What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-03 · 327 added, 127 removed, 363 unchanged (56% of the section changed)

41 unchanged sentences

We expect that our investment portfolio over time will consist of approximately 75% in debt investments and 25% in equity investments, at cost.

As of June 30, 2022, our investment portfolio was comprised of 72.9% in debt investments and 27.1% in equity investments, at cost.

As of September 30, 2022, our investment portfolio was comprised of 76.6% in debt investments and 23.4% in equity investments, at cost.

We focus on investing in lower middle market private businesses (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3 million to $20 million) (“Lower Middle Market”) in the U.S.

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While the business environment remains competitive, we continue to see new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and independent sponsor-led buyouts of Lower Middle Market companies in the U.S.

During the three months ended June 30, 2022, we invested in one new portfolio company and exited one portfolio company.

From our initial public offering in June 2005 through June 30, 2022, we invested in 56 companies, excluding investments in syndicated loans, for a total of approximately $1.5 billion, before giving effect to principal repayments and divestitures.

During the six months ended September 30, 2022, we invested in one new portfolio company and exited one portfolio company.

From our initial public offering in June 2005 through September 30, 2022, we invested in 56 companies, excluding investments in syndicated loans, for a total of approximately $1.6 billion, before giving effect to principal repayments and divestitures.

The majority of the debt securities in our portfolio have a success fee component, which enhances the yield on our debt investments.

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Due to the contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections.

As a result, as of June 30, 2022, we had unrecognized, contractual success fees of $49.0 million, or $1.47 per common share.

As a result, as of September 30, 2022, we had unrecognized, contractual success fees of $50.7 million, or $1.53 per common share.

Consistent with accounting principles generally accepted in the U.S.

(“GAAP”), we have not recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.

From inception through June 30, 2022, we completed sales of 28 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

From inception through September 30, 2022, we completed sales of 28 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

In the aggregate, these sales have generated $267.3 million in net realized gains and $39.4 million in other income upon exit, for a total increase to our net assets of $306.7 million.

1 unchanged sentence

The 28 liquidity events have offset any realized losses since inception, which were primarily incurred during the 2008-2009 recession in connection with the sale of performing syndicated loans at a realized loss to pay off a former lender.

The successful exits, in part, enabled us to increase the monthly distribution by 87.5% from March 2011 through June 30, 2022, and allowed us to declare and pay 16 supplemental distributions to common stockholders through June 30, 2022.

The successful exits, in part, enabled us to increase the monthly distribution by 87.5% from March 2011 through September 30, 2022, and allowed us to declare and pay 16 supplemental distributions to common stockholders through September 30, 2022.

Capital Raising Efforts

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During the year ended March 31, 2022, we issued our 2028 Notes for gross proceeds of $134.6 million.

Refer to “ Liquidity and Capital Resources — Revolving Line of Credit ” for further discussion of the Credit Facility.

During the three and six months ended September 30, 2022, we sold 29,640 shares of our common stock under our "at-the-market" program (the "Common Stock ATM Program") for gross proceeds of approximately $0.5 million.

Refer to “ Liquidity and Capital Resources — Revolving Line of Credit ” for further discussion of the Credit Facility and to “ Liquidity and Capital Resources — Equity — Common Stock ” further discussion of our common stock.

Although we have been able to access the capital markets historically, market conditions, including the impact of COVID-19, inflation, and rising interest rates, may continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of common equity.

On June 30, 2022, the closing market price of our common stock was $14.08 per share, representing a 4.8% premium to our net asset value (“NAV”) of $13.44 per share as of June 30, 2022.

On September 30, 2022, the closing market price of our common stock was $ 12.10 per share, representing a 9.1 % discount to our net asset value (“NAV”) of $ 13.31 per share as of September 30, 2022.

When our common stock trades below NAV, our ability to issue additional equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock at an issuance price below the then-current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering.

ATM sales during the three and six months ended September 30, 2022 were above our then-current estimated NAV per share.

Regulatory Compliance

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On April 10, 2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act.

As a result, our asset coverage requirements for senior securities changed from 200% to 150%, effective as of April 10, 2019, one year after the date of the Board of Directors’ approval.

As of June 30, 2022, our asset coverage ratio on our senior securities representing indebtedness was 261.9%.

As a result, our asset coverage requirements for senior securities changed from 200% to 150%, which was effective as of April 10, 2019, one year after the date of the Board of Directors’ approval.

As of September 30, 2022, our asset coverage ratio on our senior securities representing indebtedness was 254.1%.

Investment Highlights

Investment Activity

During the three months ended June 30, 2022, the following significant transactions occurred:

During the six months ended September 30, 2022, the following significant transactions occurred:

• In May 2022, we invested an additional $6.4 million in the form of secured first lien debt in Nocturne Villa Rentals, Inc.

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Hobbs"), an existing portfolio company.

Subsequent to June 30, 2022, in July 2022, we invested an additional $39.1 million in the form of secured first lien debt in Dema/Mai to fund an add-on acquisition of Dema Plumbing, a plumbing and mechanical systems installation and service provider to single-family residential homebuilders.

Refer to Note 13 – Subsequent Events in the accompanying Notes to Consolidated Financial Statements for further discussion of significant investment activity that occurred subsequent to June 30, 2022.

The following significant investment activity occurred subsequent to June 30, 2022.

Also refer to Note 13 – Subsequent Events in the accompanying Notes to Consolidated Financial Statements .

In July 2022, we invested an additional $39.1 million in the form of secured first lien debt in Dema/Mai to fund the acquisition of Dema Plumbing, a plumbing and mechanical systems installation and service provider to single-family residential homebuilders.

• In July 2022, we recapitalized our investment in Horizon Facilities Services, Inc.

1 unchanged sentence

In connection with this investment, we received equity proceeds of $12.3 million, which were recognized as a $10.1 million return of preferred equity cost basis and a realized gain of $2.2 million, as well as dividend income of $3.1 million and success fee income of $1.7 million.

