10-Q 1 form10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SIGULER GUFF SMALL BUSINESS CREDIT OPPORTUNITIES FUND, INC.
(Exact name of registrant as specified in its charter)

Commission File Number: 814-01157

Maryland
 
47-1290650
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

 
825 Third Avenue, 10th Floor, New York, NY 10022
 
(Address of principal executive offices) (Zip code)

(212) 332-5100
(Registrant’s telephone number, including area code)

NOT APPLICABLE
(Former name or former address, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes No

Indicate by check mark whether the registrant has submitted electronically 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 No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company in Rule 12b-2 of the Exchange Act

Large accelerated filer
Accelerated Filer

Non-accelerated filer (Do not check if a smaller reporting company)          Smaller reporting company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 14, 2018, there were 100,000 shares of the registrant’s common stock outstanding.


TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.
5
     
  5
     
  6
 

 
  8
 

 
  9
 

 
  10
 

 
  11
     
Item 2.
29
     
Item 3.
41
     
Item 4.
42
     
PART II – OTHER INFORMATION
     
Item 1.
42
     
Item 1A.
42
     
Item 2.
42
     
Item 3.
43
     
Item 4.
43
     
Item 5.
44
     
Item 6.
44
     
45

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors” as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operation and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Under Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in periodic reports we file under the Exchange Act, such as this quarterly report on Form 10-Q.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:


·
our future operating results;

·
changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets;

·
uncertainty surrounding the strength of the U.S. economic recovery;

·
our business prospects and the prospects of our portfolio companies;

·
the impact of investments that we expect to make;

·
the impact of increased competition;

·
our contractual arrangements and relationships with third parties;

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

·
the ability of our current prospective portfolio companies to achieve their objectives;

·
the relative and absolute performance of our investment adviser;

·
our expected financings and investments;

·
the use of borrowed money to finance a portion of our investments;

·
our ability to make distributions;


·
the adequacy of our cash resources and working capital including our ability to raise additional capital;

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

·
the impact of future acquisitions and divestitures;

·
the effect of changes in tax laws and regulations and interpretations thereof;

·
our ability to maintain our status as a BDC and a qualifying regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”);

·
actual and potential conflicts of interest with Siguler Guff Advisers, LLC (“Siguler Guff Advisers” or the “Investment Manager”) and its affiliates;

·
general price and volume fluctuations in the financial markets;

·
the ability of the Investment Manager to attract and retain highly talented professionals; and

·
the impact on our business of new legislation.

PART I – FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Consolidated Statements of Assets and Liabilities (Unaudited)


   
September 30,
2018
   
December 31,
2017
 
Assets
           
Portfolio Investments at Fair Value:
           
Non-controlled, non-affiliated portfolio investments (cost, September 30, 2018: $33,591,236; December 31, 2017: $41,154,948)
 
$
33,591,236
   
$
41,154,948
 
Cash
   
696,256
     
4,346,368
 
Due from Affiliates
   
943,643
     
467,896
 
Interest receivable
   
139,429
     
106,922
 
Other receivable
   
131,722
     
189,673
 
Prepaid taxes
   
21,284
     
9,831
 
Deferred financing costs (net of accumulated amortization, September 30, 2018: $112,002; December 31, 2017: $38,972)
   
17,017
     
91,026
 
Total Assets
 
$
35,540,587
   
$
46,366,664
 
                 
Liabilities
               
Investor note credit facility
 
$
16,429,580
   
$
16,800,000
 
Accrued expenses and other liabilities
   
301,499
     
231,310
 
Due to Portfolio Investment
   
35,034
     
-
 
Due to Affiliate
   
7,585
     
2,850
 
Total Liabilities
   
16,773,698
     
17,034,160
 
Net Assets
 
$
18,766,889
   
$
29,332,504
 
                 
Commitments and Contingencies (Note 8)
               
                 
Components of Net Assets
               
Common stock, $0.001 par value, 10,000,000 shares authorized, 100,000 issued and 100,000 outstanding at September 30, 2018 and December 31, 2017
   
100
     
100
 
Paid-in capital in excess of par
   
17,823,772
     
28,660,632
 
Accumulated undistributed net investment income/(loss)
   
943,017
     
605,469
 
Accumulated undistributed net realized gain/(loss)
   
-
     
66,303
 
Total Net Assets
 
$
18,766,889
   
$
29,332,504
 
                 
Net Asset Value Per Share
 
$
187.67
   
$
293.33
 

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Consolidated Schedules of Portfolio Investments (Unaudited)
September 30, 2018


Portfolio Investment
 
Industry
 
Interest Rate /
Payment-in-Kind Rate
   
Maturity
 
Principal /
Shares
   
Fair Value
 
                           
Delayed Draw Term Notes (0%)  (1), (2)
                         
United States
                         
Environmental Group Holdings, LLC  (4)
 
General Contracting
       
 12/15/2018
 
$
303,083
   
$
-
 
Total Delayed Draw Term Notes (Cost: $-)
                       
$
-
 
                               
Senior Subordinated Notes (135%)  (1), (2)
                             
United States
                             
Audax AAMP Holdings, Inc.
 
Electronic Equipment
   
12.91% / 0.00
%
 
02/15/2023
 
$
5,388,730
   
$
5,290,719
 
Chairman's Foods, LLC
 
Processed & Packaged Goods
   
11.00% / 2.00
%
 
01/16/2024
 
$
1,285,116
     
1,263,960
 
Drew Foam Companies Inc.
 
Manufacturing
   
11.00% / 1.00
%
 
11/30/2023
 
$
1,293,672
     
1,268,946
 
Earthlite, LLC
 
Business Equipment
   
11.00% / 1.50
%
 
07/11/2022
 
$
1,279,809
     
1,261,791
 
Gatekeeper Systems, Inc.
 
