PhenixFIN Corp 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30 , 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-35040 PHENIXFIN CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 27-4576073 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 445 Park Avenue , 10th Floor , New York , NY 10022 (Address of Principal Executive Offices) (Zip Code) (212) 859-0390 (Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 per share PFX The NASDAQ Global Market 5.25% Notes due 2028 PFXNZ The NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ 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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ 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 provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒ The aggregate market value of the registrant’s common stock held by non-affiliates of the Registrant as of March 31, 2023 was $ 60,578,642 . The Registrant had 2,072,590 shares of common stock, $0.001 par value, outstanding as of December 22, 2023. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2024 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference in to Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended September 30, 2023. PHENIXFIN CORPORATION TABLE OF CONTENTS Page PART I 1 Item 1. Business 1 Item 1A. Risk Factors 17 Item 1B. Unresolved Staff Comments 34 Item 2. Properties 34 Item 3. Legal Proceedings 34 Item 4. Mine Safety Disclosures 34 PART II 35 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 Item 6. [Reserved] 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8. Consolidated Financial Statements and Supplementary Data F-1 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 Item 9A. Controls and Procedures 52 Item 9B. Other Information 52 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 52 PART III 53 Item 10. Directors, Executive Officers and Corporate Governance 53 Item 11. Executive Compensation 53 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 53 Item 13. Certain Relationships and Related Transactions, and Director Independence 53 Item 14. Principal Accountant Fees and Services 53 PART IV 54 Item 15. Exhibits and Financial Statement Schedules 54 Signatures 56 i PART I Item 1. Business GENERAL PhenixFIN Corporation (“PhenixFIN”, the “Company,” “we” and “us”) is an internally-managed non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and intends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On November 18, 2020, the board of directors of the Company (the “Board”) approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement. MCC Advisors was a wholly owned subsidiary of Medley LLC, which was controlled by Medley Management Inc. (OTCM: MDLM), a publicly traded asset management firm (“MDLM”). The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements to qualify as a RIC under the Code. The Company’s investment objective is to generate current income and capital appreciation. The management team seeks to achieve this objective primarily through making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or real estate investment trusts (“REITs”).) We also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective, such as operating and managing an asset-based lending business. The portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase total investment returns. Our loan and other debt investments are primarily rated below investment grade or are unrated. Investments in below investment grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due. We believe the private debt market is undergoing structural shifts that are creating significant opportunities for non-bank lenders and investors. The underlying drivers of these structural changes include reduced participation by banks in the private debt markets and demand for private debt created by committed and uninvested private equity capital. We focus on taking advantage of this structural shift by lending directly to companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed investment opportunities. We source investment opportunities primarily through direct relationships with financial sponsors, industry specialists, as well as financial intermediaries such as investment banks and commercial banks. Our Investment Team is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and monitoring our portfolio companies on an ongoing basis. Our Investment Team draws on its expertise in lending to predominantly privately held borrowers in a range of sectors, including industrials, transportation, energy and natural resources, financials, gemstones/jewelry and real estate. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to continue to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after such borrowing. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing. As of September 30, 2023, the Company’s asset coverage was 270.7% after giving effect to leverage and therefore the Company’s asset coverage was greater than 200%, the minimum asset coverage requirement applicable presently to the Company under the 1940 Act. Our principal executive office is located at 445 Park Avenue, 10th Floor, New York, NY and our telephone number is (212) 859-0390. 1 Investment Process Overview Sourcing and Origination . We typically source investment opportunities through our management team’s network of long-standing relationships. Our sourcing efforts are led by our senior investment professionals, who leverage their experience in the sourcing and origination of investments. Initial Evaluation . We use a systematic, consistent approach to credit evaluation, which typically consists of (i) a preliminary due diligence review conducted by the Company, (ii) an initial diligence meeting with the portfolio company’s management team, investment bank or private equity sponsor, (iii) an initial indication of interest and terms, and (iv) preparation of memoranda including potential portfolio company overviews, investment considerations and risks, financial model and return information. Due Diligence & Underwriting . We typically undertake continued diligence, which expands on the investment thesis, risks and mitigants, and competition factors of our potential investment opportunities. We may conduct third party reviews, on-site visits and/or background checks in connection with our potential investments in portfolio companies. Portfolio Management . We undertake a proactive monitoring process of our portfolio companies, whereby we conduct monthly financial review and monitoring of compliance with covenants, maintain ongoing dialogue with portfolio company management and owners, and exercise board observer rights where appropriate. Rating Criteria. We generally use an investment rating system to characterize and monitor the credit profile and our expected level of returns on each debt investment in our portfolio. We use a five-level numeric rating scale. The following is a description of the conditions associated with each investment rating: Credit Rating Definition 1 Investments that are performing above expectations. 2 Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination. All new loans are rated ’2’. 3 Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. Companies rated ’3’ may be out of compliance with financial covenants, however, loan payments are generally not past due. 4 Investments that are performing below expectations and for which risk has increased materially since origination. Some loss of interest or dividend is expected but no loss of principal. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due). 5 Investments that are performing substantially below expectations and whose risks have increased substantially since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Some loss of principal is expected. Investment Structure Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment. We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio company’s capital structure. We typically structure our investments as follows: Senior Secured First Lien Term Loans We structure these investments as senior secured loans. We obtain security interests in the assets of the portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of first-priority liens on the assets of the portfolio company borrower. Our senior secured loans may provide for amortization of principal with the majority of the amortization due at maturity. Senior Secured Second Lien Term Loans We structure these investments as junior, secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of second-priority liens on the assets of a portfolio company. These loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity. 2 Senior Secured First Lien Notes We structure these investments as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of priority liens on the assets of a portfolio company. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or (“PIK”), interest), with amortization of principal due at maturity. PIK interest represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term and recorded as interest income on an accrual basis to the extent such amounts are expected to be collected. Warrants and Minority Equity Securities In some cases, we may also receive nominally priced warrants or options to buy a minority equity interest in the portfolio company in connection with a debt investment. As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights. Unitranche Loans We structure our unitranche loans, which combine the characteristics of traditional senior secured first lien term loans and subordinated notes as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral generally takes the form of first-priority liens on the assets of a portfolio company. Unitranche loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity. Unsecured Debt We structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current interest income. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or PIK, interest), with amortization of principal due at maturity. Subordinated notes generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. The valuation of subordinated notes are generally more volatile than secured loans and may involve a greater risk of loss of principal. Subordinated notes often include a PIK feature, which effectively operates as negative amortization of loan principal. We expect to hold most of our investments to maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity event occurs, such as a sale or recapitalization transaction, or the worsening of the credit quality of the portfolio company. The Company has invested in its affiliate, FlexFIN, LLC (“FlexFIN”), which operates an asset-based lending business under which it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry. FlexFIN will generally structure these loans as sale/repurchase transactions under which the collateral (that is, the gemstones/jewelry) remains under FlexFIN’s ownership during the entire term of the loan. Managerial Assistance As a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. We may receive fees for these services. Leverage As a BDC, we are generally only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. We are also subject to certain regulatory requirements relating to our borrowings. For a discussion of such requirements, see “Regulation - Senior Securities.” We may, from time to time, seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. Competition Our primary competitors to provide financing to private companies are public and private funds, commercial and investment banks, commercial finance companies, other BDCs, SBICs and private equity and hedge funds. Some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy to maintain our favorable RIC tax treatment. 3 Human Capital Resources As of September 30, 2023, the internalized management team consists of 3 investment professionals and 6 employees/consultants overall. This team includes our executive officers, investment and finance professionals, and administrative staff. Our senior management team consists of David Lorber, our chief executive officer, and Ellida McMillan, our chief financial officer. As an internally managed BDC, the success of our business and investment strategy, including achieving our investment objective, depends in material part on our professional team. We depend upon the members of our management team and our investment professionals for the identification, final selection, structuring, closing and monitoring of our investments. Our professional team has critical experience and relationships on which we rely to implement our business plan. We expect that the members of our management team and our investment professionals will maintain key informal relationships, which we will use to help identify and gain access to investment opportunities. If we do not attract, develop and retain highly talented professionals, we may not be able to operate our business as we expect and our operating results could be adversely affected. See “Item 1A. Risk Factors.” Administration Prior to January 1, 2021, we operated pursuant to an investment management agreement with MCC Advisors. Since January 1, 2021, we have operated pursuant to an internalized management structure. To lead the internalized management team, the Board approved the appointment of David Lorber, who had served as an independent director of the Company since April 2019, as Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021. In connection with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp Fund Services, LLC d/b/a U.S. Bank Global Fund Services (“U.S. Bancorp”). A U.S. Bancorp affiliate also served as the Company’s custodian. The Company’s administrative and custodial relationship with U.S. Bancorp terminated on August 9, 2022. SS&C Technologies, Inc. (“SS&C”) has since served as administrator of the Company and has provided us with fund accounting and financial reporting services pursuant to its Services Agreement with the Company. Effective September 12, 2022, Computershare Trust Company, N.A. (“Computershare”) serves as custodian for the Company pursuant to its Loan Administration and Custodial Agreement with the Company. Information Available We maintain a website at http://www.phenixfc.com . We make available, free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or the SEC. Information contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC. Summary of Risk Factors Investing in our securities involves a high degree of risk. You should carefully consider the information in “Item 1A. Risk Factors”, including, but not limited to, the following risks: Certain Risks in the Current Environment ● We are operating in a period of market disruption and economic uncertainty, which may adversely affect the yields, and increase the risks of, our investment, and make it more difficult for us to raise equity capital. ● Events outside of our control could negatively affect the portfolio companies in which we invest and make the valuation of those investments more uncertain. ● Rising interest rates may increase our borrowing costs and reduce the net return that we are able to achieve on our debt investments in portfolio companies, and may also increase the risk of default on our portfolio company loans. Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our cost of borrowing and the net return on our investments. ● Economic downturns could impair our portfolio companies, increase funding costs and limit access to capital. 4 Risks Related to our Business ● We operate under an internalized operating structure, including our management and investment functions, with the expectation that we will be able to operate more efficiently, but this may not be the case. We are dependent upon our management team, and may not realize the anticipated benefits of the internalization. ● We may suffer credit and capital losses. Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us. The lack of liquidity in our investments may adversely affect our business. ● A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by our valuation designee under the oversight of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments. ● We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer. ● We are exposed to risks associated with changes in interest rates. Loans under our credit facility and the financial credit we extend to our portfolio companies bear interest based on the Secured Overnight Financing Rate (“SOFR”) but experience with SOFR based loans is limited. In addition, because we use debt to finance various investments, changes in interest rates will affect our cost of capital and net investment income. ● If our investments are not managed effectively, we may be unable to achieve our investment objective. We may experience fluctuations in our periodic operating results. Any failure on our part to maintain our status as a BDC could reduce our operating flexibility. ● We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income. We may not be able to pay distributions to our shareholders. ● Our board of directors may change our investment objective, operating policies and strategies without notice. ● Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us. ● We are dependent on information systems and systems failures could significantly disrupt our business. A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our business. Risks Related to our Investments ● We may not realize gains from our equity investments. Our investments are risky and highly speculative. Our investments in private portfolio companies may be risky, and shareholders could lose their investment. ● Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields. ● Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted. ● As a BDC, our ability to invest in public companies and foreign companies is limited by the 1940 Act. Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. ● 16.2% of the Company’s total assets are invested in our affiliate’s asset-based lending business and its activities are influenced by volatility in prices of gemstones/jewelry, and the gemstones and jewelry business is subject to the risk of fraud and counterfeiting. ● We may invest in “unitranche” debt instruments that combine both senior and subordinated debt into one debt instrument, which typically pay a higher rate of interest but may also pose greater risk. ● We may invest in, or obtain exposure to, obligations that may be “covenant-lite,” which means such obligations lack certain financial maintenance covenants. The disposition of our investments may result in contingent liabilities. If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments. Hedging transactions may expose us to additional risks. ● We are subject to risks associated with significant investments in one or more economic sectors and/or industries, including the business services sector, which includes our investment in our affiliate’s asset-based lending business. 5 Risks Related to our Operations as a BDC and a RIC ● Regulations governing our operation as a BDC may limit our ability to raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations. ● As an internally managed BDC, we are subject to certain restrictions that may adversely affect our ability to offer certain compensation structures. Also, we are dependent upon our management team and investment professionals for their time availability. If we are not able to hire and retain qualified personnel, or if we lose key personnel, our ability to implement our business strategy could be significantly harmed. ● The impact of financial reform legislation on us is uncertain. We also cannot predict how tax reform legislation will affect the Company, our investments, or our stockholders, and any such legislation could adversely affect our business. Legislation that became effective in 2018 may allow the Company to incur additional leverage, which could increase the risk of investing in the Company. ● If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations. We would become subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code or satisfy RIC distribution requirements. Risks Relating to an Investment in our Securities ● Investing in our securities may involve an above average degree of risk. Shares of closed-end investment companies often trade at a discount to their net asset value (“NAV”) and our shares have not traded at or above NAV since the first quarter of 2015. The market price of our common stock fluctuates. ● Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock. ● Our NAV per share may be diluted if we sell shares of our common stock at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock. ● If we issue preferred stock, the NAV and market value of our common stock may become more volatile. Holders of any preferred stock might have the right to elect board members and have class voting rights. The terms of the Credit Facility place restrictions on our and/or our subsidiaries activities. ● Our business and operations could be negatively affected if we become subject to any securities class actions and derivative lawsuits. 6 INVESTMENTS We have built a diverse portfolio that includes senior secured first lien term loans, senior secured second lien term loans, equity, unitranche loans, senior secured first lien notes, subordinated notes, warrants and minority equity securities by investing approximately $10 million to $50 million of capital, on average, in the securities of portfolio companies. The following table shows the portfolio composition by industry grouping at fair value as of September 30, 2023 (dollars in thousands): Fair Value Percentage Services: Business $ 47,083 20.7 % Banking, Finance, Insurance & Real Estate 43,755 19.3 Hotel, Gaming & Leisure 34,158 15.1 Services: Consumer 18,292 8.1 High Tech Industries 15,472 6.8 Construction & Building 14,676 6.5 Metals & Mining 12,517 5.5 Media: Broadcasting & Subscription 11,665 5.2 Automotive 9,520 4.2 Consumer Discretionary 6,920 3.1 Energy: Oil & Gas 5,384 2.4 Packaging 3,396 1.5 Aerospace & Defense 2,645 1.2 Retail 978 0.4 Total $ 226,461 100.0 % The following table shows the portfolio composition by industry grouping at fair value as of September 30, 2022 (dollars in thousands): Fair Value Percentage Services: Business $ 52,851 27.4 % Hotel, Gaming & Leisure 31,947 16.6 Banking, Finance, Insurance & Real Estate 31,910 16.5 Services: Consumer 21,243 11.0 Construction & Building 17,724 9.2 Automotive 8,075 4.2 Consumer Discretionary 6,208 3.2 High Tech Industries 5,465 2.8 Media: Broadcasting & Subscription 4,220 2.2 Energy: Oil & Gas 4,152 2.2 Packaging 3,361 1.7 Metals & Mining 3,073 1.6 Aerospace & Defense 2,607 1.3 Retail 121 0.1 Total $ 192,957 100.0 % 7 The following table sets forth certain information as of September 30, 2023 for each portfolio company in which we had an investment. Other than these investments, our only formal relationship with our portfolio companies is the managerial assistance that we provide upon request and the board observer or participation rights we may receive in connection with our investment. Name of Portfolio Company Sector Security Owned Maturity Interest Rate (1) Par Amount/ Shares/Units Fair Value % of Net Assets Altisource S.A.R.L. Services: Business Senior Secured First Lien Term Loan B 4/30/2025 5.00 % $ 9,565,710 $ 7,805,619 5.3 % Altisource S.A.R.L. Services: Business Warrants 5/22/2027 75,080 206,470 0.1 % Arcline FM Holdings, LLC Aerospace & Defense First Lien Term Loan 6/23/2028 4.75 % 2,679,494 2,644,660 1.8 % Be Green Packaging, LLC Containers, Packaging & Glass Equity 417 - 0.0 % Boostability Seotowncenter, Inc. Services: Business Equity 833,152 - 0.0 % CB&L Associates Holdco I, LLC Banking, Finance, Insurance & Real Estate First Lien Term Loan 11/1/2025 2.75 % 5,916,102 5,191,380 3.5 % Chimera Investment Corp. Banking, Finance, Insurance & Real Estate Equity 117,310 2,116,271 1.4 % Chimera Investment Corp. Banking, Finance, Insurance & Real Estate Equity 163,601 3,414,353 2.3 % Copper Property CTL Pass Through Trust Banking, Finance, Insurance & Real Estate Equity Certificates 597,795 6,217,067 4.2 % DataOnline Corp. High Tech Industries Senior Secured First Lien Term Loan 11/13/2025 5.50 % 4,812,500 4,764,375 3.2 % DataOnline Corp. High Tech Industries Revolving Credit Facility 11/13/2025 5.50 % 714,286 707,143 0.5 % Deer Management Systems LLC Consumer Discretionary First Lien Term Loan 5/1/2028 8.25 % 3,357,500 3,323,925 2.3 % DirecTV Financing, LLC Media: Broadcasting & Subscription Senior Secured First Lien Term Loan 8/2/2027 5.00 % 4,100,000 4,003,908 2.7 % First Brands Group, LLC Automotive Senior Secured First Lien Term Loan 3/30/2027 5.00 % 3,919,598 3,880,402 2.6 % Franklin BSP Realty Trust, Inc. Banking, Finance, Insurance & Real Estate Equity 226,107 2,993,657 2.0 % Global Accessories Group, LLC Consumer goods: Non-durable Equity 380 - 0.0 % Innovate Corp. Construction & Building Senior Secured Notes 2/1/2026 2,750,000 2,076,250 1.4 % Invesco Mortgage Capital, Inc. Banking, Finance, Insurance & Real Estate Equity 205,000 3,989,300 2.7 % JFL-NGS-WCS Partners, LLC Construction & Building Senior Secured First Lien Term Loan B 11/12/2026 5.50 % 861,605 865,913 0.6 % JFL-NGS-WCS Partners, LLC Construction & Building Equity 10,000,000 11,733,525 8.0 % Lighting Science Group Corporation Containers, Packaging & Glass Warrants 5,000,000 - 0.0 % Lucky Bucks, LLC Consumer Discretionary Equity 180,739 1,545,318 1.1 % Lucky Bucks, LLC Consumer Discretionary Second Out Exit Term Loan 10/2/2029 7.50 % 1,361,240 1,361,240 0.9 % Lucky Bucks, LLC Consumer Discretionary First Out Exit Term Loan 10/2/2028 7.50 % 689,541 689,541 0.5 % McKissock Investment Holdings, LLC (dba Colibri) Services: Consumer Senior Secured First Lien Term Loan 3/10/2029 5.00 % 4,924,535 4,776,799 3.3 % MFA Financial, Inc. Banking, Finance, Insurance & Real Estate Equity 97,426 1,856,940 1.3 % New York Mortgage Trust, Inc. Banking, Finance, Insurance & Real Estate Equity 165,000 3,677,850 2.5 % PennyMac Financial Services, Inc. Banking, Finance, Insurance & Real Estate Equity 29,500 1,964,700 1.3 % PHH Mortgage Corp. Banking, Finance, Insurance & Real Estate Senior Secured Notes 3/15/2026 7.88 % 7,686,000 6,845,344 4.7 % Point.360 Services: Business Senior Secured First Lien Term Loan 7/8/2020 6.00 % 2,777,366 - 0.0 % Power Stop LLC Automotive Senior Secured First Lien Term Loan 1/26/2029 4.75 % 6,919,937 5,639,748 3.8 % Rithm Capital Corp. Banking, Finance, Insurance & Real Estate Equity 206,684 4,695,860 3.2 % Secure Acquisition Inc. (dba Paragon Films) Packaging Senior Secured First Lien Term Loan 12/16/2028 5.00 % 3,430,517 3,396,212 2.3 % SS Acquisition, LLC (dba Soccer Shots Franchising) Services: Consumer Senior Secured First Lien Term Loan 12/30/2026 6.50 % 6,666,667 6,666,667 4.5 % SS Acquisition, LLC (dba Soccer Shots Franchising) Services: Consumer Senior Secured First Lien Delayed Draw Term Loan 12/30/2026 6.50 % 3,200,000 3,200,000 2.2 % SMART Financial Operations, LLC Retail Equity 700,000 978,140 0.7 % Stancor (dba Industrial Flow Solutions Holdings, LLC) Services: Business Equity 338,736 200,566 0.1 % Staples, Inc. Services: Consumer First Lien Term Loan 9/12/2024 4.50 % 3,692,159 3,648,315 2.5 % Tamarix Capital Partners II, L.P. Banking, Finance, Insurance & Real Estate Fund Investment N/A 792,346 0.5 % Thryv Holdings, Inc. Media: Broadcasting & Subscription Senior Secured First Lien Term Loan B 3/1/2026 8.50 % 7,656,442 7,661,227 5.2 % Velocity Pooling Vehicle, LLC Automotive Equity 5,441 - 0.0 % Velocity Pooling Vehicle, LLC Automotive Warrants 3/30/2028 6,506 - 0.0 % Wingman Holdings, Inc. Aerospace & Defense Equity 350 - 0.0 % 1888 Industrial Services, LLC Energy: Oil & Gas Senior Secured First Lien Term Loan A 8/31/2024 5.00 % 9,946,741 - 0.0 % 1888 Industrial Services, LLC Energy: Oil & Gas Senior Secured First Lien Term Loan C 8/31/2024 5.00 % 1,231,932 751,479 0.5 % 1888 Industrial Services, LLC Energy: Oil & Gas Revolving Credit Facility 8/31/2024 5.00 % 4,632,177 4,632,177 3.2 % 1888 Industrial Services, LLC Energy: Oil & Gas Equity 21,562 - 0.0 % Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan 1/31/2024 9.00 % 875,749 875,749 0.6 % Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan 1/31/2024 9.00 % 13,029,115 1,459,249 1.0 % Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Super Priority Delayed Draw Term Loan 1/31/2024 9.00 % 1,920,960 1,920,960 1.3 % FST Holdings Parent, LLC High Tech Industries Equity 625,548 10,000,003 6.8 % Maritime Wireless Holdings LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan C 5/31/2027 9.00 % 7,500,000 7,500,000 5.1 % Maritime Wireless Holdings LLC Hotel, Gaming & Leisure Equity 5,000,000 10,150,000 6.9 % FlexFIN, LLC Services: Business Equity Interest 38,870,711 38,870,711 26.5 % Kemmerer Holdings, LLC Metals & Mining Senior Secured First Lien Term Loan 6/21/2025 15.00 % 3,383,877 3,383,877 2.3 % Kemmerer Holdings, LLC Metals & Mining Equity 31 9,133,052 6.2 % NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan 12/31/2024 4.00 % 7,309,552 7,214,856 4.9 % NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan B 12/31/2024 9.25 % 17,552,420 5,037,547 3.4 % NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan C 12/31/2024 12.00 % 11,506,159 - 0.0 % NVTN LLC Hotel, Gaming & Leisure Equity 1,000 - 0.0 % (1) All interest is payable in cash and/or PIK, and all SOFR or LIBOR represents 1 Month and 3 Month respective rates unless otherwise indicated. For each debt investment, we have provided the current spread over index interest rate as of September 30, 2023. 8 As of September 30, 2023, our income-bearing investment portfolio, which represented 88.