• In August 2022, in conjunction with a refinancing at Ginsey Home Solutions, Inc.

("Ginsey"), our outstanding $13.3 million of secured second lien debt was reduced to $12.2 million and converted to secured first lien debt.

The reduction in our cost basis was the result of a $5.1 million payment made by Ginsey to extinguish our secured borrowing liability, which was partially offset by an additional investment in Ginsey of $4.0 million.

Subsequent to September 30, 2022, in October 2022, we invested an additional $8.4 million in the form of secured first lien debt in Nocturne to fund an add-on acquisition.

Also refer to Note 13 – Subsequent Events in the accompanying Notes to Consolidated Financial Statements .

Recent Developments

Distributions and Dividends

In July 2022, our Board of Directors declared the following monthly cash distributions to common stockholders:

Payment Date Distribution per

July 22, 2022 July 29, 2022 $ 0.075

August 23, 2022 August 31, 2022 0.075

September 22, 2022 September 30, 2022 0.075

In October 2022, our Board of Directors declared the following monthly cash distributions to common stockholders:

Payment Date Distribution per Common Share

October 21, 2022 October 31, 2022 $ 0.080

November 18, 2022 November 30, 2022 0.080

December 6, 2022 December 15, 2022 0.120 (A)

December 20, 2022 December 30, 2022 0.080

Total for the Quarter:

(A) Represents a supplemental distribution to common stockholders.

Election of Director

Effective October 11, 2022, Paula Novara was elected to our Board of Directors.

Novara also serves as head of human resources, facilities and office management and IT of the Adviser and certain of its affiliates.

LIBOR Transition

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While we are closely monitoring all of our portfolio companies, our portfolio continues to be diverse from a geographic and industry perspective.

Through proactive measures and continued diligence, the management teams of our portfolio companies have demonstrated their ability to respond effectively and efficiently to the challenges posed by COVID-19, including its variants, related orders imposed by state and local governments, including paused or reversed reopening orders, and operating challenges, including but not limited to, labor shortages, supply chain delays and increased material costs.

Through proactive measures and continued diligence, the management teams of our portfolio companies have demonstrated their ability to res pond effectively and efficiently to the challenges posed by COVID-19, including its variants, related orders imposed by state and local governments, including paused or reversed reopening orders, and operating challenges, including but not limited to, labor shortages, supply chain delays and increased material costs.

We believe we have sufficient levels of liquidity to support our existing portfolio companies, as necessary, and continue our buyout strategy by deploying capital in new investment opportunities.

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We believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial.

During the three months ended June 30, 2022, general inflationary pressures and certain commodity price volatility have impacted our portfolio companies to varying degrees;

During the six months ended September 30, 2022, general inflationary pressures and certain commodity price volatility have impacted our portfolio companies to varying degrees;

however, the broad based impact of these pricing changes have largely been mitigated by price adjustments without adverse sales implications, and thus, have not materially impacted our portfolio companies’ ability to service their indebtedness, including our loans.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

For the Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

For the Three Months Ended September 30,

2022 2021 $ Change % Change

16 unchanged sentences

Net realized gain on investments 2,302 464 1,838 396.1 %

Net unrealized appreciation of investments 212 47,514 (47,302) (99.6) %

Net realized and unrealized gain 4,664 49,443 (44,779) (90.6) %

Net realized loss on other — (1,998) 1,998 100.0 %

Net unrealized (depreciation) appreciation of investments (10,643) 27,504 (38,147) (138.7) %

Net realized and unrealized (loss) gain (8,341) 25,970 (34,311) (132.1) %

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,075 $ 28,135 $ (25,060) (89.1) %

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

Basic and diluted 33,205,023 33,205,023 — —

Basic and diluted 33,218,901 33,205,023 13,878 NM

BASIC AND DILUTED PER COMMON SHARE:

Net investment income (loss) $ 0.22 $ (0.07) $ 0.29 NM

Net investment income (loss) $ 0.34 $ 0.07 $ 0.27 385.7 %

Net increase in net assets resulting from operations $ 0.09 $ 0.85 $ (0.76) (89.4) %

1 unchanged sentence

Investment Income

Total investment income increased 7.1% for the three months ended June 30, 2022, as compared to the prior year period, due to an increase in dividend and success fee income, partially offset by a decrease in interest income.

Interest income from our investments in debt securities decreased 20.3% for the three months ended June 30, 2022, as compared to the prior year period.

During the three months ended June 30, 2021, we received $2.3 million of past due interest from certain loans that were previously on non-accrual status compared to no such collection in the current year period.

Total investment income increased 12.2% for the three months ended September 30, 2022, as compared to the prior year period, due to an increase in dividend and success fee income, partially offset by a decrease in interest income.

Interest income from our investments in debt securities decreased 0.4% for the three months ended September 30, 2022, as compared to the prior year period.

During the three months ended September 30, 2021, we received $1.6 million of past due interest from certain loans that were previously on non-accrual status compared to no such collection in the current year period.

Generally, the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted-average yield.

The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended June 30, 2022 was $431.0 million, compared to $466.1 million for the prior year period.

This decrease was primarily due to the $64.2 million of loans placed on non-accrual status and $48.9 million of pay-offs, restructurings, or write-offs of debt investments, partially offset by the $50.5 million of follow-on debt investments to existing portfolio companies, $44.5 million of loans returned to accrual status, and the origination of $21.6 million of new debt investments after March 31, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 11.9% for the three months ended June 30, 2022, compared to 13.8% for the prior year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended September 30, 2022 was $467.0 million, compared to $425.5 million for the prior year period.

This increase was primarily due to the $84.4 million of follow-on debt investments in existing portfolio companies, the origination of $57.3 million of new debt investments, and $11.7 million of loans returned to accrual status, partially offset by $90.4 million of pay-offs, restructurings, or write-offs of debt investments, and $52.5 million of loans placed on non-accrual status, after June 30, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 12.1% for the three months ended September 30, 2022, compared to 13.3% for the prior year period.