Security and Protection Services
   
11.00% / 1.00
%
 
03/02/2022
 
$
1,283,935
     
1,268,147
 
La Tavola, LLC
 
Commercial Retail
   
8.00% / 4.75
%
 
06/01/2021
 
$
1,305,041
     
1,292,310
 
Medsurant Holdings, LLC
 
Healthcare Services
   
12.25% / 0.75
%
 
06/30/2020
 
$
1,286,362
     
1,265,148
 
Northeastern Bus Rebuilders Inc.
 
Business Services
   
10.00% / 2.00
%
 
06/05/2022
 
$
5,602,816
     
5,540,588
 
Resource Employment Solutions, LLC
 
Staffing / Outsourcing Services
   
11.00% / 2.00
%
 
11/10/2023
 
$
1,298,961
     
1,274,341
 
S.R. Smith, LLC
 
Consumer / Sporting Goods
   
11.00% / 0.00
%
 
03/27/2022
 
$
1,597,219
     
1,585,184
 
Schlotterbeck & Foss, LLC
 
Processed & Packaged Goods
   
11.00% / 1.00
%
 
03/01/2023
 
$
1,287,052
     
1,267,930
 
Taylored Services LLC
 
Business Services
   
11.00% / 2.00
%
 
12/21/2023
 
$
1,433,838
     
1,406,228
 
Trachte, LLC
 
Manufacturing
   
11.00% / 1.00
%
 
04/13/2021
 
$
1,280,352
     
1,268,303
 
Total Senior Subordinated Notes (Cost: $25,253,595)
                         
$
25,253,595
 
                                 
Term Notes (44%)  (1), (2)
                               
United States
                               
Arc Drilling, LLC
 
Manufacturing
 
LIBOR + 9.50%
(1.25% floor) / 1.00
%
 
11/17/2022
 
$
1,306,420
   
$
1,297,023
 
Environmental Group Holdings, LLC
 
General Contracting
 
LIBOR + 9.50%
(2.25% floor) / 0.00
%  
02/06/2023
 
$
1,529,979
     
1,500,990
 
McVeigh Global Meetings and Events, LLC
 
Business Services
   
10.00% / 2.00
%
 
06/29/2023
 
$
3,028,841
     
2,970,449
 
NetFortris Operating Co., Inc.  (3)
 
Telecommunications
 
LIBOR + 8.40%
(0.50% floor) / 0.00
%  
02/21/2021
 
$
1,240,975
     
1,239,556
 
Whitney, Bradley & Brown, Inc.
 
Technical Services
 
LIBOR + 9.00%
(1.00% floor) / 0.00
%  
10/18/2022
 
$
1,263,424
     
1,254,003
 
Total Term Notes (Cost: $8,262,021)
                         
$
8,262,021
 
                                 
Total Delayed Draw Term, Senior Subordinated and Term Notes (Cost: $33,515,616)
                     
$

33,515,616
                                 
Money Market Fund (0%)
                               
United States
                               
Western Asset Institutional U.S. Treasury Reserves (Cost: $75,620)
 
U.S. Treasury Bills and Notes
               
75,620
   
$
75,620
 
                                 
Total United States (Cost: $33,591,236)
                         
$
33,591,236
 
                                 
Total Portfolio Investments (Cost: $33,591,236)
                         
$
33,591,236
 

Notes:
(1)
The Fund classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, "Control Investments" are defined as investments in companies in which the Fund owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation; "Affiliate Investments" are defined as investments in companies in which the Fund owns between 5% and 25% of the voting securities; and "Non-Control/Non-Affiliate Investments" are defined as investments that are neither Control Investments nor Affiliate Investments.  The Portfolio Investments are classified as Non-Control/Non-Affiliate Investments.
(2)
The Portfolio Investments are valued using unobservable inputs (Level 3).  Refer to Note 2 in the accompanying notes to the consolidated financial statements for more information.
(3)
The interest rate of this investment is equal to the greater of LIBOR plus 8.40% or 8.90% through the current fiscal quarter.  Thereafter, the interest rate is equal to the greater of LIBOR plus 8.40% or 8.90% if the senior leverage ratio is greater than or equal to 3.50x, the greater of LIBOR plus 9.00% or 9.50% if the senior leverage ratio is less than 3.50x and greater than or equal to 3.00x or the greater of LIBOR plus 9.50% or 10.00% if the senior leverage ratio is less than 3.00x.  The senior leverage ratio is equal to total obligations minus total cash divided by EBITDA of the portfolio investment.
(4)
On August 9, 2018, the Fund committed additional capital in the form of a delayed draw term note (“DDTN”) to provide reserve short-term liquidity to Environmental Group Holdings, LLC ("EG").  The DDTN was provided to EG in the absence of a suitable revolving credit facility, however since this agreement, a revolving credit facility has been set up and the DDTN will not likely be drawn by EG before maturity.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Consolidated Schedules of Portfolio Investments (Unaudited)
December 31, 2017

Portfolio Investment
 
Industry
 
Interest Rate /
Payment-in-Kind Rate
   
Maturity
 
Principal /
Shares
   
Fair Value
 
                           
Senior Subordinated Notes (97%)  (1), (2)
                         
United States
                         
Earthlite, LLC
 
Business Equipment
   
11.00% / 1.50
%
 
07/11/2022
 
$
1,425,350
   
$
1,402,339
 
Gatekeeper Systems, Inc.
 
Security and Protection Services
   
11.00% / 1.00
%
 
03/02/2022
 
$
2,773,873
     
2,733,904
 
La Tavola, LLC
 
Commercial Retail
   
8.00% / 4.75
%
 
06/01/2021
 
$
3,690,785
     
3,646,065
 
Medsurant Holdings, LLC
 
Healthcare Services
   
12.25% / 0.75
%
 
06/30/2020
 
$
4,113,937
     
4,021,901
 
Northeastern Bus Rebuilders Inc.
 
