZED GAIN (LOSS) FROM INVESTMENTS
 

 
 

 
 

 
 

Non-Control/Non-Affiliate investments
(17
)
 
65

 
130

 
216

Affiliate investments

 

 

 

Control investments

 

 

 

Total realized gain (loss) from investments
(17
)
 
65

 
130

 
216

 
 
 
 
 
 
 
 
NET REALIZED INCOME
9,526

 
3,738

 
24,791

 
6,559

 
 
 
 
 
 
 
 
NET UNREALIZED APPRECIATION (DEPRECIATION)
 

 
 

 
 

 
 

Non-Control/Non-Affiliate investments
(19,554
)
 
(1,906
)
 
(12,777
)
 
(1,633
)
Affiliate investments
230

 
6

 
1,260

 
6

Control investments

 

 

 

Total net unrealized appreciation (depreciation)
(19,324
)
 
(1,900
)
 
(11,517
)
 
(1,627
)
 
 
 
 
 
 
 
 
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$
(9,798
)
 
$
1,838

 
$
13,274

 
$
4,932

NET INVESTMENT INCOME PER SHARE – BASIC AND DILUTED
$
0.18

 
$
0.20

 
$
0.55

 
$
0.51

NET REALIZED INCOME PER SHARE
$
0.18

 
$
0.20

 
$
0.55

 
$
0.52

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE – BASIC AND DILUTED
$
(0.18
)
 
$
0.10

 
$
0.29

 
$
0.39

DISTRIBUTIONS DECLARED PER SHARE
$
0.17

 
$
0.17

 
$
0.52

 
$
0.52

WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
53,110,952

 
18,334,912

 
45,129,210

 
12,528,035



See notes to the condensed consolidated financial statements.

2



HMS Income Fund, Inc.
Condensed Consolidated Statements of Change in Net Assets
For the Nine Months Ended September 30, 2015 and September 30, 2014
(dollars in thousands, except number of shares)
(Unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional Paid-In
Capital
 
Accumulated Net Investment Income, Net
of Stockholder
Distributions
 
Accumulated Net Realized Gain, Net of Stockholder Distributions
 
Net Unrealized
Appreciation (Depreciation)
 
Total Net
Assets
Balance at December 31, 2014
30,967,120

 
$
31

 
$
273,774

 
$

 
$

 
$
(13,742
)
 
$
260,063

Issuance of common stock
25,114,151

 
25

 
242,978

 

 

 

 
243,003

Redemption of common stock
(168,806
)
 

 
(1,445
)
 

 

 

 
(1,445
)
Selling commissions and dealer manager fees

 

 
(20,476
)
 

 

 

 
(20,476
)
Offering costs

 

 
(3,645
)
 

 

 

 
(3,645
)
Stockholder distributions declared

 

 

 
(23,501
)
 
(130
)
 

 
(23,631
)
Net increase (decrease) in net assets resulting from operations

 

 

 
24,661

 
130

 
(11,517
)
 
13,274

Balance at September 30, 2015
55,912,465

 
$
56

 
$
491,186

 
$
1,160

 
$

 
$
(25,259
)
 
$
467,143



 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional Paid-In
Capital
 
Accumulated Net Investment Income, Net
of Stockholder
Distributions
 
Accumulated Net Realized Gain, Net of Stockholder Distributions
 
Net Unrealized
Appreciation (Depreciation)
 
Total Net
Assets
Balance at December 31, 2013
5,396,967

 
$
5

 
$
47,600

 
$

 
$

 
$
472

 
$
48,077

Issuance of common stock
16,481,459

 
17

 
163,017

 

 

 

 
163,034

Redemption of common stock
(11,825
)
 

 
(101
)
 

 

 

 
(101
)
Selling commissions and dealer manager fees

 

 
(14,799
)
 

 

 

 
(14,799
)
Offering costs

 

 
(2,446
)
 

 

 

 
(2,446
)
Stockholder distributions declared

 

 

 
(6,343
)
 
(216
)
 

 
(6,559
)
Net increase (decrease) in net assets resulting from operations

 

 

 
6,343

 
216

 
(1,627
)
 
4,932

Balance at September 30, 2014
21,866,601

 
$
22

 
$
193,271

 
$

 
$

 
$
(1,155
)
 
$
192,138


See notes to the condensed consolidated financial statements.


3



HMS Income Fund, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited) 
 
Nine Months Ended 
 September 30, 2015
 
Nine Months Ended 
 September 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Net increase in net assets resulting from operations
$
13,274

 
$
4,932

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
 
 
 
Principal repayments received and proceeds from sales of investments in portfolio companies
110,813

 
69,405

Investments in portfolio companies
(533,963
)
 
(333,882
)
Net unrealized depreciation of portfolio investments
11,517

 
1,627

Net realized (gain) on sale of portfolio investments
(130
)
 
(216
)
Amortization of deferred financing costs
813

 
265

Accretion of unearned income
(2,322
)
 
(642
)
Net payment-in-kind interest accrual
(716
)
 
(144
)
Changes in other assets and liabilities:
 
 
 

Interest receivable
(3,594
)
 
(2,799
)
Prepaid and other assets
(229
)
 
(208
)
Due from Main Street Capital Corporation

 
4

Due to affiliates
5,900

 
2,828

Accounts payable and other liabilities
271

 
202

Payable for unsettled trades
(3,053
)
 
74

Net cash used in operating activities
(401,419
)
 
(258,554
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Proceeds from issuance of common stock
227,755

 
158,008

Redemption of common shares
(1,445
)
 
(101
)
Payment of selling commissions and dealer manager fees
(20,468
)
 
(14,796
)
Payment of offering costs
(3,644
)
 
(2,447
)
Payment of stockholder distributions
(10,607
)
 
(3,077
)
Repayments on notes payable
(106,664
)
 
(95,636
)
Proceeds from notes payable
318,800

 
223,500

Payment of deferred financing costs
(3,542
)
 
(2,414
)
Net cash provided by financing activities
400,185

 
263,037

 
 
 
 
Net increase (decrease) in cash and cash equivalents
(1,234
)
 
4,483

 
 
 
 
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
19,868

 
6,356

 
 
 
 
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
$
18,634

 
$
10,839

 
See notes to the condensed consolidated financial statements.


4


HMS Income Fund, Inc.
Condensed Consolidated Schedule of Investments
As of September 30, 2015
(dollars in thousands)
(Unaudited)
Portfolio Company (1) (3)
Business Description
Type of Investment (2) (3)
Principal (7)
Cost (7)
Fair Value
 
 
 
 
 
 
Control Investments (6)
GRT Rubber Technologies, LLC (8) (10) (13)
Engineered Rubber Product Manufacturer
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - December 19, 2019)
$
8,044

$
7,901

$
7,901

 
 
Member Units (2,896 shares)

6,435

6,435

 
 
 
 
14,336

14,336

 
 
 
 
 
 
Subtotal Control Investments (6) (2% of total investments at fair value)
 
 
$
14,336

$
14,336

 
Affiliate Investments (4)
AFG Capital Group, LLC (10) (13)
Provider of Rent-to-Own Financing Solutions and Services
11.00% Secured Debt (Maturity Date -November 7, 2019)
$
3,140

$
3,016

$
3,016

 
 
Member Units (46 shares)

300

425

 
 
Warrants (10 equivalent shares)

65

102

 
 
 
 
3,381

3,543

HWT, LLC (8) (10) (13)
Temporary Staffing Solutions
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity Date - July 2, 2020)
2,494

2,427

2,427

 
 
Member Units (800 shares)

986

986

 
 
 
 
3,413

3,413

M.H. Corbin, LLC (10) (13)
Manufacturer and Distributor of Traffic Safety Products
10.00% Secured Debt (Maturity Date -August 31, 2020)
3,500

3,465

3,465

 
 
Member Units (1,000 shares)

1,500

1,500

 
 
 
 
