What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-17 compared with 2023-12-22 · 316 added, 382 removed, 442 unchanged (61% of the section changed)

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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

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

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;

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;

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;

introduction, withdrawal, success and timing of business initiatives and strategies;

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;

impact of increased competition;

impact of future acquisitions and divestitures;

business prospects and the prospects of our portfolio companies;

impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies

relating to us;

contractual arrangements and relationships with third parties;

future financings by us;

in foreign currency exchange rates;

impact of changes to tax legislation and, generally, our tax position;

ability to locate suitable investments for us and to monitor and administer our investments;

ability to attract and retain highly talented professionals;

conditions and our ability to access alternative debt markets and additional debt and equity capital;

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 uncertainties relating to the possibility that the Company may explore strategic alternatives, including, but are not limited

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.

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.

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Since January 1, 2021, we have operated under

such internalized management structure.

our present internalized management structure.

commenced operations and completed our initial public offering on January 20, 2011.

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net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable

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.

generate revenue in the form of interest income on the debt that we hold and dividends and capital gains, if any, on our equity investments

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.

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.

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

all registration and listing

federal, state and

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;

direct costs and expenses

of administration, including audit and legal costs.

Support Agreement

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.

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.

for more information.

our internally managed structure, we bear all costs and expenses of our operations and transactions, including those relating to:

organization and continued corporate existence;

our net asset value (“NAV”) (including the cost and expenses of any independent valuation firms);

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;

payable on debt incurred to finance our investments;

costs of all offerings of common shares and other securities;

costs associated with employing investment professionals and other staff;

distributions

on our shares;

administration

fees payable under our administration agreement;

fees related to our assets

payable to third parties relating to, or associated with, making investments;

agent and custodial fees;

registration and listing fees;

federal, state and local taxes;

directors’ fees and expenses;

of preparing and filing reports or other documents with the SEC or other regulators;

costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

fidelity bond;

operating lease of our office space;

and officers/errors and omissions liability insurance, and any other insurance premiums;

indemnification

costs and expenses of administration, including audit and legal costs.

Cash Incentive Plan

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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”).

commencing on October 1, 2021 and ending on September 30, 2024 (the “2022 LTIP Plan”).

Each participant is eligible to receive

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McMillan for the three-year performance

period commencing on January 1, 2023 and ending on December 31, 2025 (the “2023 LTIP Plan”).

period commencing on October 1, 2022 and ending on September 30, 2025 (the “2023 LTIP Plan”).

Each participant is eligible

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Compensation Committee, in approving the awards, evaluated each Performance Goal separately.

Target Performance Award for each executive officer for both the 2022 LTIP plan and 2023 LTIP plan is set forth in the table below:

David Lorber, Chairman of the Board

and Chief Executive Officer

December 2023, pursuant to the CIP, the Compensation Committee approved awards for Mr.

Lorber and Ms.

McMillan for the three-year performance

period commencing on October 1, 2023 and ending on September 30, 2026 (the “2024 LTIP Plan”).

Each participant is eligible

to receive an amount of cash equal to a percentage of their 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 the 2022

LTIP Plan, the 2023 LTIP Plan, and the 2024 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

Ellida McMillan, Chief Financial Officer

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.

the years ended September 30, 2024 and September 30, 2023, the Company recorded an accrual of $2,798,437 and $317,000, respectively,

for these awards.

During the year ended September 30, 2022 the Company did not record an accrual.

To date, no amounts have been paid

under these awards.

and Investment Activity

of September 30, 2024 and 2023, our portfolio had a fair market value of approximately $227.9 million and $226.5 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.

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.