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 13.3% and 59.5% of our income-bearing investment portfolio bore interest based on floating rates, such LIBOR or SOFR, 13.9% of our income-bearing investment portfolio bore interest at fixed rates, and 26.6% of our income-bearing investment portfolio are income-producing equity investments. As of September 30, 2022, our income-bearing investment portfolio, which represented 62.0% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 4.9%, and 81.9% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR or SOFR, while 18.1% of our income-bearing investment portfolio bore interest at fixed rates. The weighted average yield of our total portfolio does not represent the total return to our stockholders. The weighted average yield on income producing investments is computed based upon a combination of the cash flows to date and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect to closing fees received, base management fees, incentive fees or general fund related expenses. For each floating rate loan, the projected fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified in the relevant loan document to the fixed-rate equivalent floating rate, duration-matched to the specific loan, adjusted by the floating rate floor and/or cap in place on that loan. Overview of Portfolio Companies Set forth below is a brief description of the business of our portfolio companies as of September 30, 2023: Portfolio Company Brief Description of Portfolio Company 1888 Industrial Services, LLC 1888 Industrial Services, LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies in the Denver-Julesburg Basin and Permian Basin. 1888 builds, repairs, modifies and maintains oil and gas production equipment, sites, wells and pipelines. Altisource S.A.R.L. Altisource operates as an integrated service provider and marketplace for the real estate and mortgage industries. It provides property preservation and inspection services, payment management technologies, and a vendor management oversight software-as-a-service (“SaaS”) platform. Arcline FM Holdings, LLC Arcline FM Holdings, LLC (d/b/a Fairbanks Morse Defense) is a provider of propulsion systems, ancillary power, motors, and controllers for the US Navy and Coast Guard, and provides necessary parts and maintenance, repair and overhaul (MRO) services to its long lived installed base of equipment. Be Green Packaging, LLC Be Green Packaging, LLC, founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures the sustainable, tree-free, molded fiber products and packaging for food service and consumer packaged goods end markets. Black Angus Steakhouses, LLC Black Angus Steakhouses, LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska, New Mexico, Washington, and Hawaii. Boostability Seotowncenter, Inc. Seotowncenter, Inc. is a tech-enabled business services company that delivers white label search engine optimization and local search and digital campaign fulfillment to the small and midsize business market. CB&L Associates Holdco I, LLC CBL owns, develops, acquires, leases, manages, and operates regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers, office and other properties. Properties are in 24 states, primarily in the southeastern and midwestern United States. Chimera Investment Corp. Chimera Investment Corp. is an internally managed REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency residential mortgage-backed securities (“RMBS”), Non-Agency RMBS, Agency commercial mortgage-backed securities (“CMBS”), and other real estate-related assets. Copper Property CTL Pass Through Trust Copper Property CTL Pass Through Trust was established to acquire 160 retail properties and 6 warehouse distribution centers (the “Properties”) from J.C. Penney as part of its Chapter 11 plan of reorganization. The Trust’s operations consist solely of owning, leasing and selling the Properties. DataOnline Corp. DataOnline Corp. (“DataOnline”) is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote industrial assets. DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications & web-based applications. Deer Management Systems LLC Deer Management Systems LLC (d/b/a Reveal Cellular Cameras) is a provider of subscription-based, cellular trail cameras, which are used extensively by hunters and outdoorsmen. DirecTV Financing, LLC DirecTV offers digital entertainment services in the United States using satellite and IP-based technologies as well as streaming options that do not require either satellite or wired IP services. The Company’s customer base primarily consists of residential customers. First Brands Group, LLC First Brands Group, LLC is an automotive aftermarket platform offering comprehensive solutions for consumable maintenance and mission-critical repair parts under a portfolio of brands. FlexFIN, LLC FlexFIN operates an asset-based lending business under which it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry. Franklin BSP Realty Trust, Inc. Franklin BSP Realty Trust, Inc. is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within and outside the United States. FST Holdings Parent, LLC FST is a privately held provider of diversified technical services to the semiconductor / microelectronics, life sciences, data center, government, and higher-education industries. Global Accessories Group, LLC Global Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections. These collections are tailored to leading retailers in the specialty, department store, off-price and juniors markets. Innovate Corp. Innovate is a diversified holding company that has a portfolio of subsidiaries in a variety of operating segments, infrastructure, life sciences, and broadcasting. Invesco Mortgage Capital, Inc. Invesco Mortgage Capital Inc. is a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities (“MBS”) and other mortgage-related assets. JFL-NGS-WCS Partners, LLC JFL-NGS-WCS Partners, LLC was formed in November 2020 when NorthStar Group Services, a provider of environmental remediation and deconstruction services, merged with Waste Control Specialists, a leading provider of hazardous and radioactive waste disposal, storage, and treatment for commercial and government customers. Kemmerer Operations, LLC Kemmerer Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal. Lighting Science Group Corporation Lighting Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company. LSG designs, develops and markets general illumination products that exclusively use LEDs as their light source. LSG’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires (light fixtures). 9 Portfolio Company Brief Description of Portfolio Company Lucky Bucks, LLC Lucky Bucks, LLC owns and operates digital gaming terminals, or Coin Operated Amusement Machines, in the state Georgia. Maritime Wireless Holdings LLC Wireless Maritime Services LLC is a leading provider of on-board cellular communications solutions for the ocean-going cruise industry and other maritime sectors. McKissock Investment Holdings, LLC (dba Colibri) Colibri is a provider of career lifecycle management for mandatory professional education solutions across various end markets including Financial & Accounting Services, Real Estate, Healthcare, Valuation & Property Services and Teaching. MFA Financial, Inc. MFA Financial, Inc. is an internally-managed REIT primarily engaged in investing in residential mortgage assets, with a focus on residential whole loans, residential mortgage securities, and mortgage servicing rights-related assets. New York Mortgage Trust, Inc. NY Mortgage Trust is a REIT that acquires, invests in, finances and manages mortgage-related single-family and multi-family residential assets in the US. NVTN LLC NVTN LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment” restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations. NVTN LLC has developed an identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high foot traffic locations. PennyMac Financial Services, Inc. PennyMac Financial Services, Inc. isa specialty financial services firm with a comprehensive mortgage platform and integrated business primarily focused on the production and servicing of U.S. residential mortgage loans and the management of investments related to the U.S. mortgage market. PHH Mortgage Corp. PHH Mortgage Corp. services and originates forward and reverse mortgage loans. The Company has been servicing mortgages since 1988 and commenced origination of forward mortgage loans in 2012 and reverse mortgage loans in 2013. Point.360 Point.360, headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout Los Angeles supporting all aspects of postproduction. Power Stop LLC Power Stop LLC manufactures and distributes braking systems for cars, trucks, SUVs, performance vehicles, and severe duty trucks and tows. The Company offers brake kits, caliper kits, brake pads, brake rotors, calipers, brake shoes, and pad wear sensors. It provides products through a network of distributors in Europe, North America, South America, the Middle East, and Africa; and online retailers. Rithm Capital Corp. Rithm Capital Corp. (“RITM”) is a vertically integrated investment management and mortgage platform externally managed by Fortress Investment Group. RITM’s investments focus on servicing and origination, residential securities and loans, and consumer loans. Secure Acquisition Inc. (dba Paragon Films) Paragon Films, Inc. manufactures and supplies stretch film products to customers in various industries in the United States, Canada, Mexico, South America, and internationally. SS Acquisition, LLC (dba Soccer Shots Franchising) Soccer Shots Franchising is a franchised-based system operating in the U.S. and Canada that provides children’s enrichment programs with a unique emphasis on social, cognitive, and linguistic skill through soccer. SMART Financial Operations, LLC SMART Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail pawn store chains and a pawn industry consulting firm. Stancor (dba Industrial Flow Solutions Holdings, LLC) Stancor, founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories, and parts. Staples, Inc. Staples is a B2B distributor of office supplies in North America and provider of e-commerce via Staples.com. Tamarix Capital Partners II, L.P. Tamarix Capital Partners II, L.P. is a licensed Small Business Investment Company (“SBIC”) formed to generate attractive-risk adjusted returns by making debt and preferred equity investments in United States-based, lower middle market companies operating across a broad cross-section of industries and sectors. Thryv Holdings, Inc. Thryv Holdings, Inc. is a provider of print and digital marketing solutions to small and medium sized businesses and SaaS end-to-end customer experience tools. Velocity Pooling Vehicle, LLC Velocity Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for the powersports industry. The Company’s brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others. Wingman Holdings, Inc. Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) is a Fort Worth, TX based forger of aluminum and steel used for mission critical aircraft components, among other end markets. 10 Payment of Our Expenses Since January 1, 2021, we are internally managed and do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing professionals and staff. We bear all costs and expenses of our operations and transactions, including, but not limited to those related to: ● our organization and continued corporate existence; ● calculating our net asset value (“NAV”) (including the cost and expenses of any independent valuation firms); ● expenses, including travel expense, incurred by our professionals or payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights; ● interest payable on debt incurred to finance our investments; ● the costs of all offerings of common shares and other securities; ● operating costs associated with employing investment professionals and other staff; ● distributions on our shares; ● administration fees payable under our administration agreement; ● custodial fees related to our assets ● amounts payable to third parties relating to, or associated with, making investments; ● transfer agent and custodial fees; ● all registration and listing fees; ● U.S. federal, state and local taxes; ● independent directors’ fees and expenses; ● costs of preparing and filing reports or other documents with the SEC or other regulators; ● the costs of any reports, proxy statements or other notices to our stockholders, including printing costs; ● our fidelity bond; ● the operating lease of our office space; ● directors and officers/errors and omissions liability insurance, and any other insurance premiums; ● indemnification payments; and ● direct costs and expenses of administration, including audit and legal costs. Administration Agreement On January 19, 2011, the Company entered into an administration agreement with MCC Advisors. In connection with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp. A U.S. Bancorp affiliate also served as the Company’s custodian. The Company’s administrative and custodial relationship with U.S. Bancorp terminated on August 9, 2022. SS&C has since served as administrator of the Company and has provided us with fund accounting and financial reporting services pursuant to its Services Agreement with the Company. Effective September 12, 2022, Computershare serves as custodian for the Company pursuant to its Loan Administration and Custodial Agreement with the Company. For the years ended September 30, 2023, 2022 and 2021, we incurred $0.3 million, $0.3 million and $0.6 million in administrator expenses, respectively. 11 Internalized Management Structure On November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021. The new management structure replaced the investment management and administration agreements with MCC Advisors, which expired on December 31, 2020. The board approved the establishment of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard Amster, to oversee the transition to the internalized management structure. To lead the internalized management team, the board appointed David Lorber, who had served as an independent director of the Company since April 2019, as Chief Executive Officer and Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating Officer of Alcentra Capital Corporation, a NASDAQ-traded BDC, from April 2017 until it merged into Crescent Capital BDC, Inc. in February 2020, as Chief Financial Officer of the Company, each effective January 1, 2021. Mr. Lorber is paid an annual base salary of $530,000, and Ms. McMillan is paid an annual base salary of $350,000, and each is eligible for one or more discretionary cash bonuses. The internalized management team is responsible for the day-to-day management and operations of the Company, under the oversight of the board. The internalized management team presently consists of 3 investment professionals and 6 employees/consultants overall. The Company retained ACA Group, the successor to Alaric Compliance Services, LLC, whose officer serves as the Company’s Chief Compliance Officer. As discussed above, the Company has also entered into a services agreement on customary terms with SS&C, which serves as the Company’s administrator, as well as a loan administration and custodial agreement on customary terms with Computershare, who serves as our primary custodian. REGULATION General We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities.” As a BDC, we are required to meet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. However, in March 2018, the Small Business Credit Availability Act (the “SBCA”) modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements are met. Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective on the one-year anniversary of such approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. The Company has not sought stockholder or independent director approval to reduce its asset coverage ratio to 150%. On March 23, 2018, the SBCA was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing BDCs to use the same registration, offering and communication processes that are available to operating companies. The rules and amendments specified by the SBCA became self-implementing on March 24, 2019. On April 8, 2020, the SEC adopted rules and amendments to implement certain provisions of the SBCA (the “Final Rules”) that, among other things, modify the registration, offering, and communication processes available to BDCs relating to: (i) the shelf offering process to permit the use of short-form registration statements on Form N-2 and incorporation by reference; (ii) the ability to qualify for well-known seasoned issuer status; (iii) the immediate or automatic effectiveness of certain filings made in connection with continuous public offerings; and (iv) communication processes and prospectus delivery. In addition, the SEC adopted rules that will require BDCs to comply with certain structured data and inline XBRL requirements. The Final Rules generally became effective on August 1, 2020, except that a BDC eligible to file short-form registration statements on Form N-2, like the Company, must comply with the Inline XBRL structured data requirements for its financial statements, registration statement cover page, and certain prospectus information by August 1, 2022. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the SEC. 12 Qualifying Assets Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following: (1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: ● is organized under the laws of, and has its principal place of business in, the United States; ● is not an investment company (other than a small business investment company wholly owned by the Company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and ● satisfies any of the following: ● has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; ● is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company; or ● is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million. (2) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. (3) Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities. (4) Securities of any eligible portfolio company which we control. (5) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. (6) Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment. The regulations defining and interpreting qualifying assets may change over time. We may adjust our investment focus needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area. Managerial Assistance to Portfolio Companies A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “Regulation — Qualifying Assets” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% requirement, the BDC generally must either control the issuer of the securities or must offer to make available to the issuer of the securities significant managerial assistance. Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. Temporary Investments Pending investment in other types of “qualifying assets”, as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, certain diversification tests that must be met in order to qualify as a RIC for U.S. federal income tax purposes will typically require us to limit the amount we invest with any one counterparty. We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions. 13 Senior Securities We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after each such issuance. In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our stockholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors—Risks Related to our Business—Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us.” Code of Ethics We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. The code of ethics is available at our website, www.phenixfc.com , and is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov . Privacy Policy We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties. Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator). We restrict access to non-public personal information about our stockholders to our employees with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders. Proxy Voting Policies and Procedures Our Proxy Voting Policies and Procedures are set forth below. The guidelines are reviewed periodically by management and our independent directors, and, accordingly, are subject to change. Proxy Policies Our proxy voting decisions are made by our investment professionals, who review on a case-by-case basis each proposal submitted to a shareholder vote to determine its impact on the portfolio securities held by the Company. Although the Company generally votes against proposals that may have a negative impact on our portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons to do so. We generally do not believe it is necessary to engage the services of an independent third party to assist in issue analysis and vote recommendation for proxy proposals. Under certain circumstances and when deemed in the best interests of shareholders, the Company may, in the discretion of its officers, refrain from exercising its proxy voting right for a particular decision. To ensure that our vote is not the product of a conflict of interest, we require that: (i) anyone involved in the decision making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties, unless such employee has received pre-approval from our Chief Compliance Officer. 14 Proxy Voting Records You may obtain information about how we voted proxies by making a written request for proxy voting information to: Chief Compliance Officer PhenixFIN Corporation 445 Park Avenue, 10 th Floor New York, NY 10022 Other Under the 1940 Act, we are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, issue and sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the current NAV of the common stock if our board of directors determines that such sale is in our best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities. However, we currently do not have the requisite stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue shares of our common stock at a price below NAV per share. In addition, at our 2012 Annual Meeting of Stockholders we received approval from our stockholders to authorize us, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement. Such authorization has no expiration. We expect to be periodically examined by the SEC for compliance with the 1940 Act. We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. We adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We have designated a Chief Compliance Officer to be responsible for administering the policies and procedures. Election to Be Taxed as a RIC We have elected and intend to qualify annually to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Distribution Requirement”). Taxation as a RIC As a RIC, if we satisfy the Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we timely distribute to stockholders. We will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital gain not distributed to our stockholders. We will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if we do not distribute at least the sum of 98% of our ordinary income in any calendar year, 98.2% of our capital gain net income for each one-year period ending on October 31 of such year, and any income and capital gain net income that we recognized in preceding years, but were not distributed during such years, and on which we did not pay U.S. federal income tax. Depending on the level of investment company taxable income (“ICTI”) earned in a tax year and the amount of net capital gains recognized in such tax year, we may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. In order to eliminate our liability for income tax, and to the extent necessary to maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of that next tax year through a dividend declared prior to the 15th day of the 9th month after the close of the taxable year in which such ICTI was generated. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S. federal excise tax purposes, we accrue U.S. federal excise tax, if any, on estimated excess taxable income as taxable income is earned. 15 In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: ● qualify to be treated as a BDC under the 1940 Act at all times during each taxable year; ● derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in “qualified publicly traded partnerships” (generally, partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that could qualify as RICs if such partnerships were domestic corporations) (the “90% Income Test”); and ● diversify our holdings so that at the end of each quarter of the taxable year: ● at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and ● no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships (the “Diversification Tests”). We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income and franchise or withholding liabilities. Any underwriting fees paid by us are not deductible. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Distribution Requirement, even though we will not have received any corresponding cash amount. Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy the Distribution Requirement. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Business — Regulation — Senior Securities.” Moreover, our ability to dispose of assets to satisfy the Distribution Requirement may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Distribution Requirement or avoid the imposition of excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous. Some of the income and fees that we may recognize will not count towards satisfaction of the 90% Income Test. In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay corporate level U.S. federal income tax on their earnings, which ultimately will reduce our return on such income and fees. Failure to Qualify as a RIC If we were unable to continue to qualify for treatment as a RIC, we would be subject to U.S. federal income tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions, including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis in their shares of the RIC, and any distributions in excess of tax basis would be treated as a capital gain. If we fail to qualify as a RIC for a period greater than two taxable years, to qualify as a RIC in a subsequent year we may be subject to regular corporate level U.S. federal income tax on any net built-in gains with respect to certain of our assets ( i.e. , the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five years. 16 Company Investments Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not qualify as good income for purposes of the 90% Income Test described above. We will monitor our transactions and may make certain tax elections and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a RIC. Investments we make in securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount and to distribute such income each year to avoid U.S. federal income and excise taxes. Since in certain circumstances we may recognize income before or without receiving cash representing such income, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining RIC tax treatment and for avoiding U.S. federal income and excise taxes. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for tax treatment as a RIC and thereby be subject to corporate-level U.S. federal income tax. Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long term or short term, depending on how long we held a particular warrant. In the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities. In that case, our yield on those securities would be decreased. We do not expect to satisfy the requirements necessary to pass through to our stockholders their share of the foreign taxes paid by us. If we purchase shares in a “passive foreign investment company’’ (a “PFIC’’), we may be subject to U.S. federal income tax on a portion of any “excess distribution’’ or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders. Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such distributions or gains. If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund’’ under the Code (a “QEF’’), in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us. Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in certain PFICs; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income. Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Distribution Requirement and will be taken into account for purposes of the 4% U.S. federal excise tax described above. Income inclusions from a QEF will be “good income’’ for purposes of the 90% Income Test provided that they are derived in connection with our business of investing in stocks and securities or the QEF distributes such income to us in the same taxable year in which the income is included in our income. Item 1A. Risk Factors Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. The risks described below, as well as additional risks and uncertainties presently unknown by us or currently not deemed significant could negatively affect our business, financial condition and results of operations. In such case, our NAV and the trading price of our common stock or other securities could decline, and you may lose all or part of your investment. 17 RISK RELATING TO OUR BUSINESS AND STRUCTURE Certain Risks in the Current Environment We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect the yields, and increase the risks of, our investments in portfolio companies, and make it more difficult for us to raise equity capital should we choose to do so. From time to time, capital markets may experience periods of disruption and instability. The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of coronavirus (“COVID-19”) that began in December 2019. Even after the COVID-19 pandemic has generally subsided, the U.S. economy, as well as other major economies, may experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the United States and other major markets. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. Any future outbreaks could have an adverse impact on the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers to make payments and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by the Company and returns to the Company, among other things. Pandemics and other future market disruptions and/or illiquidity could have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments. We may have to access, if available, alternative markets for debt and equity capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations. For example, between 2008 and 2009, the U.S. and global capital markets were unstable as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our stockholders and our independent directors. Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. The current market and future market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience, including being at a higher cost in a rising interest rate environment. If any of these conditions appear, they may have an adverse effect on our business, financial condition, and results of operations. These events could limit our investment originations, limit our ability to increase returns to equity holders through the effective use of leverage, and negatively impact our operating results. In addition, significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell our investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect on our business, financial condition or results of operations. Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the market dislocations or avert severe and prolonged reductions in economic activity. Events outside of our control, including terrorist attacks, acts of war, natural disasters or public health crises, could negatively affect the portfolio companies in which we invest and make the valuation of those investments more uncertain. Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control, including terrorist attacks, acts of war, natural disasters, public health crises or similar events. These types of events have adversely affected and could continue to adversely affect operating results for us and for our portfolio companies. In February 2022, Russia launched a large-scale invasion of Ukraine. The extent and duration of Russian military action in the Ukraine, resulting sanctions and resulting future market disruptions, including declines in stock markets in Russia and elsewhere and the value of the ruble against the U.S. dollar, are impossible to predict, but have been and could continue to be significant. Any such disruptions caused by Russian military or other actions (including cyberattacks and espionage) or resulting from actual or threatened responses to such actions have caused and could continue to cause disruptions to portfolio companies located in Europe or that have substantial business relationships with European or Russian companies. The recent outbreak of hostilities in the Middle East could also escalate to nearby areas. 18 The extent and duration of these military actions, conflicts and resulting market disruptions are impossible to predict, but have been and could continue to be substantial, and any such market disruptions could affect our portfolio companies’ operations. As a result, our portfolio investments could decline in value or our valuation of them could become uncertain. We have evaluated subsequent events from September 30, 2023 through the filing date of this annual report on Form 10-K. However, as the discussion in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the Company’s financial statements for the annual period ended September 30, 2023, the analysis contained herein may not fully account for market event impacts. As of September 30, 2023, the Company valued its portfolio investments in conformity with U.S. generally accepted accounting principles (“GAAP”) based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time. Due to the overall volatility that market events may have caused during the months following our most recent valuation (as of September 30, 2023), any valuations conducted now or in the future in conformity with U.S. GAAP could result in a lower fair value of our portfolio. Rising interest rates may increase our borrowing costs and reduce the net return that we are able to achieve on debt investments in portfolio companies, and may also increase the risk of default on our portfolio company loans. In 2023, the Federal Reserve raised short-term interest rates and has indicated additional interest rate increases may come. Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and may detract from our performance to the extent we are exposed to such interest rates and/or volatility. In periods of rising interest rates, such as the current interest rate environment, to the extent we borrow money subject to a floating interest rate, our cost of funds would increase, which could reduce our net investment income. Further, rising interest rates could also adversely affect our performance if such increases cause our borrowing costs to rise at a rate in excess of the rate that our investments yield. Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as a SOFR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates. If general interest rates continue to rise, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments. Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our cost of borrowing and the net return on our investments. U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. If our borrowing costs were to rise on account of these factors, and we were unable to raise the rates of return on our portfolio company debt, our net return on investments would decline. Economic recessions or downturns could impair our portfolio companies, increase our funding costs and limit our access to capital. Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, in past periods of instability, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. In addition, continued uncertainty between the United States and other countries, including China and Russia, with respect to trade policies, treaties, and tariffs, among other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen in the future. In an economic downturn, we may have non-performing assets or non-performing assets may increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our loans. A severe recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results. 19 The occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. In addition, any future financial market uncertainty could lead to financial market disruptions and could further impact our ability to obtain financing. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results and financial condition. Risks Related to Our Business We have internalized our operating structure, including our management and investment functions, with the expectation that we will be able to operate more efficiently with lower costs, but this may not be the case. On November 18, 2020, the board of directors approved adoption of an internalized management structure, which we have operated under effective January 1, 2021. There can be no assurances that internalizing our management structure will be and remain beneficial to us and our stockholders, as we may incur the costs and experience the risks discussed below, and we may not be able to effectively replicate the services previously provided to us by our former investment adviser and administrator. While we no longer bear the costs of the various fees and expenses we previously paid under the investment management and administration agreements with our previous adviser and administrator, we have other significant direct expenses. These include general and administrative costs, legal, accounting and other governance expenses and costs and expenses related to managing our portfolio. Certain of these costs may be greater during the early stages of the transition process. We also incur the compensation and benefits costs of our officers and other employees and consultants. In addition, we may be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. We may also experience operational disruptions resulting from the transition from external to internal management, and we could fail to effectively manage our internalization over the longer term, all of which could adversely affect our performance. If the expenses we incur as an internally-managed company are higher than the expenses we would have paid and/or reimbursed under the externally-managed structure, our earnings per share may be lower and our share value could suffer. As an internally managed BDC, we are dependent upon our management team and other professionals, and if we are not able to hire and retain qualified personnel, we will not realize the anticipated benefits of the internalization. Our ability to achieve our investment objectives and to make distributions to our stockholders depends upon the performance of our management team and professionals. We may experience difficulty identifying, engaging and retaining management, investment and general and administrative personnel with the necessary expertise and credit-related investment experience. As an internally managed BDC, our ability to offer more competitive and flexible compensation structures, such as offering both a profit-sharing plan and an equity incentive plan, is subject to the limitations imposed by the 1940 Act, which could limit our ability to attract and retain talented investment management professionals. If we are unable to attract and retain highly talented professionals for the internal management of our Company, we will not realize the anticipated benefits of the internalization, and the results of our operation could deteriorate. We may suffer credit and capital losses. Private debt in the form of secured loans to corporate and asset-based borrowers is highly speculative and involves a high degree of risk of credit loss, and therefore an investment in our securities may not be suitable for someone with a low tolerance for risk. These risks are likely to increase during an economic recession, such as the economic recession or downturn that the United States and many other countries have recently experienced or are experiencing. 20 Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us. We have borrowed funds, including through the issuance of $57.5 million in aggregate principal amount of 5.25% unsecured notes due November 1, 2028 (the “Notes” or the “2028 Notes”) to leverage our capital structure, which is generally considered a speculative investment technique. In addition, on December 15, 2022, the Company entered into a 3-year $50.0 million revolving credit facility (the “Credit Facility”) with Woodforest Bank, N.A. (“Woodforest”), Valley National Bank, and Axiom Bank, (collectively, the “Lenders”). As a result: ● our common stock may be exposed to an increased risk of loss because a decrease in the value of our investments may have a greater negative impact on the value of our common stock than if we did not use leverage; ● if we do not appropriately match the assets and liabilities of our business, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage; ● our ability to pay distributions on our common stock may be restricted if our asset coverage ratio with respect to each of our outstanding senior securities representing indebtedness and our outstanding preferred shares, as defined by the 1940 Act, is not at least 200% and any amounts used to service indebtedness or preferred stock would not be available for such distributions; ● any credit facility to which we became a party may be subject to periodic renewal by our lenders, whose continued participation cannot be guaranteed; ● any credit facility to which we became a party may contain covenants restricting our operating flexibility; ● we, and indirectly our stockholders, bear the cost of issuing and paying interest or dividends on such securities; and ● any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common shares. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue debt securities or preferred stock and/or borrow money from banks and other financial institutions, which we collectively refer to as “senior securities”, only in amounts such that our asset coverage ratio equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after each issuance of senior securities. For a discussion of the terms of the Notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources.” As of September 30, 2023, the Company’s asset coverage was 270.7% after giving effect to leverage and therefore the Company’s asset coverage is above 200%, the minimum asset coverage requirement under the 1940 Act. The lack of liquidity in our investments may adversely affect our business. We anticipate that our investments generally will be made in private companies. Substantially all of these securities will be subject to legal and other restrictions on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have material non-public information regarding such portfolio company. A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by our valuation designee under the oversight of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments. The debt and equity securities in which we invest for which market quotations are not readily available will be valued at fair value as determined in good faith by our Chief Financial Officer, the Company’s valuation designee, under the oversight of our board of directors. Most of our investments (other than cash and cash equivalents) will be classified as Level 3 under Accounting Standards Codification Topic 820 - Fair Value Measurements and Disclosures. This means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. We expect that inputs into the determination of fair value of our portfolio investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We have retained the services of independent valuation firms to review the valuation of various loans and securities. The types of factors that we may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our NAV could be adversely affected if our determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such loans and securities. 21 We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer. We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. We also have not adopted any policy restricting the percentage of our assets that may be invested in a single portfolio company. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our income tax diversification requirements under Subchapter M of the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies. (Note our significant investment in our affiliate FlexFIN – see Risks Related to our Investments). We are exposed to risks associated with changes in interest rates. Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. Further increases in interest rates could decrease the value of any investments we hold which earn fixed interest rates and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock. Loans under our Credit Facility and the financial credit we extend to our portfolio companies bear interest based on SOFR, but experience with SOFR based loans is limited. Loans under our current Credit Facility bear interest at a rate based upon the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. Also, the secured terms loans that we make to our portfolio companies and the secured notes of our portfolio companies in which we invest bear interest at SOFR based rates. Previously, our credit facilities and our debt investments in portfolio companies bore interest at U.S dollar London Interbank Overnight (USD LIBOR) rates. ICE Benchmark Administration, the authorized and regulated administrator of LIBOR, ended publication of the one-week and two-month USD LIBOR tenors on December 31, 2021, and ended publication of the remaining USD LIBOR tenors on June 30, 2023. The Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was enacted in March 2022 to permit financing agreements that contain a LIBOR-based benchmark without adequate “fallback provisions” to be automatically replaced by a benchmark recommended by the Federal Reserve. In January 2023, the Federal Reserve adopted a final rule implementing the LIBOR Act that, among other things, identifies the applicable SOFR-based benchmark replacements under the LIBOR Act. SOFR is considered to be a risk-free rate, and USD LIBOR was a risk weighted rate. Thus, SOFR tends to be a lower rate than USD LIBOR, because SOFR does not contain a risk component. This difference may negatively impact our net interest margin of our investments. Also, the use of SOFR based rates is relatively new, and experience with SOFR based rate loans is limited. There could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates. This could result in increased borrowing costs for the Company or could adversely impact the interest income we receive from our portfolio companies or the market value of the financial obligations that are due to us from our portfolio companies. Because we use debt to finance various investments, changes in interest rates will affect our cost of capital and net investment income. Because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we use our existing debt to finance our investments. In periods of rising interest rates, such as the current period we are in, our cost of funds will increase to the extent we access any credit facility with a floating interest rate, which could reduce our net investment income to the extent any debt investments have fixed interest rates. We expect that our long-term fixed-rate investments will be financed primarily with issuances of equity and long-term debt securities. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. You should also be aware that, to the extent we make floating debt investments, a rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments. 22 If our investments are not managed effectively, we may be unable to achieve our investment objective. Our ability to achieve our investment objective will depend on our ability to manage our business, which will depend on the internalized management team. Accomplishing this result is largely a function of the internalized management team’s ability to provide quality and efficient services to us. They may also be required to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow our rate of investment. Any failure to manage our business effectively could have a material adverse effect on our business, financial condition and results of operations. We may experience fluctuations in our periodic operating results. We could experience fluctuations in our periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire, the default rate on such securities, the performance of our portfolio companies, the level of our expenses (including the interest rates payable on our borrowings), the dividend rates payable on preferred stock we issue, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods. Any failure on our part to maintain our status as a BDC could reduce our operating flexibility. If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more onerous regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility. We may have difficulty paying required distributions if we recognize income before or without receiving cash representing such income. For U.S. federal income tax purposes, we may include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the making of a loan or possibly in other circumstances, such as PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances as a result of PIK arrangements are included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we do not receive in cash. Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the tax requirement to distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to maintain our tax treatment as a RIC. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to raise cash from other sources, we may fail to qualify and maintain our tax treatment as a RIC and thus become subject to corporate-level U.S. federal income tax. See “Taxation as a RIC” and “Failure to Qualify as a RIC”. We may not be able to pay distributions to our shareholders. We cannot assure that we will achieve investment results that will allow us to pay cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay distributions. As of September 30, 2023, the Company’s asset coverage was 270.7% after giving effect to leverage and therefore the Company’s asset coverage is above 200%, the minimum asset coverage requirement under the 1940 Act. All distributions will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations, and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future. The highly competitive market in which we operate may limit our investment opportunities. A number of entities compete with us to make the types of investments that we make. We compete with other BDCs and investment funds (including public and private funds, commercial and investment banks, commercial financing companies, SBICs and, to the extent they provide an alternative form of financing, private equity funds). Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to invest in areas in which they have not traditionally invested. As a result of these new entrants, competition for investment opportunities has intensified in recent years and may intensify further in the future. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions and valuation requirements that the 1940 Act imposes on us as a BDC and the tax consequences of qualifying as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this existing and potentially increasing competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective. 23 We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable to or lower than the rates we offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. A significant part of our competitive advantage stems from the fact that the market for investments in mid-sized companies is underserved by traditional commercial banks and other financial institutions. A significant increase in the number and/or size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under the regulatory restrictions of the 1940 Act and under an internalized management structure. In the event we make distributions, we would need additional capital to finance our growth and such capital may not be available on favorable terms or at all. We have elected and intend to qualify annually to be taxed for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we must meet certain requirements, including source-of-income, asset diversification and distribution requirements in order to not have to pay corporate-level U.S. on income we distribute to our stockholders as distributions, which allows us to substantially reduce or eliminate our corporate-level U.S. federal income tax liability. As a BDC, we are generally required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) at the time we issue any debt or preferred stock. This requirement limits the amount of our leverage. Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt or issuing preferred stock and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are generally not permitted to issue common stock priced below NAV without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our NAV could decline. Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval. Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results or value of our stock. Nevertheless, the effects could adversely affect our business and impact our ability to make distributions and cause you to lose all or part of your investment. Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us. Borrowings, also known as leverage, magnify the potential for loss on invested equity capital. If we use leverage to partially finance our investments, which we have done historically, you will experience increased risks of investing in our securities. We issued the Notes, entered into the Credit Facility, and may issue other debt securities or enter into other types of borrowing arrangements in the future. If the value of our assets decreases, leveraging would cause our NAV to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distributions or scheduled debt payments. Leverage is generally considered a speculative investment technique and we only intend to use leverage if expected returns will exceed the cost of borrowing. As of September 30, 2023, there was $85.9 million of outstanding borrowings. The weighted average interest rate charged on our borrowings as of September 30, 2023 was 5.91% (exclusive of debt issuance costs). We will need to generate sufficient cash flow to make these required interest payments. If we are unable to meet the financial obligations under the Notes, the holders thereof will have the right to declare the principal amount and accrued and unpaid interest on the outstanding Notes to be due and payable immediately. If we are unable to meet the financial obligations under the Credit Facility or any other credit facility we enter into, the lenders thereunder would likely have a superior claim to our assets over our stockholders. 24 We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions. Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be: ● sudden electrical or telecommunications outages; ● natural disasters such as earthquakes, tornadoes and hurricanes; ● disease pandemics (including the COVID-19 outbreak); ● events arising from local or larger scale political or social matters, including terrorist acts; and ● cyber-attacks. These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders. A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively. The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data. We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering, malware and computer virus attacks, or system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through our computer systems and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damages and remediation. Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. Cybersecurity failures or breaches our service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We currently do not maintain insurance coverage relating to cybersecurity risks, and we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully insured. Risks Related to Our Investments We may not realize gains from our equity investments. When we make a debt investment, we may acquire warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. 25 Our investments are very risky and highly speculative. We have invested primarily in senior secured first lien term loans and senior secured second lien term loans issued by private companies. Senior Secured Loans There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies. Equity Investments When we invest in senior secured first lien term loans or senior secured second lien term loans, we may receive warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. The warrants or equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our warrants or equity interests, and any gains that we do realize on the disposition of any warrants or equity interests may not be sufficient to offset any other losses we experience. In addition, investing in private companies involves a number of significant risks. See “Our investments in private portfolio companies may be risky, and you could lose all or part of your investment” below. Our investments in private portfolio companies may be risky, and you could lose all or part of your investment. Investments in private companies involve a number of significant risks. Generally, little public information exists about these companies, and we are required to rely on the ability of our investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Private companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment. In addition, they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, private companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. Private companies also generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers and directors may, in the ordinary course of business, be named as defendants in litigation arising from our investments in these types of companies. We have invested primarily in secured debt issued by our portfolio companies. In the case of our senior secured first lien term loans, the portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with the debt securities in which we invest. With respect to our senior secured second lien term loans, the portfolio companies usually have, or may be permitted to incur, other debt that ranks above or equally with the debt securities in which we invest. In the case of debt ranking above the senior secured second lien term loans in which we invest, we would be subordinate to such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company and therefore the holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. In the case of debt ranking equally with debt securities in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any. 26 The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: (1) the ability to cause the commencement of enforcement proceedings against the collateral; (2) the ability to control the conduct of such proceedings; (3) the approval of amendments to collateral documents; (4) releases of liens on the collateral; and (5) waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected. Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields. Our loans to portfolio companies are prepayable at any time, and most of them at no premium to par. It is uncertain as to when each loan may be prepaid. Whether a loan is prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such company the ability to replace existing financing with less expensive capital. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan prepaid early may reduce the achievable yield for us below the stated yield to maturity contained herein if the capital returned cannot be invested in transactions with equal or greater expected yields. Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted. Following an initial investment in a portfolio company, provided that there are no restrictions imposed by the 1940 Act, we may make additional investments in that portfolio company as “follow-on” investments in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our initial investment. We have the discretion to make any follow-on investments, subject to the availability of capital resources. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. Our failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make such follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, because we are inhibited by compliance with BDC requirements or because we might lose our RIC tax treatment. We also may be restricted from making follow-on investments in certain portfolio companies to the extent that affiliates of ours hold interests in such companies. As of September 30, 2023, 16.2% of our total assets were invested in FlexFin, our affiliate’s asset-based lending business. This significant exposure subjects our Company to various risks associated with such business (which are identified below) to a much greater extent than companies not similarly concentrated. Client borrowers, particularly with respect to asset-based lending activities, may lack the operating history, cash flows or balance sheet necessary to support other financing options and may expose us to additional risk. A portion of our loan portfolio consists, through FlexFIN, of asset-based lending involving gemstones. Some of these products arise out of relationships with clients who lack the operating history, cash flows or balance sheet necessary to qualify for other financing options. This could increase our risk of loss. 16.2% of the Company’s total assets (as of September 30, 2023) are invested in our affiliate’s asset-based lending business and its activities are influenced by volatility in prices of gemstones and jewelry. Our affiliate’s asset-based lending business is impacted by volatility in gemstone and jewelry prices. Among the factors that can impact the price of gemstones and jewelry are supply and demand of gemstones; political, economic, and global financial events; movement of the U.S. dollar versus other currencies; and the activity of large speculators and other participants. A significant decline in market prices of gemstones could result in reduced collateral value and losses, (i.e., a lower balance of asset-based loans outstanding for the Company’s affiliate.) The gemstones and jewelry business is subject to the risk of fraud and counterfeiting. The gemstones business is exposed to the risk of loss as a result of fraud in its various forms. We seek to minimize our exposure to fraud through a number of means, including third-party authentication and verification and the establishment of procedures designed to detect fraud. However, there can be no assurance that we will be successful in preventing or identifying fraud, or in obtaining redress in the event such fraud is detected. 27 We may be subject to risks associated with our investments in unitranche loans Unitranche loans provide leverage levels comparable to a combination of first lien and second lien or subordinated loans, and may rank junior to other debt instruments issued by the portfolio company. Unitranche loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a heightened risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. From the perspective of a lender, in addition to making a single loan, a unitranche loan may allow the lender to choose to participate in the “first out” tranche, which will generally receive priority with respect to payments of principal, interest and any other amounts due, or to choose to participate only in the “last out” tranche, which is generally paid only after the first out tranche is paid. We may participate in “first out” and “last out” tranches of unitranche loans and make single unitranche loans, and we may suffer losses on such loans if the borrower is unable to make required payments when due. Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants. A significant number of high yield loans in the market, may consist of covenant-lite loans, or “Covenant-Lite Loans.” A significant portion of the loans in which we may invest or get exposure to through our investments may be deemed to be Covenant-Lite Loans. Such loans do not require the borrower to maintain debt service or other financial ratios and do not include terms which allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached. Ownership of Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants. As a BDC, our ability to invest in public companies and foreign companies is limited by the 1940 Act. To maintain our tax treatment as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as qualifying assets only if such issuer has a market capitalization that is less than $250 million at the time of such investment. In addition, we may invest up to 30% of our portfolio in opportunistic investments which will be intended to diversify or complement the remainder of our portfolio and to enhance our returns to stockholders. These investments may include private equity investments, securities of public companies that are broadly traded and securities of non-U.S. companies. We expect that these public companies generally will have debt securities that are non-investment grade. Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Although it is anticipated that most of our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective. As a result, a change in currency exchange rates may adversely affect our profitability. Hedging transactions may expose us to additional risks. We may engage in currency or interest rate hedging transactions. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transaction may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. 28 While we may enter into transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek or be able to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. The disposition of our investments may result in contingent liabilities. We currently expect that a significant portion of our investments will involve lending directly to private companies. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us. If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments. We may invest in the securities and obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments generally are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer of those obligations might not make any interest or other payments. We may not realize gains from our equity investments. We are subject to risks associated with significant investments in one or more economic sectors and/or industries, including the business services sector, which includes our investment in our affiliate’s asset-based lending business. At times, the Company may have a significant portion of its assets invested in securities of companies conducting business within one or more economic sectors and/or industries, including the Services: Business sector, which includes our investment in an asset-based lending business. Companies in the same sector or industry may be similarly affected by economic, regulatory, political or market events or conditions, which may make the Company more vulnerable to unfavorable developments in that sector or industry than companies that invest more broadly. Generally, the more broadly the Company invests, the more it spreads risk and potentially reduces the risks of loss and volatility. As of September 30, 2023, investments in our affiliate’s asset-based lending business constituted 16.2% of our total assets. See above, under Item 1A for risk factors related to our investment in that business. Risks Related to Our Operations as a BDC and a RIC Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations. Our business requires a substantial amount of capital to operate and grow. We may acquire additional capital from the issuance of senior securities (including debt and preferred stock), the issuance of additional shares of our common stock or from securitization transactions. However, we may not be able to raise additional capital in the future on favorable terms or at all. Additionally, we may only issue senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after such issuance or incurrence. If our assets decline in value and we fail to satisfy this test, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales or repayment may be disadvantageous, which could have a material adverse impact on our liquidity, financial condition and results of operations. As of September 30, 2023, the Company’s asset coverage was 270.7% after giving effect to leverage and therefore the Company’s asset coverage is above 200%, the minimum asset coverage requirement under the 1940 Act. Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition. Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and may be subject to civil fines and criminal penalties. 29 As an internally managed BDC, we are subject to certain restrictions that may adversely affect our ability to offer certain compensation structures. As an internally managed BDC, our ability to offer more competitive and flexible compensation structures, such as offering both a profit-sharing plan and an equity incentive plan, is subject to the limitations imposed by the 1940 Act, which limits our ability to attract and retain talented investment management professionals. As such, these limitations could inhibit our ability to grow, pursue our business plan and attract and retain professional talent, any or all of which may have a negative impact on our business, financial condition and results of operations. As an internally managed BDC, we are dependent upon our management team and investment professionals for their time availability and for our future success, and if we are not able to hire and retain qualified personnel, or if we lose key members of our senior management team, our ability to implement our business strategy could be significantly harmed. As an internally managed BDC, our ability to achieve our investment objectives and to make distributions to our stockholders depends upon the performance of our management team and investment professionals. We depend upon the members of our management and our investment professionals for the identification, final selection, structuring, closing and monitoring of our investments. These employees have critical industry experience and relationships on which we rely to implement our business plan. If we lose the services of key members of our senior management team, we may not be able to operate the business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. We believe our future success will depend, in part, on our ability to identify, attract and retain sufficient numbers of highly skilled employees. If we do not succeed in identifying, attracting and retaining such personnel, we may not be able to operate our business as we expect. As an internally managed BDC, our compensation structure is determined and set by our Board of Directors and its Compensation Committee. This structure currently includes salary, bonus and incentive compensation. We are subject to limitations by the 1940 Act on our ability to employ an incentive compensation structure that directly ties performance of our investment portfolio and results of operations to incentive compensation. Members of our senior management team may receive offers of more flexible and attractive compensation arrangements from other companies, particularly from investment advisers to externally managed BDCs that are not subject to the same limitations on incentive-based compensation that we are subject to as an internally managed BDC. A departure by one or more members of our senior management team could have a negative impact on our business, financial condition and results of operations. We have internalized our operating structure, including our management and investment functions; as a result, we may incur significant costs and face significant risks associated with being self-managed, including adverse effects on our business and financial condition. Effective January 1, 2021, we operate under an internalized operating structure, including our management and investment functions. There can be no assurances that internalizing our operating structure will be beneficial to us and our stockholders, as we may incur the costs and risks discussed below and may not be able to effectively replicate or improve upon the services previously provided to us by our former investment adviser and administrator, MCC Advisors. While we will no longer bear the costs of the various fees and expenses we previously paid to MCC Advisors under the Investment Advisory Agreement, our direct expenses will generally include general and administrative costs, including legal, accounting, and other expenses related to corporate governance, SEC reporting and compliance, as well as costs and expenses related to making and managing our investments. We will also now incur the compensation and benefits costs of our officers and other employees and consultants, and, subject to adherence to applicable law, we may issue equity or other incentive-based awards to our officers, employees and consultants, which awards may decrease net income and funds from our operations and may dilute our stockholders. We may also be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. In addition, if the expenses we assume as a result of our internalization are higher than the expenses we would have paid and/or reimbursed to MCC Advisors, our earnings per share may be lower as a result of our internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares. Further, an inability to effectively manage our internalization could result in our incurring excess costs and operating inefficiencies, and may divert our management’s attention from managing our investments. 30 All of these factors could have a material adverse effect on our results of operations, financial condition, and ability to pay distributions. The impact of financial reform legislation on us is uncertain. The Dodd-Frank Reform Act became effective on July 21, 2010. Many provisions of the Dodd-Frank Reform Act have delayed effective dates or have required extensive rulemaking by regulatory authorities. The upcoming presidential and congressional elections may cause uncertainty regarding the implementation of the Dodd-Frank Reform Act and other financial reform rulemaking. Given the uncertainty associated with the manner in which and whether the provisions of the Dodd-Frank Act will be implemented, repealed, amended, or replaced, the full impact such requirements will have on our business, results of operations or financial condition is unclear. The changes resulting from the Dodd-Frank Act or any changes to the regulations already implemented thereunder may require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations or principles, or changes thereto, may negatively impact our business, results of operations or financial condition. While we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation, these changes could be materially adverse to us and our stockholders. We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business. Legislative or other actions relating to taxes could have a negative effect on us, our investments, or our stockholders. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Stockholders are urged to consult with their tax advisors regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities. Legislation that became effective in 2018 may allow the Company to incur additional leverage, which could increase the risk of investing in the Company. The 1940 Act generally prohibits the Company from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However, in March 2018, the SBCA was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150%, if certain requirements are met. Under the 1940 Act, the Company is allowed to increase its leverage capacity if our stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Acts allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such proposal. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, our stockholders will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the NAV attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect the Company’s ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations. As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Regulation”. Our intent is that a substantial portion of the investments that we acquire will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act provisions applicable to BDCs and possibly lose our tax treatment as a BDC, which would have a material adverse effect on our business, financial condition and results of operations. 31 We would become subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code or satisfy RIC distribution requirements. We have elected, and intend to qualify annually, to be treated as a RIC under Subchapter M of the Code. No assurance can be given that we will be able to maintain our qualification as a RIC. To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements. ● The annual distribution requirement for a RIC is satisfied if we timely distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized short-term capital gains in excess of realized net long-term capital losses. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income. ● The source of income requirement is satisfied if we obtain at least 90% of our gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code). ● The asset diversification requirement is satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”). In addition, no more than 25% of the value of our assets can be invested in the securities, other than U.S Government securities or securities of other RICs, (1) of one issuer (2) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (3) of one or more “qualified publicly traded partnerships”. If we fail to qualify for RIC tax treatment for any reason or are subject to corporate-level U.S. federal income tax, the resulting corporate-level taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. In addition, to the extent we had unrealized gains, we would have to establish deferred tax liabilities for taxes, which would reduce our NAV accordingly. In addition, our stockholders would lose the tax credit realized if we, as a RIC, decide to retain the net realized capital gain and make deemed distributions of net realized capital gains, and pay taxes on behalf of our stockholders at the end of the tax year. The loss of this pass-through tax treatment could have a material adverse effect on the total return of an investment in our common stock. Risks Relating to an Investment in Our Securities Investing in our securities may involve an above average degree of risk. The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk and, therefore, an investment in our securities may not be suitable for someone with lower risk tolerance. Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount to their NAV and the Company’s shares have not traded at or above NAV since the first quarter of 2015. Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount from NAV. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our NAV per share may decline. Our common stock has not traded at or above NAV since the first quarter of 2015, and we cannot predict whether our common stock will trade at, above or below NAV in the future. The market price of our common stock fluctuates. The market price and liquidity of the market for shares of our common stock fluctuates and may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. 32 These factors include: ● significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of the companies; ● changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to BDCs or RICs; ● loss of our qualification as a RIC or BDC; ● changes in earnings or variations in operating results; ● changes in the value of our portfolio of investments; ● changes in accounting guidelines governing valuation of our investments; ● any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; ● departure of our key personnel; ● operating performance of companies comparable to us; ● general economic trends and other external factors; and ● loss of a major funding source. Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock. The Delaware General Corporation Law, our certificate of incorporation and our bylaws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price of our common stock. The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock. While we currently do not have the requisite stockholder approval to sell shares of our common stock at a price or prices below our then current NAV per share, we may seek such approval in the future. In addition, at our 2012 Annual Meeting of Stockholders, we received approval from our stockholders to authorize the Company, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement. Such authorization has no expiration. Any decision to sell shares of our common stock below its then current NAV per share or issue securities to subscribe for or convertible into shares of our common stock would be subject to the determination by our board of directors that such issuance is in our and our stockholders’ best interests. If we were to sell shares of our common stock below its then current NAV per share, such sales would result in an immediate dilution to the NAV per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted. If we issue warrants or securities to subscribe for or convertible into shares of our common stock, subject to certain limitations, the exercise or conversion price per share could be less than NAV per share at the time of exercise or conversion (including through the operation of anti-dilution protections). Because we would incur expenses in connection with any issuance of such securities, such issuance could result in a dilution of the NAV per share at the time of exercise or conversion. This dilution would include reduction in NAV per share as a result of the proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest than the increase in our assets resulting from such issuance. Further, if our current stockholders do not purchase any shares to maintain their percentage interest, regardless of whether such offering is above or below the then current NAV per share, their voting power will be diluted. For example, if we sell an additional 10% of our shares of common stock at a 5% discount from NAV, a stockholder who does not participate in that offering for its proportionate interest will suffer NAV dilution of up to 0.5% or $5 per $1,000 of NAV. 33 The terms of the Credit Facility place restrictions on our and/or our subsidiaries activities. The terms of the Credit Facility place restrictions on our and/or our subsidiaries’ ability to, among other things, issue securities or otherwise incur additional indebtedness or other obligations, and in certain cases we may need the approval of WoodForest, as the Administrative Agent, in order to incur further indebtedness. In addition, the Credit Facility contains customary events of default for credit facilities of this type, including (without limitation): nonpayment of principal, interest, fees or other amounts after a stated grace period; inaccuracy of material representations and warranties; change of control; violations of covenants, subject in certain cases to stated cure periods; and certain bankruptcies and liquidations. If an event of default occurs and is continuing, the Company may be required to repay all amounts outstanding under the Credit Facility, which would adversely affect our liquidity position and, in turn, could force us to dispose of investments at inopportune times at reduced prices. Repayment could also adversely affect our ability to implement our investment strategy and achieve our investment objectives. If we issue preferred stock, the NAV and market value of our common stock may become more volatile. If we issue preferred stock, we cannot assure you that such issuance would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock would likely cause the NAV and market value of our common stock to become more volatile. If the dividend rate on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of our common stock than if we had not issued preferred stock. Any decline in the NAV of our investments would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in NAV to the holders of our common stock than if we were not leveraged through the issuance of preferred stock. This greater NAV decrease would also tend to cause a greater decline in the market price for our common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher advisory fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of our common stock and may at times have disproportionate influence over our affairs. Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters. Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of the board of directors at all times and in the event dividends become two full years in arrears, would have the right to elect a majority of our directors until such arrearage is completely eliminated. In addition, preferred stockholders would have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly would be able to veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of any credit facility to which the Company is a party, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements. Our business and operations could be negatively affected if we become subject to any securities class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been brought against that company. Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist stockholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism. Item 1B. Unresolved Staff Comments None. Item 2. Properties Properties We do not own any real estate or other physical properties materially important to our operation. We have entered into a 5-year operating lease for our headquarters at 445 Park Avenue, 10th Floor, New York, NY 10022. Item 3. Legal Proceedings From time to time, we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. We are not currently party to any material legal proceedings. Item 4. Mine Safety Disclosures None. 34 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Since January 4, 2021, the common stock trades on the NASDAQ Global Market under the trading symbol “PFX.” As of September 30, 2023, we had 11 stockholders of record of our common stock, which did not include stockholders for whom shares are held in “nominee” or “street name.” The following table sets forth, for the periods indicated, the range of high and low closing prices of our common stock and the sales price as a percentage of the net asset value per share of our common stock. Closing Market Price Premium/ (Discount) of High Market Price to Premium/ (Discount) of Low Market Price to NAV (1) High Low NAV (2) NAV (2) Fiscal year ending September 30, 2023 Fourth Quarter $ 70.75 $ 40.00 $ 35.71 (43.46 )% (49.53 )% Third Quarter 67.01 39.00 32.00 (41.80 )% (52.25 )% Second Quarter 62.70 39.14 32.49 (37.58 )% (48.18 )% First Quarter 59.38 36.49 31.05 (38.55 )% (47.71 )% Fiscal year ending September 30, 2022 Fourth Quarter $ 57.49 $ 39.37 $ 32.61 (31.52 )% (43.28 )% Third Quarter 58.74 43.00 35.75 (26.80 )% (39.14 )% Second Quarter 62.94 42.00 36.10 (33.27 )% (42.64 )% First Quarter 58.99 43.50 40.50 (26.26 )% (31.34 )% Fiscal year ending September 30, 2021 Fourth Quarter $ 57.08 $ 43.35 $ 40.10 (24.05 )% (29.75 )% Third Quarter 58.49 42.76 32.80 (26.89 )% (43.92 )% Second Quarter 55.91 33.99 27.70 (39.21 )% (50.46 )% First Quarter 52.94 29.88 18.14 (43.56 )% (65.73 )% (1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low market prices. The net asset value per share shown is based on outstanding shares at the end of the period. (2) Calculated as of the respective high or low closing market price less quarter end net asset value divided by the quarter end net asset value. For all periods presented in the table above, there was no return of capital included in any distribution. 35 Shares of business development companies may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount or premium to net asset value is separate and distinct from the risk that our net asset value will decrease. The last reported closing price of our common stock on December 21, 2023 was $38.25 per share, approximately 54.06% of the Company’s then-current NAV. As of December 21, 2023 we had 11 stockholders of record of our common stock, which did not include stockholders for whom shares are held in “nominee” or “street name.” Sales of Unregistered Securities We did not sell any securities within the past three years that were not registered under the Securities Act of 1933. Stock Performance Graph This graph compares the stockholder return on our common stock from September 30, 2018 to September 30, 2023 with that of the Standard & Poor’s 500 Stock Index and the Russell 2000 Financial Services Index. This graph assumes that on September 30, 2018, $100 was invested in our common stock, the S&P 500 Index, and the Russell 2000 Financial Services Index. The graph also assumes the reinvestment of all cash dividends prior to any tax effect. Investment performance shown for periods prior to January 1, 2021 was achieved pursuant to our former externally-managed structure. The graph and other information furnished under this Part II Item 5 of this annual report on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the below graph is not necessarily indicative of future stock performance. 36 Issuer Purchases of Securities Information relating to the Company’s purchases of its common stock during the year ended September 30, 2023 is as follows: Month Ended Shares Repurchased Repurchase Price Per Share Aggregate Consideration for Repurchased Shares October 2022 701 $35.20 - $36.14 14,434 November 2022 1,103 $34.53 - $35.28 38,790 December 2022 1,501 $33.26 - $34.84 51,295 January 2023 2,052 $32.78 - $34.84 68,665 February 2023 3,131 $33.06 - $39.03 115,430 March 2023 2,003 $37.02 - $38.89 76,214 April 2023 649 $35.79 - $37.03 23,671 May 2023 100 $36.53 - $36.53 3,658 June 2023 2,300 $33.63 - $38.76 85,556 August 2023 14,751 $36.98 - $39.41 575,728 September 2023 125 $38.11 - $38.11 4,772 Total 28,416 1,058,213 Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this annual report on Form 10-K. Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to PhenixFIN Corporation. Forward-Looking Statements Some of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including statements as to: ● the introduction, withdrawal, success and timing of business initiatives and strategies; ● changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes in the value of our assets; ● the impact of increased competition; ● the impact of future acquisitions and divestitures; ● our business prospects and the prospects of our portfolio companies; ● the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us; ● our contractual arrangements and relationships with third parties; ● any future financings by us; ● fluctuations in foreign currency exchange rates; ● the impact of changes to tax legislation and, generally, our tax position; ● our ability to locate suitable investments for us and to monitor and administer our investments; ● our ability to attract and retain highly talented professionals; 37 ● market conditions and our ability to access alternative debt markets and additional debt and equity capital; ● the unfavorable resolution of legal proceedings; ● uncertainties associated with the effect of pandemics and other future market disruptions on our business prospects and the operational and financial performance of our portfolio companies, including our and their ability to achieve their respective objectives; and the effect of disruptions on our ability to continue to effectively manage our business; and ● risks and uncertainties relating to the possibility that the Company may explore strategic alternatives, including, but are not limited to: the timing, benefits and outcome of any exploration of strategic alternatives by the Company; potential disruptions in the Company’s business and stock price as a result of our exploration of any strategic alternatives; the ability to realize anticipated efficiencies, or strategic or financial benefits; potential transaction costs and risks; and the risk that any exploration of strategic alternatives may have an adverse effect on our existing business arrangements or relationships, including our ability to retain or hire key personnel. There is no assurance that any exploration of strategic alternatives will result in a transaction or other strategic change or outcome. Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this annual report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this annual report on Form 10-K. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K. Overview We are an internally-managed non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, we have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. Through December 31, 2020, we were an externally managed company. Since January 1, 2021, we have operated under such internalized management structure. We commenced operations and completed our initial public offering on January 20, 2011. Under our internalized management structure, our activities are managed by our senior professionals and are supervised by our board of directors, of which a majority of the members are independent of us. The Company’s investment objective is to generate current income and capital appreciation. The management team seeks to achieve this objective primarily through making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. These investments may also include investments in other BDCs, closed-end funds or REITs. We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective, such as operating and managing an asset-based lending business. The portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase total investment returns. Our loan and other debt investments are primarily rated below investment grade or are unrated. Investments in below investment grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after such borrowing, with certain limited exceptions. To maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements. In addition, to maintain our RIC tax treatment, we must timely distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable year. 38 Revenues We generate revenue in the form of interest income on the debt that we hold and capital gains, if any, on warrants or other equity interests that we may acquire in portfolio companies. We invest our assets primarily in privately held companies with enterprise or asset values between $25 million and $250 million and generally focus on investment sizes of $10 million to $50 million. We believe that pursuing opportunities of this size offers several benefits including reduced competition, a larger investment opportunity set and the ability to minimize the impact of financial intermediaries. We expect our debt investments to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either monthly or quarterly. In some cases our debt investments may provide for a portion of the interest to be PIK. To the extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be recognized as earned. Expenses In periods prior to December 31, 2020, our primary operating expenses included management and incentive fees pursuant to the investment management agreement we had with MCC Advisors and overhead expenses, including our allocable portion of our administrator’s overhead under the administration agreement, which were paid during the quarter ended March 31, 2021. Our management and incentive fees compensated MCC Advisors for its work in identifying, evaluating, negotiating, closing and monitoring our investments. On November 18, 2020, the board of directors adopted an internally managed structure, effective January 1, 2021, under which we bear all costs and expenses of our operations and transactions, including those relating to: ● our organization and continued corporate existence; ● calculating our net asset value (“NAV”) (including the cost and expenses of any independent valuation firms); ● expenses, including travel expense, incurred by our professionals or payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights; ● interest payable on debt incurred to finance our investments; ● the costs of all offerings of common shares and other securities; ● operating costs associated with employing investment professionals and other staff; ● distributions on our shares; ● administration fees payable under our administration agreement; ● custodial fees related to our assets ● amounts payable to third parties relating to, or associated with, making investments; ● transfer agent and custodial fees; ● all registration and listing fees; ● U.S. federal, state and local taxes; ● independent directors’ fees and expenses; ● costs of preparing and filing reports or other documents with the SEC or other regulators; ● the costs of any reports, proxy statements or other notices to our stockholders, including printing costs; ● our fidelity bond; ● the operating lease of our office space; 39 ● directors and officers/errors and omissions liability insurance, and any other insurance premiums; ● indemnification payments; and ● direct costs and expenses of administration, including audit and legal costs. Expense Support Agreement On June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses, and other expenses approved by the Special Committee of the Board), at $667,000 per month (the “Cap”). Under the Expense Support Agreement, the Cap became effective on June 1, 2020 and was to expire on September 30, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020. The Expense Support Agreement expired by its terms at the close of business on December 31, 2020, in connection with the adoption of the internalized management structure by the board of directors. For the three months ended December 31, 2020, the total management fee and the other operating expenses subject to the Cap (as described above) were $2.5 million, which resulted in $0.3 million of expense support incurred during the quarter ended December 31, 2020 and due from MCC Advisors. The $0.3 million of expense support due was paid during the quarter ended March 31, 2021. See “Note 6” for more information. Long-Term Cash Incentive Plan On May 9, 2022, the board of directors of the Company adopted the PhenixFIN 2022 Long-Term Cash Incentive Plan (the “CIP”) pursuant to the recommendation by the Compensation Committee of the board of directors. The CIP provides for performance-based cash awards to key employees of the Company, as approved by the Compensation Committee, based on the achievement of pre-established financial goals for the approved performance period. The performance goals may be expressed as one or a combination of net asset value of the Company, net asset value per share of the Company’s common stock, changes in the market price of shares of the Company’s common stock, individual performance metrics and/or such other goals and objectives the Committee considers relevant in connection with accomplishing the purposes of the CIP. In connection with the approval of the CIP, the Compensation Committee in April 2022 approved awards for the three-year performance period commencing on January 1, 2022 and ending on December 31, 2024 (the “2022 LTIP Plan”). Each participant is eligible to receive an amount of cash equal to 0%-200% of the target award set forth in the table below (“Target Performance Award”), based on the achievement of net asset value (“NAV”) and NAV per share goals (weighted at 30% and 70%, respectively) as of the end of the performance period (the “Performance Goals”). Performance is evaluated separately for each Performance Goal. No payment is made with respect to a Performance Goal if a threshold level of performance is not achieved. Each Performance Goal is subject to (i) a threshold level of performance at which a percentage of the Target Performance Award attributable to that Performance Goal may be paid and below which no payment is made pursuant to an award, (ii) a target level of performance at which 100% of the Target Performance Award attributable to that Performance Goal may be paid and (iii) a maximum level of performance, at which 200% of the Target Performance Award attributable to that Performance Goal may be paid, in each case subject to such other terms and conditions of an award. Between threshold, target and maximum performance levels for each Performance Goal, the portion of that award attributed to the Performance Goals shall be interpolated in a linear progression. In December 2022, pursuant to the CIP, the Compensation Committee approved awards for Mr. Lorber and Ms. McMillan for the three-year performance period commencing on January 1, 2023 and ending on December 31, 2025 (the “2023 LTIP Plan”). Each participant is eligible to receive an amount of cash equal to a percentage of the target award amount set forth above based on the factors described above. The Compensation Committee, in approving the awards, evaluated each Performance Goal separately. The Target Performance Award for each executive officer for both the 2022 LTIP plan and 2023 LTIP plan is set forth in the table below: Name and Title Dollar Value of Target Award David Lorber, Chairman of the Board and Chief Executive Officer $ 890,000 Ellida McMillan, Chief Financial Officer 380,000 During the year ended September 30, 2023, the Company recorded an accrual of $317,000, for these awards. During the years ended September 30, 2022 and 2021, the Company did not record an accrual. 40 Portfolio and Investment Activity As of September 30, 2023 and 2022, our portfolio had a fair market value of approximately $226.5 million and $193.0 million, respectively. During the year ended September 30, 2023, we received proceeds from sale and settlements of investments of $66.6 million, including principal and dividend proceeds, realized net losses on investments of $11.5 million, and invested $76.5 million. During the year ended September 30, 2022, we received proceeds from sale and settlements of investments of $123.8 million, including principal and dividend proceeds, realized net gains on investments of $5.2 million, and invested $173.3 million. The following table summarizes the amortized cost and the fair value of our average portfolio company: September 30, 2023 September 30, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Average portfolio company $ 6,310 $ 5,392 $ 3,560 $ 2,608 Largest portfolio company 38,871 38,871 47,136 47,136 The following table summarizes the amortized cost and the fair value of investments as of September 30, 2023 (dollars in thousands): Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 139,103 52.5 % $ 103,004 45.6 % Senior Secured Notes 9,512 3.6 8,922 3.9 Fund Investment 1,027 0.4 792 0.3 Equity/Warrants 115,369 43.5 113,743 50.2 Total Investments $ 265,011 100.0 % $ 226,461 100.0 % The following table summarizes the amortized cost and the fair value of investments as of September 30, 2022 (dollars in thousands): Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 128,482 48.7 % $ 88,248 45.6 % Senior Secured Second Lien Term Loans 2,603 1.0 2,607 1.4 Senior Secured Notes 2,252 0.9 1,659 0.9 Unsecured Debt 182 0.1 - - Equity/Warrants 129,929 49.3 100,443 52.1 Total Investments $ 263,448 100.0 % $ 192,957 100.0 % As of September 30, 2023, our income-bearing investment portfolio based upon cost represented 88.2% of our total portfolio of which 59.5% bore interest based on floating rates, such as LIBOR or SOFR, 13.9% bore interest at fixed rates, and 26.6% are income-producing equity investments. As of September 30, 2022, our income-bearing investment portfolio based upon cost represented 62.0% of our total portfolio of which 81.9% bore interest based on floating rates, such as LIBOR or SOFR, while 18.1% bore interest at fixed rates. As of September 30, 2023, the Company had a weighted average yield of 13.3% on debt and other income producing investments. As of September 30, 2022, the Company had a weighted average yield of 10.85% on debt and other income producing investments. The weighted average yield of our total portfolio does not represent the total return to our stockholders. 41 We rate the risk profile of each of our investments based on the following categories: Credit Rating Definition 1 Investments that are performing above expectations. 2 Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination. All new loans are rated ’2’. 3 Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. Companies rated ’3’ may be out of compliance with financial covenants, however, loan payments are generally not past due. 4 Investments that are performing below expectations and for which risk has increased materially since origination. Some loss of interest or dividend is expected but no loss of principal. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due). 5 Investments that are performing substantially below expectations and whose risks have increased substantially since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Some loss of principal is expected. The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of September 30, 2023 and 2022 (dollars in thousands): September 30, 2023 September 30, 2022 Fair Value Percentage Fair Value Percentage 1 $ - 0.0 % $ - 0.0 % 2 197,951 87.4 % 159,279 82.6 % 3 15,651 6.9 % 22,183 11.5 % 4 6,362 2.8 % 6,250 3.2 % 5 6,497 2.9 % 5,245 2.7 % Total $ 226,461 100.0 % $ 192,957 100.0 % Results of Operations Operating results for the years ended September 30, 2023, 2022 and 2021 are as follows (dollars in thousands): For the Years Ended September 30, 2023 2022 2021 Total investment income $ 19,878 $ 15,544 $ 32,307 Less: Net expenses 13,622 12,113 13,784 Net investment income/(loss) 6,256 3,431 18,523 Net realized gains (losses) on investments (11,532 ) 5,221 (42,486 ) Net change in unrealized gains (losses) on investments 32,194 (14,463 ) 25,363 Loss on extinguishment of debt - (296 ) (122 ) Net increase (decrease) in net assets resulting from operations $ 26,918 $ (6,107 ) $ 1,278 Investment Income For the year ended September 30, 2023, investment income totaled $20.1 million, of which $12.1 million was attributable to portfolio interest, approximately $6.9 million was attributable to dividend income, $0.7 million was attributable to fee and other income, and $0.4 million was attributable to interest on cash and cash equivalents. Dividend income was received from 11 investments during the year ended September 30, 2023. For the year ended September 30, 2022, investment income totaled $15.5 million, of which $9.3 million was attributable to portfolio interest, approximately $5.5 million was attributable to dividend income, and $0.7 million was attributable to fee and other income. Dividend income was received from 12 investments during the year ended September 30, 2022. For the year ended September 30, 2021, investment income totaled $32.3 million, of which $29.6 million was attributable to portfolio interest and dividend income, $2.6 million was attributable to fee income, and $0.1 million was attributable to other income. 42 Operating Expenses Operating expenses for the years ended September 30, 2023, 2022 and 2021 are as follows (dollars in thousands): For the Years Ended September 30, 2023 2022 2021 Base management fees $ - $ - $ 1,146 Interest and financing expenses 5,532 5,113 5,800 Professional fees, net 1,405 1,341 560 Salaries and benefits 4,187 2,952 1,993 General and administrative 983 1,103 1,012 Directors fees 729 712 1,040 Insurance expenses 466 590 1,620 Administrator expenses 320 302 613 Total Expenses $ 13,622 $ 12,113 $ 13,784 For the year ended September 30, 2023, total operating expenses increased by $1.5 million, or 12.5%, compared to the year ended September 30, 2022. For the year ended September 30, 2022, total operating expenses decreased by $1.7 million, or 12.1%, compared to the year ended September 30, 2021. Operating expenses are before management and incentive fee waivers for the first three months of 2021. Effective beginning January 1, 2021, the Company no longer incurred any management or incentive fees, nor was it subject to expense support arrangements due to its transition to an internal management structure. Interest and Financing Expenses Interest and financing expenses for the year ended September 30, 2023 increased by $0.4 million, or 8.2%, compared to the year ended September 30, 2022. The increase in interest and financing expenses was primarily due to interest expense on the Credit Facility which was issued on December 15, 2022, partially offset by a decrease due to the full repayment of the 2023 Notes on January 17, 2023. Interest and financing expenses for the year ended September 30, 2022 decreased by $0.7 million, or 11.8%, compared to the year ended September 30, 2021. The decrease in interest and financing expenses was primarily due to the full repayment of the 2021 Notes on November 20, 2020 and the partial repayment of the 2023 Notes on December 16, 2021, partially offset by an increase due to the issuance of the 2028 Notes which became effective on November 16, 2021. Base Management Fees and Incentive Fees No base management fees were paid for the year ended September 30, 2023 and 2022 as, since January 1, 2021, the Company ceased incurring management fees under its current internalized structure. Base management fees for the year ended September 30, 2021 decreased by $5.2 million, or 82.0%, compared to the year ended September 30, 2020 as, since January 1, 2021, the Company no longer incurs management fees under its current internalized structure. No incentive fees were paid for the year ended September 30, 2023, 2022 or 2021. Since January 1, 2021, the Company no longer incurs incentive fees under its current internalized structure. Professional Fees and General and Administrative Expenses Professional fees and general and administrative expenses for the year ended September 30, 2023 decreased by $0.1 million, or 2.3%, compared to the year ended September 30, 2022. This resulted primarily from a decrease in miscellaneous expenses. Professional fees and general and administrative expenses for the year ended September 30, 2022 increased by $0.9 million, or 55.5%, compared to the year ended September 30, 2021. This resulted primarily from recording insurance proceeds received in 2021 as an offset to legal fees which are a component of professional fees. During the year ended September 30, 2022, the Company did not receive any insurance proceeds. 43 Net Realized Gains/Losses from Investments We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized. During the year ended September 30, 2023, we recognized $11.5 million of realized losses on our portfolio investments. The realized losses were primarily due to the restructuring of one investment and the full repayments of two investments. During the year ended September 30, 2022, we recognized $5.2 million of realized gains on our portfolio investments. The realized gains were primarily due to the partial and full repayments of two investments and the restructuring of three investments, offset by realized losses due to the sale of three investments and the repayment of four investments. During the year ended September 30, 2021, we recognized $42.5 million of realized losses on our portfolio investments. The realized losses were primarily due to the sale of the MCC JV in the first fiscal quarter of 2021. Realized loss on extinguishment of debt In the event that we modify or extinguish our debt prior to maturity, we account for it in accordance with ASC 470-50, Modifications and Extinguishments, in which we measure the difference between the reacquisition price of the debt and the net carrying amount of the debt, which includes any unamortized debt issuance costs. During the year ended September 30, 2023, the Company did not recognize a net loss on extinguishment of debt. During the year ended September 30, 2022, the Company recognized a net loss on extinguishment of debt of $0.3 million, which was due to the Company’s $55.3 million repayment of the 2023 Notes on December 16, 2021. During the year ended September 30, 2021, the Company recognized a net loss on extinguishment of debt of $0.1 million, which was due to the Company’s $74.0 million repayment of the 2021 Notes on November 20, 2020. Net Unrealized Appreciation/Depreciation on Investments Net change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio. For the year ended September 30, 2023, we had $31.9 million of net change in unrealized appreciation on investments. The net unrealized appreciation was comprised of $1.9 million of net unrealized depreciation on investments and $33.8 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized, partially sold, or written-off during the year. For the year ended September 30, 2022, we had $14.5 million of net change in unrealized depreciation on investments. The net unrealized depreciation was comprised of $21.3 million of net unrealized depreciation on investments and $6.9 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized, partially sold, or written-off during the year. For the year ended September 30, 2021, we had $25.3 million of net change in unrealized appreciation on investments. The net unrealized appreciation was comprised of $54.8 million of net unrealized depreciation on investments and $80.1 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized, partially sold, or written-off during the year. Provision for Deferred Taxes on Unrealized Depreciation on Investments Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the years ended September 30, 2023, 2022 and 2021, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments. Changes in Net Assets from Operations For the year ended September 30, 2023, we recorded a net increase in net assets resulting from operations of $26.9 million compared to a net decrease in net assets resulting from operations of $6.1 million for the year ended September 30, 2022, and a net increase in net assets resulting from operations of $1.2 million for the year ended September 30, 2021 as a result of the factors discussed above. Based on 2,092,326, 2,323,601 and 2,677,891 weighted average common shares outstanding for the years ended September 30, 2023, 2022 and 2021, respectively, our per share net increase (decrease) in net assets resulting from operations was $12.87, $(2.63) and $0.48 for the years ended September 30, 2023, 2022 and 2021, respectively. 44 Financial Condition, Liquidity and Capital Resources As a RIC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. To fund growth, we have a number of alternatives available to increase capital, including raising equity, increasing debt, and funding from operational cash flow. Our liquidity and capital resources historically have been generated primarily from the net proceeds of public offerings of common stock, advances from the Credit Facility and net proceeds from the issuance of notes as well as cash flows from operations. In the future, we may generate cash from future offerings of securities, future borrowings and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. Our primary use of funds is investments in our targeted asset classes, cash distributions to our stockholders, and other general corporate purposes. As of September 30, 2023 and 2022, we had $6.0 and $22.8 million in cash and cash equivalents, respectively. In order to maintain our RIC tax treatment under the Code, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, for each taxable year we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met). This requirement limits the amount that we may borrow. On January 11, 2021, the Company announced that its board of directors approved a share repurchase program. On February 9, 2022, the Board of Directors approved the expansion of the amount authorized for repurchase under the Company’s share repurchase program from $15 million to $25 million. On February 8, 2023, the Board of Directors approved the further expansion of the amount authorized for repurchase under the Company’s share repurchase program from $25 million to $35 million. Under the share repurchase program, the Company repurchased an aggregate of 649,996 shares of common stock through September 30, 2023, or 23.9% of shares issued as of the program’s inception, with a total cost of $25.7 million. The total remaining amount authorized under the expanded share repurchase program at September 30, 2023 was approximately $9.3 million. Credit Facility On December 15, 2022, the Company and its wholly-owned subsidiaries executed a three-year, $50 million revolving credit facility (the “Credit Facility”) with WoodForest Bank, N.A. (“WoodForest”), Valley National Bank, and Axiom Bank, (collectively, the “Lenders”). WoodForest is the administrative agent, sole bookrunner and sole lead arranger. As of September 30, 2023, there was $28.4 million outstanding borrowings by the Company under the Credit Facility. Outstanding loans under the Credit Facility bear a monthly interest rate at Term SOFR + 2.90%. The Company is also subject to a commitment fee of 0.25%, which shall accrue on the actual daily amount of the undrawn portion of the revolving credit. The Credit Facility contains customary representations and warranties and affirmative and negative covenants. The Credit Facility contains customary events of default for credit facilities of this type, including (without limitation): nonpayment of principal, interest, fees or other amounts after a stated grace period; inaccuracy of material representations and warranties; change of control; violations of covenants, subject in certain cases to stated cure periods; and certain bankruptcies and liquidations. If an event of default occurs and is continuing, the Company may be required to repay all amounts outstanding under the Credit Facility. Unsecured Notes 2021 Notes On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021 (the “2021 Notes”). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes bore interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016. On October 21, 2020, the Company caused notices to be issued to the holders of the 2021 Notes regarding the Company’s exercise of its option to redeem, in whole, the issued and outstanding 2021 Notes, pursuant to Section 1104 of the Indenture dated as of February 7, 2012, between the Company and U.S. Bank National Association, as trustee, and Section 101(h) of the Third Supplemental Indenture dated as of December 17, 2015. The Company redeemed $74,012,825 in aggregate principal amount of the issued and outstanding 2021 Notes on November 20, 2020 (the “Redemption Date”). The 2021 Notes were redeemed at 100% of their principal amount ($25 per 2021 Note), plus the accrued and unpaid interest thereon from October 31, 2020, through, but excluding, the Redemption Date. The Company funded the redemption of the 2021 Notes with cash on hand. 45 2023 Notes On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 2023 Notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option. On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2023 Notes bore interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. On December 12, 2016, the Company entered into an “At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and raised $38.6 million in net proceeds, through the ATM debt distribution agreement. On March 10, 2018, the Company redeemed $13.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.3 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt. On December 31, 2018, the Company redeemed $12.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt. On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of the 2023 Notes to the NASDAQ Global Market. The listing and trading of the 2023 Notes on the NYSE ceased at the close of trading on December 31, 2020. Effective January 4, 2021, the 2023 Notes trade on the NASDAQ Global Market under the trading symbol “PFXNL.” On November 15, 2021, the Company caused notices to be issued to the holders of the 2023 Notes regarding the Company’s exercise of its option to redeem $55,325,000 in aggregate principal amount of the issued and outstanding 2023 Notes on December 16, 2021. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.3 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt. On December 15, 2022, the Company caused notices to be issued to the holders of its 2023 Notes regarding the Company’s exercise of its option to redeem $22,521,800 in aggregate principal amount of issued and outstanding 2023 Notes, comprising all issued and outstanding 2023 Notes, at a price equal to 100% of the principal amount of the 2023 Notes, plus accrued and unpaid interest thereon from September 30, 2022, through, but excluding, January 17, 2023 in accordance with the terms of the indenture governing the 2023 Notes. The redemption was completed on January 17, 2023. The Company funded the redemption of the 2023 Notes with loans obtained under the Credit Facility. 2028 Notes On November 9, 2021, the Company entered into an underwriting agreement, by and between the Company and Oppenheimer & Co. Inc., as representative of the several underwriters named in Exhibit A thereto, in connection with the issuance and sale (the “Offering”) of $57,500,000 (including the underwriters’ option to purchase up to $7,500,000 aggregate principal amount) in aggregate principal amount of its 5.25% Notes due 2028 (the “2028 Notes” or the “Notes”). The Offering occurred on November 15, 2021, pursuant to the Company’s effective shelf registration statement on Form N-2 previously filed with the SEC, as supplemented by a preliminary prospectus supplement dated November 8, 2021, the pricing term sheet dated November 9, 2021 and a final prospectus supplement dated November 9, 2021. Effective November 16, 2021, the 2028 Notes began trading on the NASDAQ Global Market under the trading symbol “PFXNZ.” On November 15, 2021, the Company and U.S. Bank National Association, as trustee entered into a Fourth Supplemental Indenture to its base Indenture, dated February 7, 2012, between the Company and the Trustee. The Fourth Supplemental Indenture relates to the Offering of the 2028 Notes. 