4,965

4,965

Mystic Logistics, Inc. (10) (13)
Logistics and Distribution Services Provider for Large Volume Mailers
12.00% Secured Debt (Maturity Date -August 15, 2019)
2,362

2,296

2,361

 
 
Common Stock (1,468 shares) (16)

680

1,645

 
 
 
 
2,976

4,006

SoftTouch Medical Holdings LLC (8) (10) (13)
Home Provider of Pediatric Durable Medical Equipment
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity Date - October 31, 2019)
1,455

1,430

1,430

 
 
Member Units (798 shares) (16)

870

942

 
 
 
 
2,300

2,372

 
 
 
 
 
 
Subtotal Affiliate Investments (4) (2% of total investments at fair value)
 
 
$
17,035

$
18,299

 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (5)
Ability Network Inc. (8)
Health Care Information Technology
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - May 14, 2021)
$
4,938

$
4,891

$
4,931

Allflex Holdings III Inc. (8)
Manufacturer of Livestock Identification Products
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - July 19, 2021) (14)
14,922

15,014

14,744

AmeriTech College Operations, LLC (10) (13)
For-Profit Nursing and Healthcare College
10.00% Secured Debt, (Maturity - January 31, 2020)
436

435

388

AMF Bowling Centers, Inc. (8)
Bowling Alley Operator
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - September 18, 2021)
13,882

13,809

13,848

AP Gaming I, LLC (8) (11)
Developer, Manufacturer, and Operator of Gaming Machines
LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - December 21, 2020)
11,436

11,315

11,303

Aptean, Inc. (8)
Enterprise Application Software Provider
LIBOR Plus 4.25% (Floor 1.00%), Current Coupon 5.25%, Secured Debt (Maturity - February 26, 2020)
4,426

4,426

4,360

Arcus Hunting, LLC (8) (11)
Manufacturer of Bowhunting and Archery Products and Accessories
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - November 13, 2019)
5,438

5,327

5,327

Artel, LLC (8)
Land-Based and Commercial Satellite Provider
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - November 27, 2017)
4,125

4,029

3,816

ATX Networks Corp. (8) (9) (12)
Provider of Radio Frequency Management Equipment
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - June 11, 2021)
14,963

14,672

14,888

BarFly Ventures, LLC (11)
Casual Restaurant Group
12.00% Secured Debt (Maturity Date - August 30, 2020)
1,374

1,346

1,346

 
 
Warrants (.364 equivalent shares)

158

158

 
 
 
 
1,504

1,504

Berry Aviation, Inc. (11)
Charter Airline Services
12.00% Current / 1.75% PIK Secured Debt (Maturity Date - January 30, 2020) (14)
1,407

1,385

1,385

 
 
Common Stock (138 shares)

100

100

 
 
 
 
1,485

1,485

Bioventus, LLC (8) (11)
Production of Orthopedic Healing Products
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.00%, Secured Debt (Maturity - April, 10, 2020) (14)
7,000

6,882

6,930

Blackbrush Oil and Gas LP (8)
Oil & Gas Exploration
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - July 30, 2021) (14)
12,085

11,641

10,282

Blackhawk Specialty Tools LLC (8) (12)
Oilfield Equipment & Services
LIBOR Plus 5.25% (Floor 1.25%), Current Coupon 6.50%, Secured Debt (Maturity - August 1, 2019)
8,620

8,136

8,059

Blue Bird Body Company (8)
School Bus Manufacturer
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - June 26, 2020)
5,137

5,073

5,127

Bluestem Brands, Inc. (8) (9)
Multi-Channel Retailer of General Merchandise
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 6, 2020)
14,820

14,513

14,624

Brightwood Capital Fund III, LP (9) (15)
Investment Partnership
LP Interests (Brightwood Capital Fund III, LP) (Fully diluted .57%) (16)
3,750

3,825

3,825

Brundage-Bone Concrete Pumping, Inc.
Construction Services Provider
10.38% Secured Bond (Maturity - September 1, 2021) (14)
10,000

10,178

10,050

Buca C, LLC (8) (10) (13)
Restaurants
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - June 30, 2020)
17,020

16,694

16,694

 
 
Preferred Member Units (4 units)

2,400

2,400

 
 
 
 
19,094

19,094

CAI Software, LLC (10) (13)
Provider of Specialized Enterprise Resource Planning Software
12.00% Secured Debt (Maturity Date - October10, 2019)
1,243

1,212

1,212

 
 
Member Units (16,339 shares)

163

210

 
 
 
 
1,375

1,422

CJ Holding Company (8) (9)
Oil and Gas Equipment and Services
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - March 24, 2020)
5,970

5,167

4,209

Cengage Learning Acquisitions, Inc. (8)
Provider of Educational Print and Digital Services
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - March 31, 2020)
15,018

15,025

14,924

Cenveo Corporation
Provider of Commercial Printing, Envelopes, Labels, Printed Office Products
6.00% Secured Bond (Maturity - August 1, 2019)
10,000

8,645

8,400

Charlotte Russe, Inc. (8) (12)
Fast-Fashion Retailer to Young Women
LIBOR Plus 5.50% (Floor 1.25%), Current Coupon 6.75%, Secured Debt (Maturity - May 22, 2019)
15,101

14,837

12,597

Clarius BIGS, LLC (11) (18)
Prints & Advertising Film Financing
15.00% PIK Secured Debt (Maturity - January 5, 2015) (19)
2,565

2,307

619

 
 
20.00% PIK Secured Debt (Maturity - January 5, 2015) (19)
926

833

223

 
 
 
 
3,140

842

Compuware Corporation (8)
Provider of Software and Supporting Services
LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - December 15, 2019)
14,438

14,058

13,983

Covenant Surgical Partners, Inc.
Ambulatory Surgical Centers
8.75% Secured Debt (Maturity - August 1, 2019)
9,500

9,500

9,524

CRGT, Inc. (8)
Provider of Custom Software Development
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - December 18, 2020)
14,259

14,008

14,224

CST Industries, Inc. (8)
Storage Tank Manufacturer
LIBOR Plus 6.25% (Floor 1.50%), Current Coupon 7.75%, Secured Debt (Maturity - May 22, 2017)
2,084

2,079

2,074

Datacom, LLC (10) (13)
Technology and Telecommunications Provider
10.50% Secured Debt (Maturity - May 30, 2019)
1,245

1,225

1,225

 
 
Preferred Member Units (1,462 units) (16)

126

126

 
 
Member Units (717 units)

670

619

 
 
 
 
2,021

1,970

Digital River, Inc. (8)
Provider of Outsourced e-Commerce Solutions and Services
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - February 12, 2021)
14,906

14,741

14,906

East West Copolymer & Rubber, LLC (10) (13)
Manufacturer of Synthetic Rubbers
12.00% Secured Debt (Maturity Date - October 17, 2019)
2,400

2,345

2,345

 
 
Warrants (455,820 equivalent shares)

10

10

 
 
 
 
2,355

2,355

ECP-PF Holdings Groups, Inc. (8) (11)
Fitness Club Operator
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - November 26, 2019)
1,875

1,859

1,859

Energy & Exploration Partners, LLC (8)
Oil & Gas Exploration and Production
LIBOR plus 6.75% (Floor 1.00%), Current Coupon 7.75%, Secured Debt (Maturity - January 22, 2019)
9,900

8,557

7,557

Evergreen Skills Lux S.á r.l. (d/b/a Skillsoft) (8) (9)
Technology-Based Performance Support Solutions
LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - April 28, 2022) (14)
10,902

10,367

9,376

Extreme Reach, Inc. (8)
Integrated TV and Video Advertising Platform
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - February 7, 2020)
6,267

6,270

6,244

Flavors Holdings, Inc. (8)
Global Provider of Flavoring and Sweetening Products and Solutions
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - April 3, 2020)
8,550