Business Services
   
10.00% / 2.00
%
 
06/05/2022
 
$
5,602,816
     
5,531,014
 
S.R. Smith, LLC
 
Consumer / Sporting Goods
   
11.00% / 0.00
%
 
03/27/2022
 
$
2,649,963
     
2,620,770
 
Schlotterbeck & Foss, LLC
 
Processed & Packaged Goods
   
11.00% / 1.00
%
 
03/01/2023
 
$
4,986,679
     
4,903,282
 
Trachte, LLC
 
Manufacturing
   
11.00% / 1.00
%
 
04/13/2021
 
$
3,695,640
     
3,652,337
 
Total Senior Subordinated Notes (Cost: $28,511,612)
                         
$
28,511,612
 
                                 
Term Notes (20%)  (1), (2)
                               
United States
                               
Arc Drilling, LLC
 
Manufacturing
 
LIBOR + 9.50%
(1.25% floor) / 1.00
%
 
11/17/2022
 
$
1,770,860
   
$
1,735,470
 
NetFortris Operating Co., Inc.  (3)
 
Telecommunications
 
LIBOR + 8.40%
(0.50% floor) / 0.00
%
 
02/21/2021
 
$
1,807,360
     
1,801,124
 
Whitney, Bradley & Brown, Inc.
 
Technical Services
 
LIBOR + 9.00%
(1.00% floor) / 0.00
 %  
10/18/2022
 
$
2,359,786
     
2,336,149
 
Total Term Notes (Cost: $5,872,743)
                         
$
5,872,743
 
 
                               
Total Senior Subordinated and Term Notes (Cost: $34,384,355)
                         
$
34,384,355
 
                                 
Money Market Fund (23%)
                               
United States
                               
Western Asset Institutional U.S. Treasury Reserves (Cost: $6,770,593)
 
U.S. Treasury Bills and Notes
               
6,770,593
   
$
6,770,593
 
                                 
Total United States (Cost: $41,154,948)
                         
$
41,154,948
 
                                 
Total Portfolio Investments (Cost: $41,154,948)
                         
$
41,154,948
 

Notes:

(1)
The Fund classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, "Control Investments" are defined as investments in companies in which the Fund owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation; "Affiliate Investments" are defined as investments in companies in which the Fund owns between 5% and 25% of the voting securities; and "Non-Control/Non-Affiliate Investments" are defined as investments that are neither Control Investments nor Affiliate Investments.  The Portfolio Investments are classified as Non-Control/Non-Affiliate Investments.
(2)
The Portfolio Investments are valued using unobservable inputs (Level 3).  Refer to Note 2 in the accompanying notes to the consolidated financial statements for more information.
(3)
The interest rate of this investment is equal to the greater of LIBOR plus 8.40% or 8.90% through the fiscal quarter ending December 31, 2017.  Thereafter, the interest rate is equal to the greater of LIBOR plus 8.40% or 8.90% if the senior leverage ratio is greater than or equal to 3.50x, the greater of LIBOR plus 9.00% or 9.50% if the senior leverage ratio is less than 3.50x and greater than or equal to 3.00x or the greater of LIBOR plus 9.50% or 10.00% if the senior leverage ratio is less than 3.00x.  The senior leverage ratio is equal to total obligations minus total cash divided by EBITDA of the portfolio investment.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Consolidated Statements of Operations (Unaudited)

   
For the Three
Months Ended
September 30, 2018
   
For the Nine
Months Ended
September 30, 2018
   
For the Three
Months Ended
September 30, 2017
   
For the Nine
Months Ended
September 30, 2017
 
Investment Income
                       
Non-Controlled, Non-Affiliated Investments:
                       
Interest income
 
$
961,346
   
$
3,129,520
   
$
1,151,473
   
$
2,744,148
 
Payment-in-kind interest income
   
52,031
     
154,579
     
48,003
     
146,181
 
Other income
   
(220
)
   
(8,905
)
   
16,531
     
247,294
 
Reallocation of other income
   
-
     
(56,951
)
   
-
     
-
 
Total Investment Income
   
1,013,157
     
3,218,243
     
1,216,007
     
3,137,623
 
                                 
Expenses
                               
Interest
   
147,950
     
452,622
     
-
     
-
 
Professional fees
   
123,991
     
323,763
     
96,783
     
191,691
 
Investment Management Fee
   
105,599
     
285,437
     
123,043
     
308,857
 
Directors fees
   
42,250
     
128,750
     
41,250
     
126,750
 
Amortization of deferred financing costs
   
15,738
     
73,030
     
-
     
-
 
Other general and administrative
   
13,974
     
47,928
     
8,449
     
17,540
 
Total Expenses
   
449,502
     
1,311,530
     
269,525
     
644,838
 
Investment Management Fee Waived (Note 7)
   
-
     
-
     
(8,420
)
   
(7,927
)
Total Net Expenses
   
449,502
     
1,311,530
     
261,105
     
636,911
 
Net Investment Income/(Loss) before income tax (benefit)/expense
   
563,655
     
1,906,713
     
954,902
     
2,500,712
 
Income tax (benefit)/expense (Note 2)
   
-
     
-
     
393,012
     
960,539
 
Net Investment Income/(Loss) after income tax (benefit)/expense
   
563,655
     
1,906,713
     
561,890
     
1,540,173
 
                                 
Realized Gain/(Loss) on Portfolio Investments
                               
Non-Controlled, Non-Affiliated Investments:
                               
Net Realized Gain/(Loss)
   
-
     
-
     
6,138
     
91,822
 
Net Realized Gain/(Loss) on Portfolio Investments
   
-
     
-
     
6,138
     
91,822
 
                                 
Net Increase/(Decrease) in Net Assets Resulting from Operations
 
$
563,655
   
$
1,906,713
   
$
568,028
   
$
1,631,995
 
                                 
Net Investment Income/(Loss) after income tax (benefit)/expense Per Share (Basic and Diluted)
 
$
5.64
   
$
19.07
   
$
5.62
   
$
15.40
 
                                 
Net Increase/(Decrease) in Net Assets Resulting from Operations Per Share (Basic and Diluted)
 
$
5.64
   
$
19.07
   
$
5.68
   
$
16.32
 
                                 
Distributions Declared Per Share
 
$
40.49
   
$
166.42
   
$
-
   
$
-
 
                                 
Weighted average shares outstanding
   
100,000
     
100,000
     
100,000
     
100,000
 

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Consolidated Statements of Changes in Net Assets (Unaudited)

   
For the Nine
Months Ended
September 30, 2018
   
For the Nine
Months Ended
September 30, 2017
 
             
Net Increase/(Decrease) in Net Assets Resulting from Operations
           
Net investment income/(loss) after income tax (benefit)/expense
 
$
1,906,713
   
$
1,540,173
 
Net realized gain/(loss) on Portfolio Investments
   
-
     
91,822
 
Net Increase/(Decrease) in Net Assets Resulting from Operations
   
1,906,713
     
1,631,995
 
                 
Capital Stock Transactions
               
Contributions from stockholder
   
4,170,000
     
8,468,550
 
Paid-in capital distributed to stockholder
   
(15,006,860
)
   
-
 
Distributions from net investment income/(loss)
   
(1,569,165
)
   
-
 
Distributions from net realized gain/(loss)
   
(66,303
)
   
-
 
Net Increase/(Decrease) in Net Assets From Capital Stock Transactions
   
(12,472,328
)
   
8,468,550
 
                 
Total Increase in Net Assets
               
Net assets at beginning of period
   
29,332,504
     
17,909,096
 
Net assets at end of period
 
$
18,766,889
   
$
28,009,641
 
                 
                 
Capital Share Activity
               
Shares issued
   
-
     
-
 
Shares redeemed
   
-
     
-
 
Net Increase/(Decrease) in Shares Outstanding
   
-
     
-
 
                 
                 
Accumulated Undistributed Net Investment Income/(Loss)
 
$
943,017
   
$
1,854,733
 
Accumulated Undistributed Realized Gain/(Loss)
 
$
-
   
$
-
 

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Consolidated Statements of Cash Flows (Unaudited)

   
For the Nine
Months Ended
September 30, 2018
   
For the Nine
Months Ended
September 30, 2017
 
Cash Flows From Operating Activities
           
Net Increase/(Decrease) in Net Assets Resulting from Operations
 
$
1,906,713
   
$
1,631,995
 
Adjustments to reconcile Net Increase/(Decrease) in Net Assets
               
Resulting from Operations to Net Cash Provided By/Used in Operating Activities:
               
Net realized (gain)/loss on Portfolio Investments
   
-
     
(91,822
)
Purchases of Portfolio Investments
   
(21,926,715
)
   
(21,628,961
)
Sales of Portfolio Investments
   
10,133,654
     
5,762,147
 
Payment-in-kind interest income
   
(154,579
)
   
(146,181
)
Accretion of discount on notes
   
(90,719
)
   
(57,302
)
Amortization of deferred financing costs
   
73,030
     
-
 
Decrease/(Increase) in due from Affiliates
   
(475,747
)
   
-
 
Decrease/(Increase) in interest receivable
   
(32,507
)
   
(94,768
)
Decrease/(Increase) in other receivable
   
57,951
     
(189,673
)
Decrease/(Increase) in prepaid taxes
   
(11,453
)
   
-
 
Decrease/(Increase) in net deferred tax asset
   
-
     
94,725
 
(Decrease)/Increase in accrued expenses and other liabilities
   
70,189
     
(80,031
)
(Decrease)/Increase in due to Affiliate
   
4,735
     
1,776,983
 
(Decrease)/Increase in taxes payable
   
-
     
(26,993
)
Net Cash Provided By/Used in Operating Activities
   
(10,445,448
)
   
(13,049,881
)
                 
Cash Flows From Financing Activities
               
Contributions from stockholder
   
4,170,000
     
8,468,550
 
Distributions paid to stockholder
   
(8,432,020
)
   
-
 
Proceeds from investor note credit facility
   
15,057,356
     
4,600,000
 
Payment of investor note credit facility
   
(4,000,000
)
   
-
 
Net Cash Used in/Provided by Financing Activities
   
6,795,336
     
13,068,550
 
Net Increase/(Decrease) in Cash
   
(3,650,112
)
   
18,669
 
                 
Cash
               
Beginning of period
   
4,346,368
     
122,577
 
End of period
 
$
696,256
   
$
141,246
 
                 
Supplemental cash flow information
               
Income Taxes Paid
 
$
11,453
   
$
897,411
 
Interest Paid
 
$
415,532
   
$
-
 
In-Kind Distribution of Portfolio Investments to Stockholder
 
$
19,612,943
   
$
-
 
In-Kind Distribution of Deferred Financing Costs to Stockholder
 
$
25,140
   
$
-
 
In-Kind Distribution of Investor Note Credit Facility to Stockholder
 
$
(11,427,775
)
 
$
-
 

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

1.
Business and Organization

Siguler Guff Small Business Credit Opportunities Fund, Inc. (“SBCOF” or the “Fund”), was incorporated in Maryland on July 7, 2014 as a non-diversified, closed-end management investment company and has elected status as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”) on July 1, 2015.  Siguler Guff Advisers, LLC (the “Investment Manager”) serves as the Fund’s Investment Manager.  The Investment Manager is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”), pursuant to the 1940 Act.  One hundred percent of the stock of the Fund is held by Siguler Guff Small Business Credit Opportunities Fund, LP (the “Partnership”).  Prior to commencing its operations on October 13, 2015, the Fund had no operations other than the issuance to the Partnership of 100,000 shares of common stock, $0.001 par value for $25,000 in September 2014.