46 Contractual Obligations and Off-Balance Sheet Arrangements As of September 30, 2023 and 2022, we had commitments under loan and financing agreements to fund up to $3.4 million to four portfolio companies and $6.0 million to six portfolio companies, respectively. These commitments are primarily composed of senior secured delayed draw term loans and revolvers, and the determination of their fair value is included in the Consolidated Schedules of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of September 30, 2023 and 2022 is shown in the table below (dollars in thousands): September 30, 2023 September 30, 2022 SS Acquisition, LLC (dba Soccer Shots Franchising) - Senior Secured First Lien Delayed Draw Term Loan $ - $ 4,000 Kemmerer Operations, LLC - Senior Secured First Lien Delayed Draw Term Loan - 908 Secure Acquisition Inc. (dba Paragon Films) - Senior Secured First Lien Delayed Draw Term Loan 517 517 NVTN LLC - Senior Secured First Lien Delayed Draw Term Loan 220 220 Black Angus Steakhouses, LLC Senior Secured First Lien Super Priority Delayed Draw Term Loan - 167 1888 Industrial Services, LLC - Revolving Credit Facility - 216 Deer Management Systems LLC - Senior Secured First Lien Delayed Draw Term Loan 600 - Tamarix Capital Partners II, L.P. - Fund Investment 2,038 - Total unfunded commitments $ 3,375 $ 6,028 We entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”) in accordance with the 1940 Act. The Investment Management Agreement became effective upon the pricing of our initial public offering. Under the Investment Management Agreement, MCC Advisors agreed to provide us with investment advisory and management services. For these services, we agreed to pay a base management fee equal to a percentage of our gross assets and an incentive fee based on our performance. We also entered into an administration agreement with MCC Advisors as our administrator. The administration agreement became effective upon the pricing of our initial public offering. Under the administration agreement, MCC Advisors agreed to furnish us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide us with other administrative services necessary to conduct our day-to-day operations. MCC Advisors also provided on our behalf significant managerial assistance to those portfolio companies to which we are required to provide such assistance while the Investment Management Agreement and administration agreement were in effect. The Investment Management Agreement and administration agreement expired at the close of business on December 31, 2020, in connection with the Company’s adoption of an internalized management structure. The following table shows our payment obligations for repayment of debt and other contractual obligations at September 30, 2023 (dollars in thousands): Payments Due by Period 2024 2025 2026 2027 Thereafter Total Revolving Credit Facility $ - $ (28,441,941 ) $ - $ - $ - $ (28,441,941 ) 2028 Notes - - - - (57,500,000 ) (57,500,000 ) Operating Lease Obligation (1) (156,359 ) (156,971 ) (161,680 ) (27,417 ) - (502,427 ) Total contractual obligations $ (156,359 ) $ (28,598,912 ) $ (161,680 ) $ (27,417 ) $ (57,500,000 ) $ (86,444,368 ) (1) Operating Lease Obligation means a rent payment obligation under a lease classified as an operating lease and disclosed pursuant to ASC 842, as may be modified or supplemented. Distributions We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any taxable year with respect to which we timely distribute at least 90 percent of the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax or excise tax, described below. 47 Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of: 1) at least 98.0% of our ordinary income (not taking into account any capital gains or losses) for the calendar year; 2) at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period ending on October 31st of the calendar year; and 3) income realized, but not distributed, in preceding years and on which we did not pay federal income tax. While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of dividends or year-to-year increases in dividends. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay dividends. All dividends will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay dividends to our stockholders in the future. To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains. We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions. The Company did not declare any regular distribution payments during the years ended September 30, 2023, 2022 and 2021. During the year ended September 30, 2022, a special dividend was declared in the amount of $265,798 on June 24, 2022 payable on July 13, 2022 to Stockholders of record on July 5, 2022. Related Party Transactions We have adopted a formal business code of conduct and ethics that governs the conduct of our CEO, CFO, chief accounting officer (which role is currently fulfilled by our CFO) and controller (Covered Officers). Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporation Law. Our Code of Business Conduct and Ethics requires that all Covered Officers promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between an individual’s personal and professional relationships. Pursuant to our Code of Business Conduct and Ethics, each Covered Officer must disclose to the Company’s CCO any conflicts of interest, or actions or relationships that might give rise to a conflict. Any approvals or waivers under our Code of Business Conduct and Ethics must be considered by the disinterested directors. Base Management Fee and Incentive Fee Prior to January 1, 2021, we operated pursuant to an investment management agreement with MCC Advisors which expired on December 31, 2020. Since January 1, 2021, we have operated pursuant to an internalized management structure. Through December 31, 2020, the investment management agreement with MCC Advisors provided for a base management fee and an incentive fee. The base management fee was calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets and was payable quarterly in arrears. The base management fee was to be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and was to be appropriately pro-rated for any partial quarter. For the year ended September 30, 2021, the Company incurred base management fees to MCC Advisors of $1.1 million. No incentive fee was payable for the year ended September 30, 2021. Since January 1, 2021, the Company no longer incurs management fees under its current internalized structure. Pledge and Security Agreement In connection with the Credit Facility discussed in Note 5, the Company has entered into a Pledge and Security Agreement with the Lenders pursuant to which the Company and its wholly owned subsidiaries have pledged all their assets, including the cash and securities held in the Company’s custodial account with Computershare Trust Company, N.A., as collateral for any borrowings made by the Company pursuant to the Credit Agreement. The Lenders have the typical rights and remedies of a secured lender under the Uniform Commercial Code, including the right to foreclose on the collateral pledged by the Company. 48 Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Valuation of Portfolio Investments The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy, and certain prior period amounts have been reclassified to conform to the current period presentation. The three levels are defined below: ● Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date. ● Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. ● Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. We value investments for which market quotations are readily available at their market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our board of directors under our valuation policy and process. We may seek pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments. Valuation methods may include comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, which permits a BDC’s board of directors to designate its executive officer(s) as a valuation designee to determine the fair value of its investment portfolio, subject to the oversight of the board. The Board approved policies and procedures pursuant to Rule 2a-5 and has designated Ellida McMillan, the Company’s CFO, to serve as the Board’s valuation designee (“Valuation Designee”), subject to the Board’s oversight, effective September 8, 2022. With respect to investments for which market quotations are not readily available, our board oversees and our Valuation Designee undertakes a multi-step valuation process each quarter, as described below: ● Our quarterly valuation process generally begins with each investment being initially valued by a Valuation Firm. ● Available third-party market data will be reviewed by Company personnel designated by the Valuation Designee (“Fair Value Personnel”) and the Valuation Firm. ● Available portfolio company data and general industry data is then reviewed by the Fair Value Personnel. ● Preliminary valuation conclusions are then documented by the Valuation Firm and discussed with the Fair Value Personnel. ● The Valuation Designee then determines the fair value of each investment in the Company’s portfolio in good faith based on such discussions, the Company’s Valuation Policy and the Valuation Firms’ final estimated valuations. 49 In following these approaches, the types of factors that are taken into account in fair value pricing investments include available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flows; the markets in which the portfolio company does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values. Determination of fair values involves subjective judgments and estimates made by management. The notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements. Revenue Recognition Our revenue recognition policies are as follows: Investments and Related Investment Income: We account for investment transactions on a trade-date basis and interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. Origination, closing and/or commitment fees associated with investments in portfolio companies are recognized as income when the investment transaction closes. Other fees are capitalized as deferred revenue and recorded into income over the respective period. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. We report changes in the fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in our Consolidated Statements of Operations. Non-accrual: We place loans on non-accrual status when principal and interest payments are past due by 90 days or more, or when there is reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. At September 30, 2023, certain investments in four portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $6.5 million, or 2.9% of the fair value of our portfolio. At September 30, 2022, certain investments in five portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $5.2 million, or 2.7% of the fair value of our portfolio. Federal Income Taxes The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code and it intends to operate in a manner so as to maintain its RIC tax treatment. To do so, among other things, the Company is required to meet certain source of income and asset diversification requirements and must timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year. The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its net ordinary income for any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI. Because federal income tax requirements differ from GAAP, distributions in accordance with tax requirements may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. Recent Developments In December 2023, the Company established a subsidiary to serve as a regulated insurance company. This subsidiary also entered into a merger agreement pursuant to which it agreed to acquire a controlling interest in VR Insurance SPV, LLC, a company primarily engaged in the insurance business through its subsidiaries (“VR”), and to provide additional capital to such company. Our subsidiary’s controlling interest in VR is being acquired pursuant to a plan of reorganization duly adopted by VR which calls for the merger and recapitalization of VR. The Company’s total investment in the insurance subsidiary and VR is expected to approximate $49 million. The merger transaction is presently expected to close in the first half of 2024 and is subject to various closing conditions, including insurance regulatory approvals. 50 Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments and cash and cash equivalents. Our investment income will be affected by changes in various interest rates, including SOFR, to the extent our debt investments include floating interest rates. In the future, we expect other loans in our portfolio will have floating interest rates. In 2023, the Federal Reserve raised short-term interest rates and has indicated additional interest rate increases may come. In addition, U.S. and global capital markets and credit markets have experienced a higher level of stress due to the higher interest rate environment, pandemics, and other market events, which has resulted in an increase in the level of volatility across such markets. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. For the year ended September 30, 2023, we did not engage in hedging activities. As of September 30, 2023, 59.6% of our income-bearing investment portfolio bore interest based on floating rates based upon fair value. The substantial majority of this component of our portfolio bore interest based on a SOFR reference rate. Certain such investments used a LIBOR reference rate at September 30, 2023, but no such investments utilize a LIBOR reference rate as of the date of this report. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in the applicable reference rates are not offset by a corresponding increase in the spread over the reference rates that we earn on any portfolio investments, a decrease in our operating expenses, including with respect to any income incentive fee, or a decrease in the interest rate of our floating interest rate liabilities tied to reference rates. In contrast, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. In addition, a rise in interest rates may increase the likelihood that a portfolio company defaults on a loan. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. The composition of our floating rate debt investments by cash interest rate floor as of September 30, 2023 was as follows (dollars in thousands): September 30, 2023 LIBOR and SOFR Floor Fair Value % of Floating Rate Portfolio Under 1% $ 20,461 20.5 % 1% to under 2% 56,574 56.8 3% to under 4% 11,130 11.2 No Floor 11,454 11.5 Total $ 99,619 100.0 % Based on our Consolidated Statements of Assets and Liabilities as of September 30, 2023, the following table (dollars in thousands) shows the approximate increase/(decrease) in components of net assets resulting from operations of hypothetical reference rate changes in interest rates, assuming no changes in our investment and capital structure. Change in Interest Rates Interest Income (1) Interest Expense Net Increase/ (Decrease) Up 300 basis points $ 6,800 $ (900 ) $ 5,900 Up 200 basis points 4,500 (600 ) 3,900 Up 100 basis points 2,300 (300 ) 2,000 Down 100 basis points (2,300 ) 300 (2,000 ) Down 200 basis points (4,500 ) 600 (3,900 ) Down 300 basis points (6,800 ) 900 (5,900 ) (1) Assumes no defaults or prepayments by portfolio companies over the next twelve months. 51 Item 8. Consolidated Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm s F-2 Consolidated Statements of Assets and Liabilities as of September 30, 2023 and 2022 F-4 Consolidated Statements of Operations for the years ended September 30, 2023, 2022 and 2021 F-5 Consolidated Statements of Changes in Net Assets for the years ended September 30, 2023, 2022 and 2021 F-6 Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and 2021 F-7 Consolidated Schedules of Investments as of September 30, 2023 and 2022 F-8 Notes to Consolidated Financial Statements F-19 F- 1 Reports of Independent Registered Public Accounting Firms To the Shareholders and Board of Directors PhenixFIN Corporation: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of assets and liabilities of PhenixFIN Corporation and subsidiaries (the Company), including the consolidated schedule of investments, as of September 30, 2023, the related consolidated statements of operations, changes in net assets, and cash flows for the year ended September 30, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations and its cash flows for the year ended September 30, 2023, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Such procedures also included confirmation of securities owned as of September 30, 2023, by correspondence with custodians, portfolio companies, agents, or by other appropriate auditing procedures. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value of investments As discussed in Notes 2, 3 and 4 of the consolidated financial statements, the Company measures its investments at fair value. The Company determines the fair value of investments that are not publicly traded and whose market quotations are not readily available using one or more methodologies including the market approach and income approach, which requires the Company to make subjective judgments and estimates using unobservable inputs. As of September 30, 2023, the fair value of level 3 investments was $165.3 million. We identified the assessment of the fair value of level 3 investments for which unobservable inputs were used as a critical audit matter. The key assumptions used to estimate the fair value of these investments related to the market yield associated with the portfolio company used in an income approach and the selection of financial performance multiples of comparative companies used in a market approach. Evaluating these assumptions involved a high degree of subjective auditor judgment and involvement of professionals with specialized skills and knowledge. Changes in these assumptions could have a significant impact on the estimated fair value of investments. The following are the procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls over the Company’s process to estimate the fair value of level 3 investments, including controls related to the determination of market yield and financial performance multiples assumptions. We evaluated the Company’s ability to estimate fair value by comparing prior period fair values for a selection of investments to transaction prices of transactions occurring subsequent to the prior period valuation date. We involved valuation professionals with specialized skills and knowledge who, for a selection of the Company’s investments, evaluated the Company’s estimate of fair value by developing an independent estimate of fair value using independent market yields and financial performance multiples that were developed using relevant market and portfolio company financial information and comparing such estimates to the fair values recorded by the Company for the selected investments. /s/ KPMG LLP We have served as the Company’s auditor since 2023. New York, New York December 22, 2023 F- 2 To the Shareholders and the Board of Directors of PhenixFIN Corporation Opinion on the Financial Statements We have audited the accompanying consolidated statement of assets and liabilities of PhenixFIN Corporation (the Company), including the consolidated schedule of investments, as of September 30, 2022, the related consolidated statements of operations, changes in net assets, and cash flows for each of the two years in the period ended September 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2022, and the results of its operations, changes in its net assets, and its cash flows for each of the two years in the period ended September 30, 2022 in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of September 30, 2022, by correspondence with the custodians, directly with designees of the portfolio companies and debt agents, as applicable, when replies were not received from designees of the portfolio companies and debt agents, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor from 2010 to 2022. New York, New York December 22, 2022 F- 3 PHENIXFIN CORPORATION Consolidated Statements of Assets and Liabilities September 30, 2023 September 30, 2022 Assets: Investments at fair value Non-controlled, non-affiliated investments (amortized cost of $ 134,339,121 and $ 147,378,917 , respectively) $ 125,531,031 $ 122,616,275 Affiliated investments (amortized cost of $ 48,223,910 and $ 30,585,884 , respectively) 37,289,617 12,314,192 Controlled investments (amortized cost of $ 82,437,692 and $ 85,483,093 , respectively) 63,640,043 58,026,182 Total Investments at fair value 226,460,691 192,956,649 Cash and cash equivalents 5,988,223 22,768,066 Receivables: Interest receivable 971,115 727,576 Paydown receivable - 112,500 Dividends receivable 161,479 269,330 Other receivable 31,425 36,992 Other assets 833,000 1,192,677 Deferred financing costs 699,124 50,000 Due from affiliate 409,214 271,962 Prepaid share repurchase 199,019 489,156 Receivable for investments sold 3,940,175 - Total Assets $ 239,693,465 $ 218,874,908 Liabilities: Credit facility and note payable (net of debt issuance costs of $ 1,688,835 and $ 2,059,164 , respectively) $ 84,253,106 $ 77,962,636 Payable for investments purchased 4,123,059 16,550,000 Accounts payable and accrued expenses 3,066,984 2,040,277 Interest and fees payable 690,398 503,125 Other liabilities 432,698 572,949 Deferred revenue 421,685 325,602 Administrator expenses payable (see Note 6) - 74,911 Total Liabilities 92,987,930 98,029,500 Commitments and Contingencies (see Note 8) Net Assets: Common Shares, $ 0.001 par value; 5,000,000 shares authorized; 2,723,709 shares issued; 2,073,713 and 2,102,129 common shares outstanding, respectively 2,074 2,102 Capital in excess of par value 694,812,239 675,401,802 Total distributable earnings (loss) ( 548,108,778 ) ( 554,558,496 ) Total Net Assets 146,705,535 120,845,408 Total Liabilities and Net Assets $ 239,693,465 $ 218,874,908 Net Asset Value Per Common Share $ 70.75 $ 57.49 The accompanying notes are an integral part of these consolidated financial statements. F- 4 PHENIXFIN CORPORATION Consolidated Statements of Operations For the Years Ended September 30, 2023 2022 2021 Interest Income: Interest from investments Non-controlled, non-affiliated investments: Cash $ 8,031,539 $ 5,207,850 $ 5,974,807 Payment in-kind 506,555 444,741 609,964 Affiliated investments: Cash 1,925,293 639,733 1,099,809 Payment in-kind 460,856 374,981 327,804 Controlled investments: Cash 667,312 2,489,381 75,000 Payment in-kind 557,981 - - Total interest income 12,149,536 9,156,686 8,087,384 Dividend income 6,856,268 5,503,425 21,564,348 Interest from cash and cash equivalents 400,031 139,942 10,402 Fee income (see Note 9) 324,290 420,279 2,566,519 Other income 402,138 323,828 78,204 Total Investment Income 20,132,263 15,544,160 32,306,857 Expenses: Base management fees (see Note 6) - - 1,146,403 Interest and financing expenses 5,531,833 5,113,105 5,800,100 Salaries and benefits 4,186,852 2,952,106 1,993,277 Professional fees, net 1,404,676 1,340,828 559,975 General and administrative expenses 983,274 1,103,125 1,012,147 Directors fees 728,833 712,000 1,039,717 Insurance expenses 466,319 590,178 1,619,536 Administrator expenses (see Note 6) 320,310 301,281 612,983 Total expenses 13,622,097 12,112,623 13,784,138 Net Investment Income 6,510,166 3,431,537 18,522,719 Realized and unrealized gains (losses) on investments Net realized gains (losses): Non-controlled, non-affiliated investments ( 10,538,228 ) 810,240 7,747,672 Affiliated investments ( 1,018,267 ) 4,408,961 ( 10,088,405 ) Controlled investments 23,456 1,850 ( 40,144,795 ) Total net realized gains (losses) ( 11,533,039 ) 5,221,051 ( 42,485,528 ) Net change in unrealized gains (losses): Non-controlled, non-affiliated investments 15,954,552 ( 16,701,153 ) ( 5,022,484 ) Affiliated investments 7,327,399 96,490 ( 10,342,450 ) Controlled investments 8,659,262 2,141,326 40,728,006 Total net change in unrealized gains (losses) 31,941,213 ( 14,463,337 ) 25,363,072 Loss on extinguishment of debt (see Note 5) - ( 296,197 ) ( 122,355 ) Total realized and unrealized gains (losses) 20,408,174 ( 9,538,483 ) ( 17,244,811 ) Net Increase (Decrease) in Net Assets Resulting from Operations $ 26,918,340 $ ( 6,106,946 ) $ 1,277,908 Weighted average basic and diluted earnings per common share $ 12.87 $ ( 2.63 ) $ 0.48 Weighted average common shares outstanding - basic and diluted (see Note 11) 2,092,326 2,323,601 2,677,891 The accompanying notes are an integral part of these consolidated financial statements. F- 5 PHENIXFIN CORPORATION Consolidated Statements of Changes in Net Assets Common Stock Shares Par Amount Capital in Excess of Par Value Total Distributable Earnings/(Loss) Total Net Assets Balance at September 30, 2020 2,723,709 $ 2,724 $ 672,381,617 $ ( 521,764,824 ) $ 150,619,517 OPERATIONS Net investment income (loss) - - - 18,522,719 18,522,719 Net realized gains (losses) on investments - - - ( 42,485,528 ) ( 42,485,528 ) Net change in unrealized appreciation (depreciation) on investments - - - 25,363,072 25,363,072 Net loss on extinguishment of debt - - - ( 122,355 ) ( 122,355 ) CAPITAL SHARE TRANSACTIONS Distributions declared - - - - - Repurchase of common shares ( 206,488 ) ( 207 ) ( 8,203,237 ) - ( 8,203,444 ) Tax reclassification of shareholders’ equity in accordance with generally accepted accounting principles - - 24,688,262 ( 24,688,262 ) - Total Increase (Decrease) in Net Assets ( 206,488 ) ( 207 ) 16,485,025 ( 23,410,354 ) ( 6,925,536 ) Balance at September 30, 2021 2,517,221 $ 2,517 $ 688,866,642 $ ( 545,175,178 ) $ 143,693,981 OPERATIONS Net investment income (loss) - - - 3,431,537 3,431,537 Net realized gains (losses) on investments - - - 5,221,051 5,221,051 Net change in unrealized appreciation (depreciation) on investments - - - ( 14,463,337 ) ( 14,463,337 ) Net loss on extinguishment of debt - - - ( 296,197 ) ( 296,197 ) CAPITAL SHARE TRANSACTIONS Distributions declared - - ( 265,798 ) - ( 265,798 ) Repurchase of common shares ( 415,092 ) ( 415 ) ( 16,475,414 ) - ( 16,475,829 ) Tax reclassification of shareholders’ equity in accordance with generally accepted accounting principles - - 3,276,372 ( 3,276,372 ) - Total Increase (Decrease) in Net Assets ( 415,092 ) ( 415 ) ( 13,464,840 ) ( 9,383,318 ) ( 22,848,573 ) Balance at September 30, 2022 2,102,129 $ 2,102 $ 675,401,802 $ ( 554,558,496 ) $ 120,845,408 OPERATIONS Net investment income (loss) - - - 6,510,166 6,510,166 Net realized gains (losses) on investments - - - ( 11,533,039 ) ( 11,533,039 ) Net change in unrealized appreciation (depreciation) on investments - - - 31,941,213 31,941,213 Net loss on extinguishment of debt - - - - - CAPITAL SHARE TRANSACTIONS Repurchase of common shares ( 28,416 ) ( 28 ) ( 1,058,185 ) - ( 1,058,213 ) Tax reclassification of shareholders’ equity in accordance with generally accepted accounting principles - - 20,468,622 ( 20,468,622 ) - Total Increase (Decrease) in Net Assets ( 28,416 ) ( 28 ) ( 19,410,437 ) 6,449,718 25,860,127 Balance at September 30, 2023 2,073,713 $ 2,074 $ 694,812,239 $ ( 548,108,778 ) $ 146,705,535 The accompanying notes are an integral part of these consolidated financial statements. F- 6 PHENIXFIN CORPORATION Consolidated Statements of Cash Flows For the Years Ended September 30, 2023 2022 2021 Cash Flows from Operating Activities: Net increase (decrease) in net assets resulting from operations $ 26,918,340 $ ( 6,106,946 ) $ 1,277,908 Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: Investment increases due to payment-in-kind interest ( 1,525,392 ) ( 819,722 ) ( 937,768 ) Net amortization of premium (discount) on investments ( 1,560,684 ) ( 219,513 ) ( 44,455 ) Amortization of debt issuance cost 370,329 368,471 363,812 Amortization of deferred financing cost 286,597 - - Net realized (gains) losses from investments 11,533,039 ( 5,221,051 ) 42,485,528 Net unrealized (gains) losses on investments ( 31,941,213 ) 14,463,337 ( 25,363,072 ) Proceeds from sale and settlements of investments 66,642,920 123,801,226 124,303,888 Purchases, originations and participations ( 76,652,712 ) ( 173,321,143 ) ( 45,340,354 ) Loss on extinguishment of debt - 296,197 122,355 (Increase) decrease in operating assets: Fees receivable - 1,872,700 ( 1,753,672 ) Interest receivable ( 243,539 ) ( 356,000 ) 252,948 Due from affiliate ( 137,252 ) ( 271,962 ) - Receivable for investments sold ( 3,940,175 ) - - Dividends receivable 107,851 ( 188,119 ) ( 81,211 ) Paydown receivable 112,500 179,515 ( 292,015 ) Other receivable 5,567 ( 36,992 ) - Prepaid share repurchase 290,137 - - Other assets 359,677 159,069 691,813 Increase (decrease) in operating liabilities: Payable for investments purchased ( 12,426,941 ) 14,964,000 1,586,000 Accounts payable and accrued expenses 1,026,707 623,753 ( 691,701 ) Due to affiliates - ( 280,323 ) 227,240 Administrator expenses payable ( 74,911 ) 6,991 ( 89,045 ) Interest and fees payable 187,273 503,125 ( 801,805 ) Deferred revenue 96,083 325,602 ( 10,529 ) Management and incentive fees payable, net - - ( 1,392,022 ) Other liabilities ( 140,251 ) ( 40,586 ) 613,534 Net cash provided by (used in) operating activities ( 20,706,050 ) ( 29,298,371 ) 95,127,377 Cash Flows from Financing Activities: Debt issuance 36,441,941 57,500,000 - Paydowns on debt ( 30,521,800 ) ( 55,325,000 ) ( 74,012,825 ) Distributions paid to shareholders - ( 265,798 ) - Debt issuance costs paid - ( 2,311,036 ) - Deferred financing costs ( 935,721 ) - - Repurchase of common shares ( 1,058,213 ) ( 16,964,985 ) ( 8,203,444 ) Net cash provided by (used in) financing activities 3,926,207 ( 17,366,819 ) ( 82,216,269 ) Net increase (decrease) in cash and cash equivalents ( 16,779,843 ) ( 46,665,190 ) 12,911,108 Cash and cash equivalents, beginning of period 22,768,066 69,433,256 56,522,148 Cash and cash equivalents, end of period $ 5,988,223 $ 22,768,066 $ 69,433,256 Supplemental information: Interest paid during the period $ 4,647,166 $ 4,241,510 $ 6,601,905 The accompanying notes are an integral part of these consolidated financial statements. F- 7 PHENIXFIN CORPORATION Consolidated Schedule of Investments As of September 30, 2023 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Non-Controlled/Non-Affiliated Investments: Altisource S.A.R.L.