8,230

8,112

Fram Group Holdings, Inc. (8)
Manufacturer of Automotive Maintenance Products
LIBOR Plus 5.50% (Floor 1.50%), Current Coupon 7.00%, Secured Debt (Maturity - July 29, 2017)
8,099

7,733

7,087

Freeport First Lien Loan Fund III, LP (9) (15)
Investment Partnership
LP Interests (Freeport First Lien Loan Fund III, LP) (Fully diluted .57%) (16)
759

759

759

GST Autoleather, Inc. (8)
Automotive Leather Manufacturer
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - July 10, 2020)
9,900

9,818

9,752

Guerdon Modular Holdings, Inc. (10) (13)
Multi-Family and Commercial Modular Construction Company
11.00% Secured Debt (Maturity - August 13, 2019)
2,600

2,538

2,544

 
 
Common Stock (42,644 shares)

746

648

 
 
 
 
3,284

3,192

Guitar Center, Inc.
Musical Instruments Retailer
6.50% Secured Bond (Maturity - April 15, 2019)
15,015

13,935

13,814

Halcon Resources Corporation (9)
Oil & Gas Exploration & Production
9.75% Unsecured Bond (Maturity - July 15, 2020) (17)
3,000

2,615

1,020

Hojeij Branded Foods, Inc. (8) (11)
Multi-Airport, Multi-Concept Restaurant Operator
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity Date - July 28, 2021)
5,344

5,291

5,291

Horizon Global Corporation (8) (12)
Auto Parts Manufacturer
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity Date - June 30, 2021)
12,838

12,615

12,741

Hunter Defense Technologies, Inc. (8)
Provider of Military and Commercial Shelters and Systems
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - August 5, 2019)
10,635

10,554

10,648

ICON Health and Fitness, Inc.
Producer of Fitness Products
11.88% Secured Bond (Maturity - October 15, 2016)
13,337

13,227

13,004

iEnergizer Limited (8) (9)
Provider of Business Outsourcing Solutions
LIBOR 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - May 1, 2019)
4,469

4,458

4,133

Indivior Finance, LLC (8) (9)
Specialty Pharmaceutical Company Treating Opioid Dependence
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 19, 2019)
9,625

9,094

9,120

Inn of the Mountain Gods Resort and Casino
Hotel & Casino Owner & Operator
9.25% Secured Bond (Maturity - November 30, 2020)
10,749

10,543

9,997

Intertain Group Limited (8) (9)
Business-to-Consumer Online Gaming Operator
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - April 8, 2022)
11,700

11,512

11,642

iPayment, Inc. (8) (12)
Provider of Merchant Acquisition
LIBOR Plus 5.25% (Floor 1.50%), Current Coupon 6.75%, Secured Debt (Maturity - May 8, 2017)
15,115

14,921

14,877

iQor US Inc. (8)
Business Process Outsourcing Services Provider
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - April 1, 2021)
7,856

7,323

6,442

Iron Acquisition Company, Inc. (8) (11)
Business Processing Software Developer
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity Date - August 14, 2020)
9,474

9,380

9,380

IronGate Energy Services, LLC
Oil and Gas Services
11.00% Secured Bond (Maturity - July 1, 2018)
5,825

5,828

3,699

Jackmont Hospitality, Inc. (8) (11)
Family-Owned TGIF Franchisee
LIBOR Plus 4.25% (Floor 1.00%)/ 2.50% PIK, Current Coupon 7.75%, Secured Debt (Maturity Date - May 26, 2021)
8,433

8,395

8,395

Joerns Healthcare, LLC (8)
Manufacturer and Distributor of Health Care Equipment & Supplies
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - May 9, 2020)
4,423

4,402

4,401

John Deere Landscapes, LLC (8) (11)
Distributor of Landscaping Supplies
LIBOR Plus 4.00% (Floor 1.00%), Current Coupon 5.00%, Secured Debt (Maturity - December 23, 2019)
7,899

7,594

7,899

JSS Holdings, Inc. (8)
Aircraft Maintenance Program Provider
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity Date - August 31, 2021)
13,500

13,233

13,298

Kellermeyer Bergensons Services, LLC (8)
Outsourced Janitorial Services to Retail/Grocery Customers
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - April 29, 2022) (14)
14,700

14,588

14,774

Kendra Scott, LLC (8)
Jewelry Retail Stores
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity Date - July 17, 2020)
10,000

9,904

9,975

Keypoint Government Solutions, Inc. (8)
Provider of Pre-Employment Screening Services
LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity - November 13, 2017)
2,101

2,092

2,101

LaMi Products, LLC (8) (11)
General Merchandise Distribution
Prime Plus 5.50% (Floor 3.25%), Current Coupon 8.75%, Secured Debt (Maturity - September 16, 2020)
4,563

4,470

4,470

Larchmont Resources, LLC (8) (12)
Oil & Gas Exploration & Production
LIBOR Plus 8.75% (Floor 1.00%), Current Coupon 9.75%, Secured Debt (Maturity - August 7, 2019)
13,306

11,714

11,309

Legendary Pictures Funding, LLC (8) (11)
Producer of TV, Film, and Comic Content
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 22, 2020)
7,500

7,361

7,463

LJ Host Merger Sub, Inc. (8)
Managed Services and Hosting Provider
LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - December 13, 2019)
5,157

5,143

5,131

MAH Merger Corporation (8)
Sports-Themed Casual Dining Chain
LIBOR Plus 4.50% (Floor 1.25%), Current Coupon 5.75%, Secured Debt (Maturity - July 19, 2019)
1,377

1,377

1,380

MediMedia USA, Inc. (8)
Provider of Healthcare Media and Marketing
LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - November 20, 2018)
11,904

11,824

11,488

Milk Specialties Company (8)
Processor of Nutrition Products
LIBOR Plus 7.00% (Floor 1.25%), Current Coupon 8.25%, Secured Debt (Maturity - November 9, 2018)
5,067

5,023

5,069

Minute Key, Inc. (10) (13)
Operator of Automated Key Duplication Kiosk
10.00% Current / 2.00% PIK Secured Debt (Maturity Date - September 19, 2019) (14)
2,519

2,424

2,424

 
 
Warrants (359,352 equivalent shares)

70

70

 
 
 
 
2,494

2,494

Mood Media Corporation (8) (9)
Provider of Electronic Equipment
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - May 1, 2019)
15,013

14,988

14,681

Motor Coach Industries International, Inc. (8) (11)
Motor Coach Manufacturer
LIBOR Plus 6.50% (Floor .50%), Current Coupon 7.00%, Secured Debt (Maturity Date - September 26, 2019)
10,000

9,964

9,964

New Media Holdings II LLC (8) (9) (12)
Local Newspaper Operator
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - June 4, 2020)
14,894

14,726

14,841

North Atlantic Trading Company, Inc. (8)
Marketer/Distributor of Tobacco Products
LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity -January 13, 2020)
11,992

11,983

11,902

Novitex Acquisition, LLC (8) (12)
Provider of Document Management Services
LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.50%, Secured Debt (Maturity - July 7, 2020)
11,706

11,449

11,121

Panolam Industries International, Inc. (8)
Decorative Laminate Manufacturer
LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity - August 23, 2017)
7,512

7,465

7,437

Paris Presents, Inc. (8)
Branded Cosmetic and Bath Accessories
LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - December 31, 2021) (14)
7,500

7,360

7,500

Parq Holdings, LP (8) (9)
Hotel and Casino Operator
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - December 17, 2020)
12,500

12,348

12,406

Permian Holdings, Inc.
Storage Tank Manufacturer
10.50% Secured Bond (Maturity - January 15, 2018)
6,885

5,733

3,821

Pernix Therapeutical Holdings, Inc. (11)
Pharmaceutical Royalty - Anti-Migraine
12.00% Secured Bond (Maturity - August 1, 2020)
3,341