During the year ended September 30, 2024, we received proceeds excluding

non-cash items from sale and settlements of investments of $112.5 million, including principal and dividend proceeds, realized net gains

on investments of $7.3 million, and invested $99.3 million.

the year ended September 30, 2023, we received proceeds excluding non-cash items 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.

following table summarizes the amortized cost and the fair value of our average portfolio company:

September 30, 2024

September 30, 2023

Amortized Cost

Average portfolio company

Largest portfolio company

Largest portfolio company by amortized

cost and fair value, respectively

following table summarizes the amortized cost and the fair value of investments as of September 30, 2024 (dollars in thousands):

Amortized Cost

Senior Secured First Lien Term Loans

Senior Secured First Lien Term

Senior Secured Notes

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Equity/Warrants

Total Investments

following table summarizes the amortized cost and the fair value of investments as of September 30, 2023 (dollars in thousands):

Senior Secured First Lien Term

Senior Secured Second Lien Term Loans

Senior Secured Notes

Unsecured Debt

Fund Investment

Equity/Warrants

As of September 30, 2024, 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%

upon cost represented 84.5% of our total portfolio of which 57.9% bore interest based on floating rates, such as SOFR or LIBOR, 17.0%

bore interest at fixed rates, and 25.1% are income-producing equity investments.

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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, 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.

rate the risk profile of each of our investments based on the following categories:

or SOFR, while 13.9% bore interest at fixed rates and 26.6% are income-producing equity investments.

As of September 30, 2024, the Company

had a weighted average yield of 12.3% on debt and other income producing investments.

As of September 30, 2023, the Company had a weighted

average yield of 13.3% on debt and other income producing investments.

The weighted average yield of our total portfolio does not represent

the total return to our stockholders.

rate the risk profile of each of our debt investments based on the following categories:

Investments that are performing

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30, 2024 and 2023 (dollars in thousands):

September 30, 2024

September 30, 2023

of Operations

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Loss on extinguishment of debt

Deferred tax benefit (expense)

Net increase (decrease) in net assets resulting from operations

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.

income was received from 11 investments during the year ended September 30, 2023.

the year ended September 30, 2024, investment income totaled $22.2 million, of which $14.3 million was attributable to portfolio interest,

approximately $6.9 million was attributable to dividend income, $0.5 million was attributable to fee and other income, and $0.5 million

was attributable to interest on cash and cash equivalents.

Dividend income was received from 10 investments during the year ended September

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

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.

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was received from 12 investments during the year ended September 30, 2022.

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.

expenses for the years ended September 30, 2024, 2023 and 2022 are as follows (dollars in thousands):

the Years Ended September 30,

Base management fees

For the Years Ended September 30,

Interest and financing expenses

Professional fees, net

Salaries and benefits

Professional fees, net

General and administrative

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the year ended September 30, 2024, total operating expenses increased by $3.8 million, or 28.1%, compared to the year ended September

the year ended September 30, 2022, total operating expenses decreased by $1.7 million, or 12.1%, compared to the year ended September

expenses are before management and incentive fee waivers for the first three months of 2021.

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.

the year ended September 30, 2023, total operating expenses increased by $1.5 million, or 12.5%, compared to the year ended September

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.

and financing expenses for the year ended September 30, 2022 decreased by $0.7 million, or 11.8%, compared to the year ended September

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.

Management Fees and Incentive Fees

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.

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.

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.

and financing expenses for the year ended September 30, 2024 increased by $1.1 million, or 19.5%, compared to the year ended September

The increase in interest and financing expenses was primarily due to increased interest expense on the Credit Facility from

increased borrowings during the year.

and financing expenses for the year ended September 30, 2023 increased by $0.4 million, or 8.2%, compared to the year ended September

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.

Salaries and Benefits

Salaries and benefits expenses for the year ended

September 30, 2024 increased by $2.7 million, or 63.6%, compared to the year ended September 30, 2023.

The increase in salaries and benefits

expenses was primarily due to increased bonus accruals during the year.

Interest and financing expenses for the year

ended September 30, 2023 increased by $1.2 million, or 41.8%, compared to the year ended September 30, 2022.

The increase in salaries

and benefits expenses was primarily due to increased bonus accruals during the year.

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.

fees and general and administrative expenses for the year ended September 30, 2022 increased by $0.9 million, or 55.5%, compared to the

fees and general and administrative expenses for the year ended September 30, 2024 decreased by $0.2 million, or 7.1%, compared to the

year ended September 30, 2023.