Since the Partnership owns one hundred percent of the stock of the Fund, the term of the Fund will be the same as that of the Partnership. The term of the Partnership will continue until the later to occur of: (a) September 17, 2026, or (b) the date of which all the Partnership’s assets have been distributed and the Partnership’s obligations (including contingent obligations) have terminated, unless the Partnership is sooner dissolved in accordance with Article 9 of its Partnership Agreement dated July 9, 2014 and amended as of May 14, 2018.  The term may be extended for up to three additional years with the consent of the Advisory Board.

The Fund’s investment objective is to achieve attractive risk-adjusted returns by generating current income from debt investments.  There can be no assurance that the Fund will attain its investment objective.  The Fund will typically invest in U.S. companies in the lower middle market segment. The Investment Manager defines the “lower middle market” as privately-owned companies with between $2 million to $15 million of earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and between $10 million to $100 million of revenue.  Investments take the form of mezzanine debt as well as some “unitranche” loans with a first lien on a company’s assets, as well as second lien loans.  The Partnership generally seeks to purchase equity securities alongside the Fund’s investments into those same companies, generally with an aggregate cost of up to 20% of the value of the Fund’s total investment.  The Fund also may extend mezzanine financing in forms other than subordinated loans, such as convertible loans and preferred stock.

The Fund jointly co-invests in investments alongside the Partnership and Siguler Guff SBCOF Parallel Fund, LP (the “Parallel Partnership”) and may co-invest with other investment funds managed by or otherwise affiliated with the Investment Manager (collectively, the “Affiliated Funds”).  The Fund and the Affiliated Funds generally invest pro-rata and pari passu with each other in investments, except when tax, regulatory or investment restrictions prevent the Fund or the Affiliated Funds from investing.  The General Partner of the Partnership and Parallel Partnership is an Affiliate of the Investment Manager.

The Fund is subject to certain investment guidelines and restrictions as set forth in its registration statement filed with the SEC on Form 10.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

2.
Summary of Significant Accounting Policies

Unaudited Interim Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of the Fund included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to this Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair statement of results for the interim periods.  The results of operations for interim periods are not necessarily indicative of operating results for an entire year.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017, which are included in the Fund's Annual Report on Form 10-K filed with the SEC on March 29, 2018.

Basis of Accounting
These consolidated financial statements have been prepared in accordance with U.S. GAAP.  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates and such differences could be material.  The most significant estimates inherent in the preparation of the Fund's consolidated financial statements are the valuation of investments and revenue recognition.

The Fund is an investment company and follows the accounting and reporting guidance as prescribed by Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946”).

The financial statements include portfolio investments at fair value of $33,591,236 at September 30, 2018 and $41,154,948 at December 31, 2017. The portfolio investments represent approximately 179% of net assets at September 30, 2018 and approximately 140% of net assets at December 31, 2017 and their fair values have been determined in good faith by the Fund's Board of Directors (“Directors”). Because of the inherent uncertainty of valuation, the determined values may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

Consolidation
The Fund has certain wholly-owned subsidiaries, including subsidiaries that are not consolidated for U.S. federal income tax purposes, which hold certain portfolio investments of the Fund.  These subsidiaries are consolidated with the Fund for accounting purposes, and the portfolio investments held by the subsidiaries are included in the Fund’s consolidated financial statements as investments.  All significant intercompany balances and transactions have been eliminated.  The investments held through the subsidiaries are reflected in the Consolidated Schedule of Portfolio Investments in addition to any investments the Fund holds directly.  As provided under Regulation S-X and ASC 946, the Fund will generally not consolidate its investment in a company other than a wholly-owned investment company or a controlled operating company whose business consists of providing services to the Fund.  Accordingly, the Fund consolidated the results of certain of its wholly-owned subsidiaries in its financial statements.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

Valuation of Portfolio Investments
The FASB ASC 820, Fair Value Measurements and Disclosures ("ASC 820") defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity.

Assets and liabilities recorded at fair value in the Fund's consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

 
·
Level 1 - Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

·
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.

·
Level 3 - Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Under ASC 820, the Fund performs detailed valuations of its debt investments for which quotations are not readily available on an individual basis, using bond yield, market and income approaches as appropriate. In certain instances, the Fund may use alternative methodologies, including recent purchase transactions, asset liquidation, expected recovery model or other alternative approaches to estimate the fair value.

Investments where market quotations for securities of the same issue are readily available on an exchange are marked-to-market at fair value at the closing price on the financial statement date.  Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Under the bond yield approach, the Fund uses bond yield models to determine the present value of the future cash flow streams of its debt investments. The Fund reviews various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assesses the information in the valuation process.

Under the market approach, the Fund estimates the enterprise value of the portfolio companies in which it invests. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which the Fund derives a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, the Fund analyzes various factors, including the portfolio company's historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA, cash flows, net income or revenues. The Fund generally requires portfolio companies to provide annual audited and quarterly or monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

Under the income approach, the Fund generally prepares and analyzes discounted cash flow models based on projections of the future free cash flows of the business.

The fair value of the Fund's portfolio investments at September 30, 2018 and December 31, 2017 was determined in good faith by the Directors. The Directors are ultimately responsible for the valuation of the portfolio investments at fair value as determined in good faith pursuant to the Fund’s valuation policy.  Because of the inherent uncertainty of valuation, these estimated fair values do not necessarily represent amounts that might be ultimately realized and the differences could be material.