3,308

3,554

Peroxychem, LLC (8)
Chemical Manufacturer
Prime Plus 5.50% (Floor 3.25%), Current Coupon 8.75%, Secured Debt (Maturity - February 28, 2020)
9,830

9,803

9,830

Pike Corporation (8)
Construction and Maintenance Services for Electric Transmission and Distribution Infrastructure
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - June 22, 2022) (14)
12,144

11,878

11,992

Polyconcept Financial B.V. (8)
Promotional Products to Corporations and Consumers
LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - June 28, 2019)
5,815

5,805

5,800

Premier Dental Services, Inc. (8)
Dental Care Services
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - November 1, 2018)
4,925

4,945

4,322

Prowler Acquisition Corporation (8)
Specialty Distributor to the Energy Sector
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 5.50%, Secured Debt (Maturity - January 28, 2020)
5,540

5,101

4,820

Raley's, Inc. (8)
Family-Owned Supermarket Chain in California
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - May 18, 2022)
7,159

7,021

7,159

RCHP, Inc. (8) (12)
Regional Non-Urban Hospital Owner/Operator
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity - October 23, 2019) (14)
15,072

15,131

15,204

Relativity Media, LLC (11) (18)
Full-scale Film and Television Production and Distribution
17.00% PIK Secured Debt (Maturity - May 30, 2015) (14) (18)
5,331

5,331

1,925

Renaissance Learning, Inc. (8)
Technology-based K-12 Learning Solutions
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - April 11, 2022) (14)
12,950

12,480

12,605

RGL Reservoir Operations, Inc. (8) (9)
Oil & Gas Equipment & Services
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - August 13, 2021)
3,960

3,856

1,584

RLJ Entertainment, Inc. (8) (11)
Movie and TV Programming Licensee and Distributor
LIBOR Plus 8.75% (Floor .25%), Current Coupon 9.08%, Secured Debt (Maturity - September 11, 2019)
8,221

7,894

7,894

Sage Automotive Interiors, Inc (8)
Automotive Textiles Manufacturer
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 8, 2021) (14)
5,000

4,955

4,963

Salient Partners, LP (8)
Provider of Asset Management Services
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - June 9, 2021)
7,406

7,263

7,295

Sorenson Communications, Inc.
Manufacturer of Communication Products for Hearing Impaired
9.00% Secured Bond (Maturity - October 31, 2020) (14)
9,710

9,277

9,418

Sotera Defense Solutions, Inc. (8)
Defense Industry Intelligence Services
LIBOR Plus 7.50% (Floor 1.50%), Current Coupon 9.00%, Secured Debt (Maturity - April 21, 2017)
3,465

3,338

3,206

Stardust Finance Holdings, Inc. (8)
Manufacturer of Diversified Building Products
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - March 13, 2022)
2,488

2,429

2,470

 
 
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity - March 13, 2023) (14)
5,000

4,761

4,969

 
 
 
 
7,190

7,439

SUNE Utility Bridge Capital, LLC (8) (9) (11)
Renewable Power Developer
LIBOR Plus 7.00%, Current Coupon 7.33%, Secured Debt (Maturity Date - March 30, 2016)
5,000

4,921

4,921

Synagro Infrastructure Company, Inc. (8)
Waste Management Services
LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - August 22, 2020)
2,704

2,682

2,487

Teleguam Holdings, LLC (8)
Cable and Telecom Services Provider
LIBOR Plus 7.50% (Floor 1.25%), Current Coupon 8.75%, Secured Debt (Maturity - June 10, 2019) (14)
3,000

3,018

2,993

Templar Energy, LLC (8)
Oil & Gas Exploration & Production
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 25, 2020) (14)
3,000

2,981

1,363

Tervita Corporation (8) (9)
Oil and Gas Environmental Services
LIBOR Plus 5.00% (Floor 1.25%), Current Coupon 6.25%, Secured Debt (Maturity - May 15, 2018)
1,015

1,021

792

The Topps Company, Inc. (8)
Trading Cards & Confectionary
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - October 2, 2018)
983

976

968

TOMS Shoes, LLC (8)
Global Designer, Distributor, and Retailer of Casual Footwear
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - October 30, 2020)
4,975

4,542

4,652

Travel Leaders Group, LLC (8)
Travel Agency Network Provider
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 7, 2020)
11,505

11,421

11,533

USJ-IMECO Holding Company, LLC (8)
Marine Interior Design and Installation
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 16, 2020)
7,887

7,867

7,809

Vantage Oncology, LLC
Outpatient Radiation Oncology Treatment Centers
9.50% Secured Bond (Maturity - June 15, 2017)
13,507

13,165

12,089

Vision Solutions, Inc. (8)
Provider of Information Availability Software
LIBOR Plus 4.50% (Floor 1.50%), Current Coupon 6.00%, Secured Debt (Maturity - July 23, 2016)
1,316

1,318

1,318

 
 
LIBOR Plus 8.00% (Floor 1.50%), Current Coupon 9.50%, Secured Debt (Maturity - July 23, 2017) (14)
875

871

875

 
 
 
 
2,189

2,193

Volusion, LLC (10)
Provider of Online Software-as-a-Service eCommerce Solutions
10.50% Secured Debt (Maturity Date - January 24, 2020)
7,500

6,837

6,837

 
 
Member Units (2,090,001 shares)

6,000

6,000

 
 
Warrants (407,408 equivalent shares)

600

600

 
 
 
 
13,437

13,437

Worley Claims Services, LLC (8) (11)
Insurance Adjustment Management and Services Provider
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 31, 2020)
6,451

6,396

6,419

YP Holdings LLC (8)
Online and Offline Advertising Operator
LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - June 4, 2018)
14,405

14,389

14,315

 
 
 
 
 
 
Subtotal Non-Control/Non-Affiliate Investments (5) (96% of total portfolio investments at fair value)
 
$
870,584

$
844,062

 
 
 
 
 
 
Total Investments
 
 
 
$
901,955

$
876,697


(1) All investments are Middle Market portfolio investments, unless otherwise noted. All of the Company's assets are encumbered as security for the Company's credit agreements. See Note 4 - Borrowings.
(2) Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless otherwise noted.
(3) See Note 3 - Fair Value Hierarchy for Investments for summary geographic location of portfolio companies.
(4) Affiliate investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in which between 5% and 25% of the voting securities are owned, or an investment in an investment company’s investment adviser, and the investments are not classified as Control investments.
(5) Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments.
(6) Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
(7) Principal is net of repayments. Cost represents amortized cost which is net of repayments and adjusted for the amortization of premiums and/or accretion of discounts, as applicable.
(8) Index based floating interest rate is subject to contractual minimum interest rates.
(9) The investment is not a qualifying asset under the 1940 Act. A business development company (“BDC”) may not acquire any asset other than qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC's total assets. As of September 30, 2015, approximately 13.4% of the Company's investments were considered non-qualifying.
(10) Investment is classified as a Lower Middle Market investment.
(11) Investment is classified as a Private Loan portfolio investment.
(12) Investment or portion of investment is under contract to purchase and met trade date accounting criteria as of September 30, 2015. Settlement occurred or is scheduled to occur after September 30, 2015.
(13) Investment serviced by Main Street Partners pursuant to the Servicing Agreement.
(14) Second lien secured debt investment.
(15) Investment is classified as an Other Portfolio investment.
(16) Income producing through dividends or distributions.
(17) Unsecured debt investment.
(18) Investment is on non-accrual status as of September 30, 2015.
(19) Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.

See notes to the condensed consolidated financial statements.