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.

This resulted primarily from a decrease in miscellaneous expenses.

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.

Realized Gains/Losses from Investments

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During the year ended September 30, 2024, 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.

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.

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.

$7.3 million of net realized gains on our portfolio investments.

The realized gains were primarily due to a realized gain on Maritime

Wireless Holdings for $7.0 million and a realized gain on Kemmerer Operations, LLC for $8.5 million, offset by a loss on the sale of 1888

Industrial Services for $8.8 million.

During the year ended September 30, 2023, we recognized

$11.5 million of net 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 net 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.

loss on extinguishment of debt

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which includes any unamortized debt issuance costs.

the year ended September 30, 2023, the Company did not recognize a net loss on extinguishment of debt.

the year ended September 30, 2024 and 2023, the Company did not recognize a net loss on extinguishment of debt.

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.

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.

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.

the year ended September 30, 2022, we had $14.5 million of net change in unrealized depreciation on investments.

The net unrealized depreciation

change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio.

the year ended September 30, 2024, we had $5.7 million of net change in unrealized appreciation on investments.

The net unrealized appreciation

resulted from the reversal of the unrealized loss on 1888 Industrial Services and unrealized appreciation primarily on Chimera Investment

Corporation, FST Holdings Parent LLC, Power Stop LLC, and PHH Mortgage Corporation, offset by the reversal of the unrealized gain on

Maritime Wireless Holdings and Kemmerer Operations, LLC.

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

ended September 30, 2021, we had $25.3 million of net change in unrealized appreciation on investments.

The net unrealized appreciation

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

for Deferred Taxes on Unrealized Depreciation on Investments

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.

for Deferred Taxes

Certain consolidated subsidiaries of ours are subject to U.S.

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 year ended September 30, 2024, the Company recorded a change in provision

for deferred taxes of $0.9 million.

For the years ended September 30, 2023 and 2022, the Company did not record a change in provision

for deferred taxes.

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.

the year ended September 30, 2024, we recorded a net increase in net assets resulting from operations of $18.6 million compared to a

net increase in net assets resulting from operations of $26.9 million for the year ended September 30, 2023, and a net decrease in net

assets resulting from operations of $6.1 million for the year ended September 30, 2022 as a result of the factors discussed above.

on 2,040,253, 2,092,326 and 2,323,601 weighted average common shares outstanding for the years ended September 30, 2024, 2023 and 2022,

respectively, our per share net increase (decrease) in net assets resulting from operations was $9.13, $12.87 and $(2.63) for the years

ended September 30, 2024, 2023 and 2022, respectively.

Condition, Liquidity and Capital Resources

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As of September

30, 2023 and 2022, we had $6.0 and $22.8 million in cash and cash equivalents, respectively.

30, 2024 and 2023, we had $67.6 million and $6.0 million in cash and cash equivalents, respectively.

order to maintain our RIC tax treatment under the Code, we intend to distribute to our stockholders substantially all of our taxable

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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,

an aggregate of 703,931 shares of common stock through September 30, 2024, or 25.8% of shares outstanding as of the program’s inception,

with a total cost of $28.1 million.

1 unchanged sentence

2024 was approximately $6.9 million.

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.

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.

WoodForest is the administrative

agent, sole bookrunner and sole lead arranger.

As of September 30, 2024, there was $78.1 million outstanding borrowings by the Company

under the Credit Facility.

loans under the Credit Facility bear a monthly interest rate at Term SOFR + 2.90%.

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to repay all amounts outstanding under the Credit Facility.

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

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.

February 21, 2024 (the “First Amendment Effective Date”), in order to increase the size of the Credit Facility, the parties

to the Credit Facility amended the terms of the Credit Facility, effective as of the First Amendment Effective Date (the “First

The First Amendment increased the principal amount of loan available under the Credit Facility by $12.5 million to

$62.5 million.

All other material terms of the Credit Facility remain unchanged.

August 5, 2024 (the “Second Amendment Effective Date”), in order to increase the size of the Credit Facility, the parties

to the Credit Facility amended the Credit Facility, effective as of the Second Amendment Effective Date (the “Second Amendment”).

The Second Amendment increased the principal amount of loan available under the Credit Facility by $25 million to $87.5 million.

other material terms of the Credit Facility remain unchanged.

March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 2023 Notes.

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The Company funded the redemption of the 2023 Notes with loans obtained under the Credit Facility,

as described earlier in this section.

November 9, 2021, the Company entered into an underwriting agreement, by and between the Company and Oppenheimer & Co.

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(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

Effective November 16, 2021, the 2028 Notes began trading on the NASDAQ Global Market under the trading symbol “PFXNZ.”

5.25% Notes due 2028 (the “2028 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.”

November 15, 2021, the Company and U.S.

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the 2028 Notes.

Promissory Note

May 2, 2024, the Company issued a 5.25% note due November 1, 2028 in the principal amount of $1,661,498 to National Security Insurance

Company (the “2028 Promissory Note”).

The financial terms of the note are substantially the same as the 2028 Notes.

Obligations and Off-Balance Sheet Arrangements

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.

of September 30, 2024 and 2023, we had commitments under loan and financing agreements to fund up to $1.6 million to two portfolio companies

and $3.4 million to four portfolio companies, respectively.

These commitments are primarily composed of senior secured delayed draw term

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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):

SS Acquisition, LLC (dba Soccer

Shots Franchising) - Senior Secured First Lien Delayed Draw Term Loan

Kemmerer Operations, LLC - Senior Secured First

Lien Delayed Draw Term Loan

A summary of the composition of the unfunded commitments as of September 30, 2024 and September 30, 2023 is shown in the table below

(dollars in thousands):

September 30,

Secure Acquisition Inc.

(dba Paragon Films)

- Senior Secured First Lien Delayed Draw Term Loan

NVTN LLC - Senior Secured First Lien Delayed

Draw Term Loan

Black Angus Steakhouses, LLC Senior Secured

First Lien Super Priority Delayed Draw Term Loan

1888 Industrial Services, LLC - Revolving Credit

Deer Management Systems LLC - Senior Secured

First Lien Delayed Draw Term Loan

Tamarix Capital Partners

(dba Paragon Films) - Senior Secured First Lien Delayed Draw Term Loan

NVTN LLC - Senior Secured First Lien Delayed Draw Term Loan

Deer Management Systems LLC - Senior Secured First Lien Delayed Draw

XYZ Roofco, LLC (dba SMC Roofing Solutions LLC) - First Out Delayed Draw Term Loan

XYZ Roofco, LLC (dba SMC Roofing Solutions LLC) - Last Out Delayed Draw Term Loan

Tamarix Capital Partners II, L.P.

- Fund Investment

Total unfunded commitments

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.

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.

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.

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.

following table shows our payment obligations for repayment of debt and other contractual obligations at September 30, 2023 (dollars

in thousands):

Due by Period

On October 1, 2024, the Company consummated the acquisition of approximately

80% of the equity of The National Security Group, an Alabama based insurance holding company (“NSG”).

NSG is a nationwide

underwriter of life, accident, and health insurance.

In addition, NSG is a specialty underwriter of property and casualty insurance throughout

the southeast, other than Florida and Louisiana.

The Company has entered into a contract with NSG to manage a portion of its investment

The following table shows our payment obligations

by calendar year for repayment of debt and other contractual obligations at September 30, 2024 (dollars in thousands):

Payments Due by Period

Revolving Credit Facility

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(57,500,000 )

Lease Obligation (1)

contractual obligations

2028 Promissory Note

Operating Lease Obligation (1)

Total contractual obligations

$ (78,231,092 )

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$ (137,584,597 )

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.

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

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

have elected, and intend to continue 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

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an amount equal to the sum of:

at least 98.0% of our ordinary

income (not taking into account any capital gains or losses) for the calendar year;

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;

income realized, but not

distributed, in preceding years and on which we did not pay federal income tax.

least 98.0% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;

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;

realized, but not distributed, in preceding years and on which we did not pay federal income tax.

we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S.

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event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.

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

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.

the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions

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federal income tax purposes.

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.

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.

have adopted an “opt out” dividend reinvestment plan for our common stockholders.

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distributions.

Company did not declare any regular distribution payments during the years ended September 30, 2023, 2022 and 2021.

On May 9, 2024, the Board of Directors declared a special dividend

in the amount of $2,645,925.

This dividend was paid on June 10, 2024 to stockholders of record as of May 27, 2024.

During the year ended

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of record on July 5, 2022.

The Company did not declare any regular distribution payments during the years ended September 30, 2024,

2023 and 2022.

Party Transactions

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under our Code of Business Conduct and Ethics must be considered by the disinterested directors.

Management Fee and Incentive Fee

to January 1, 2021, we operated pursuant to an investment management agreement with MCC Advisors which expired on December 31, 2020.

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.

year ended September 30, 2024, the Company entered into a related party transaction with NVTN LLC whereby the $11.9 million of equity

of Maritime Wireless Holdings LLC was transferred to NVTN LLC.

from/to Affiliates

from affiliates at September 30, 2024 and September 30, 2023 consists of certain legal and general and administrative expenses paid by

the Company on behalf of certain of its affiliates.

Due to affiliates at September 30, 2024 and September 30, 2023 consists of certain

expenses payable by the Company to certain of its affiliates.

and Security Agreement

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including the right to foreclose on the collateral pledged by the Company.

February 21, 2024, the Pledge and Security Agreement was amended to (i) release and terminate the security interest in the equity interest

of FlexFIN, LLC, pledged by PhenixFIN Investment Holdings LLC, (ii) grant a security interest in the membership interest of FlexFIN Holdco

LLC, pledged by PhenixFIN Investment Holdings LLC, and (iii) reflect equity interests of certain subsidiaries held by the Company and

its subsidiary in the exhibits.

August 5, 2024, the Pledge and Security Agreement was further amended to join an additional subsidiary of the Company as a Guarantor

and grant a security interest in the equity interest of such additional subsidiary.

September 30, 2024, the Pledge and Security Agreement was further amended to exclude assets owned by excluded subsidiaries from the collateral

package and reflect the equity interest of an additional subsidiary of the Company in the exhibits.

Accounting Policies

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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.

1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly

or indirectly.

3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

value investments for which market quotations are readily available at their market quotations, which are generally obtained from an

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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

Available portfolio company

data and general industry data is then reviewed by the Fair Value Personnel.

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.

quarterly valuation process generally begins with each investment being initially valued by a Valuation Firm.

third-party market data will be reviewed by Company personnel designated by the Valuation Designee (“Fair Value Personnel”)

and the Valuation Firm.

portfolio company data and general industry data is then reviewed by the Fair Value Personnel.

valuation conclusions are then documented by the Valuation Firm and discussed with the Fair Value Personnel.

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.

following these approaches, the types of factors that are taken into account in fair value pricing investments include available current

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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.

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.

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.

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

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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.

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.

At September 30, 2024, certain investments in three portfolio companies held by the Company were

on non-accrual status with a combined fair value of approximately $2.4 million, or 1.1% of the fair value of our portfolio.

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.

Company has elected, and intends to continue 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

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result from the treatment of short-term gains as ordinary income for tax purposes.

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

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.

On October 1, 2024, the Company consummated the acquisition of approximately

80% of the equity of The National Security Group, an Alabama based insurance holding company (“NSG”).

NSG is a nationwide

underwriter of life, accident, and health insurance.

In addition, NSG is a specialty underwriter of property and casualty insurance throughout

the southeast, other than Florida and Louisiana.

The Company has entered into a contract with NSG to manage a portion of its investment

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

What changed 10-K

Item 7. Management’s Discussion and Analysis