(11) Services: Business Senior Secured First Lien Term Loan B (SOFR + CSA + 5.00 %, 3.75 % PIK)(20)(25) 4/30/2025 $ 9,565,710 $ 8,507,963 $ 7,805,619 5.31 % Warrants(21) 5/22/2027 75,080 - 206,470 0.14 % 9,640,790 8,507,963 8,012,089 5.45 % Arcline FM Holdings, LLC Aerospace & Defense First Lien Term Loans (SOFR + CSA + 4.75 %, 0.75 % Floor)(20)(25) 6/23/2028 2,679,494 2,591,013 2,644,660 1.80 % 2,679,494 2,591,013 2,644,660 1.80 % Be Green Packaging, LLC Containers, Packaging & Glass Equity - 417 Common Units(21) 417 416,250 - 0.00 % 417 416,250 - 0.00 % Boostability Seotowncenter, Inc. Services: Business Equity - 833,152 Common Units(21) 833,152 66,475 - 0.00 % 833,152 66,475 - 0.00 % CB&L Associates Holdco I, LLC (11) Banking, Finance, Insurance & Real Estate First Lien Term Loan (SOFR + CSA+ 2.75 %, 1.00 % Floor)(14)(20)(24) 11/1/2025 5,916,102 4,990,179 5,191,380 3.53 % 5,916,102 4,990,179 5,191,380 3.53 % Chimera Investment Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 117,310 Class C Preferred Units(13)(15) 117,310 2,884,724 2,116,271 1.44 % Equity - 163,601 Class D Preferred Units(13)(9) 163,601 3,463,275 3,414,353 2.32 % 280,911 6,347,999 5,530,624 3.76 % Copper Property CTL Pass Through Trust Banking, Finance, Insurance & Real Estate Equity Certificates(14) 597,795 7,547,670 6,217,067 4.23 % DataOnline Corp. High Tech Industries Senior Secured First Lien Term Loan (SOFR + CSA + 5.50 %, 1.00 % Floor)(20)(25) 11/13/2025 4,812,500 4,812,500 4,764,375 3.24 % Revolving Credit Facility (SOFR + CSA + 5.50 %, 1.00 % Floor)(20)(25) 11/13/2025 714,286 714,286 707,143 0.48 % 5,526,786 5,526,786 5,471,518 3.72 % Deer Management Systems LLC Consumer Discretionary First Lien Term Loan (SOFR + CSA + 8.25 %, 3.00 % Floor)(8)(20)(25) 5/1/2028 3,357,500 3,294,306 3,323,925 2.26 % 3,357,500 3,294,306 3,323,925 2.26 % DirecTV Financing, LLC Media: Broadcasting & Subscription Senior Secured First Lien Term Loan (SOFR + CSA + 5.00 %, 0.75 % Floor)(14)(20)(24) 8/2/2027 4,100,000 4,100,000 4,003,908 2.72 % 4,100,000 4,100,000 4,003,908 2.72 % First Brands Group, LLC Automotive Senior Secured First Lien Term Loan (SOFR + CSA + 5.00 %, 1.00 % Floor)(20)(26) 3/30/2027 3,919,598 3,919,598 3,880,402 2.64 % 3,919,598 3,919,598 3,880,402 2.64 % Franklin BSP Realty Trust, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 226,107 Common Units(13) 226,107 3,572,788 2,993,657 2.04 % 226,107 3,572,788 2,993,657 2.04 % Global Accessories Group, LLC Consumer goods: Non-durable Equity - 3.8 % Membership Interest(21) 380 151,337 - 0.00 % 380 151,337 - 0.00 % Innovate Corp.(11) Construction & Building 8.50 % Senior Secured Notes(14) 2/1/2026 2,750,000 2,615,913 2,076,250 1.41 % 2,750,000 2,615,913 2,076,250 1.41 % Invesco Mortgage Capital, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 205,000 Class C Preferred Units(13)(16) 205,000 5,035,506 3,989,300 2.71 % 205,000 5,035,506 3,989,300 2.71 % JFL-NGS-WCS Partners, LLC Construction & Building Senior Secured First Lien Term Loan B (SOFR + CSA+ 5.50 %, 1.00 % Floor)(20)(24) 11/12/2026 861,605 864,482 865,913 0.59 % Equity - 10,000,000 Units(21) 10,000,000 10,000,000 11,733,525 7.98 % 10,861,605 10,864,482 12,599,438 8.57 % Lighting Science Group Corporation Containers, Packaging & Glass Warrants - 0.62 % of Outstanding Equity(21) 5,000,000 955,680 - 0.00 % 5,000,000 955,680 - 0.00 % The accompanying notes are an integral part of these consolidated financial statements. F- 8 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2023 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Lucky Bucks, LLC Consumer Discretionary Equity - 180,739 Membership Units (21) 180,739 174,393 1,545,318 1.05 % Second Out Exit Term Loan (SOFR + CSA + 7.50 %, 1.00 % Floor)(20)(24) 10/2/2029 1,361,240 1,334,015 1,361,240 0.93 % First Out Exit Term Loan (SOFR + CSA + 7.50 %, 1.00 % Floor)(20)(24) 10/2/2028 689,541 626,519 689,541 0.47 % 2,231,520 2,134,927 3,596,099 2.45 % McKissock Investment Holdings, LLC (dba Colibri) Services: Consumer Senior Secured First Lien Term Loan (SOFR + CSA + 5.00 %, 0.75 % Floor)(20)(25) 3/12/2029 4,924,535 4,883,570 4,776,799 3.25 % 4,924,535 4,883,570 4,776,799 3.25 % MFA Financial, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 97,426 Class C Preferred Units(13)(19) 97,426 2,318,487 1,856,940 1.26 % 97,426 2,318,487 1,856,940 1.26 % New York Mortgage Trust, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 165,000 Class E Preferred Units(13)(18) 165,000 4,102,076 3,677,850 2.50 % 165,000 4,102,076 3,677,850 2.50 % PennyMac Financial Services, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 29,500 Common Units(13) 29,500 1,921,275 1,964,700 1.34 % 29,500 1,921,275 1,964,700 1.34 % PHH Mortgage Corp. Banking, Finance, Insurance & Real Estate 7.875 % Senior Secured Note(14) 3/15/2026 7,686,000 6,895,720 6,845,344 4.66 % 7,686,000 6,895,720 6,845,344 4.66 % Point.360 Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.00 % PIK)(10)(21) 7/8/2020 2,777,366 2,103,712 - 0.00 % 2,777,366 2,103,712 - 0.00 % Power Stop LLC Automotive Senior Secured First Lien Term Loan (SOFR + CSA + 4.75 %, 0.50 % Floor)(20)(24) 1/26/2029 6,919,937 6,515,010 5,639,748 3.84 % 6,919,937 6,515,010 5,639,748 3.84 % Rithm Capital Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 206,684 Class B Preferred Units(13)(17) 206,684 5,129,170 4,695,860 3.20 % 206,684 5,129,170 4,695,860 3.20 % Secure Acquisition Inc. (dba Paragon Films) Packaging Senior Secured First Lien Term Loan (SOFR + CSA + 5.00 %, 0.50 % Floor)(20)(25) 12/16/2028 3,430,517 3,418,570 3,396,212 2.31 % Senior Secured First Lien Delayed Draw Term Loan (SOFR + CSA + 5.00 %, 0.50 % Floor)(8)(12)(20)(25) 12/16/2028 - ( 970 ) - 0.00 % 3,430,517 3,417,600 3,396,212 2.31 % SS Acquisition, LLC (dba Soccer Shots Franchising) Services: Consumer Senior Secured First Lien Term Loan (SOFR + CSA + 6.50 %, 1.00 % Floor)(20)(24) 12/30/2026 6,666,667 6,592,976 6,666,667 4.54 % Senior Secured First Lien Delayed Draw Term Loan (SOFR + CSA + 6.50 %, 1.00 % Floor)(20)(24) 12/30/2026 3,200,000 3,160,542 3,200,000 2.18 % 9,866,667 9,753,518 9,866,667 6.72 % SMART Financial Operations, LLC Retail Equity - 700,000 Class A Preferred Units(21) 700,000 700,000 978,140 0.67 % 700,000 700,000 978,140 0.67 % Stancor (dba Industrial Flow Solutions Holdings, LLC) Services: Business Equity - 338,736.11 Class A Units(21) 338,736 308,652 200,566 0.14 % 338,736 308,652 200,566 0.14 % Staples, Inc. Services: Consumer First Lien Term Loan (LIBOR + 4.50 %)(14) 9/12/2024 3,692,159 3,655,672 3,648,315 2.48 % 3,692,159 3,655,672 3,648,315 2.48 % Tamarix Capital Partners II, L.P.(11) Banking, Finance, Insurance & Real Estate Fund Investment(8)(21) N/A 1,026,818 792,346 0.54 % - 1,026,818 792,346 0.54 % Thryv Holdings, Inc.(11) Media: Broadcasting & Subscription Senior Secured First Lien Term Loan (SOFR + CSA + 8.50 %, 1.00 % Floor)(14)(20)(24) 3/1/2026 7,656,442 7,604,838 7,661,227 5.21 % 7,656,442 7,604,838 7,661,227 5.21 % Velocity Pooling Vehicle, LLC Automotive Equity - 5,441 Class A Units(21) 5,441 302,464 - 0.00 % Warrants - 0.65 % of Outstanding Equity(21) 3/30/2028 6,506 361,667 - 0.00 % 11,947 664,131 - 0.00 % Wingman Holdings, Inc. Aerospace & Defense Equity - 350 Common Shares(21) 350 700,000 - 0.00 % 350 700,000 - 0.00 % Subtotal Non-Controlled/Non-Affiliated Investments $ 106,630,423 $ 134,339,121 $ 125,531,031 85.41 % The accompanying notes are an integral part of these consolidated financial statements. F- 9 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2023 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Affiliated Investments: (6) 1888 Industrial Services, LLC Energy: Oil & Gas Senior Secured First Lien Term Loan A (SOFR + 5.00 % PIK, 1.00 % Floor)(10)(21)(25) 8/31/2024 $ 9,946,741 $ 9,473,068 $ - 0.00 % Senior Secured First Lien Term Loan C (SOFR + 5.00 %, 1.00 % Floor)(25) 8/31/2024 1,231,932 1,191,257 751,479 0.51 % Revolving Credit Facility (SOFR + 5.00 %, 1.00 % Floor)(12)(25) 8/31/2024 4,632,177 4,632,177 4,632,177 3.15 % Equity - 21,562 Class A Units(21) 21,562 - - - 15,832,412 15,296,502 5,383,656 3.66 % Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (SOFR + CSA + 9.00 % PIK, 1.00 % Floor)(20)(24) 1/31/2024 875,749 875,749 875,749 0.60 % Senior Secured First Lien Term Loan (SOFR + CSA + 9.00 % PIK, 1.00 % Floor)(10)(20)(24) 1/31/2024 13,029,115 7,767,533 1,459,249 0.99 % Senior Secured First Lien Super Priority Delayed Draw Term Loan (SOFR + CSA + 9.00 % PIK, 1.00 % Floor)(20)(24) 1/31/2024 1,920,960 1,920,960 1,920,960 1.31 % Equity - 17.92 % Membership Interest(21) - - - 0.00 % 15,825,824 10,564,242 4,255,958 2.90 % FST Holdings Parent, LLC High Tech Industries Equity - 625,548 Class A Units 625,548 10,000,000 10,000,003 6.81 % 625,548 10,000,000 10,000,003 6.81 % Maritime Wireless Holdings LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan B (SOFR + CSA + 9.00 %, 1.00 % Floor)(20)(24) 5/31/2027 7,500,000 7,373,166 7,500,000 5.10 % Equity - 500,000 Class A Units(21) 500,000 5,000,000 10,150,000 6.91 % 12,500,000 12,373,166 17,650,000 12.01 % Subtotal Affiliated Investments $ 44,783,784 $ 48,233,910 $ 37,289,617 25.38 % Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Controlled Investments: (7) FlexFIN, LLC Services: Business Equity Interest $ 38,870,711 $ 38,870,711 $ 38,870,711 26.45 % 38,870,711 38,870,711 38,870,711 26.45 % Kemmerer Holdings, LLC Metals & Mining Senior Secured First Lien Term Loan ( 15.00 % PIK) 6/21/2025 3,383,877 3,383,877 3,383,877 2.30 % Equity - 31 Common Units(21) 31 1,836,157 9,133,052 6.22 % 3,383,908 5,220,034 12,516,929 8.52 % NVTN LLC Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00 % Cash, 1.00 % LIBOR Floor)(8)(22) 12/31/2024 7,309,552 7,309,885 7,214,856 4.91 % Senior Secured First Lien Term Loan B (LIBOR + 9.25 % PIK, 1.00 % LIBOR Floor)(10)(21) 12/31/2024 17,552,420 13,916,083 5,037,547 3.43 % Senior Secured First Lien Term Loan C (LIBOR + 12.00 % PIK, 1.00 % LIBOR Floor)(10)(21) 12/31/2024 11,506,159 7,570,055 - 0.00 % Equity - 1,000 Class A Units(21) 1,000 9,550,924 - 0.00 % 36,369,131 38,346,947 12,252,403 8.34 % Subtotal Control Investments $ 78,623,750 $ 82,437,692 $ 63,640,043 43.31 % Total Investments, September 30, 2023 $ 230,037,957 $ 265,010,723 $ 226,460,691 154.40 % The accompanying notes are an integral part of these consolidated financial statements. F- 10 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2023 (1) All of our investments are domiciled in the United States. Certain investments also have international operations. (2) Par amount is presented for debt investments and the amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars (“$”) unless otherwise noted . (3) Net unrealized depreciation for U.S. federal income tax purposes totaled $(38,550,032). The tax cost basis of investments is $265,010,723 as of September 30, 2023. The amortized cost represents the original cost adjusted for the amortization or accretion of premium or discount, as applicable, on debt investments using the effective interest method. (4) Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4). (5) Percentage is based on net assets of $146,705,535 as of September 30, 2023. (6) Affiliated Investments are defined by Investment Company Act of 1940 Act, as amended (the “1940 Act”), as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company. (7) Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation. (8) The investment has an unfunded commitment as of September 30, 2023 (see Note 8), and fair value includes the value of any unfunded commitments. The negative cost, if applicable, is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount on the loan. (9) The interest rate on this investment is fixed-to-floating and will shift to 3 month SOFR plus a CSA of 0.262% plus a 5.379% spread on 3/30/2024. (10) The investment was on non-accrual status as of September 30, 2023. (11) The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2023, non-qualifying assets represented 20.21% of total assets. (12) This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2023, and is recorded as a component of interest income on the Consolidated Statements of Operations. (13) This investment represents a Level 1 security in the ASC 820 table as of September 30, 2023 (see Note 4). (14) This investment represents a Level 2 security in the ASC 820 table as of September 30, 2023 (see Note 4). (15) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month SOFR plus a CSA of 0.262% plus a 4.743% spread on 9/30/2025. (16) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month SOFR plus a CSA of 0.262% plus a 5.29% spread on 9/27/2027. (17) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024. (18) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month SOFR plus a CSA of 0.262% plus a 6.429% spread on 1/15/2025. (19) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025. (20) Credit Spread Adjustment (“CSA”) (21) Non-income producing security. (22) The interest rate on these loans is subject to 1 month LIBOR, which as of September 30, 2023 was 5.43%. (24) The interest rate on these loans is subject to 1 month SOFR, which as of September 30, 2023 was 5.32%. (25) The interest rate on these loans is subject to 3 month SOFR, which as of September 30, 2023 was 5.27%. (26) The interest rate on these loans is subject to 6 month SOFR, which as of September 30, 2023 was 5.17%. The accompanying notes are an integral part of these consolidated financial statements. F- 11 PHENIXFIN CORPORATION Consolidated Schedule of Investments As of September 30, 2022 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Non-Controlled/Non-Affiliated Investments: Altisource S.A.R.L.(11) Services: Business Senior Secured First Lien Term Loan B (LIBOR + 4.00 %, 1.00 % LIBOR Floor)(14) 4/3/2024 $ 6,486,419 $ 5,825,616 $ 5,448,591 4.51 % 6,486,419 5,825,616 5,448,591 4.51 % Be Green Packaging, LLC Containers, Packaging & Glass Equity - 417 Common Units 1 416,250 - 0.00 % 1 416,250 - 0.00 % Boostability Seotowncenter, Inc. Services: Business Equity - 3,434,169.6 Common Units 833,152 66,475 - 0.00 % 833,152 66,475 - 0.00 % Chimera Investment Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 117,310 Class C Preferred Units(13)(15) 117,310 2,884,724 1,915,672 1.59 % 117,310 2,884,724 1,915,672 1.59 % Copper Property CTL Pass Through Trust Banking, Finance, Insurance & Real Estate Equity Certificates(14) 437,795 6,314,757 5,877,398 4.86 % CPI International, Inc. Aerospace & Defense Senior Secured Second Lien Term Loan (LIBOR + 7.25 %, 1.00 % LIBOR Floor) 7/28/2025 2,607,062 2,602,547 2,607,062 2.16 % 2,607,062 2,602,547 2,607,062 2.16 % DataOnline Corp. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 6.25 %, 1.00 % LIBOR Floor) 11/13/2025 4,862,500 4,862,500 4,765,250 3.94 % Revolving Credit Facility (LIBOR + 6.25 %, 1.00 % LIBOR Floor) 11/13/2025 714,286 714,286 700,000 0.58 % 5,576,786 5,576,786 5,465,250 4.52 % DirecTV Financing, LLC Media: Broadcasting & Subscription Senior Secured First Lien Term Loan (LIBOR + 5.00 %, 0.75 % LIBOR Floor)(14) 8/2/2027 4,550,000 4,550,000 4,220,000 3.49 % 4,550,000 4,550,000 4,220,000 3.49 % Dream Finders Homes, LLC Construction & Building Preferred Equity ( 8.00 % PIK) 5,309,341 5,309,341 4,950,961 4.10 % 5,309,341 5,309,341 4,950,961 4.10 % The accompanying notes are an integral part of these consolidated financial statements. F- 12 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2022 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) First Brands Group, LLC Automotive Senior Secured First Lien Term Loan (SOFR + 5.00 %, 1.00 % SOFR Floor) 3/30/2027 3,959,799 3,959,799 3,930,101 3.25 % 3,959,799 3,959,799 3,930,101 3.25 % Footprint Holding Company Inc. Services: Business Equity - 150 Common Units 150 - - 0.00 % 150 - - 0.00 % Franklin BSP Realty Trust, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 529,914 Common Units(13) 529,914 8,754,386 5,707,174 4.72 % 529,914 8,754,386 5,707,174 4.72 % Global Accessories Group, LLC Consumer goods: Non-durable Equity - 3.8 % Membership Interest 380 151,337 - 0.00 % 380 151,337 - 0.00 % Great AJAX Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 254,922 Common Units(13) 254,922 3,333,786 1,914,464 1.58 % 254,922 3,333,786 1,914,464 1.58 % Innovate Corp. Construction & Building 8.50 % Senior Secured Notes(14) 2/1/2026 2,250,000 2,252,156 1,659,375 1.37 % 2,250,000 2,252,156 1,659,375 1.37 % Invesco Mortgage Capital, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 205,000 Class C Preferred Units(13)(16) 205,000 5,035,506 3,138,550 2.60 % 205,000 5,035,506 3,138,550 2.60 % JFL-NGS-WCS Partners, LLC Construction & Building Senior Secured First Lien Term Loan B (LIBOR + 5.50 %, 1.00 % LIBOR Floor) 11/12/2026 885,050 888,790 865,137 0.72 % Equity - 10,000,000 Units 10,000,000 10,000,000 10,248,798 8.48 % 10,885,050 10,888,790 11,113,935 9.20 % Lighting Science Group Corporation Containers, Packaging & Glass Warrants - 0.62 % of Outstanding Equity 5,000,000 955,680 - 0.00 % 5,000,000 955,680 - 0.00 % Lucky Bucks, LLC Consumer Discretionary Senior Secured First Lien Term Loan(LIBOR + 5.50 %, 0.75 % LIBOR Floor) 7/30/2027 7,218,750 7,095,116 6,208,125 5.14 % 7,218,750 7,095,116 6,208,125 5.14 % The accompanying notes are an integral part of these consolidated financial statements. F- 13 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2022 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Maritime Wireless Holdings LLC Hotel, Gaming & Leisure Senior Secured First Lien Term Loan A (SOFR + CSA + 9.00 %, 1.00 % SOFR + CSA Floor)(20) 2/15/2024 5,000,000 4,900,000 4,900,000 4.05 % Senior Secured First Lien Term Loan B (SOFR + CSA + 9.00 %, 1.00 % SOFR + CSA Floor)(20) 5/31/2027 7,500,000 7,350,000 7,350,000 6.08 % Convertible Promissory Note 5,000,000 5,000,000 5,000,000 4.14 % 17,500,000 17,250,000 17,250,000 14.27 % McKissock Investment Holdings, LLC (dba Colibri) Services: Consumer Senior Secured First Lien Term Loan (SOFR + CSA + 5.00 %, 0.75 % SOFR + CSA Floor)(20) 3/10/2029 4,974,999 4,927,870 4,875,500 4.03 % 4,974,999 4,927,870 4,875,500 4.03 % MFA Financial, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 97,426 Class C Preferred Units(13)(19) 97,426 2,318,487 1,722,492 1.43 % 97,426 2,318,487 1,722,492 1.43 % New York Mortgage Trust, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 165,000 Class E Preferred Units(13)(18) 165,000 4,102,076 2,953,500 2.44 % 165,000 4,102,076 2,953,500 2.44 % PennyMac Financial Services, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 81,500 Common Units(13) 81,500 5,364,478 3,496,350 2.89 % 81,500 5,364,478 3,496,350 2.89 % Point.360 Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.00 % PIK)(10) 7/8/2020 2,777,366 2,103,712 - 0.00 % 2,777,366 2,103,712 - 0.00 % Power Stop LLC Automotive Senior Secured First Lien Term Loan(LIBOR + 4.75 , 0.50 % LIBOR Floor) 1/26/2029 4,975,000 4,930,071 4,029,750 3.33 % 4,975,000 4,930,071 4,029,750 3.33 % Rithm Capital Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 206,684 Class B Preferred Units(13)(17) 206,684 5,129,170 3,902,194 3.23 % 206,684 5,129,170 3,902,194 3.23 % Secure Acquisition Inc. (dba Paragon Films)(8) Packaging Senior Secured First Lien Term Loan(LIBOR + 5.00 %, 0.50 % LIBOR Floor) 12/16/2028 3,465,345 3,451,574 3,361,385 2.78 % Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.00 %, 0.50 % LIBOR Floor)(12) 12/16/2028 - ( 970 ) - 0.00 % 3,465,345 3,450,604 3,361,385 2.78 % The accompanying notes are an integral part of these consolidated financial statements. F- 14 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2022 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Sendero Drilling Company, LLC Energy: Oil & Gas Unsecured Debt ( 9.00 %)(10) 8/1/2023 191,250 182,081 - 0.00 % 191,250 182,081 - 0.00 % SS Acquisition, LLC (dba Soccer Shots Franchising)(8) Services: Consumer Senior Secured First Lien Term Loan (LIBOR + 6.50 %, 1.00 % LIBOR Floor) 12/30/2026 6,666,667 6,575,847 6,591,667 5.45 % 6,666,667 6,575,847 6,591,667 5.45 % SMART Financial Operations, LLC Retail Equity - 700,000 Class A Preferred Units 700,000 700,000 120,793 0.10 % 700,000 700,000 120,793 0.10 % Stancor (dba Industrial Flow Solutions Holdings, LLC) Services: Business Equity - 338,736.11 Class A Units 338,736 308,652 265,269 0.22 % 338,736 308,652 265,269 0.22 % Staples, Inc. Services: Consumer First Lien Term Loan (LIBOR + 4.50 %, 0.0 % LIBOR Floor)(14) 9/12/2024 3,730,720 3,659,706 3,488,223 2.89 % 3,730,720 3,659,706 3,488,223 2.89 % Thryv Holdings, Inc.(11) Services: Consumer Senior Secured First Lien Term Loan B (LIBOR + 8.50 %, 1.00 % LIBOR Floor) 3/1/2026 6,515,633 6,406,051 6,287,583 5.20 % 6,515,633 6,406,051 6,287,583 5.20 % Velocity Pooling Vehicle, LLC Automotive Equity - 5,441 Class A Units 5,441 302,464 52,342 0.04 % Warrants - 0.65 % of Outstanding Equity 3/30/2028 6,506 361,667 62,569 0.05 % 11,947 664,131 114,911 0.09 % Walker Edison Furniture Company LLC Consumer goods: Durable Equity - 13,044 Common Units 13,044 2,114,646 - 0.00 % 13,044 2,114,646 - 0.00 % Watermill-QMC Midco, Inc. Automotive Equity - 1.30 % Partnership Interest(9) 518,283 518,283 - 0.00 % 518,283 518,283 - 0.00 % Wingman Holdings, Inc. Aerospace & Defense Equity - 350 Common Shares 350 700,000 - 0.00 % 350 700,000 - 0.00 % Subtotal Non-Controlled/Non-Affiliated Investments $ 109,151,781 $ 147,378,917 $ 122,616,275 96.58 % The accompanying notes are an integral part of these consolidated financial statements. F- 15 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2022 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Affiliated Investments: (6) 1888 Industrial Services, LLC(8) Energy: Oil & Gas Senior Secured First Lien Term Loan A (LIBOR + 5.00 % PIK, 1.00 % LIBOR Floor)(10) 5/1/2023 $ 9,946,741 $ 9,473,068 $ - 0.00 % Senior Secured First Lien Term Loan C(LIBOR + 5.00 %, 1.00 % LIBOR Floor) 5/1/2023 1,231,932 1,191,257 - 0.00 % Revolving Credit Facility (LIBOR + 5.00 %, 1.00 % LIBOR Floor)(12) 5/1/2023 4,416,555 4,416,555 4,151,562 3.44 % Equity - 21,562 Class A Units 21,562 - - - 15,616,790 15,080,880 4,151,562 3.44 % Black Angus Steakhouses, LLC(8) Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (SOFR + CSA + 9.00 %, 1.00 % SOFR Floor) 1/31/2024 758,929 758,929 758,929 0.63 % Senior Secured First Lien Term Loan (SOFR + CSA + 9.00 % PIK, 1.00 % SOFR Floor)(10) 1/31/2024 8,412,596 7,767,533 1,547,918 1.28 % Senior Secured First Lien Super Priority Delayed Draw Term Loan (SOFR + CSA + 9.00 %, 1.00 % SOFR Floor) 1/31/2024 1,500,000 1,500,000 1,500,000 1.24 % Equity - 17.92 % Membership Interest - - - 0.00 % 10,671,525 10,026,462 3,806,847 3.15 % Kemmerer Operations, LLC(8) Metals & Mining Senior Secured First Lien Term Loan( 15.00 % PIK) 6/21/2023 2,378,510 2,378,510 2,378,510 1.97 % Equity - 6.78 Common Units 7 962,717 694,702 0.57 % 2,378,517 3,341,227 3,073,212 2.54 % US Multifamily, LLC Banking, Finance, Insurance & Real Estate Equity - 33,300 Preferred Units 33,300 2,137,315 1,282,571 1.06 % 33,300 2,137,315 1,282,571 1.06 % Subtotal Affiliated Investments $ 28,700,132 $ 30,585,884 $ 12,314,192 10.19 % The accompanying notes are an integral part of these consolidated financial statements. F- 16 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2022 Company (1) Industry Type of Investment Maturity Par Amount/ Shares/Units (2) Amortized Cost (3) Fair Value (4) % of Net Assets (5) Controlled Investments: (7) FlexFIN, LLC Services: Business Equity Interest $ 47,136,146 $ 47,136,146 $ 47,136,146 39.01 % 47,136,146 47,136,146 47,136,146 39.01 % NVTN LLC(8) Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00 % Cash, 1.00 % LIBOR Floor) 12/31/2024 7,309,885 7,309,885 7,192,927 5.95 % Senior Secured First Lien Term Loan B (LIBOR + 9.25 % PIK, 1.00 % LIBOR Floor)(10) 12/31/2024 19,561,424 13,916,082 3,697,109 3.06 % Senior Secured First Lien Term Loan C(LIBOR + 12.00 % PIK, 1.00 % LIBOR Floor)(10) 12/31/2024 13,199,860 7,570,056 - 0.00 % Equity - 1,000 Class A Units 9,551,135 9,550,924 - 0.00 % 49,622,304 38,346,947 10,890,036 9.01 % Subtotal Control Investments $ 96,758,450 $ 85,483,093 $ 58,026,182 48.02 % Total Investments, September 30, 2022 $ 234,610,363 $ 263,447,894 $ 192,956,649 154.79 % The accompanying notes are an integral part of these consolidated financial statements. F- 17 PHENIXFIN CORPORATION Consolidated Schedule of Investments (continued) As of September 30, 2022 (1) All of our investments are domiciled in the United States. Certain investments also have international operations. (2) Par amount is presented for debt investments and the amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars (“$”) unless otherwise noted. (3) Net unrealized depreciation for U.S. federal income tax purposes totaled $(69,642,639). The tax cost basis of investments is $262,599,288 as of September 30, 2022. (4) Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4). (5) Percentage is based on net assets of $120,845,408 as of September 30, 2022. (6) Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company. (7) Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation. (8) The investment has an unfunded commitment as of September 30, 2022 (see Note 8), and fair value includes the value of any unfunded commitments. The negative cost, if applicable, is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount on the loan. (9) Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP. (10) The investment was on non-accrual status as of September 30, 2022. (11) The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2022, 17.24% of the Company’s portfolio investments were non-qualifying assets. (12) This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2022, and is recorded as a component of interest income on the Consolidated Statements of Operations. (13) This investment represents a Level 1 security in the ASC 820 table as of September 30, 2022 (see Note 4). (14) This investment represents a Level 2 security in the ASC 820 table as of September 30, 2022 (see Note 4). (15) The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 4.743% spread on 9/30/2025. (16) The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 5.29% spread on 9/27/2027. (17) The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024. (18) The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 6.429% spread on 1/15/2025. (19) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025. (20) Credit Spread Adjustment (“CSA”) The accompanying notes are an integral part of these consolidated financial statements. F- 18 PHENIXFIN CORPORATION Notes to Consolidated Financial Statements September 30, 2023 Note 1. Organization PhenixFIN Corporation (“PhenixFIN.” the “Company,” “we” and “us”) is an internally-managed non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and intends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement. MCC Advisors was a wholly owned subsidiary of Medley LLC, which was controlled by Medley Management Inc. (OTCM: MDLM), a publicly traded asset management firm, which in turn was controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLM, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates. Since January 1, 2021 the Company has been managed pursuant to an internalized management structure. The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The Company’s investment objective is to generate current income and capital appreciation. The management team seeks to achieve this objective primarily through making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or REITs.) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective, such as operating and managing an asset-based lending business. The portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase total investment returns. Our loan and other debt investments are primarily rated below investment grade or are unrated. Investments in below investment grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due. Since January 4, 2021, the common stock trades on the NASDAQ Global Market under the trading symbol “PFX.” Sale of MCC JV On October 8, 2020, the Company, Great American Life Insurance Company (“GALIC”), MCC Senior Loan Strategy JV I LLC (the “MCC JV”), and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in the MCC JV and all of GALIC’s interest in the MCC JV for a pre-adjusted gross purchase price of $ 156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $ 145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $ 41.0 million and $ 6.6 million for the Company and GALIC, respectively. F- 19 Note 2. Significant Accounting Policies Basis of Presentation The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 (“ASC 946”), Financial Services – Investment Companies. The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the consolidated accounts of the Company and its wholly owned subsidiaries PhenixFIN Small Business Fund, LP (“PhenixFIN Small Business Fund”) and PhenixFIN SLF Funding I LLC (“PhenixFIN SLF”), and its wholly owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include PhenixFIN Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X of the Securities Act of 1933. Certain prior period information has been reclassified to conform to current period presentation. These reclassifications have no effect on the Company’s financial positions or its results of operations as previously recorded. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash, Restricted Cash and Cash Equivalents The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. As of September 30, 2023 and 2022, we had $ 6.0 million and $ 22.8 million in cash and cash equivalents, respectively, none of which is restricted. Debt Issuance Costs Debt issuance costs, incurred in connection with any credit facilities and unsecured notes (see Note 5) are deferred and amortized over the life of the respective credit facility or instrument. Debt issuance costs related to any credit facilities and unsecured notes are presented net against the outstanding debt balance on the Consolidated Statements of Assets and Liabilities. Indemnification In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no material claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote. Revenue Recognition Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums to par value on investments purchased are accreted and amortized into interest income over the life of the respective investment. Loan origination fees, original issue discount (“OID”) and market discounts or premiums are capitalized and amortized into interest income using the effective interest method or straight-line method, as applicable. F- 20 Note 2. Significant Accounting Policies (continued) The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the years ended September 30, 2023, 2022 and 2021, the Company earned approximately $ 1.5 million, $ 0.8 million, $ 0.9 million in PIK interest, respectively. Amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. For the years ended September 30, 2023, 2022 and 2021, fee income was approximately $ 0.3 million, $ 0.4 million and $ 2.6 million, respectively (see Note 9). Investment transactions are accounted for on a trade date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment using the specific identification method, without regard to unrealized gains or losses previously recognized. No losses relating to restructuring transactions occurred during the years ended September 30, 2023, 2022 and 2021. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations. Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Interest receivable is analyzed regularly and may be reserved against when deemed not collectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At September 30, 2023, certain investments in four portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $ 6.5 million, or 2.9 % of the fair value of our portfolio. At September 30, 2022, certain investments in five portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $ 5.2 million, or 2.7 % of the fair value of our portfolio. Investment Classification The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25 % of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5 % and 25 % of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.” Valuation of Investments The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date. F- 21 Note 2. Significant Accounting Policies (continued) Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotations, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by our Chief Financial Officer, the Company’s Valuation Designee, based upon input from management and third-party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time. Investments in investment funds are valued at fair value. Fair values are generally determined utilizing the NAV supplied by, or on behalf of, management of each investment fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share . NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of their financial statements and offering memorandum. If the Company is in the process of the sale of an investment fund, fair value will be determined by actual or estimated sale proceeds. The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories: ● The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. ● The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts. The Company has engaged third-party valuation firms (the “Valuation Firms”) to assist it and its Valuation Designee (the Chief Financial Officer) in the valuation of its portfolio investments. The valuation reports generated by the Valuation Firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. In applying the market yield analysis, the value of the Company’s loans are determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis, which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies and information that the Company utilizes when applying the Market Approach for performing investments include, among other things: ● valuations of comparable public companies (“Guideline Comparable Approach”); ● recent sales of private and public comparable companies (“Guideline Comparable Approach”); ● recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-Length Transaction”); ● external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”); ● subsequent sales made by the Company of its investments (“Expected Sales Proceeds Approach”); and ● estimating the value to potential buyers. F- 22 Note 2. Significant Accounting Policies (continued) The methodologies and information that the Company utilizes when applying the Income Approach for performing investments include: ● discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and ● Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds). We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below: ● our quarterly valuation process generally begins with each portfolio investment being initially valued by a Valuation Firm; ● Available third-party market data will be reviewed by Company personnel designated by the Valuation Designee (“Fair Value Personnel”) and the Valuation Firm. ● Available portfolio company data and general industry data are then reviewed by the Fair Value Personnel. ● Preliminary valuation conclusions are then documented and discussed with the Fair Value Personnel. ● The Valuation Designee then determines the fair value of each investment in the Company’s portfolio in good faith based on such discussions, the Company’s Valuation Policy and the Valuation Firms’ final estimated valuations. ● The Valuation Designee’s report is then presented to the Board of Directors and the Audit Committee. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the market environment (including the impact of pandemics, wars or other market events on financial markets), portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. Fair Value of Financial Instruments The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5. Federal Income Taxes The Company has elected, and intends to qualify annually, to be treated as a RIC under Subchapter M of the Code. In order to continue to qualify as a RIC and be eligible for tax treatment under Subchapter M of the Code, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90 % of the sum of investment company taxable income (“ICTI”), as defined by the Code, including PIK interest, and net tax exempt interest income (which is the excess of gross tax exempt interest income over certain disallowed deductions) for each taxable year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI. F- 23 Note 2. Significant Accounting Policies (continued) The Company is subject to a nondeductible U.S. federal excise tax of 4 % on undistributed income if it does not distribute at least 98 % of its ordinary income in any calendar year and 98.2 % of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. There was no provision for federal excise tax for the calendar year ended 2022 accrued at September 30, 2023, for the calendar year ended 2021 accrued at September 30, 2022 and the calendar year ended 2020 accrued at September 30, 2021. The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of September 30, 2023 and 2022, the Company did not record a deferred tax liability on the Consolidated Statements of Assets and Liabilities. The change in provision for deferred taxes is included as a component of net realized and unrealized gain/(loss) on investments in the Consolidated Statements of Operations. For the years ended September 30, 2023, 2022 and 2021, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments. As of September 30, 2023 and 2022, the Company had a deferred tax asset of $ 23.1 million and $ 26.2 million, respectively, consisting primarily of net operating losses and net unrealized losses on the investments held within its Taxable Subsidiaries. As of September 30, 2023 and 2022, the Company has booked a valuation allowance of $ 23.1 million and $ 26.2 million, respectively, against its deferred tax asset. ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized. Permanent differences between ICTI and net investment income for financial reporting purposes are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the years ended September 30, 2023, 2022 and 2021, the Company reclassified for book purposes amounts arising from permanent book/tax differences related to the different tax treatment of net operating losses and investments in wholly-owned subsidiaries as follows: For the Years Ended September 30 2023 2022 2021 Capital in excess of par value $ 20,468,622 $ 3,276,372 $ 24,688,262 Accumulated undistributed net investment income/(loss) ( 20,468,622 ) ( 3,276,372 ) ( 19,047,396 ) Accumulated net realized gain/(loss) from investments - - ( 5,640,866 ) F- 24 Note 2. Significant Accounting Policies (continued) For income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The tax character of distributions paid for the years ended September 30, 2023, 2022 and 2021 were as follows: For the Years Ended September 30 2023 2022 2021 Ordinary income $ - $ 265,798 $ - Distributions of long term capital gains - - - Return of capital - - - Distributions on a tax basis $ - $ 265,798 $ - For federal income tax purposes, the cost of investments owned at September 30, 2023, 2022 and 2021 were approximately $ 264.1 million, $ 262.6 million and $ 206.9 million, respectively. At September 30, 2023, 2022 and 2021, the components of distributable earnings/(accumulated deficits) on a tax basis detailed below differ from the amounts reflected in the Company’s Consolidated Statements of Assets and Liabilities by temporary and other book/tax differences, primarily relating to the tax treatment of certain fee income and organizational expenses, as follows: For the Years Ended September 30 2023 2022 2021 Undistributed ordinary income $ 2,389,267 $ - $ 265,798 Accumulated capital and other losses (1) ( 512,809,528 ) ( 485,107,934 ) ( 490,032,788 ) Other temporary differences ( 57,438 ) ( 73,646 ) ( 89,856 ) Unrealized appreciation/(depreciation) ( 37,631,079 ) ( 69,376,916 ) ( 55,318,332 ) Components of distributable earnings/(accumulated deficits) at year end $ ( 548,108,778 ) ( 554,558,496 ) $ ( 545,175,178 ) (1) Under the Regulated Investment Company Modernization Act of 2010, net capital losses recognized for tax years beginning after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term or long-term losses. As of September 30, 2023, the Company had a long-term capital loss carryforward available to offset future realized capital gains of $ 509,966,576 and a short-term capital loss carryforward of $ 2,842,952 The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations. There were no material uncertain income tax positions at September 30, 2023. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service and applicable state tax authorities. Segments The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s financial statements. See Note 3 for further information. F- 25 Note 2. Significant Accounting Policies (continued) Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk The Company has broad discretion in making investments. Investments generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuate. The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase materially. The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately. Note 3. Investments The composition of our investments as of September 30, 2023 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands): Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 139,103 52.5 % $ 103,004 45.6 % Senior Secured Notes 9,512 3.6 8,922 3.9 Fund Investment 1,027 0.4 792 0.3 Equity/Warrants 115,369 43.5 113,743 50.2 Total Investments $ 265,011 100.0 % $ 226,461 100.0 % The composition of our investments as of September 30, 2022 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands): Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 128,482 48.7 % $ 88,248 45.6 % Senior Secured Second Lien Term Loans 2,603 1.0 2,607 1.4 Senior Secured Notes 2,252 0.9 1,659 0.9 Unsecured Debt 182 0.1 - - Equity/Warrants 129,929 49.3 100,443 52.1 Total Investments $ 263,448 100.0 % $ 192,957 100.0 % In connection with certain of the Company’s investments, the Company receives warrants that are obtained for the objective of increasing the total investment returns and are not held for hedging purposes. At September 30, 2023 and 2022, the total fair value of warrants was $ 206.5 thousand and $ 62.6 thousand, respectively, and were included in investments at fair value on the Consolidated Statements of Assets and Liabilities. During the year ended September 30, 2023, the Company acquired additional warrants in one existing portfolio company. During the year ended September 30, 2022, the Company did not acquire any additional warrants in an existing portfolio company. During the year ended September 30, 2021, the Company acquired additional warrants in one existing portfolio company. Total unrealized depreciation related to warrants for the years ended September 30, 2023, 2022 and 2021 was $ 143.9 thousand, $ 299.1 thousand and $ 981.4 thousand, respectively, and was recorded on the Consolidated Statements of Operations as net unrealized appreciation/(depreciation) on investments. The warrants are received in connection with individual investments and are not subject to master netting arrangements. F- 26 Note 3. Investments (continued) The following table shows the portfolio composition by industry grouping at fair value at September 30, 2023 (dollars in thousands): Fair Value Percentage Services: Business $ 47,083 20.7 % Banking, Finance, Insurance & Real Estate 43,755 19.3 Hotel, Gaming & Leisure 34,158 15.1 Services: Consumer 18,292 8.1 High Tech Industries 15,472 6.8 Construction & Building 14,676 6.5 Metals & Mining 12,517 5.5 Media: Broadcasting & Subscription 11,665 5.2 Automotive 9,520 4.2 Consumer Discretionary 6,920 3.1 Energy: Oil & Gas 5,384 2.4 Packaging 3,396 1.5 Aerospace & Defense 2,645 1.2 Retail 978 0.4 Total $ 226,461 100.0 % The following table shows the portfolio composition by industry grouping at fair value at September 30, 2022 (dollars in thousands): Fair Value Percentage Services: Business $ 52,851 27.5 % Hotel, Gaming & Leisure 31,947 16.7 Banking, Finance, Insurance & Real Estate 31,910 16.5 Services: Consumer 21,243 11.0 Construction & Building 17,724 9.1 Automotive 8,075 4.2 Consumer Discretionary 6,208 3.2 High Tech Industries 5,465 2.8 Media: Broadcasting & Subscription 4,220 2.2 Energy: Oil & Gas 4,152 2.2 Packaging 3,361 1.7 Metals & Mining 3,073 1.6 Aerospace & Defense 2,607 1.4 Retail 121 0.1 Total $ 192,957 100.0 % The Company invests in portfolio companies principally located in the United States. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business. The following table shows the portfolio composition by geographic location at fair value at September 30, 2023 (dollars in thousands): Fair Value Percentage Northeast $ 92,081 40.7 % Southeast 60,116 26.5 Midwest 32,782 14.5 West 25,608 11.3 Southwest 7,661 3.4 Mid-Atlantic 201 0.1 International 8,012 3.5 Total $ 226,461 100.0 % The following table shows the portfolio composition by geographic location at fair value at September 30, 2022 (dollars in thousands): Fair Value Percentage Northeast $ 92,939 48.2 % Southeast 51,797 26.8 West 20,196 10.5 Midwest 16,023 8.3 Southwest 6,288 3.3 Mid-Atlantic 265 0.1 International 5,449 2.8 Total $ 192,957 100.0 % F- 27 Note 3. Investments (continued) Transactions With Affiliated/Controlled Companies The Company had investments in portfolio companies designated as Affiliated Investments and Controlled Investments under the 1940 Act. Transactions with Affiliated Investments and Controlled Investments during the years ended September 30, 2023 and 2022 were as follows: Name of Investment (1)(2) Type of Investment Fair Value at September 30, 2022 Purchases/ (Sales) of or Advances/ (Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2023 Earned Income Affiliated Investments 1888 Industrial Services, LLC Senior Secured First Lien Term Loan C $ - $ - $ - $ 751,479 $ - $ 751,479 $ 84,559 Revolving Credit Facility 4,151,562 215,622 - 264,993 - 4,632,177 553,233 Black Angus Steakhouses, LLC Senior Secured First Lien Delayed Draw Term Loan 758,929 116,820 - - - 875,749 232,614 Senior Secured First Lien Term Loan 1,547,918 - - ( 88,669 ) - 1,459,249 159,780 Senior Secured First Lien Super Priority Delayed Draw Term Loan 1,500,000 420,960 - - - 1,920,960 360,670 FST Holdings Parent, LLC Equity $ - $ 10,000,000 $ - $ 3 $ - $ 10,000,003 $ 121,385 Kemmerer Operations, LLC Senior Secured First Lien Term Loan 2,378,510 $ - ( 2,378,510 ) - - - 89,743 Equity 694,702 $ - ( 962,717 ) 268,015 - - - Maritime Wireless Holdings LLC Senior Secured First Lien Term Loan A $ - $ ( 5,000,704 ) $ 4,900,000 $ - $ 100,704 $ - $ 218,788 Senior Secured First Lien Term Loan B $ - $ 23,166 $ 7,350,000 $ 126,834 $ - $ 7,500,000 $ 565,377 Equity $ - $ - $ 5,000,000 $ 5,150,000 $ - $ 10,150,000 $ - US Multifamily, LLC Equity 1,282,571 ( 1,018,344 ) - 854,744 ( 1,118,971 ) - - Total Affiliated Investments $ 12,314,192 $ 4,757,520 $ 13,908,773 $ 7,327,399 $ ( 1,018,267 ) $ 37,289,617 $ 2,386,149 Name of Investment (1)(2) Type of Investment Fair Value at September 30, 2022 Purchases/ (Sales) of or Advances/ (Distributions) Transfers In/(Out) of Controlled Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2023 Earned Income Controlled Investments FlexFIN, LLC Equity Interest $ 47,136,146 $ ( 8,265,435 ) $ - $ - - $ 38,870,711 $ 3,716,676 Kemmerer Operations, LLC Senior Secured First Lien Term Loan - 981,911 2,378,510 - 23,456 3,383,877 557,981 Equity - 873,440 962,717 7,296,895 - 9,133,052 - NVTN LLC Senior Secured First Lien Delayed Draw Term Loan 7,192,927 - - 21,929 - 7,214,856 667,312 Senior Secured First Lien Term Loan B 3,697,109 - - 1,340,438 - 5,037,547 - Total Controlled Investments $ 58,026,182 $ ( 6,410,084 ) $ 3,341,227 $ 8,659,262 $ 23,456 $ 63,640,043 $ 4,941,969 F- 28 Note 3. Investments (continued) Name of Investment (1)(2) Type of Investment Fair Value at September 30, 2021 Purchases/ (Sales) of or Advances/ (Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2022 Earned Income Affiliated Investments 1888 Industrial Services, LLC Senior Secured First Lien Term Loan B $ - $ - $ - $ 19,468,870 $ ( 19,468,870 ) $ - $ - Senior Secured First Lien Term Loan C 24,639 - - ( 24,639 ) - - 79,084 Revolving Credit Facility 3,554,069 862,486 - ( 264,993 ) - 4,151,562 235,755 Equity - - - - - - - Black Angus Steakhouses, LLC Senior Secured First Lien Delayed Draw Term Loan 758,929 - - - - 758,929 79,375 Senior Secured First Lien Term Loan 2,279,814 - - ( 731,896 ) - 1,547,918 - Senior Secured First Lien Super Priority DDTL 1,500,000 - - - - 1,500,000 156,885 Equity - - - - - - - Caddo Investors Holdings 1 LLC Equity 3,454,786 ( 3,448,219 ) - ( 925,960 ) 919,393 - - Dynamic Energy Services International LLC Senior Secured First Lien Term Loan - ( 4,910,671 ) - 7,328,568 ( 2,417,897 ) - 12 JFL-NGS Partners, LLC Equity 26,862,813 ( 26,807,520 ) - ( 26,805,513 ) 26,750,220 - - JFL-WCS Partners, LLC Equity 8,099,949 ( 8,084,639 ) - ( 7,970,361 ) 7,955,051 - - Kemmerer Operations, LLC Senior Secured First Lien Term Loan 2,360,547 ( 3,475 ) - 21,438 - 2,378,510 368,331 Senior Secured First Lien Delayed Draw Term Loan 162,441 ( 163,915 ) - 1,474 - - 6,601 Equity 553,746 - - 140,956 - 694,702 - Path Medical, LLC Senior Secured First Lien Term Loan A 2,249,835 ( 2,460,448 ) - 3,556,057 ( 3,345,444 ) - ( 1,693 ) Senior Secured First Lien Term Loan B - - - 6,483,741 ( 6,483,741 ) - ( 2,974 ) Warrants - - - 499,751 ( 499,751 ) - - URT Acquisition Holdings Corporation Warrants 920,000 ( 1,000,000 ) - ( 920,000 ) 1,000,000 - - US Multifamily, LLC Senior Secured First Lien Term Loan 2,577,416 ( 2,577,418 ) - 2 - - 93,338 Equity 2,236,261 ( 1,192,685 ) - 238,995 - 1,282,571 - Total Affiliated Investments $ 57,595,245 $ ( 49,786,504 ) $ - $ 96,490 $ 4,408,961 $ 12,314,192 $ 1,014,714 F- 29 Note 3. Investments (continued) Name of Investment (1)(2) Type of Investment Fair Value at September 30, 2021 Purchases/ (Sales) of or Advances/ (Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2022 Earned Income Controlled Investments FlexFIN, LLC Equity Interest $ 2,500,000 $ 44,636,146 $ - $ - $ - $ 47,136,146 $ 3,505,220 NVTN LLC Senior Secured First Lien Delayed Draw Term Loan 6,414,860 744,010 - 34,057 - 7,192,927 1,124,346 Super Priority Senior Secured First Lien Term Loan 977,000 ( 1,000,000 ) - 21,150 1,850 - 173,822 Senior Secured First Lien Term Loan B - 1,610,990 - 2,086,119 - 3,697,109 - Senior Secured First Lien Term Loan C - - - - - - - Equity - - - - - - - Total Controlled Investments $ 9,891,860 $ 45,991,146 $ - $ 2,141,326 $ 1,850 $ 58,026,182 $ 4,803,388 (1) The par amount and additional detail are shown in the Consolidated Schedules of Investments. (2) Securities with a zero value at the beginning and end of the period, and those that had no transaction activity were excluded from the roll forward. Purchases/(sales) of or advances to/(distributions) from Affiliated Investments and Controlled Investments represent the proceeds from sales and settlements of investments, purchases, originations and participations, investment increases due to PIK interest as well as net amortization of premium/(discount) on investments and are included in the purchases and sales presented on the Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and 2021. Transfers in/(out) of Affiliated Investments and Controlled Investments represent the fair value for the month an investment became or was removed as an Affiliated Investment or a Controlled Investment. Income received from Affiliated Investments and Controlled Investments is included in total investment income on the Consolidated Statements of Operations for the years ended September 30, 2023, 2022 and 2021. Unconsolidated Significant Subsidiaries In accordance with the SEC’s Regulation S-X and GAAP, the Company evaluated and determined that it had one subsidiary, FlexFIN, LLC, that is deemed to be a “significant subsidiary” as of September 30, 2023. In accordance with Rule 3-09, separate audited financial statements of FlexFIN, LLC for the year ended September 30, 2023 are being filed herewith as Exhibit 99.2. Note 4. Fair Value Measurements The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy, and certain prior period amounts have been reclassified to conform to the current period presentation. The three levels are defined below: ● Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date. ● Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. ● Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. In addition to using the above inputs in investment valuations, the Company continues to employ a valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value. F- 30 Note 4. Fair Value Measurements (continued) The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, 2023 (dollars in thousands): Fair Value Hierarchy as of September 30, 2023 Investments: Level 1 Level 2 Level 3 Total Senior Secured First Lien Term Loans $ - $ 20,505 $ 82,499 $ 103,004 Senior Secured Notes - 8,922 - 8,922 Unsecured Debt - - - - Equity/Warrants 24,709 6,217 82,817 113,743 Total $ 24,709 $ 35,644 $ 165,316 $ 225,669 Investments measured at net asset value (1) 792 Total Investments, at fair value $ 226,461 (1) Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities. The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, 2022 (dollars in thousands): Fair Value Hierarchy as of September 30, 2022 Investments: Level 1 Level 2 Level 3 Total Senior Secured First Lien Term Loans $ - $ 13,996 $ 74,252 $ 88,248 Senior Secured Second Lien Term Loans - - 2,607 2,607 Senior Secured Notes - 1,659 - 1,659 Unsecured Debt - - - - Equity/Warrants 24,750 5,877 69,816 100,443 Total $ 24,750 $ 21,532 $ 146,675 $ 192,957 The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended September 30, 2023 (dollars in thousands): Senior Secured First Lien Term Loans Senior Secured Second Lien Term Loans Unsecured Debt Equities/ Warrants Total Balance as of September 30, 2022 $ 74,252 $ 2,607 $ - $ 69,816 $ 146,675 Purchases and other adjustments to cost 23,481 - - 29,571 53,052 Sales (including repayments or maturities) ( 12,840 ) ( 2,607 ) ( 191 ) ( 33,213 ) ( 48,851 ) Net realized gains/(losses) from investments 162 ) 5 9 ( 9,574 ) ( 9,398 ) Net unrealized gains/(losses) ( 2,556 ) ( 5 ) 182 26,217 23,838 Transfer in/(out) - - - - - Balance as of September 30, 2023 $ 82,499 $ - $ - $ 82,817 $ 165,316 The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended September 30, 2022 (dollars in thousands): Senior Secured First Lien Term Loans Senior Secured Second Lien Term Loans Secured Debt Unsecured Debt Equities/ Warrants (1) Total Balance as of September 30, 2021 $ 61,934 $ 2,490 $ 2,500 $ - $ 48,889 $ 115,813 Purchases and other adjustments to cost 59,179 - - - 71,111 130,290 Sales ( 58,333 ) - - ( 1,280 ) ( 52,938 ) ( 112,551 ) Net realized gains/(losses) from investments ( 23,917 ) - - ( 99 ) 36,101 12,085 Net unrealized gains/(losses) 35,189 117 (2,500 ) (1) 1,379 (33,347 ) (1) 838 Transfer in/(out) 200 - - - - 200 Balance as of September 30, 2022 $ 74,252 $ 2,607 $ - $ - $ 69,816 $ 146,675 (1) FlexFIN, LLC was reclassed as an Equity from Secured Debt during the quarter ended December 31, 2021. F- 31 Note 4. Fair Value Measurements (continued) Net change in unrealized gain (loss) for the years ended September 30, 2023 and 2022 included in earnings related to investments still held as of September 30, 2023 and 2022 was approximately $ 26.5 million and $( 2.5 ) million, respectively. Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK. Sales represent net proceeds received from investments sold, including any repayments or maturities. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the year ended September 30, 2023, no investments were transferred in or out of Level 3 . During the year ended September 30, 2022, $5,248 (in thousands) of investments were transferred out of Level 3 and $1,923 (in thousands) of investments were transferred into Level 3. The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 2023 (dollars in thousands): Fair Value Valuation Methodology Unobservable Input Range (Weighted Average) Impact to Valuation From An Increase In Input Senior Secured First Lien Term Loans $ 69,943 Income Approach Market Yield 8.50% - 32.0% (13.78%) Decrease Senior Secured First Lien Term Loans 751 Market Approach Revenue Multiple 0.3x - 0.3x (0.3x) Increase Senior Secured First Lien Term Loans 10,939 Market Approach EBITDA Multiple 1.7x - 5.0x (3.1x) Increase Senior Secured First Lien Term Loans 866 Market Approach LTM EBITDA Multiple 5.8x - 6.8x (6.3x) Increase Equity/Warrants 38,870 Cost Approach Collateral Value N/A N/A Equity/Warrants 11,734 Market Approach LTM Multiple 5.8x – 6.8x (6.3x) Increase Equity/Warrants 22,007 Market Approach EBITDA Multiple 1.8x – 36.8x (2.8x) Increase Equity/Warrants 10,000 Recent Purchase Purchase Price N/A – N/A (N/A) N/A Equity/Warrants 206 Income Approach DLOM (Discount for lack of Marketability) 3.0x – 3.2x (3.1x) Decrease Total $ 165,316 The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 2022 (dollars in thousands): Fair Value Valuation Methodology Unobservable Input Range (Weighted Average) Senior Secured First Lien Term Loans $ 65,428 Income Approach Market Yield 8.50% - 24.00% (10.57%) Senior Secured First Lien Term Loans 3,807 Market Approach EBITDA Multiple 4.0x – 5.0x (4.5x) Senior Secured First Lien Term Loans 4,152 Market Approach Revenue Multiple 0.2x – 0.3x (2.5x) Senior Secured First Lien Term Loans 865 Income Approach Market Spread 5.75% - 6.25% (6.00%) Senior Secured Second Lien Term Loans 2,607 Market Approach EBITDA Multiple 9.0x – 10.0x (9.5x) Equity/Warrants 47,138 Cost Approach Replacement Cost N/A Equity/Warrants 11,444 Market Approach EBITDA Multiple 2.0x – 21.0x (17.4x) Equity/Warrants 9,951 Market Approach Market Yield 8.50% - 13.25% (12.75%) Equity/Warrants 1,283 Market Approach Sum of the Parts/Estimated Proceeds 8.1x – 11.4x (9.8x) Total $ 146,675 F- 32 Note 4. Fair Value Measurements (continued) The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. Increases in market yields would result in lower fair value measurements. The significant unobservable inputs used in the fair value measurement of the Company’s equity/warrants investments are comparable company multiples of revenue or EBITDA for the latest twelve months (“LTM”), next twelve months (“NTM”) or a reasonable period a market participant would consider. Increases in EBITDA multiples in isolation would result in higher fair value measurement. In September 2017, the Company entered into an agreement with Global Accessories Group, LLC (“Global Accessories”), in which the Company exchanged its full position in Lydell Jewelry Design Studio, LLC for a 3.8 % membership interest in Global Accessories, which is included in the Consolidated Schedule of Investments. As part of the agreement, the Company is entitled to contingent consideration in the form of cash payments (“Earnout”), as well as up to an additional 5 % membership interest (“AMI”), provided Global Accessories achieves certain financial benchmarks through calendar year ended 2022. The Earnout and AMI were initially recorded with an aggregate fair value of $ 2.4 million on the transaction date using the Income Approach and were included on the Consolidated Statements of Assets and Liabilities in other assets. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Any changes in fair value will be recognized in earnings. As of September 30, 2023 and September 30, 2022, the Company deemed the contingent consideration to be uncollectible. Note 5. Borrowings As a BDC, we are generally only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200 % after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. However, in March 2018, the Small Business Credit Availability Act modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200 % to 150 %, if certain requirements under the 1940 Act are met. Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. No approval was requested or obtained and the Company is still subject to the 200 % requirement. As of September 30, 2023, the Company’s asset coverage was 270.7 % after giving effect to leverage and therefore the Company’s asset coverage was greater than 200 %, the minimum asset coverage requirement applicable presently to the Company under the 1940 Act. As of September 30, 2022, the Company’s asset coverage was 255.0 % after giving effect to leverage and therefore the Company’s asset coverage was greater than 200 %, the minimum asset coverage requirement applicable presently to the Company under the 1940 Act. The Company’s outstanding debt excluding debt issuance costs as of September 30, 2023 and 2022 were as follows (dollars in thousands): September 30, 2023 September 30, 2022 Aggregate Principal Available Principal Amount Outstanding Carrying Value Fair Value Aggregate Principal Available Principal Amount Outstanding Carrying Value Fair Value 2023 Notes $ - $ - $ - $ - $ 22,522 $ 22,522 $ 22,483 $ 22,378 2028 Notes 57,500 57,500 55,811 49,105 57,500 57,500 55,480 50,255 Revolving Credit