5



HMS Income Fund, Inc.
Condensed Consolidated Schedule of Investments
(dollars in thousands)
As of December 31, 2014
Portfolio Company (1) (3)
Business Description
Type of Investment (2) (3)
Principal (7)
Cost (7)
Fair Value
 
 
 
 
 
 
Control Investments (6)
GRT Rubber Technologies, LLC (8) (10) (13)
Engineered Rubber Product Manufacturer
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - December 19, 2019)
$
8,250

$
8,086

$
8,086

 
 
Member Units (2,896 shares)
 
6,435

6,435

 
 
 
 
14,521

14,521

 
 
 
 
 
 
Subtotal Control Investments (6) (3% of total investments at fair value)
 
 
$
14,521

$
14,521

 
Affiliate Investments (4)
AFG Capital Group, LLC (10) (13)
Provider of Rent-to-Own Financing Solutions and Services
11.00% Secured Debt (Maturity Date -November 7, 2019)
$
1,700

$
1,596

$
1,596

 
 
Member Units (46 shares)
 
300

300

 
 
Warrants (10 equivalent shares)
 
65

65

 
 
 
 
1,961

1,961

Mystic Logistics, Inc. (10) (13)
Logistics and Distribution Services Provider for Large Volume Mailers
12.00% Secured Debt (Maturity Date -August 15, 2019)
2,500

2,423

2,427

 
 
Common Stock (1,468 shares)
 
680

680

 
 
 
 
3,103

3,107

SoftTouch Medical Holdings LLC (8) (10) (13)
Home Provider of Pediatric Durable Medical Equipment
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity Date - October 30, 2019)
1,500

1,471

1,471

 
 
Member Units (798 shares)
 
885

885

 
 
 
 
2,356

2,356

 
 
 
 
 
 
Subtotal Affiliate Investments (4) (2% of total investments at fair value)
 
 
$
7,420

$
7,424

 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (5)
Ability Network Inc. (8)
Health Care Information Technology
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - May 14, 2021)
$
4,975

$
4,923

$
4,888

Accuvant Finance LLC (8)
Cyber Security Value Added Reseller
Prime Plus 3.75% (Floor 3.25%), Current Coupon 7%, Secured Debt (Maturity - October 22, 2020)
2,861

2,834

2,853

Allflex Holdings III Inc. (8)
Manufacturer of Livestock Identification Products
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - July 19, 2021) (14)
8,422

8,529

8,264

AmeriTech College Operations, LLC (10) (13)
For-Profit Nursing and Healthcare College
10.00% Secured Debt, (Maturity - January 31, 2020)
871

870

870

AMF Bowling Centers, Inc. (8)
Bowling Alley Operator
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - September 18, 2021)
7,980

7,915

7,860

Aptean, Inc. (8)
Enterprise Application Software Provider
LIBOR Plus 4.25% (Floor 1.00%), Current Coupon 5.25%, Secured Debt (Maturity - February 26, 2020)
4,460

4,460

4,334

Artel, LLC (8)
Land-Based and Commercial Satellite Provider
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - November 27, 2017)
919

899

910

Bioventus, LLC (8) (11)
Production of Orthopedic Healing Products
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.00%, Secured Debt (Maturity - April, 10, 2020) (14)
7,000

6,866

6,983

Blackbrush Oil and Gas LP (8) (12)
Oil & Gas Exploration
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - July 30, 2021) (14)
10,085

9,966

8,370

Blackhawk Specialty Tools LLC (8)
Oilfield Equipment & Services
LIBOR Plus 5.25% (Floor 1.25%), Current Coupon 6.50%, Secured Debt (Maturity - August 1, 2019)
1,424

1,424

1,403

Blue Bird Body Company (8)
School Bus Manufacturer
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - June 26, 2020)
6,000

5,917

5,970

Bluestem Brands, Inc. (8)
Multi-Channel Retailer of General Merchandise
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 6, 2020)
7,500

7,206

7,237

Brasa Holdings, Inc. (8) (12)
Upscale Full Service Restaurants
LIBOR Plus 9.50% (Floor 1.5%), Current Coupon 11.00%, Secured Debt (Maturity - January 20, 2020) (14)
10,000

10,100

9,900

Brightwood Capital Fund III, LP (9) (15) (16)
Investment Partnership
LP Interests (Brightwood Capital Fund III, LP) (Fully diluted .57%) (16)
 
1,575

1,575

Brundage-Bone Concrete Pumping, Inc.
Construction Services Provider
10.38% Secured Bond (Maturity - September 1, 2021) (14)
4,000

4,047

4,090

CAI Software, LLC (10) (13)
Provider of Specialized Enterprise Resource Planning Software
12.00% Secured Debt (Maturity Date - October10, 2019)
1,350

1,311

1,311

 
 
Member Units (16,339 shares)
 
163

163

 
 
 
 
1,474

1,474

California Healthcare Medical Billing, Inc. (10) (13)
Outsourced Billing & Revenue Cycle Management
9.00% Secured Debt, (Maturity - October 17, 2016)
750

745

750

Cedar Bay Generation Company LP (8)
Coal-Fired Cogeneration Plant
LIBOR Plus 5.00% (Floor 1.25%), Current Coupon 6.25%, Secured Debt (Maturity - April 23, 2020)
1,446

1,446

1,435

Cengage Learning Acquisitions, Inc. (8) (12)
Provider of Educational Print and Digital Services
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - March 31, 2020)
9,975

9,975

9,896

Charlotte Russe, Inc. (8)
Fast-Fashion Retailer to Young Women
LIBOR Plus 5.50% (Floor 1.25%), Current Coupon 6.75%, Secured Debt (Maturity - May 22, 2019)
5,472

5,472

5,345

Clarius BIGS, LLC (11)
Prints & Advertising Film Financing
15.00% PIK Secured Debt (Maturity - January 5, 2015) (18)
3,297

3,039

1,385

 
 
20.00% PIK Secured Debt (Maturity - January 5, 2015) (18)
1,093

1,001

459

 
 
 
 
4,040

1,844

Covenant Surgical Partners, Inc.
Ambulatory Surgical Centers
8.75% Secured Debt (Maturity - August 1, 2019)
5,000

5,000

5,050

CRGT, Inc. (8) (12)
Provider of Custom Software Development
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - December 18, 2020)
10,000

9,800

9,850

CST Industries, Inc. (8)
Storage Tank Manufacturer
LIBOR Plus 6.25% (Floor 1.50%), Current Coupon 7.75%, Secured Debt (Maturity - May 22, 2017)
2,331

2,318

2,308

Datacom, LLC (10) (13)
Technology and Telecommunications Provider
10.50% Secured Debt (Maturity - May 30, 2019)
1,245

1,222

1,222

 
 
Member Units (717 units)
 
670

670

 
 
 
 
1,892

1,892

ECP-PF: CT Operations, Inc. (11)
Fitness Club Operator
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - November 26, 2019)
1,875

1,857

1,857

East West Copolymer & Rubber, LLC (10) (13)
Manufacturer of Synthetic Rubbers
12.00% Secured Debt (Maturity Date - October 17, 2019)
2,400

2,336

2,336

 
 
Warrants (455,820 equivalent shares)
 
10

10

 
 
 
 
2,346

2,346

Energy & Exploration Partners, LLC (8) (12)
Oil & Gas Exploration and Production
LIBOR plus 6.75% (Floor 1.00%), Current Coupon 7.75%, Secured Debt (Maturity - January 22, 2019)
7,975

7,033

5,722

e-Rewards, Inc. (8)
Provider of Digital Data Collection
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - October 29, 2018)
5,869

5,855

5,810

FishNet Security, Inc. (8)
Information Technology Value-Added Reseller
LIBOR Plus 5.00% (Floor 1.25%), Current Coupon 6.25%, Secured Debt (Maturity - November 30, 2017)
2,769

2,762

2,769

Flavors Holdings, Inc. (8) (12)
Global Provider of Flavoring and Sweetening Products and Solutions
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - April 3, 2020)
8,888

8,520

8,510

Fram Group Holdings, Inc. (8)
Manufacturer of Automotive Maintenance Products
LIBOR Plus 5.00% (Floor 1.50%), Current Coupon 6.50%, Secured Debt (Maturity - July 29, 2017)
3,481

3,470

3,465

GST Autoleather, Inc. (8)
Automotive Leather Manufacturer
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - July 10, 2020)
9,975