The following table summarizes the level of the Fund’s assets measured at fair value as of September 30, 2018 and December 31, 2017:

   
Assets at Fair Value as of September 30, 2018
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Senior Subordinated Notes
 
$
-
   
$
-
   
$
25,253,595
   
$
25,253,595
 
Term Notes
   
-
     
-
     
8,262,021
     
8,262,021
 
Money Market Fund
   
75,620
     
-
     
-
     
75,620
 
Total Portfolio Investments
 
$
75,620
   
$
-
   
$
33,515,616
   
$
33,591,236
 

   
Assets at Fair Value as of December 31, 2017
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Senior Subordinated Notes
 
$
-
   
$
-
   
$
28,511,612
   
$
28,511,612
 
Term Notes
   
-
     
-
     
5,872,743
     
5,872,743
 
Money Market Fund
   
6,770,593
     
-
     
-
     
6,770,593
 
Total Portfolio Investments
 
$
6,770,593
   
$
-
   
$
34,384,355
   
$
41,154,948
 

At September 30, 2018 and December 31, 2017, 100% of the Fund’s Portfolio Investments have been classified within Level 3, with the exception of the Money Market Fund.  Assumptions used by the Fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

The following tables summarize the significant unobservable inputs the Fund used to value investments categorized within Level 3.  The below table is not intended to be all-inclusive, but instead captures the significant unobservable inputs relevant to the determination of fair values:

             
Unobservable Input as of September 30, 2018
 
Investment Type
 
Fair Value1
 
Primary Valuation Technique
 
Input
 
Range
 
       
 
         
Senior Subordinated Notes
 
$
21,304,080
 
Discounted Cash Flow
 
Discount Rate
   
10.0% - 14.0
%
                       
Term Notes
   
5,291,572
 
Discounted Cash Flow
 
Discount Rate
   
9.3% - 14.3
%
                       
                       
Total
 
$
26,595,652
               

1Not reflected in the table above are Level 3 investments that have been primarily valued based upon recent transactions totaling $6,919,964 as of September 30, 2018.  These recent transactions had no observable inputs and were valued at amortized cost.

             
Unobservable Input as of December 31, 2017
 
Investment Type
 
Fair Value1
 
Primary Valuation Technique
 
Input
 
Range
 
       
 
         
Senior Subordinated Notes
 
$
20,987,560
 
Discounted Cash Flow
 
Discount Rate
   
10.0% - 14.0
%
                       
Term Notes
   
1,801,124
 
Discounted Cash Flow
 
Discount Rate
   
9.1% - 12.6
%
                       
                       
Total
 
$
22,788,684
               

1Not reflected in the table above are Level 3 investments that have been primarily valued based upon recent transactions totaling $11,595,671 as of December 31, 2017.  These recent transactions had no observable inputs and were valued at amortized cost.

The following is a rollforward of the portfolio investments in which significant unobservable inputs (Level 3) were used in determining fair value:

    Fair Value Measurements using Significant Unobservable Inputs (Level 3)  
   
For the Three Months Ended September 30, 2018
 
   
Beginning
Balance
   
Purchases
   
Sales Proceeds
   
Distribution
   
Reallocations
   
Accretion/Payment-
in-Kind Interest
Income
   
Net Realized
Gain/(Loss)
   
Ending Balance
 
Senior Subordinated Notes
 
$
24,867,027
   
$
323,855
   
$
-
   
$
-
   
$
-
   
$
62,713
   
$
-
   
$
25,253,595
 
Term Notes
   
8,042,063
     
218,680
     
(23,917
)
   
-
     
-
     
25,195
     
-
     
8,262,021
 
Total
 
$
32,909,090
   
$
542,535
   
$
(23,917
)
 
$
-
   
$
-
   
$
87,908
   
$
-
   
$
33,515,616
 

   
For the Nine Months Ended September 30, 2018
 
   
Beginning
Balance
   
Purchases
   
Sales Proceeds
   
Distribution
   
Reallocations
   
Accretion/Payment-
in-Kind Interest
Income
   
Net Realized
Gain/(Loss)
   
Ending Balance
 
Senior Subordinated Notes
 
$
28,511,612
   
$
16,170,571
   
$
(2,105,927
)
 
$
(17,520,464
)
 
$
-
   
$
197,803
   
$
-
   
$
25,253,595
 
Term Notes
   
5,872,743
     
5,756,144
     
(1,321,882
)
   
(2,092,479
)
   
-
     
47,495
     
-
     
8,262,021
 
Total
 
$
34,384,355
   
$
21,926,715
   
$
(3,427,809
)
 
$
(19,612,943
)
 
$
-
   
$
245,298
   
$
-
   
$
33,515,616
 

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

   
For the Three Months Ended September 30, 2017
 
   
Beginning
Balance
   
Purchases
   
Sales Proceeds
   
Distribution
   
Reallocations
   
Accretion/Payment-
in-Kind Interest
Income
   
Net Realized
Gain/(Loss)
   
Ending Balance
 
Senior Subordinated Notes
 
$
24,705,044
   
$
4,883,260
   
$
-
   
$
-
   
$
1,769,228
   
$
47,000
   
$
-
   
$
31,404,532
 
Term Notes
   
1,678,220
     
-
     
-
     
-
     
120,710
     
494
     
-
     
1,799,424
 
Total
 
$
26,383,264
   
$
4,883,260
   
$
-
   
$
-
   
$
1,889,938
   
$
47,494
   
$
-
   
$
33,203,956
 

   
For the Nine Months Ended September 30, 2017
 
   
Beginning
Balance
   
Purchases
   
Sales Proceeds
   
Distribution
   
Reallocations
   
Accretion/Payment-
in-Kind Interest
Income
   
Net Realized
Gain/(Loss)
   
Ending Balance
 
Senior Subordinated Notes
 
$
23,149,094
   
$
12,252,740
   
$
(5,762,147
)
 
$
-
   
$
1,470,640
   
$
202,383
   
$
91,822
   
$
31,404,532
 
Term Notes
   
-
     
1,798,324
     
-
     
-
     
-
     
1,100
     
-
     
1,799,424
 
Total
 
$
23,149,094
   
$
14,051,064
   
$
(5,762,147
)
 
$
-
   
$
1,470,640
   
$
203,483
   
$
91,822
   
$
33,203,956
 

Net change in unrealized gain/(loss) and net realized gain/(loss), if any, on Level 3 Portfolio Investments in the table above are included in the accompanying Consolidated Statement of Operations.  For the periods ended September 30, 2018 and September 30, 2017, the Fund has a net change in unrealized gain/(loss) of $0 on Level 3 portfolio investments still held by the Fund as of the financial statement date.

Investments
Security transactions are accounted for on the trade date unless there are substantial conditions to the purchase.  Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses on the disposition of investments are calculated using the specific identification method.

Cash
Cash is comprised of deposit accounts held at one United States financial institution. During the period, the balances held at the financial institution may at times exceed federally insured limits.

Income and Expense
Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected.  The Fund stops accruing interest on investments when it is determined that interest is no longer collectible.  Fees received upon closing a transaction generally are treated as a reduction in the cost basis of the investment.  Any resulting discount, or closing fee received, from recording the loan or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan using the effective-yield method.

The Fund has investments in debt securities which contain payment-in-kind ("PIK") interest provisions.  PIK interest is computed at the contractual rate specified in each investment agreement and added to the principal balance of the investment and recorded as interest income.  The Fund stops accruing PIK interest on investments when it is determined that PIK interest is no longer collectible.

Other income includes the estimated amount of the exit fee due to the Fund in connection with the purchase of the NetFortris Operating Co., Inc. (“NetFortris”) term notes as well as a commitment fee received in connection with the delayed draw term notes from Environmental Group Holdings, LLC.  The reallocation of other income as of September 30, 2018 is due to a portion of the exit fee and corresponding receivable being distributed to the Partnership on March 28, 2018. The reduction of other income as of September 30, 2018 is due to a portion of the exit fee being reduced as NetFortris repaid a portion of the outstanding principal balance as well as a reduction of the exit fee rate during the second quarter.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

Expenses include investment management fees, legal fees, directors' fees, audit and tax service expenses, interest expense, amortization of deferred financing costs and other general and administrative expenses.  Expenses are recognized on an accrual basis.

Reallocations
Additional Limited Partners may be admitted to the Partnership and existing Limited Partners may increase their Capital Commitments, with the consent of the General Partner at any time up to and including the Final Closing.  Each Capital Commitment of such additional Limited Partner and each increased Capital Commitment, shall be treated as having been made, as of the Initial Closing date for all purposes of the Agreement.

Due to additional commitments received in 2017 by the Partnership and Parallel Partnership, portfolio investments and items of income and expense have been reallocated between the Fund, the Partnership and the Parallel Partnership to reflect committed capital ownership percentages as of the Final Closing, which occurred on September 29, 2017.

Prior to the Final Closing, portfolio investments and items of income and expense are allocated according to the committed capital ownership percentages as of the latest Closing. Following the Final Closing, reallocation of portfolio investments and items of income and expense between the Fund, the Partnership and the Parallel Partnership has occurred.

As a result, included in the Consolidated Statements of Operations for three and nine month periods ended September 30, 2017 are reallocations of amounts previously included in the Consolidated Statements of Operations for the period ended December 31, 2015 and year ended December 31, 2016.  As the Final Closing had already occurred, there were no reallocations included in the Consolidated Statements of Operations for three and nine month periods ended September 30, 2018.  Below is a summary of such adjustments:

   
2016 As Reported
   
Reallocations
(to)/from Parallel
Partnership
   
2016 Adjusted
 
Investment Income
                 
Non-Controlled, Non-Affiliated Investments:
                 
Interest income
 
$
1,890,751
   
$
82,819
   
$
1,973,570
 
Payment-in-kind interest income
   
157,660
     
7,995
     
165,655
 
Total Investment Income
   
2,048,411
     
90,815
     
2,139,226
 
                         
Expenses
                       
Investment Management Fee
   
295,764
     
20,635
     
316,399
 
Professional fees
   
508,701
     
453
     
509,154
 
Directors fees
   
172,500
     
-
     
172,500
 
Other general and administrative
   
8,832
     
(50
)
   
8,782
 
Total Expenses
   
985,797
     
21,038
     
1,006,835
 
Investment Management Fee Waived (Note 7)
   
(77,534
)
   
(7,927
)
   
(85,461
)
Total Net Expenses
   
908,263
     
13,111
     
921,374
 
Net Investment Income/(Loss) before income tax (benefit)/expense
   
1,140,148
     
77,704
     
1,217,852
 
Income tax (benefit)/expense (Note 2)
   
392,221
     
-
     
392,221
 
Net Investment Income/(Loss) after income tax (benefit)/expense
   
747,927
     
77,704
     
825,631
 
                         
Net Increase/(Decrease) in Net Assets Resulting from Operations
 
$
747,927
   
$
77,704
   
$
825,631
 
                         
Net Investment Income/(Loss) and Net Increase/(Decrease) in Net Assets Resulting from Operations Per Share (Basic and Diluted)
 
$
7.48
   
$
0.78
   
$
8.26
 
Weighted average shares outstanding
   
100,000
     
-
     
100,000
 

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

Distributions
On March 28, 2018, the Fund distributed assets and corresponding liabilities to the Partnership, which was performed to enable the Fund to be qualified as a regulated investment company for federal income tax purposes.  Below is a summary of the assets and liabilities that were distributed from the Fund to the Partnership:

Investment Name
Investment Type
Asset / Liabilities Classification
 
Balance Prior
to Distribution
   
Distribution to
Partnership
   
Balance Post
Distribution
 
Audax AAMP Holdings, Inc.
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
5,282,779
   