The weighted-average yield may vary from period to period, based on the current stated interest rate on interest-bearing investments, coupled with any collection of past due interest during the period.

During the three months ended June 30, 2021, we collected $2.3 million in past due interest from portfolio companies that were previously on non-accrual status, including $1.3 million from B+T Group Acquisition, Inc., $1.0 million from SOG Speciality Knives & Tools, LLC and $0.1 million from PSI Molded Plastics, Inc.

We had no collections of past due interest during three months ended June 30, 2022.

As of June 30, 2022, our loans to J.R.

Hobbs, The Mountain Corporation (“The Mountain”), and SFEG Holdings, Inc.

During the three months ended September 30, 2021, we collected $1.6 million in past due interest from portfolio companies that were previously on non-accrual status, including $1.5 million from B+T Group Acquisition, Inc.

("B+T"), $0.1 million from Horizon and $45 thousand from PSI Molded Plastics, Inc.

("PSI Molded").

We had no collections of past due interest during the three months ended September 30, 2022.

As of September 30, 2022, our loans to J.R.

Hobbs and The Mountain Corporation (“The Mountain”) were on non-accrual status, with an aggregate debt cost basis of $63.4 million.

As of September 30, 2021, our loans to J.R.

Hobbs, The Mountain and SFEG Holdings, Inc.

("SFEG") were on non-accrual status, with an aggregate debt cost basis of $81.3 million.

As of June 30, 2021, our loans to The Mountain and SFEG were on non-accrual status, with an aggregate debt cost basis of $28.7 million.

Dividend and success fee income for the three months ended June 30, 2022 increased $4.5 million from the prior year period.

During the three months ended June 30, 2022, dividend and success fee income consisted of $5.0 million of success fee income and $1.6 million of dividend income.

During the three months ended June 30, 2021, dividend and success fee income consisted primarily of $2.0 million of success fee income.

As of June 30, 2022 and March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 41.3% during the three months ended June 30, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $0.9 million capital gains-based incentive fee during the three months ended June 30, 2022, compared to $10.3 million recorded during the three months ended June 30, 2021.

Dividend and success fee income for the three months ended September 30, 2022 increased $2.3 million from the prior year period.

During the three months ended September 30, 2022, dividend and success fee income consisted of $4.8 million of dividend income and $1.7 million of success fee income.

During the three months ended September 30, 2021, dividend and success fee income consisted of $2.6 million of success fee income and $1.6 million of dividend income.

As of September 30, 2022, our investment in Horizon represented 10.7% of the total investment portfolio at fair value.

As of March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 42.7% during the three months ended September 30, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $1.7 million reversal of previously accrued capital gains-based incentive fee during the three months ended September 30, 2022, compared to a capital gains-based incentive fee of $5.6 million during the three months ended September 30, 2021.

The capital gains-based incentive fee was a result of the net impact of net realized gains and net unrealized appreciation (depreciation) on investments during the respective periods.

The income-based incentive fee increased by $0.1 million for the three months ended June 30, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

The income-based incentive fee increased by $0.7 million for the three months ended September 30, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

The base management fee, loan servicing fee, incentive fee, and their related non-contractual, unconditional, and irrevocable credits are computed quarterly, as described under “Transactions with the Adviser” in Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements and are summarized in the following table:

Three Months Ended June 30,

Three Months Ended September 30,

Average total assets subject to base management fee (A)

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Incentive fee – capital gains-based (C)

(1,669) 5,594

Total incentive fee (B)

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(C) The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Interest and dividend expense decreased 0.5% during the three months ended June 30, 2022, as compared to the prior year period, due to a decrease in dividend expense, partially offset by an increase in interest expense.

Interest and dividend expense decreased 0.7% during the three months ended September 30, 2022, as compared to the prior year period, due to a decrease in dividend expense, partially offset by an increase in interest expense.

Dividend expense decreased by $0.8 million as a result of the 6.375% Series E Cumulative Term Preferred Stock (“Series E Term Preferred Stock”) redemption August 2021.

Interest expense increased by $0.8 million primarily due to the issuance of the 2028 Notes in August 2021, which was partially offset by lower interest expense related to the Credit Facility.

There was no weighted-average balance outstanding on the Credit Facility during the three months ended June 30, 2022, as compared to $26.4 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the three months ended June 30, 2022 was 1.0%, as compared to 9.3% in the prior year period.

The decrease in the effective interest rate on the Credit Facility was a result of no borrowings outstanding on the Credit Facility and the 1.0% unused commitment fee on the undrawn portion of the Credit Facility.

The weighted-average balance outstanding on the Credit Facility during the three months ended September 30, 2022, was $11.7 million as compared to $24.4 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the three months ended September 30, 2022 was 20.1%, as compared to 10.0% in the prior year period.

The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in unused commitment fees on the undrawn portion of the Credit Facility as well as increased interest rates on the drawn portion of the Credit Facility.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended June 30, 2022 and 2021 were as follows:

Three Months Ended June 30, 2022

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2022 and 2021 were as follows:

Three Months Ended September 30, 2022

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

Horizon Facilities Service, Inc.

Old World Christmas, Inc.

$ — $ 6,460 $ — $ 6,460

Nocturne Villa Rentals, Inc.

Nth Degree Investment Group, LLC — 5,055 — 5,055

Nocturne Villas Rentals, Inc.

— 2,670 — 2,670

1 unchanged sentence

— 1,592 — 1,592

Horizon Facilities Service, Inc.

2,218 (1,776) — 442

ImageWorks Display and Marketing Group, Inc.

— (1,222) — (1,222)

The Maids International, LLC — (1,424) — (1,424)

Galaxy Technologies Holding, Inc.

— (1,549) — (1,549)

Counsel Press, Inc.

— (2,119) — (2,119)

SFEG Holdings, Inc.

PSI Molded Plastics, Inc.

— (2,976) — (2,976)

Nth Degree Investment Group, LLC — 2,625 — 2,625

B+T Group Acquisition, Inc — (3,033) — (3,033)

Edge Adhesives Holdings, Inc.