9,882

9,825

Guerdon Modular Holdings, Inc. (10) (13)
Multi-Family and Commercial Modular Construction Company
11.00% Secured Debt (Maturity - August 13, 2019)
2,800

2,745

2,752

 
 
Common Stock (42,644 shares)
 
600

600

 
 
 
 
3,345

3,352

Guitar Center, Inc.
Musical Instruments Retailer
6.50% Secured Bond (Maturity - April 15, 2019)
7,000

6,723

6,020

Halcon Resources Corporation (9)
Oil & Gas Exploration & Production
9.75% Unsecured Bond (Maturity - July 15, 2020) (17)
3,000

2,574

2,250

Hunter Defense Technologies, Inc. (8)
Provider of Military and Commercial Shelters and Systems
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - August 5, 2019)
5,925

5,813

5,851

ICON Health and Fitness, Inc.
Producer of Fitness Products
11.88% Secured Bond (Maturity - October 15, 2016)
6,885

6,866

6,472

iEnergizer Limited (8) (9)
Provider of Business Outsourcing Solutions
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - May 1, 2019)
5,336

5,314

4,936

Inn of the Mountain Gods Resort and Casino
Hotel & Casino Owner & Operator
9.25% Secured Bond (Maturity - November 30, 2020)
7,980

7,926

7,661

iQor US Inc. (8)
Business Process Outsourcing Services Provider
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - April 1, 2021)
5,906

5,760

5,492

IronGate Energy Services, LLC
Oil and Gas Services
11.00% Secured Bond (Maturity - July 1, 2018)
5,825

5,829

3,903

Jackson Hewitt Tax Service Inc. (8)
Tax Preparation Service Provider
LIBOR Plus 8.50% (Floor 1.50%), Current Coupon 10.00%, Secured Debt (Maturity - October 16, 2017)
8,000

8,007

8,000

John Deere Landscapes, LLC (8) (11)
Distributor of Landscaping Supplies
LIBOR Plus 4.00% (Floor 1.00%), Current Coupon 5.00%, Secured Debt (Maturity - December 23, 2019)
7,960

7,607

7,607

Kellermeyer Bergensons Services, LLC (8)
Outsourced Janitorial Services to Retail/Grocery Customers
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - April 29, 2022) (14)
7,200

7,059

7,164

Keypoint Government Solutions, Inc. (8)
Pre-Employment Screening Services
LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity - November 13, 2017)
2,305

2,293

2,294

Larchmont Resources, LLC (8)
Oil & Gas Exploration & Production
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - August 7, 2019)
739

742

718

LJ Host Merger Sub, Inc. (8)
Managed Services and Hosting Provider
LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - December 13, 2019)
5,384

5,366

5,330

 
 
LIBOR Plus 8.75% (Floor 1.25%), Current Coupon 10.00%, Secured Debt (Maturity - December 11, 2020) (14)
500

498

495

 
 
 
 
5,864

5,825

MAH Merger Corporation (8)
Sports-Themed Casual Dining Chain
LIBOR Plus 4.50% (Floor 1.25%), Current Coupon 5.75%, Secured Debt (Maturity - July 19, 2019)
1,481

1,481

1,485

MediMedia USA, Inc. (8)
Provider of Healthcare Media and Marketing
LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - November 20, 2018)
7,152

7,062

6,991

Milk Specialties Company (8)
Processor of Nutrition Products
LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.50%, Secured Debt (Maturity - November 9, 2018)
7,645

7,628

7,473

Minute Key, Inc. (10) (13)
Operator of Automated Key Duplication Kiosk
10.00% Current / 2.00% PIK Secured Debt (Maturity Date - September 19, 2019) (14)
1,000

987

987

Mood Media Corporation (8) (9) (12)
Provider of Electronic Equipment
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - May 1, 2019)
9,940

9,928

9,753

New Media Holdings II LLC (8) (9)
Local Newspaper Operator
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - June 3, 2020)
6,468

6,345

6,403

Nice-Pak Products, Inc. (8)
Pre-Moistened Wipes Manufacturer
LIBOR Plus 6.00% (Floor 1.50%), Current Coupon 7.50%, Secured Debt (Maturity - June 18, 2015)
7,401

7,379

7,364

North Atlantic Trading Company, Inc. (8) (12)
Marketer/Distributor of Tobacco
LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity -January 13, 2020)
8,454

8,483

8,316

Novitex Acquisition, LLC (8) (12)
Provider of Document Management Services
LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.5%, Secured Debt (Maturity - July 7, 2020)
8,978

8,824

8,618

Panolam Industries International, Inc. (8)
Decorative Laminate Manufacturer
LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.50%, Secured Debt (Maturity - August 23, 2017)
7,844

7,800

7,726

Parq Holdings, LP (8) (9)
Hotel and Casino Operator
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - December 17, 2020)
6,226

6,077

6,133

Permian Holdings, Inc.
Storage Tank Manufacturer
10.50% Secured Bond (Maturity - January 15, 2018)
3,885

3,872

2,914

Pernix Therapeutical Holdings, Inc. (9) (11)
Pharmaceutical Royalty - Anti-Migraine
12.00% Secured Bond (Maturity - August 1, 2020)
3,500

3,500

3,500

Peroxychem, LLC. (8) (12)
Chemical Manufacturer
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.5%, Secured Debt (Maturity - February 28, 2020)
6,461

6,433

6,397

Pike Corporation (8)
Construction and Maintenance Services for Electric Transmission and Distribution Infrastructure
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - June 22, 2022) (14)
10,000

9,751

9,883

Polyconcept Financial B.V. (8)
Promotional Products to Corporations and Consumers
LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - June 28, 2019)
5,905

5,894

5,883

Premier Dental Services, Inc. (8)
Dental Care Services
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - November 1, 2018)
4,963

4,987

4,739

Prowler Acquisition Corporation (8)
Specialty Distributor to the Energy Sector
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 5.50%, Secured Debt (Maturity - January 28, 2020)
2,322

2,335

2,148

Quad-C JH Holdings (8)
Manufacturer and Distributor of Health Care Equipment & Supplies
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - May 9, 2020)
4,457

4,433

4,406

Ravago Holdings America, Inc. (8)
Polymers Distributor
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 5.50%, Secured Debt (Maturity - December 20, 2020)
5,955

5,995

5,985

RCHP, Inc. (8)
Region Non-Urban Hospital Owner/Operator
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity - October 23, 2019) (14)
6,500

6,455

6,484

Recorded Books, Inc. (8)
Audiobook and Digital Content Publisher
LIBOR Plus 4.25% (Floor 1.00%), Current Coupon 5.25%, Secured Debt (Maturity - January 31, 2020)
4,331

4,314

4,266

Relativity Media, LLC (11)
Full-scale Film and Television Production and Distribution
10.00% Secured Debt (Maturity - May 30, 2015)
3,693

3,693

3,703

 
 
15.00% PIK Secured Debt (Maturity - May 30, 2015) (14)
4,895

4,895

4,993

 
 
 
 
8,588

8,696

Renaissance Learning, Inc. (8)
Technology-based K-12 Learning Solutions
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - April 11, 2022) (14)
2,000

1,981

1,920

RGL Reservoir Operations, Inc. (8) (9)
Oil & Gas Equipment & Services
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - August 13, 2021)
3,990

3,875

3,219

RLJ Entertainment, Inc. (8) (11)
Movie and TV Programming Licensee and Distributor
LIBOR Plus 8.75% (Floor .25%), Current Coupon 9.00%, Secured Debt (Maturity - September 11, 2019)
9,913

9,633

9,633

Sage Automotive Interiors, Inc (8)
Automotive Textiles Manufacturer
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 8, 2021) (14)
5,000

4,951

4,975

SCE Partners, LLC (8) (11)
Hotel & Casino Operator
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - August 14, 2019)
998