$
-
   
$
5,282,779
 
Chairman's Foods, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
4,539,347
   
$
(3,279,079
)
 
$
1,260,268
 
Earthlite, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
1,403,288
   
$
(143,288
)
 
$
1,260,000
 
Gatekeeper Systems, Inc.
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
2,742,648
   
$
(1,482,648
)
 
$
1,260,000
 
La Tavola, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
3,680,885
   
$
(2,420,885
)
 
$
1,260,000
 
Medsurant Holdings, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
4,029,624
   
$
(2,769,625
)
 
$
1,259,999
 
Northeastern Bus Rebuilders Inc.
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
5,534,107
   
$
-
   
$
5,534,107
 
S.R. Smith, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
2,622,136
   
$
(1,362,136
)
 
$
1,260,000
 
Schlotterbeck & Foss, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
4,918,564
   
$
(3,658,566
)
 
$
1,259,998
 
Trachte, LLC
Senior Subordinated Note
Portfolio Investments at Fair Value
 
$
3,664,236
   
$
(2,404,237
)
 
$
1,259,999
 
Arc Drilling, LLC
Term Note
Portfolio Investments at Fair Value
 
$
1,739,315
   
$
(476,901
)
 
$
1,262,414
 
Environmental Group Holdings, LLC
Term Note
Portfolio Investments at Fair Value
 
$
1,282,314
   
$
-
   
$
1,282,314
 
NetFortris Operating Co., Inc.
Term Note
Portfolio Investments at Fair Value
 
$
1,804,499
   
$
(541,813
)
 
$
1,262,686
 
Whitney, Bradley & Brown, Inc.
Term Note
Portfolio Investments at Fair Value
 
$
2,331,505
   
$
(1,073,765
)
 
$
1,257,740
 
N/A
N/A
Investor note credit facility
 
$
(24,450,000
)
 
$
11,427,775
   
$
(13,022,225
)
N/A
N/A
Deferred financing costs
 
$
53,788
   
$
(25,140
)
 
$
28,648
 
         
$
21,179,035
   
$
(8,210,308
)
 
$
12,968,727
 

Income Taxes
As of January 1, 2018, the Fund believes that it qualifies to be treated as a Regulated Investment Company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code) and operates in a manner so as to qualify for the tax treatment applicable to RICs. It is the Fund’s intention to make the election for treatment as a RIC in its tax filing for the year ended December 31, 2018. Prior to January 1, 2018, the Fund was treated as a corporation for U.S. federal income tax purposes.

In order to qualify for favorable tax treatment as a RIC, the Fund is required to distribute annually to its shareholder at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, the Fund must distribute annually at least 98% of its ordinary income and 98.2% of net capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. The Fund, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. If the Fund chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to the Partnership (its sole shareholder). The Fund will accrue excise tax on estimated undistributed taxable income as required.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with U.S. GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain/(loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Fund’s annual RIC tax return.

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)
 
Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences are reclassified among the Fund’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from U.S. GAAP. The Fund may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the shareholder's tax basis in its shares.

The Fund records uncertain tax positions in accordance with FASB ASC 740, Income Taxes (“ASC 740”), on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Fund has determined that there are no uncertain tax positions that would have a material impact to the financial statements of the Fund, and therefore, no provisions are required to be recorded by the Fund. The Fund does not anticipate significant increases to uncertain tax positions in the next twelve months. The Fund will recognize any interest and penalties, if applicable, for any uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the period ended September 30, 2018 and year ended December 31, 2017 or accrued for as of September 30, 2018 and December 31, 2017.

The Fund files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.  In the normal course of business, the Fund is subject to examination by federal, state, local and foreign jurisdictions, where applicable.  At September 30, 2018, no examinations were being conducted by the Internal Revenue Service or any other taxing authority.  Under the respective statute of limitations, tax years beginning in 2015 remain subject to examination by the various tax jurisdictions.

During the period prior to January 1, 2018, the Fund did not qualify to be treated as a regulated investment company, or RIC, for federal income tax purposes.  As such, the Fund was treated as a corporation for U.S. federal income tax purposes.  As a corporation for U.S. federal income tax purposes, the Fund was taxed on its taxable income even if that income was distributed to the Partnership, and all distributions out of its earnings and profits were taxable as dividends to the investors of the Partnership; thus, such income was subject to two layers of tax (although corporate Limited Partners may be entitled to a dividends-received deduction).

Income taxes payable/(receivable) and prepaid taxes, including deferred benefits, consists of the following:

   
For the Nine
Months Ended
September 30, 2018
   
For the
Year Ended
December 31, 2017
 
Federal income taxes:
           
Current
 
$
-
   
$
8,615
 
Deferred
   
-
     
-
 
State income taxes:
               
Current
   
-
     
(18,446
)
Deferred
   
-
     
-
 
Total
 
$
-
   
$
(9,831
)

Siguler Guff Small Business Credit Opportunities Fund, Inc.
Notes to Consolidated Financial Statements
September 30, 2018 (Unaudited)

The provision for income taxes is composed of the following charges/(benefits):

Current:
 
For the Three
Months Ended
September 30,
2018
   
For the Nine
Months Ended
September 30,
2018
   
For the Three
Months Ended
September 30,
2017
   
For the Nine
Months Ended
September 30,
2017
 
Federal
 
$
-
   
$
-
   
$
339,875
   
$
754,392
 
State
   
-
     
-
     
51,827
     
111,422
 
Total Current
   
-
     
-
     
391,702
     
865,814
 
Deferred:
                               
Federal
   
-
     
-
     
1,163
     
83,499
 
State
   
-
     
-
     
147
     
11,226
 
Total Deferred
   
-
     
-
     
1,310
     
94,725
 
Total Net (Benefit)/Expense
 
$
-<