— (5,144) — (5,144)

- Atlanta, LLC — (6,410) — (6,410)

Other, net (<$1.0 million, net) 84 (752) (15) (683)

Total $ 2,302 $ (10,628) $ (15) $ (8,341)

Three Months Ended September 30, 2021

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

Schylling, Inc.

$ — $ 6,277 $ — $ 6,277

Bassett Creek Services, Inc.

— 5,474 — 5,474

Counsel Press, Inc.

— 4,903 — 4,903

Old World Christmas, Inc.

— 3,986 — 3,986

Educators Resource, Inc.

B +T Group Acquisition, Inc.

— 3,971 — 3,971

Educators Resources, Inc.

— 3,607 — 3,607

Horizon Facilities Service, Inc.

— 2,983 — 2,983

ImageWorks Display and Marketing Group, Inc.

— 2,938 — 2,938

Brunswick Bowling Products, Inc.

— 2,326 — 2,326

Mason West, LLC — 2,064 — 2,064

The Maids International, LLC — 1,873 — 1,873

SOG Specialty Knives and Tools, LLC — 1,796 — 1,796

Nocturne Villa Rentals, Inc.

Diligent Delivery Systems — 525 — 525

- Atlanta, LLC — (2,625) (2,625)

SBS Industries Holdings, Inc.

— (3,278) — (3,278)

Ginsey Home Solutions, Inc.

— (3,903) — (3,903)

Galaxy Technologies Holdings, Inc.

— (6,320) — (6,320)

Other, net (<$1.0 million, net) 464 15 — 479

Total $ 464 $ 27,504 $ — $ 27,968

Net Realized Gain (Loss) on Investments

During the three months ended September 30, 2022, we recorded net realized gains on investments of $2.3 million, primarily due to a $2.2 million realized gain from the recapitalization of Horizon and realized gains related to prior period exits of certain investments.

During the three months ended September 30, 2021, we recorded net realized gains on investments of $0.5 million, primarily related to previous exits of certain investments.

Net Realized Loss on Other

During the three months ended September 30, 2021, we recorded a net realized loss on other of $2.0 million, related to unamortized deferred issuance costs written off upon the redemption of our Series E Term Preferred Stock in August 2021.

During the three months ended September 30, 2022, there were no realized gains or losses on other.

Net Unrealized Appreciation (Depreciation) of Investments

Net unrealized depreciation of investments of $10.6 million for the three months ended September 30, 2022 was primarily due to the decreased performance of certain of our portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

These amounts were partially offset by increased performance of certain of our other portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19, and its variants, has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

Net unrealized appreciation of investments of $27.5 million for the three months ended September 30, 2021 was primarily due to the increased performance of certain portfolio companies and an increase in comparable transaction multiples used to estimate the fair value of certain of our portfolio companies, which were partially offset by a decline in performance of certain other portfolio companies.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19, and its variants, has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.

Across our entire investment portfolio, we recorded net unrealized depreciation of $16.1 million on our debt positions and appreciation of $5.5 million million on our equity positions, for the three months ended September 30, 2022 .

As of September 30, 2022 , the fair value of our investment portfolio was more than the cost basis by $34.7 million, as compared to June 30, 2022, when the fair value of our investment portfolio was more than the cost basis by $45.4 million, representing net unrealized depreciation of $10.6 million for the three months ended September 30, 2022 .

Our entire portfolio had a fair value of 104.9% of cost as of September 30, 2022 .

Comparison of the Six Months Ended September 30, 2022 to the Six Months Ended September 30, 2021

For the Six Months Ended September 30,

2022 2021 $ Change % Change

INVESTMENT INCOME

Interest income $ 26,978 $ 30,290 $ (3,312) (10.9) %

Dividend and success fee income 13,114 6,274 6,840 109.0 %

Total investment income 40,092 36,564 3,528 9.6 %

Base management fee 7,176 6,897 279 4.0 %

Loan servicing fee 3,674 3,662 12 0.3 %

Incentive fee 3,777 19,599 (15,822) NM

Administration fee 942 970 (28) (2.9) %

Interest and dividend expense 7,641 7,688 (47) (0.6) %

Amortization of deferred financing costs and discounts 898 908 (10) (1.1) %

Other 3,246 2,822 424 15.0 %

Expenses before credits from Adviser 27,354 42,546 (15,192) (35.7) %

Credits to fees from Adviser (6,049) (5,843) (206) 3.5 %

Total expenses, net of credits to fees 21,305 36,703 (15,398) (42.0) %

NET INVESTMENT INCOME (LOSS) 18,787 (139) 18,926 NM

REALIZED AND UNREALIZED GAIN (LOSS)

Net realized gain on investments 6,754 2,393 4,361 182.2 %

Net realized loss on other — (1,998) 1,998 (100.0) %

Net unrealized (depreciation) appreciation of investments (10,431) 75,018 (85,449) (113.9) %

Net realized and unrealized (loss) gain (3,677) 75,413 (79,090) (104.9) %

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,110 $ 75,274 $ (60,164) (79.9) %

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

Basic and diluted 33,212,000 33,205,023 6,977 NM

BASIC AND DILUTED PER COMMON SHARE:

Net investment income (loss) $ 0.57 $ — $ 0.57 NM

Net increase in net assets resulting from operations $ 0.45 $ 2.27 $ (1.82) (80.2) %

NM = Not Meaningful

Investment Income

Total investment income increased 9.6% for the six months ended September 30, 2022, as compared to the prior year period, due to an increase in dividend and success fee income, partially offset by a decrease in interest income.

Interest income from our investments in debt securities decreased 10.9% for the six months ended September 30, 2022, as compared to the prior year period.

During the six months ended September 30, 2021, we received $3.9 million of past due interest from certain loans that were previously on non-accrual status compared to no such collection in the current year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the six months ended September 30, 2022 was $449.1 million, compared to $445.7 million for the prior year period.