989

1,002

Sorenson Communications, Inc.
Manufacturer of Communication Products for Hearing Impaired
9.00% Secured Bond (Maturity - October 31, 2020) (14)
5,000

4,756

4,650

Sotera Defense Solutions, Inc. (8)
Defense Industry Intelligence Services
LIBOR Plus 7.50% (Floor 1.50%), Current Coupon 9.00%, Secured Debt (Maturity - April 21, 2017)
3,748

3,555

3,467

Symphony Teleca Services, Inc. (8)
Outsourced Product Development
LIBOR Plus 4.75% (Floor 1.00%), Current Coupon 5.75%, Secured Debt (Maturity - August 7, 2019)
6,000

5,945

5,970

Synagro Infrastructure Company, Inc. (8)
Waste Management Services
LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - August 22, 2020)
3,965

3,948

3,913

Teleguam Holdings, LLC (8)
Cable and Telecom Services Provider
LIBOR Plus 7.50% (Floor 1.25%), Current Coupon 8.75%, Secured Debt (Maturity - June 10, 2019) (14)
3,000

3,021

3,015

Templar Energy, LLC (8)
Oil & Gas Exploration & Production
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 25, 2020) (14)
3,000

2,979

2,169

Tervita Corporation (8) (9)
Oil and Gas Environmental Services
LIBOR Plus 5.00% (Floor 1.25%), Current Coupon 6.25%, Secured Debt (Maturity - May 15, 2018)
2,475

2,486

2,302

The Topps Company, Inc. (8)
Trading Cards & Confectionary
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - October 2, 2018)
990

982

965

Therakos, Inc. (8)
Immune System Disease Treatment
LIBOR Plus 5.75% (Floor 1.25%), Current Coupon 7.00%, Secured Debt (Maturity - December 27, 2017)
1,450

1,430

1,445

TOMS Shoes, LLC (8)
Global Designer, Distributor, and Retailer of Casual Footwear
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - October 30, 2020)
5,000

4,511

4,625

Travel Leaders Group, LLC (8) (12)
Travel Agency Network Provider
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 5, 2018)
8,431

8,401

8,431

USJ-IMECO Holding Company, LLC (8)
Marine Interior Design and Installation
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 16, 2020)
7,947

7,925

7,828

Vantage Oncology, LLC
Outpatient Radiation Oncology Treatment Centers
9.50% Secured Bond (Maturity - June 15, 2017)
1,000

1,000

970

Vision Solutions, Inc. (8)
Provider of Information Availability Software
LIBOR Plus 4.50% (Floor 1.50%), Current Coupon 6.00%, Secured Debt (Maturity - July 23, 2016)
1,461

1,465

1,454

 
 
LIBOR Plus 8.00% (Floor 1.50%), Current Coupon 9.50%, Secured Debt (Maturity - July 23, 2017) (14)
875

869

849

 
 
 
 
2,334

2,303

Worley Claims Services, LLC (8) (11)
Insurance Adjustment Management and Services Provider
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 31, 2020)
6,500

6,437

6,533

YP Holdings LLC (8)
Online and Offline Advertising Operator
LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - June 4, 2018)
2,822

2,833

2,832

 
 
 
 
 
 
Subtotal Non-Control/Non-Affiliate Investments (5) (95% of total portfolio investments at fair value)
 
$
465,663

$
451,917

 
 
 
 
 
 
Total Investments
 
 
 
$
487,604

$
473,862

(1)
All investments are Private Placement portfolio investments, unless otherwise noted. All of the Company's assets are encumbered as security for the Company's credit agreements. See Note 4 - Borrowings.
(2)
Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless otherwise noted.
(3)
See Note 3 - Fair Value Hierarchy for Investments for summary geographic location of portfolio companies.
(4)
Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned, or an investment in an investment company’s investment adviser, and the investments are not classified as Control investments.
(5)
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments.
(6)
Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
(7)
Principal is net of repayments. Cost represents amortized cost which is net of repayments and adjusted for the amortization of premiums and/or accretion of discounts, as applicable.
(8)
Index based floating interest rate is subject to contractual minimum interest rates.
(9)
The investment is not a qualifying asset under the 1940 Act. A BDC may not acquire any asset other than qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC's total assets.
(10)
Investment is classified as a Lower Middle Market investment.
(11)
Investment is classified as a Private Loan portfolio investment.
(12)
Investment or portion of investment is under contract to purchase and met trade date accounting criteria as of December 31, 2014. Settlement occurred or is scheduled to occur after December 31, 2014. See Note 2 for summary of Security Transactions.
(13)
Investment serviced by Main Street Partners pursuant to the Servicing Agreement. See Note 2 for summary of Investment Classification.
(14)
Second lien secured debt investment.
(15)
Investment is classified as an Other portfolio investment.
(16)
Income producing through dividends or distributions.
(17)
Unsecured debt investment.
(18)
Investment is on non-accrual status as of December 31, 2014.
See notes to the condensed consolidated financial statements.

6



HMS Income Fund, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Principal Business and Organization

HMS Income Fund, Inc. (the “Company”) was formed as a Maryland corporation on November 28, 2011 under the General Corporation Law of the State of Maryland. The Company is an externally managed, non-diversified closed-end investment company that has elected to be treated as a BDC under the 1940 Act. The Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

The Company’s primary investment objective is to generate current income through debt and equity investments. A secondary objective of the Company is to generate long-term capital appreciation through such equity and equity related investments including warrants, convertible securities and other rights to acquire equity related securities. The Company’s portfolio strategy calls for it to invest primarily in illiquid debt and equity securities issued by lower middle market ("LMM") companies, which generally have annual revenues between $10 million and $150 million, and debt securities issued by middle market ("Middle Market") companies that are generally larger in size than the LMM companies. The Company categorizes some of its investments in LMM companies and Middle Market companies as private loan ("Private Loan") portfolio investments. Private Loan investments, often referred to in the debt markets as “club deals,” are investments, generally in debt instruments, that the Company originates on a collaborative basis with other investment funds or lenders. Private Loan investments are typically similar in size, structure, terms and conditions to investments the Company holds in its LMM portfolio and Middle Market portfolio. The Company’s portfolio also includes other portfolio ("Other Portfolio") investments which primarily consist of investments that are not consistent with the typical profiles for its LMM portfolio investments, Middle Market portfolio investments or Private Loan portfolio investments, including investments which may be managed by third parties. The Company’s portfolio investments may be subject to restrictions on resale.

As of September 30, 2015, the Company had raised approximately $538.2 million in the current Offering (the "Offering"), including proceeds from the distribution reinvestment plan of approximately $16.7 million.

The business of the Company is managed by HMS Adviser LP (the “Adviser”), a Texas limited partnership and affiliate of Hines Interests Limited Partnership (“Hines”), under an Investment Advisory and Administrative Services Agreement dated May 31, 2012, as amended (the “Investment Advisory Agreement”). The Company and the Adviser have retained MSC Adviser I, LLC, a wholly owned subsidiary of Main Street Capital Corporation ("Main Street"), a New York Stock Exchange listed BDC, as the Company’s investment sub-adviser (the "Sub-Adviser") under an Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”), to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management recommendations for approval by the Adviser, monitor the Company’s investment portfolio and provide certain ongoing administrative services to the Adviser. The Adviser and Sub-Adviser are collectively referred to as the “Advisers,” and each is registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Upon the execution of the Sub-Advisory Agreement, Main Street became an affiliate of the Company. The Company has engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of the Adviser, to serve as the Dealer Manager for the Offering. The Dealer Manager is responsible for marketing the Company’s shares of common stock being offered pursuant to the Offering.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of the Company are prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.