This increase was primarily due to the $91.2 million of follow-on debt investments in existing portfolio companies, the origination of $60.7 million of new debt investments, and $11.7 million of loans returned to accrual status, partially offset by $104.5 million of pay-offs, restructurings, or write-offs of debt investments and $64.2 million of loans placed on non-accrual status after March 31, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 12.0% for the six months ended September 30, 2022, compared to 13.6% for the prior year period.

During the six months ended September 30, 2021, we collected $3.9 million in past due interest from portfolio companies that were previously on non-accrual status, including $2.8 million from B+T, $1.0 million from SOG Specialty Knives and Tools, LLC, $0.1 million from PSI, and $0.1 million from Horizon.

We had no collections of past due interest during six months ended September 30, 2022.

As of September 30, 2022, our loans to J.R.

Hobbs and The Mountain were on non-accrual status, with an aggregate debt cost basis of $63.4 million.

As of September 30, 2021, our loans to J.R.

Hobbs, The Mountain and SFEG were on non-accrual status, with an aggregate debt cost basis of $81.3 million.

Dividend and success fee income for the six months ended September 30, 2022 increased $6.8 million from the prior year period.

During the six months ended September 30, 2022, dividend and success fee income consisted of $6.7 million of success fee income and $6.4 million of dividend income.

During the six months ended September 30, 2021, dividend and success fee income consisted primarily of $4.7 million of success fee income and $1.6 million of dividend income.

As of September 30, 2022, our investment in Horizon represented 10.7% of the total investment portfolio at fair value.

As of March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 42.0% during the six months ended September 30, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $0.7 million reversal of previously accrued capital gains-based incentive fee during the six months ended September 30, 2022, compared to a $15.9 million capital gains-based incentive fee recorded during the six months ended September 30, 2021.

The capital gains-based incentive fee was a result of the net impact of net realized gains and net unrealized appreciation (depreciation) on investments during the respective periods.

The income-based incentive fee increased by $0.8 million for the six months ended September 30, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

Six Months Ended September 30,

Average total assets subject to base management fee (A)

$ 717,600 $ 689,700

Multiplied by prorated annual base management fee of 2.0% 1.0 % 1.0 %

Base management fee (B)

$ 7,176 $ 6,897

Credits to fees from Adviser - other (B)

(2,375) (2,181)

Net base management fee $ 4,801 $ 4,716

Loan servicing fee (B)

$ 3,674 $ 3,662

Credits to base management fee - loan servicing fee (B)

(3,674) (3,662)

Net loan servicing fee $ — $ —

Incentive fee – income-based $ 4,513 $ 3,695

Incentive fee – capital gains-based (C)

Total incentive fee (B)

$ 3,777 $ 19,599

Credits to fees from Adviser - other (B)

Net total incentive fee $ 3,777 $ 19,599

(A) Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.

(B) Reflected as a line item on our Consolidated Statements of Operations .

(C) The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Interest and dividend expense decreased 0.6% during the six months ended September 30, 2022, as compared to the prior year period, due to a decrease in dividend expense, partially offset by an increase in interest expense.

Dividend expense decreased by $2.3 million as a result of the Series E Term Preferred Stock redemption August 2021.

Interest expense increased by $2.3 million primarily due to the issuance of the 2028 Notes in August 2021, which was partially offset by lower interest expense related to the Credit Facility.

The weighted-average balance outstanding on the Credit Facility during the six months ended September 30, 2022, was $5.9 million as compared to $25.4 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the six months ended September 30, 2022 was 35.5%, as compared to 9.6% in the prior year period.

The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in unused commitments fees on the undrawn portion of the Credit Facility as well as increased interest rates on the drawn portion of the Credit Facility.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2022 and 2021 were as follows:

Six Months Ended September 30, 2022

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

Horizon Facilities Service, Inc.

$ 2,218 $ 13,728 $ — $ 15,946

Nocturne Villa Rentals, Inc.

— 8,817 — 8,817

Nth Degree Investment Group, LLC — 7,680 — 7,680

Brunswick Bowling Products, Inc.

— 6,495 — 6,495

Old World Christmas, Inc.

— 5,786 — 5,786

Specialized Fabrication Equipment Group, LLC — 3,584 — 3,584

Counsel Press, Inc.

— 1,871 — 1,871

Utah Pacific Bridge & Steel, Ltd.

— (882) — (882)

Schylling Inc.

— (1,345) — (1,345)

Galaxy Technologies Holdings, Inc.

— (1,549) — (1,549)

Mason West, LLC — (1,938) — (1,938)

The Mountain Corporation — (2,846) — (2,846)

ImageWorks Display and Marketing Group, Inc.

— (2,354) — (2,354)

The Maids International, LLC — (2,679) — (2,679)

The Mountain, Inc.

— (2,930) — (2,930)

PSI Molded Plastics, Inc.

— (2,976) — (2,976)

Ginsey Home Solutions, Inc.

— (3,263) — (3,263)

- Atlanta, LLC — (5,158) — (5,158)

B+T Group Acquisition, Inc.

Edge Adhesives Holdings, Inc.

— (5,247) — (5,247)

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4,728 — (12,250) (7,522)

B+T Group Acquisition, Inc.

— (9,267) — (9,267)

– Atlanta, LLC — (11,568) — (11,568)

Other, net (<$1.0 million, net) (192) (128) (16) (336)

Total $ 6,754 $ 1,835 $ (12,266) $ (3,677)

Three Months Ended June 30, 2021

Six Months Ended September 30, 2021

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

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— 12,636 12,636

SOG Specialty Knives and Tools, LLC — 5,785 — 5,785

Schylling, Inc.

— 10,522 — 10,522

Educators Resource, Inc.

— 8,811 — 8,811

Schylling, Inc.

Bassett Creek Services, Inc.

— 8,487 — 8,487

PSI Molded Plastics, Inc.

SOG Specialty Knives and Tools, LLC — 7,580 — 7,580

Counsel Press, Inc.

— 7,045 — 7,045

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— 6,417 — 6,417

Bassett Creek Services, Inc.

— 3,013 — 3,013

ImageWorks Display and Marketing Group, Inc.

— 5,302 — 5,302

Counsel Press, Inc.

PSI Molded Plastics, Inc.

— 3,633 — 3,633

Galaxy Tool Holding Corporation — 1,404 — 1,404

Brunswick Bowling Products, Inc.

— 3,498 — 3,498

Galaxy Tool Holding Corporation — 1,404 — 1,404

Mason West, LLC — 1,172 — 1,172

Head Country, Inc.

3,627 — (2,469) 1,158

Channel Technologies Group, LLC (1,841) — 1,841 —

Diligent Delivery Systems — (669) — (669)

The Maids International, LLC — 1,054 — 1,054

Mason West, LLC — (891) — (891)

Channel Technologies Group, LLC (1,841) — 1,841 —

Pioneer Square Brands, Inc.

— (1,244) — (1,244)

- Atlanta, LLC — (2,511) — (2,511)

SBS Industries Holdings, Inc.

— (3,167) — (3,167)

Ginsey Homes Solutions, Inc.

— (4,305) — (4,305)

Galaxy Technologies Holdings, Inc.

— (6,320) — (6,320)

Other, net (<$1.0 million, net) 607 312 52 971

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Net Realized Gain (Loss) on Investments

During the three months ended June 30, 2022, we recorded net realized gains on investments of $4.5 million, primarily due to a $4.7 million realized gain from the exit of Bassett Creek Services, Inc.

During the three months ended June 30, 2021, we recorded net realized gains on investments of $1.9 million, primarily related to a $3.6 million realized gain from the exit of Head Country, Inc.

("Head Country"), partially offset by a $1.8 million realized loss from the dissolution of Channel Technologies Group, LLC ("CTG").

During the six months ended September 30, 2022, we recorded net realized gains on investments of $6.8 million, primarily due to a $4.7 million realized gain from the exit of Bassett Creek, a $2.2 million realized gain from the recapitalization of Horizon and realized gains related to prior period exits of certain investments.

During the six months ended September 30, 2021, we recorded net realized gains on investments of $2.4 million, primarily related to a $3.6 million realized gain from the exit of Head Country, Inc.

("Head Country") and $0.5 million of realized gains related to previous exits of certain investments, partially offset by a $1.8 million realized loss from the dissolution of Channel Technologies Group, LLC ("CTG").

Net Realized Gain Loss on Other

During the six months ended September 30, 2021, we recorded a net realized loss on other of $2.0 million related to unamortized deferred issuance costs written off upon the redemption of our Series E Term Preferred Stock in August 2021.

During the six months ended September 30, 2022, there were no realized gains or losses on other.

Net Unrealized Appreciation (Depreciation) of Investments

Net unrealized appreciation of investments of $0.2 million for the three months ended June 30, 2022 was primarily due to increased performance of certain of our other portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate.

These amounts were partially offset by the reversal of unrealized appreciation of our investment in Bassett Creek upon its exit, decreased performance of certain of our other portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

Net unrealized appreciation of investments of $47.5 million for the three months ended June 30, 2021 was primarily due to the increased performance of certain portfolio companies, the reversal of previously recorded unrealized depreciation of our investment in CTG upon its dissolution, and an increase in comparable transaction multiples used to estimate the fair value of certain of our portfolio companies, which were partially offset by the reversal of previously recorded unrealized appreciation of our investment in Head Country and a decline in performance of certain other portfolio companies.

Net unrealized depreciation of investments of $10.4 million for the six months ended September 30, 2022 was primarily due to the reversal of unrealized appreciation of our investment in Bassett Creek upon its exit, partially offset by net unrealized appreciation across our portfolio.

The net appreciation was driven primarily by increased performance of certain of our portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate.

These amounts were partially offset by decreased performance of certain of our other portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

Net unrealized appreciation of investments of $75.0 million for the six months ended September 30, 2021 was primarily due to the increased performance of certain portfolio companies, the reversal of previously recorded unrealized depreciation of our investment in CTG upon its dissolution, and an increase in comparable transaction multiples used to estimate the fair value of certain of our portfolio companies, which were partially offset by the reversal of previously recorded unrealized appreciation of our investment in Head Country and a decline in performance of certain other portfolio companies.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19, and its variants, has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.

Across our entire investment portfolio, we recorded net unrealized depreciation of $7.2 million on our debt positions and appreciation of $7.4 million on our equity positions, for the three months ended June 30, 2022 .

As of June 30, 2022 , the fair value of our investment portfolio was more than the cost basis by $45.4 million, as compared to March 31, 2022, when the fair value of our investment portfolio was more than the cost basis by $45.1 million, representing net unrealized appreciation of $ 0.2 million for the three months ended June 30, 2022 .

Our entire portfolio had a fair value of 107.0% of cost as of June 30, 2022 .

Across our entire investment portfolio, we recorded net unrealized depreciation of $23.3 million on our debt positions and appreciation of $12.9 million on our equity positions, for the six months ended September 30, 2022 .

As of September 30, 2022 , the fair value of our investment portfolio was more than the cost basis by $34.7 million, as compared to March 31, 2022, when the fair value of our investment portfolio was more than the cost basis by $45.1 million, representing net unrealized depreciation of $10.4 million for the six months ended September 30, 2022 .

Our entire portfolio had a fair value of 104.9% of cost as of September 30, 2022 .

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash provided by operating activities for the three months ended June 30, 2022 was $41.3 million, as compared to net cash provided by operating activities of $14.4 million for the three months ended June 30, 2021.

This change was primarily due to an increase in principal repayments of investments and net proceeds from the sale of investments, partially offset by an increase in purchase of investments.

Principal repayments and net proceeds from the sale of investments totaled $57.4 million during the three months ended June 30, 2022, compared to $21.8 million during the three months ended June 30, 2021.

Purchases of investments were $27.8 million during the three months ended June 30, 2022, compared to $17.2 million during the three months ended June 30, 2021.

As of June 30, 2022, we had equity investments in or loans to 26 portfolio companies with an aggregate cost basis of $644.2 million.