Amounts as of December 31, 2014 included in the unaudited condensed consolidated financial statements have been derived from the Company's audited consolidated financial statements as of that date. All intercompany balances and transactions have been eliminated. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, these financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the Securities and Exchange Commission (the "SEC") on March 4, 2015. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
 

7



Interest, Fee and Dividend Income
 
Interest and dividend income is recorded on the accrual basis to the extent amounts are expected to be collected. Prepayment penalties received by the Company are recorded as income upon receipt. Dividend income is recorded when dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. Accrued interest and dividend income is evaluated quarterly for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, the debt security will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. Additionally, if a debt security has deferred interest payment terms and the Company becomes aware of a deterioration in credit quality, the Company will evaluate the collectability of the deferred interest payment. If it is determined that the deferred interest is unlikely to be collected, the Company will place the security on non-accrual status and cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay the contractual amounts due. If a debt security’s status significantly improves with respect to the debtor’s ability to service the debt or other obligations, or if a debt security is fully impaired, sold or written off, it will be removed from non-accrual status.

As of September 30, 2015, the Company had three investments in two portfolio companies that were more than 90 days past due. These three investments were on non-accrual status as of September 30, 2015. Given the credit deterioration of these two portfolio companies, no interest income has been recognized on these three investments during the three months ended September 30, 2015. As of December 31, 2014, the Company did not have any investments that were more than 90 days past due. The Company had two investments in one portfolio company that were on non-accrual status as of December 31, 2014. Given the credit deterioration of this portfolio company, no interest income has been recognized on these two investments during the nine months ended September 30, 2015 or the year ended December 31, 2014. Aside from the three investments on non-accrual status as of September 30, 2015, the Company is not aware of any material changes to the creditworthiness of the borrowers underlying its debt investments.

From time to time, the Company may hold debt instruments in its investment portfolio that contain a payment-in-kind (“PIK”) interest provision. If these borrowers elect to pay or are obligated to pay interest under the optional PIK provision and, if deemed collectible in management's judgment, then the interest would be computed at the contractual rate specified in the investment’s credit agreement, recorded as interest income and periodically added to the principal balance of the investment. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. The Company stops accruing PIK interest and writes off any accrued and uncollected interest in arrears when it determines that such PIK interest in arrears is no longer collectible.

As of September 30, 2015 and December 31, 2014, the Company held nine and four investments, respectively, which contained a PIK provision. As of September 30, 2015, three of the nine investments with PIK provisions were on non-accrual status. No PIK interest was recorded on these three non-accrual investments during the three months ended September 30, 2015. As of December 31, 2014, two of the four investments with PIK provisions were on non-accrual status. No PIK interest was recorded on these two non-accrual investments during the nine months ended September 30, 2015 or the year ended December 31, 2014. For the three months ended September 30, 2015, the Company reversed a net $32,000 of capitalized PIK interest since the PIK interest written off during the period was greater than the PIK interest capitalized during the period. For the three months ended September 30, 2014, the Company capitalized $100,000 of PIK interest. For the nine months ended September 30, 2015 and 2014, the Company capitalized $716,000 and $144,000, respectively, of PIK interest.

The Company may periodically provide services, including structuring and advisory services, to its portfolio companies or other third parties. The income from such services is non-recurring. For services that are separately identifiable and evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into interest income over the life of the financing.

A presentation of the investment income the Company received from its Investment Portfolio in each of the periods presented (dollars in thousands) is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
 
(Unaudited)
Interest, Fee and Dividend Income
 
 
 
 
 
 
 
     Interest Income
$
17,286

 
$
5,488

 
$
43,673

 
$
10,347

     Fee Income
(47
)
 
159

 
567

 
171

     Dividend Income
86

 

 
259

 

Total Interest, Fee and Dividend Income
$
17,325

 
$
5,647

 
$
44,499

 
$
10,518


8




Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements under ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date which defers the effective date of ASU 2014-09 by one year for all entities under US GAAP. The new guidance will be effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Early adoption would be permitted for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact the adoption of this new accounting standard will have on the Company's consolidated financial statements and disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation: Amendments to the Consolidation Analysis which amends the consolidation requirements under ASC 810. This guidance amends the criteria for determining which entities are considered variable interest entities (“VIEs”) and amends the criteria for determining if a service provider possesses a variable interest in a VIE. ASU No. 2015-02 also eliminates the deferral under ASU 2010-10 for application of the VIE consolidation model that was granted for investments in certain investment companies. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the impact that ASU 2015-02 will have on its consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs which amends the required presentation of debt issuance costs on the balance sheet. The guidance will require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the ASU No. 2015-03. For public business entities, the guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. In August 2015, the FASB issued ASU No. 2015-15, Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements which clarified ASU 2015-03. This guidance allows an entity to defer and present debt issuance costs for line-of-credit arrangements as an asset and subsequently amortize these deferred costs over the term of the line-of-credit arrangement. The Company will make the required changes to the debt presentation on the consolidated balance sheet as of the effective date of this new guidance.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This ASU removes, from the fair value hierarchy, investments which measure fair value using net asset value per share practical expedient. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. For public companies, this ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendment should be applied retrospectively to all periods presented. The Company is expected to make the required changes to the fair value hierarchy disclosure as of the effective date of this new guidance.

Note 3 — Fair Value Hierarchy for Investments

Fair Value Hierarchy
 
ASC Topic 820 ("ASC 820") establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
 

9



Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:
 
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable for essentially the full term of the investment. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in non-active markets (for example, thinly traded public companies), pricing models whose inputs are observable for substantially the full term of the investment, and pricing models whose inputs are derived principally from or corroborated by, observable market data through correlation or other means for substantially the full term of the investment.
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Such information may be the result of consensus pricing information or broker quotes for which sufficient observable inputs were not available.

As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such investments categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). The Company conducts reviews of fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain investments.

As of September 30, 2015 and December 31, 2014, the Company’s investment portfolio was comprised of debt securities, equity investments, and Other Portfolio investments. The fair value determination for these investments primarily consisted of unobservable (Level 3) inputs.

As of September 30, 2015 and December 31, 2014, all of the Company’s LMM portfolio investments consisted of illiquid securities issued by private companies. The fair value determination for the LMM portfolio investments primarily consisted of unobservable inputs. As a result, all of the Company’s LMM portfolio investments were categorized as Level 3 as of September 30, 2015 and December 31, 2014.

As of September 30, 2015 and December 31, 2014, the Company's Middle Market portfolio investments consisted primarily of private placement investments in secured and unsecured debt investments and independently rated debt investments. The fair value determination for these investments consisted of a combination of (1) observable inputs in non-active markets for which sufficient observable inputs were available to determine the fair value of these investments, (2) observable inputs in the non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and (3) unobservable inputs. As a result, all of the Company's Middle Market portfolio investments were categorized as Level 3 as of September 30, 2015 and December 31, 2014.

As of September 30, 2015 and December 31, 2014, the Company’s Private Loan portfolio investments consisted primarily of debt investments. The fair value determination for Private Loan investments consisted of a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and unobservable inputs. As a result, all of the Company’s Private Loan portfolio investments were categorized as Level 3 as of September 30, 2015 and December 31, 2014.

As of September 30, 2015 and December 31, 2014, the Company’s Other Portfolio investment consisted of an illiquid security issued by a private company. The fair value determination for this investment primarily consisted of unobservable inputs. As a result, the Company’s Other Portfolio equity investment was categorized as Level 3 as of September 30, 2015 and December 31, 2014.

The fair value determination of the Level 3 securities required one or more of the following unobservable inputs:
 
Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;
Current and projected financial condition of the portfolio company;
Current and projected ability of the portfolio company to service its debt obligations;
Type and amount of collateral, if any, underlying the investment;

10



Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio, and net debt/earnings before interest, tax, depreciation and amortization ("EBITDA") ratio) applicable to the investment;
Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);
Pending debt or capital restructuring of the portfolio company;
Projected operating results of the portfolio company;
Current information regarding any offers to purchase the investment;
Current ability of the portfolio company to raise any additional financing as needed;
Changes in the economic environment which may have a material impact on the operating results of the portfolio company;