As of June 30, 2021, we had equity investments in or loans to 27 portfolio companies with an aggregate cost basis of $660.8 million.

The following table summarizes our total portfolio investment activity during the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Net cash used in operating activities for the six months ended September 30, 2022 was $9.4 million, as compared to net cash used in operating activities of $6.3 million for the six months ended September 30, 2021.

This change was primarily due to an increase in purchase of investments, partially offset by an increase in principal repayments of investments and net proceeds from the sale of investments.

Purchases of investments were $102.0 million during the six months ended September 30, 2022, compared to $47.6 million during the six months ended September 30, 2021.

Principal repayments and net proceeds from the sale of investments totaled $69.7 million during the six months ended September 30, 2022, compared to $22.2 million during the six months ended September 30, 2021.

As of September 30, 2022, we had equity investments in and/or loans to 26 portfolio companies with an aggregate cost basis of $703.2 million.

As of September 30, 2021, we had equity investments in and/or loans to 27 portfolio companies with an aggregate cost basis of $691.2 million.

The following table summarizes our total portfolio investment activity during the six months ended September 30, 2022 and 2021:

Six Months Ended September 30,

Beginning investment portfolio, at fair value $ 714,396 $ 633,829

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Disbursements to existing portfolio companies 41,996 13,350

Unscheduled principal repayments (48,000) (14,060)

Net proceeds from sales of investments (9,352) (7,648)

Unscheduled principal repayments (A)

(53,096) (14,060)

Net proceeds from sale and recapitalization of investments (21,690) (7,648)

Net realized gain on investments 6,701 1,805

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Ending investment portfolio, at fair value $ 737,935 $ 736,503

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of June 30, 2022:

For the remaining nine months ending March 31, 2023 $ 89,488

(A) The six months ended September 30, 2022 includes $5.1 million of non-cash principal repayments related to the August 2022 refinancing at Ginsey.

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of September 30, 2022:

For the remaining six months ending March 31, 2023

For the fiscal years ending March 31:

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Investments in equity securities 164,655

Total cost basis of investments held as of June 30, 2022:

Total cost basis of investments held as of September 30, 2022:

Financing Activities

Net cash used in financing activities for the three months ended June 30, 2022 was $11.5 million, which consisted primarily of $11.5 million in distributions to common stockholders.

Net cash provided by financing activities for the three months ended June 30, 2021 was $10.5 million, which consisted primarily of $19.5 million of net borrowings under the Credit Facility, partially offset by $9.0 million in distributions to common stockholders.

Net cash used in financing activities for the six months ended September 30, 2022 was $2.1 million, which consisted primarily of $18.9 million in distributions to common stockholders, partially offset by $16.6 million of net borrowings under the Credit Facility.

Net cash provided by financing activities for the six months ended September 30, 2021 was $6.3 million, which consisted primarily of $134.6 million in gross proceeds from the issuance of our 2028 Notes, partially offset by the redemption of our Series E Term Preferred Stock of $94.4 million, $16.9 million in distributions to common stockholders, $13.5 million of net repayments under the Credit Facility, and $3.4 million of deferred financing and offering costs.

Distributions and Dividends to Stockholders

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Additionally, the Credit Facility generally restricts the amount of distributions to stockholders that we can pay out to be no greater than the sum of certain amounts, including our net investment income, plus net capital gains, plus amounts elected by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code.

In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.075 per common share for each of the three months from April through June 2022, and a supplemental distribution of $0.12 per common share in June 2022.

See also “ Recent Developments - Distributions and Dividends ” for a discussion of cash distributions to common stockholders declared by our Board of Directors in July 2022.

In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.075 per common share for each of the six months from April through September 2022, and a supplemental distribution of $0.12 per common share in June 2022.

See also “ Recent Developments - Distributions and Dividends ” for a discussion of cash distributions to common stockholders declared by our Board of Directors in October 2022.

For the fiscal year ended March 31, 2022, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $13.9 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year.

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For the year ended March 31, 2022, we recorded $2.8 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Underdistributed net investment income and increased Accumulated net realized gain in excess of distributions.

For the three months ended June 30, 2022, we recorded $0.9 million of net adjustments for estimated permanent book-tax differences to reflect tax cha racter, which decreased Capital in excess of par value and increased Overdistributed net investment income and Accumulated net realized gain in excess of distributions.

For the six months ended September 30, 2022, we recorded $1.3 million of net adjustments for estimated permanent book-tax differences to reflect tax cha racter, which decreased Capital in excess of par value and increased Overdistributed net investment income and Accumulated net realized gain in excess of distributions.

Preferred Stock Dividends

Our Board of Directors declared and we paid monthly cash dividends of $0.1328125 per share to holders of our Series E Term Preferred Stock per month from April through June 2021.

In accordance with GAAP, we treated these monthly dividends as an operating expense.

Our Board of Directors declared and we paid monthly cash dividends of $0.1328125 per share to holders of our Series E Term Preferred Stock per month from April through July 2021 and $0.07968750 per share of our Series E Term Preferred Stock for the period from August 1, 2021 up to, but excluding, the redemption date of August 19, 2021.

In accordance with GAAP, we treat these monthly dividends as an operating expense.

Dividend Reinvestment Plan

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As of the date of this report, we have the ability to issue up to $299.5 million of the securities registered under the registration statement.

In December 2019, we entered into equity distribution agreements with Wedbush Securities, Inc., Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc.

(each, a “Common Stock ATM Sales Agent”), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Common Stock ATM Sales Agents, up to an aggregate offering price of $35.0 million in the Common Stock ATM Program.

On August 11, 2021, we terminated the equity distribution agreements with each of the Common Stock ATM Sales Agents.

We did not sell any shares of our common stock under the Common Stock ATM Program during the year ended March 31, 2022.

In December 2019, we entered into equity distribution agreements with Wedbush Securities, Inc., Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc., under which we have the ability to issue and sell shares of our common stock, from time to time, through such sales agents, up to an aggregate offering price of $35.0 million.

On August 11, 2021, we terminated the equity distribution agreements with each of such sales agents.

We did not sell any shares of our common stock under this ATM program during the year ended March 31, 2022.

In August 2022, we entered into equity distribution agreements with Oppenheimer & Co.

and Virtu Americas LLC (each a “Sales Agent”), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Sales Agents, up to an aggregate offering price of $50.0 million in what is commonly referred to as an “at-the-market” program (“Common Stock ATM Program”).

As of September 30, 2022, we had remaining capacity to sell up to an additional $49.5 million of common stock under the Common Stock ATM program.

During the three and six months ended September 30, 2022, we sold 29,640 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $15.75 per share and raised approximately $0.5 million of gross proceeds.

The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $15.59 and resulted in total net proceeds of approximately $0.5 million.

These sales were above our then current estimated NAV per share.

We anticipate issuing equity securities to obtain additional capital in the future.

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When our common stock is trading at a price below NAV per share, the 1940 Act places regulatory constraints on our ability to obtain additional capital by issuing common stock.

Generally, the 1940 Act provides that we may not issue and sell our common stock at a price below our NAV per common share, other than to our then-existing common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors and meeting other

stated requirements.

On June 30, 2022, the closing market price of our common stock was $14.08 per share, representing a 4.8% premium to our NAV per share of $13.44 as of June 30, 2022.

On September 30, 2022, the closing market price of our common stock was $12.10 per share, representing a 9.1% discount to our NAV per share of $13.31 as of September 30, 2022.

Term Preferred Stock

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The revolving period was extended to February 29, 2024, and if not renewed or extended by such date, all principal and interest will be due and payable on February 28, 2026 (two years after the revolving period end date).

As of June 30, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.

As of September 30, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.

On August 10, 2020, we, through Business Investment, entered into Amendment No.

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The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.

At June 30, 2022, we had no borrowings outstanding on the Credit Facility and as of the date of this report, we had $12.6 million outstanding under the Credit Facility.

At September 30, 2022, we had $16.6 million borrowings outstanding on the Credit Facility and as of the date of this report, we had $29.2 million outstanding under the Credit Facility.

Interest is payable monthly during the term of the Credit Facility.

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The Credit Facility also requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors required in the borrowing base.

Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $286.3 million as of June 30, 2022, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of June 30, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $702.1 million, asset coverage on our senior securities representing indebtedness of 261.9%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

As of June 30, 2022, we had availability, after adjustments for various constraints based on collateral quality, of $177.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $286.5 million as of September 30, 2022, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of September 30, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $698.6 million, asset coverage on our senior securities representing indebtedness of 254.1%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

As of September 30, 2022, we had availability, after adjustments for various constraints based on collateral quality, of $163.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

As of the date of this report, we had $29.2 million outstanding under the Credit Facility.

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The 2026 Notes bear interest at a rate of 5.00% per year (which equates to $6.4 million per year), payable quarterly in arrears.

The indenture relating to the 2026 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange

Act"), we will provide the holders of the 2026 Notes and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.

The 2026 Notes are recorded at the aggregate principal amount, less underwriting discounts, commissions, and offering costs, on our accompanying Consolidated Statements of Assets and Liabilities .

11 unchanged sentences

Due to the contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections.

As a result, as of June 30, 2022 and March 31, 2022, we had unrecognized, contractual off-balance sheet success fee receivables of $49.0 million and $50.5 million (or approximately $1.47 and $1.52 per common share), respectively, on our debt investments.

As a result, as of September 30, 2022 and March 31, 2022, we had unrecognized, contractual off-balance sheet success fee receivables of $50.7 million and $50.5 million (or approximately $1.53 and $1.52 per common share), respectively, on our debt investments.

Consistent with GAAP, we have not recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.

2 unchanged sentences

Since these line of credit and delayed draw term debt commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term debt commitment amounts do not necessarily represent future cash requirements.

We estimate the fair value of the combined unused line of credit and delayed draw term debt commitments as of June 30, 2022 to be immaterial.

As of June 30, 2022, we have extended a guaranty on behalf of one of our portfolio companies, Country Club Enterprises, LLC (“CCE”), whereby we have guaranteed $1.0 million of CCE’s obligations.

As of June 30, 2022, we have not been required to make payments on this or any previous guaranty, and we consider the credit risks to be remote and the fair value of this guaranty to be immaterial.

The following table shows our contractual obligations as of June 30, 2022, at cost:

We estimate the fair value of the combined unused line of credit and delayed draw term debt commitments as of September 30, 2022 to be immaterial.

As of September 30, 2022, we have extended a guaranty on behalf of one of our portfolio companies, Country Club Enterprises, LLC (“CCE”), whereby we have guaranteed $1.0 million of CCE’s obligations.

As of September 30, 2022, we have not been required to make payments on this or any previous guaranty, and we consider the credit risks to be remote and the fair value of this guaranty to be immaterial.

The following table shows our contractual obligations as of September 30, 2022, at cost:

Payments Due by Period

5 unchanged sentences

Notes payable 262,488 — — 127,938 134,550

Secured borrowing 5,096 — 5,096 — —

Interest payments on obligations (C)

3 unchanged sentences

(B) Principal balance of borrowings outstanding under the Credit Facility, based on the maturity date following the current contractual revolving period end date.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of June 30, 2022.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of September 30, 2022.

Critical Accounting Estimates

19 unchanged sentences

The Adviser’s risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.

The following table reflects risk ratings for all loans in our portfolio as of June 30, 2022 and March 31, 2022:

Rating June 30, 2022 March 31, 2022

The following table reflects risk ratings for all loans in our portfolio as of September 30, 2022 and March 31, 2022:

Rating September 30, 2022 March 31, 2022

Weighted-average

11 unchanged sentences

Under the RIC Modernization Act, we are permitted to carryforward any capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses.

Our capital loss carryforward balance was $0 as of both June 30, 2022 and March 31, 2022.

Our capital loss carryforward balance was $0 as of both September 30, 2022 and March 31, 2022.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis