OFS Capital
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549Form 10-K(Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934COMMISSION FILE NUMBER: 814-00813OFS Capital Corporation(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)Delaware46-1339639(State or jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.) 10 S. Wacker Drive, Suite 2500Chicago, Illinois60606(Address of principal executive offices)(Zip Code)REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:(847) 734-2000SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share The Nasdaq Global Select Market6.375% Notes due 2025 The Nasdaq Global Select Market6.50% Notes due 2025 The Nasdaq Global Select MarketSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ No xIndicate 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 preceding12 months (or for such shorter periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x 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 during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ¨ No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer¨Accelerated filerx Non-accelerated filer¨ Smaller reporting company¨ Emerging growth company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) YES ¨ NO xIf 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨The aggregate market value of the registrant's voting shares of common stock held by non-affiliates of the registrant as of June 30, 2018, was $149.2 million based on $11.46 pershare, the last reported sale price of the shares of common stock on the Nasdaq Global Select Market. For the purpose of calculating this amount only, shares held by certainstockholders and by directors and executive officers of the registrant have been excluded. On March 5, 2019, there were 13,357,337 shares outstanding of the Registrant’s commonstock, $0.01 par value.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement relating to the registrant’s 2019 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities andExchange Commission, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.TABLE OF CONTENTS PagePART 1Item 1.Business3Item 1A.Risk Factors24Item 1B.Unresolved Staff Comments51Item 2.Properties51Item 3.Legal Proceedings51Item 4.Mine Safety Disclosures51 PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities52Item 6.Selected Consolidated Financial Data54Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations56Item 7A.Quantitative and Qualitative Disclosures about Market Risk74Item 8.Financial Statements and Supplementary Data75Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure132Item 9A.Controls and Procedures132Item 9B.Other Information133 PART IIIItem 10.Directors, Executive Officers and Corporate Governance134Item 11.Executive Compensation134Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters134Item 13.Certain Relationships and Related Transactions, and Director Independence134Item 14.Principal Accounting Fees and Services134 PART IVItem 15.Exhibits and Financial Statement Schedules135Item 16.Form 10-K Summary137Signatures138OFS Capital Corporation, our logo and other trademarks of OFS Capital Corporation are the property of OFS Capital Corporation. All othertrademarks or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners.Defined TermsWe have used "we," "us," "our," "our company," and "the Company" to refer to OFS Capital Corporation in this report. We also have used several other termsin this report, which are explained or defined below:1940 ActInvestment Company Act of 1940, as amendedAdministration AgreementAdministration agreement between the Company and OFS Services dated November 7, 2012Advisers ActInvestment Advisers Act of 1940, as amendedAnnual Distribution RequirementDistributions to our stockholders, for each taxable year, of at least 90% of our ICTIASCAccounting Standards Codification, as issued by the FASBASC Topic 606ASC Topic 606, "Revenue From Contracts With Customers"ASC Topic 820ASC Topic 820, "Fair Value Measurements and Disclosures"ASC Topic 946ASC Topic 946, "Financial Services-Investment Companies"ASUAccounting Standards Updates, as issued by the FASBBDCBusiness Development Company under the 1940 ActBLABusiness Loan Agreement, as amended, with Pacific Western Bank, as lender, which provides the Company witha senior secured revolving credit facilityBoardThe Company's board of directorsCLOCollateralized loan obligationCodeInternal Revenue Code of 1986, as amendedDRIPDistribution reinvestment planEBITDAEarnings before interest, taxes, depreciation, and amortizationExchange ActSecurities Exchange Act of 1934, as amendedFASBFinancial Accounting Standards BoardFDICFederal Deposit Insurance CorporationGAAPAccounting principles generally accepted in the United StatesHPCIHancock Park Corporate Income, Inc., a non-traded BDC with an investment strategy similar to the Company forwhom OFS Advisor serves as investment adviserICTIInvestment company taxable income, as defined in the Code, which is generally net ordinary income plus netshort-term capital gains in excess of net long-term capital lossesInvestment Advisory AgreementInvestment advisory agreement between the Company and OFS Advisor dated November 7, 2012IPOInitial Public OfferingLIBORLondon Interbank Offered RateNet Loan FeesThe cumulative amount of fees, such as discounts, premiums and amendment fees that are deferred andrecognized as income over the life of the loan.OCCIOFS Credit Company, Inc., a closed-end management investment company that has registered as an investmentcompany under the 1940 Act that primarily invests in CLO debt and subordinated (i.e., residual or equity)securitiesOfferingFollow-on public offering of 3,625,000 shares of our common stock in April 2017OFS AdvisorOFS Capital Management, LLC, a wholly owned subsidiary of OFSAM and registered investment adviser underthe Advisers ActOFSCOrchard First Source Capital, Inc., a wholly owned subsidiary of OFSAMOFS Capital WMOFS Capital WM, LLC, a wholly owned investment-company subsidiary of the CompanyOFS ServicesOFS Capital Services, LLC, a wholly owned subsidiary of OFSAM and affiliate of OFS AdvisorOFSAMOrchard First Source Asset Management, LLC, a full-service provider of capital and leveraged finance solutionsto U.S. CorporationsPrime RateUnited States Prime interest ratePWB Credit FacilitySenior secured revolving credit facility between the Company and Pacific Western Bank, as lenderRICRegulated investment company under Subchapter M of CodeSBAU.S. Small Business AdministrationSBICA fund licensed under the SBA small business investment company program1SBIC AcquisitionThe Company's acquisition of the remaining ownership interests in SBIC I LP and SBIC I GP, LLC on December4, 2013, making SBIC I LP a wholly owned subsidiary of the CompanySBIC ActSmall Business Investment Act of 1958, as amendedSBIC I LPOFS SBIC I, LP, a wholly owned SBIC subsidiary of the CompanySECU.S. Securities and Exchange CommissionThe OrderWe received exemptive relief from the SEC to permit us to co-invest in portfolio companies with certain fundsmanaged by Affiliated Funds in a manner consistent with our investment objective, positions, policies,strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliancewith certain conditions.Transaction PriceThe cost of an arm's length transaction occurring in the same securityUnsecured NotesThe combination of the Unsecured Notes Due April 2025 and the Unsecured Notes Due October 2025Unsecured Notes Due April 2025The Company's $50.0 million aggregate principal amount of 6.375% notes due April 30, 2025Unsecured Notes Due October 2025The Company's $48.5 million aggregate principal amount of 6.5% notes due October 30, 2025Valuation Methodology ChangeWe changed the primary method used to value certain of our investments as of December 31, 2016, from theincome approach to the market approachWM Credit FacilitySecured revolving line of credit with Wells Fargo Bank, N.A, terminated on May 28, 20152PART IAs used in this annual report on Form 10-K, except as otherwise indicated, the terms “OFS Capital,” “the Company,” “we,” “us,” and “our” referto OFS Capital Corporation and its consolidated subsidiaries.Item 1. BusinessGENERALWe are an externally managed, closed-end, non-diversified management investment company and have elected to be treated as a BDC under the1940 Act, which imposes certain investment restrictions on our portfolio. Our investment objective is to provide our stockholders with both current incomeand capital appreciation primarily through debt investments and, to a lesser extent, equity investments. Our investment strategy focuses primarily oninvestments in middle-market companies in the United States. We use the term “middle-market” to refer to companies that may exhibit one or more of thefollowing characteristics: number of employees between 150 and 2,000; revenues between $15 million and $300 million; annual EBITDA between $3million and $50 million; generally, private companies owned by private equity firms or owners/operators; and enterprise value between $10 million and$500 million. For additional information about how we define the middle-market, see “—Investment Criteria/Guidelines.”As of December 31, 2018, the fair value of our debt investment portfolio totaled $363.6 million in 44 portfolio companies, of which 88% wascomprised of senior secured loans and 12% of subordinated loans. Additionally, as of December 31, 2018, we held approximately $33.2 million in equityinvestments, at fair value, in 13 portfolio companies in which we also held debt investments and six portfolio companies in which we solely held an equityinvestment.Our investment strategy focuses primarily on middle-market companies in the United States, including senior secured loans, which includes first-lien, second-lien and unitranche loans, as well as subordinated loans and, to a lesser extent, warrants and other equity securities. We also may invest up to30% of our portfolio in opportunistic investments of portfolio companies not otherwise eligible under BDC regulations. Specifically, as part of this 30%basket, we may consider investments in investment funds that are operating pursuant to certain exceptions to the 1940 Act and in advisers to similarinvestment funds, as well as in debt of middle-market companies located outside of the United States and debt and equity of public companies that do notmeet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for inthe 1940 Act.We execute our investment strategy, in part, through SBIC I LP, a licensee under the SBA's SBIC program. The SBIC license allows SBIC I LP toreceive SBA-guaranteed debenture funding, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA leveragefunding is subject to SBIC I LP’s payment of certain fees to the SBA, and the ability of SBIC I LP to draw on the leverage commitment is subject to itscompliance with SBA regulations and policies, including an audit by the SBA. For additional information regarding the regulation of SBIC I LP, see“Regulation—Small Business Investment Company Regulation.”On a stand-alone basis, SBIC I LP held approximately $251.1 million and $251.6 million in assets, or approximately 57% and 70% of our totalconsolidated assets, at December 31, 2018 and 2017, respectively.Our investment activities are managed by OFS Advisor and supervised by our Board a majority of whom are independent of us, OFS Advisor and itsaffiliates. Under the Investment Advisory Agreement we have agreed to pay OFS Advisor an annual base management fee based on the average value of ourtotal assets (other than cash and cash equivalents but including assets purchased with borrowed funds and including assets owned by any consolidatedentity) as well as an incentive fee based on our investment performance. We have elected to exclude from the base management fee calculation any basemanagement fee that would be owed in respect of the intangible asset and goodwill resulting from the SBIC Acquisition. OFS Advisor also serves as theinvestment adviser or collateral manager to CLOs and other assets, including HPCI, a non-traded BDC with an investment strategy similar to the Company's,and OCCI, a newly organized, non-diversified, externally managed, closed-end management investment company that has registered as an investmentcompany under the 1940 Act that primarily invests, in the CLO debt and subordinated (i.e., residual or equity) securities. OFS Advisor will seek to allocateinvestment opportunities among eligible accounts in a manner that is fair and equitable over time and consistent with its allocation policy.We have also entered into an Administration Agreement with OFS Services. Under our Administration Agreement, we have agreed to reimburse OFSServices for our allocable portion (subject to the review and approval of our independent directors) of overhead and other expenses incurred by OFS Servicesin performing its obligations under the Administration Agreement. See “—Management and Other Agreements–Administration Agreement.”As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least70% of our assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligibleportfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities arenot listed on a national securities3exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250million, in each case organized in the United States.As a BDC, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage ratio for totalborrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Provisions of the Small Business Credit Availability Act(the "SBCAA"), permit BDCs to be subject to a minimum asset coverage ratio of 150%, if specific conditions are satisfied, when issuing senior securities (i.e.,the amount of debt may not exceed 66 2/3% of the value of our assets). As an approximation, prior to the enactment of the SBCAA, the most that a BDCcould borrow for investment purposes was $1 for every $1 of investor equity. Now, for those BDCs that satisfy the SBCAA’s approval and disclosurerequirements and become subject to the reduced asset coverage ratio, the BDC can borrow $2 for investment purposes for every $1 of investor equity.The SBCAA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% asset coverage,the BDC must either obtain: (i) approval of the required majority of its non-interested directors who have no financial interest in the proposal, which wouldbecome effective one year after the date of such approval, or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meetingin which quorum is present), which would become effective on the first day after the date of such stockholder approval.On May 3, 2018, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved theapplication of the modified asset coverage requirements and, as a result, the asset coverage ratio test applicable to us will be decreased from 200% to 150%,effective May 3, 2019. Additionally, we received exemptive relief from the SEC effective November 26, 2013, which allows us to exclude our SBAguaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the 1940 Act.We may borrow money when the terms and conditions available are favorable to do so and are aligned with our investment strategy and portfoliocomposition. The use of borrowed funds or the proceeds of preferred stock to make investments would have its own specific benefits and risks, and all of thecosts of borrowing funds or issuing preferred stock would be borne by holders of our common stock.We have elected to be treated for tax purposes as a RIC under Subchapter M of the Code. To continue to qualify as a RIC, we must, among otherthings, meet certain source-of-income and asset diversification requirements. Pursuant to this election, we generally will not have to pay corporate-level taxeson any income we distribute to our stockholders.About OFS and Our AdvisorOFS (which refers to the collective activities and operations of OFSAM, its subsidiaries, and certain affiliates) is a full-service provider of capital andleveraged finance solutions to U.S. companies.As of December 31, 2018, OFS had 46 full-time employees. OFS is headquartered in Chicago, Illinois and also has offices in New York, New Yorkand Los Angeles, California.Our investment activities are managed by OFS Advisor, our investment adviser. OFS Advisor is responsible for sourcing potential investments,conducting research and diligence on potential investments and equity sponsors, analyzing investment opportunities, structuring our investments andmonitoring our investments and portfolio companies on an ongoing basis. OFS Advisor is a registered investment adviser under the Advisers Act and awholly-owned subsidiary of OFSAM.Our relationship with OFS Advisor is governed by and dependent on the Investment Advisory Agreement and may be subject to conflicts of interest.OFS Advisor provides us with advisory services in exchange for a base management fee and incentive fee; see “Management and Other Agreements—Investment Advisory Agreement”. The base management fee is based on our total assets (other than cash and cash equivalents, and the intangible asset andgoodwill resulting from the SBIC Acquisition, but including assets purchased with borrowed funds and assets owned by any consolidated entity) and,therefore, OFS Advisor will benefit when we incur debt or use leverage. Our board of directors is charged with protecting our interests by monitoring how OFSAdvisor addresses these and other conflicts of interest associated with its management services and compensation. While our board of directors is notexpected to review or approve each borrowing or incurrence of leverage, our independent directors periodically review OFS Advisor’s services and fees aswell as its portfolio management decisions and portfolio performance.OFS Advisor has entered into a Staffing Agreement (the "Staffing Agreement") with OFSC, a wholly-owned subsidiary of OFSAM. Under the StaffingAgreement, OFSC makes experienced investment professionals available to OFS Advisor and provides access to the senior investment personnel of OFS andits affiliates. The Staffing Agreement provides OFS Advisor with access to deal flow generated by OFS and its affiliates in the ordinary course of theirbusinesses and commits the members of OFS Advisor’s investment committee to serve in that capacity. As our investment adviser, OFS Advisor is obligatedto allocate investment opportunities among us and any other clients fairly and equitably over time in accordance with its allocation policy.4OFS Advisor capitalizes on the deal origination and sourcing, credit underwriting, due diligence, investment structuring, execution, portfoliomanagement and monitoring experience of OFS’s professionals. The senior management team of OFS, including Bilal Rashid, Jeff Cerny and Mark Hauser,provides services to OFS Advisor. These managers have developed a broad network of contacts within the investment community, and possess an average ofover 20 years of experience investing in debt and equity securities of middle-market companies. In addition, these managers have extensive experienceinvesting in assets that constitute our primary focus and have expertise in investing across all levels of the capital structure of middle-market companies.Competitive Strengths and Core CompetenciesDeep Management Team Experienced in All Phases of Investment Cycle and Across All Levels of the Capital Structure. We are managed by OFSAdvisor, which has access to the resources and expertise of OFS’s investment professionals through the Staffing Agreement with OFSC. As of December 31,2018, OFS’s credit and investment professionals (including all investment committee members) employed by OFSC had an average of over 15 years ofinvestment experience with strong institutional backgrounds.Significant Investment Capacity. The net proceeds of equity and debt offerings and borrowing capacity under our credit facilities will provide uswith a substantial amount of capital available for deployment into new investment opportunities in our targeted asset class.Scalable Infrastructure Supporting the Entire Investment Cycle. We believe that our loan acquisition, origination and sourcing, underwriting,administration and management platform is highly scalable (that is, it can be expanded on a cost-efficient basis within a timeframe that meets the demands ofbusiness growth). Our platform extends beyond origination and sourcing and includes a regimented credit monitoring system. We believe that our carefulapproach, which involves ongoing review and analysis by an experienced team of professionals, should enable us to identify problems early and to assistborrowers before they face difficult liquidity constraints.Extensive Loan Sourcing Capabilities. OFS Advisor gives us access to the deal flow of OFS. We believe OFS’s 20-year history as a middle-marketlending platform, extensive relationships with potential borrowers and other lenders, and its market position make it a leading lender to many sponsors andother deal sources, especially in the currently under-served lending environment.Structuring with a High Level of Service and Operational Orientation. We provide client-specific and creative financing structures to our portfoliocompanies. Based on our experience in lending to and investing in middle-market companies, we believe that the middle-market companies we target, as wellas sponsor groups we may pursue, require a higher level of service, creativity and knowledge than has historically been provided by other service providersmore accustomed to participating in commodity-like loan transactions.Rigorous Credit Analysis and Approval Procedures. OFS Advisor utilizes an established, disciplined investment process of OFS for reviewinglending opportunities, structuring transactions and monitoring investments. Using a disciplined approach to lending, OFS Advisor seeks to minimize creditlosses through effective underwriting, comprehensive due diligence investigations, structuring and, where appropriate, the implementation of restrictive debtcovenants.Our AdministratorWe do not have any direct employees, and our day-to-day investment operations are managed by OFS Advisor. We have a chief executive officer,chief financial officer, chief compliance officer, chief accounting officer, corporate secretary and, to the extent necessary, our board of directors may elect toappoint additional officers going forward. Our officers are employees of OFSC, an affiliate of OFS Advisor, and a portion of the compensation paid to ourofficers is paid by us pursuant to the Administration Agreement. All of our executive officers are also officers of OFS Advisor.OFS Services, an affiliate of OFS Advisor, provides the administrative services necessary for us to operate. OFS Services furnishes us with officefacilities and equipment, necessary software licenses and subscriptions and clerical, bookkeeping and recordkeeping services at such facilities. OFS Servicesoversees our financial reporting as well as prepares our reports to stockholders and all other reports and materials required to be filed with the SEC or anyother regulatory authority. OFS Services also manages the determination and publication of our net asset value and the preparation and filing of our taxreturns and generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others. OFSServices may retain third parties to assist in providing administrative services to us. To the extent that OFS Services outsources any of its functions, we willpay the fees associated with such functions at cost, on a direct basis.Market OpportunityOur investment strategy is focused primarily on investments in middle-market companies in the United States. We find the middle-market attractivefor the following reasons:5Large Target Market. According to the National Center for the Middle Market, there were approximately 200,000 companies in the United Stateswith annual revenues between $10 million and $1.0 billion, compared with approximately 1,300 companies with revenues greater than $2.5 billion. Webelieve that these middle-market companies represent a significant growth segment of the U.S. economy and often require substantial capital investments togrow. Middle-market companies have historically constituted the vast bulk of OFS’s portfolio companies since its inception, and constituted the majority ofour portfolio as of December 31, 2018. We believe that this market segment will continue to produce significant investment opportunities for us.Specialized Lending Requirements with High Barriers to Entry. We believe that several factors render many U.S. financial institutions ill-suited tolend to U.S. middle-market companies. For example, based on the experience of our management team, lending to private middle-market companies in theUnited States (a) is generally more labor-intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature ofinformation for such companies, (b) requires due diligence and underwriting practices consistent with the demands and economic limitations of the middle-market and (c) may also require more extensive ongoing monitoring by the lender. As a result, middle-market companies historically have been served by alimited segment of the lending community. As a result of the unique challenges facing lenders to middle-market companies, we believe that there are highbarriers to entry that a new lender must overcome.Robust Demand for Debt Capital. We believe that private equity firms have significant committed but uncalled capital, a large portion of which isstill available for investment in the United States. Subject to market conditions, we expect the large amount of unfunded buyout commitments will drivedemand for leveraged buyouts over the next several years, which should, in turn, create leveraged lending opportunities for us.CompetitionOur primary competitors include public and private funds, other BDCs, commercial and investment banks, commercial finance companies and, tothe extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and haveconsiderably greater financial, technical, and marketing resources than we do. Some competitors may have access to funding sources that are not available tous. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety ofinvestments and establish more relationships than us. Further, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposeson us as a BDC, or to the distribution and other requirements we must satisfy to maintain our RIC status.We expect to continue to use the expertise of the investment professionals of OFS to which we have access, to assess investment risks and determineappropriate pricing for our investments in portfolio companies. In addition, we expect that the relationships of the senior members of OFS and its affiliateswill enable us to learn about, and compete effectively for, financing opportunities with attractive middle-market companies in the industries in which we seekto invest. For additional information concerning the competitive risks we face,Investment Criteria/GuidelinesOur investment objective is to generate current income and capital appreciation by investing primarily in middle-market companies in the UnitedStates. We focus on investments in senior secured loans, including first lien, second lien, and unitranche loans, as well as subordinated loans and, to a lesserextent, warrants and other equity securities. In particular, we believe that structured equity debt investments (i.e., typically senior secured unitranche loans,often with warrant coverage, and often in companies with no financial sponsor) represent a strong relative value opportunity offering the borrower theconvenience of dealing with one lender, which may result in a higher blended rate of interest to us than we might expect to receive under a traditional multi-tranche structure. We expect that our investments in the equity securities of portfolio companies, such as warrants, preferred stock, common stock and otherequity interests, will principally be made in conjunction with our debt investments. Generally, we do not expect to make investments in companies orsecurities that OFS Advisor determines to be distressed investments (such as discounted debt instruments that have either experienced a default or have asignificant potential for default), other than follow-on investments in portfolio companies of ours. We intend to continue to generate strong risk-adjusted netreturns by assembling a diversified portfolio of investments across a broad range of industries.We target U.S. middle-market companies through OFS’s access to a network of financial institutions, private equity sponsors, investment banks,consultants and attorneys, and our proprietary database of borrowers developed over OFS’s more than 20 years in lending to middle-market companies. Atypical targeted borrower will exhibit certain of the following characteristics:•number of employees between 150 and 2,000;•revenues between $15 million and $300 million;•annual EBITDA between $3 million and $50 million;6•generally, private companies owned by private equity firms or owners/operators;•enterprise value between $10 million and $500 million;•effective and experienced management teams;•defensible market share;•solid historical financial performance, including a steady stream of cash flow;•high degree of recurring revenue;•diversity of customers, markets, products and geography; and•differentiated products or services.While we believe that the characteristics listed above are important in identifying and investing in prospective portfolio companies, not all of thesecriteria will be met by each prospective portfolio company.Due Diligence and Investment Process OverviewWe employ a thorough and disciplined underwriting and due diligence process that is conducted in accordance with established credit policies andprocedures, and that is focused on investment recovery. Our process involves a comprehensive analysis of a prospective portfolio company’s market,operational, financial, and legal position, as well as its future prospects. In addition to our own analysis, we may use the services of third parties forenvironmental reviews, quality of earnings reports, industry surveys, background checks on key managers, and insurance reviews.We seek to invest in companies that have experienced and incentivized management teams, that have stable and predictable cash flows, and thathave defensible market positions. We underwrite our investments with the expectation that we will hold them for a number of years, and we structure anddocument our investments accordingly.Our due diligence and underwriting process typically addresses the following elements (although certain elements may not be included in every duediligence undertaking):Prospective Portfolio Company Characteristics - focusing on primary drivers of the company’s revenues and cash flows, including its key productsand services; customer and supplier concentrations, and contractual relationships; depth, breadth, and quality of company management, as well as the extentto which the management team is appropriately compensated with equity incentives; and any regulatory, labor, or litigation matters impacting the company.Industry and Competitive Overview - including industry size and the company’s position within it; growth potential and barriers to entry;governmental, regulatory, or technological issues potentially affecting the industry; and cyclicality or seasonality risks associated with the industry.Financial Analysis - involving an understanding of the company’s historical financial results, focusing on actual operating trends experienced overtime, in order to forecast future performance, including in various sensitized performance scenarios; attention to projected cash flows, debt service coverage,and leverage multiples under such scenarios; and an assessment of enterprise valuations and debt repayment/investment recovery prospects given suchsensitized performance scenarios.Investment Documentation - focusing on obtaining the best legal protections available to us given our position within the capital structure,including, as appropriate, financial covenants; collateral liens and stock pledges; review of loan documents of other of the prospective portfolio company’screditors; and negotiation of inter-creditor agreements.Portfolio Review/Risk MonitoringWe view active portfolio monitoring as a vital part of our investment process, and we benefit from a portfolio management system developed by OFSthat includes daily, weekly, monthly, and quarterly components, and that involves comprehensive review of the performance of each of our portfoliocompanies. As part of the portfolio management process, OFS Advisor performs ongoing risk assessments on each of our investments and assigns each debtinvestment a credit rating based on OFS’s internal ratings scale.We categorize debt investments into the following risk categories based on relevant information about the ability of borrowers to service their debt:1 (Low Risk) – The debt investment has mostly satisfactory asset quality and liquidity, as well as good leverage capacity. It maintains predictableand strong cash flows from operations. The trends and outlook for the portfolio company's operations, balance sheet, and industry are neutral to favorable.Collateral, if appropriate, has maintained value and would be capable of being liquidated on a timely basis. Overall a debt investment with a 1 risk rating isconsidered to be of investment grade quality.72 (Below Average Risk) – The debt investment has acceptable asset quality, moderate excess liquidity, and modest leverage capacity. It could havesome financial/non-financial weaknesses which are offset by strengths; however, the credit demonstrates an ample current cash flow from operations. Thetrends and outlook for the portfolio company's operations, balance sheet, and industry are generally positive or neutral to somewhat negative. Collateral, ifappropriate, has maintained value and would be capable of being liquidated successfully on a timely basis.3 (Average) – The debt investment has acceptable asset quality, somewhat strained liquidity, and minimal leverage capacity. It is at timescharacterized by acceptable cash flows from operations. Under adverse market conditions, the debt service could pose difficulties for the borrower. The trendsand conditions of the portfolio company's operations and balance sheet are neutral to slightly negative.4 (Special Mention) – The debt investment has not lost, and is not expected to lose, principal or interest but it possesses credit deficiencies orpotential weaknesses which deserve management’s close and continued attention. The portfolio company’s operations and/or balance sheet havedemonstrated an adverse trend or deterioration which, while serious, has not reached the point where the liquidation of debt is jeopardized. These weaknessesare generally considered correctable by the borrower in the normal course of business but may weaken the asset or inadequately protect our credit position ifnot checked or corrected.5 (Substandard) – The debt investment is protected inadequately by the current enterprise value or paying capacity of the obligor or of the collateral,if any. The portfolio company has well-defined weaknesses based upon objective evidence, such as recurring or significant decreases in revenues and cashflows. These assets are characterized by the possibility that we may sustain loss if the deficiencies are not corrected. The possibility that liquidation wouldnot be timely (e.g., bankruptcy or foreclosure) requires a Substandard classification even if there is little likelihood of loss.6 (Doubtful) – The debt investment has all the weaknesses inherent in those classified as Substandard, with the additional factor that the weaknessesare pronounced to the point that collection or liquidation in full, on the basis of currently existing facts, conditions and values, is deemed uncertain. Thepossibility of loss on a Doubtful asset is high but, because of certain important and reasonably specific pending factors which may strengthen the asset, itsclassification as an estimated loss is deferred until its more exact status can be determined.7 (Loss) – The debt investment is considered almost fully uncollectible and of such little value that its continuance as an asset is not warranted. It isgenerally a credit that is no longer supported by an operating company, a credit where the majority of our assets have been liquidated or sold and a few assetsremain to be sold over many months or even years, or a credit where the remaining collections are expected to be minimal.As of December 31, 2018, we had debt investments in 44 portfolio companies, totaling $363.6 million at fair value, of which $3.8 million, $329.6million, $29.3 million, and $0.0 million, and $0.9 million were rated 2, 3, 4, 5, and 6, respectively.Investment CommitteesOFS Advisor’s Pre-Allocation Investment Committee, CLO Investment Committee, Structured Credit Investment Committee and Middle-MarketInvestment Committee, (the “Middle-Market Investment Committee”, and collectively, the “Advisor Investment Committees”), are responsible for the overallasset allocation decisions and the evaluation and approval of investments of OFS Advisor’s advisory clients.The Middle-Market Investment Committee, which is comprised of Richard Ressler (Chairman), Jeffrey Cerny, Mark Hauser, Kyde Sharp and BilalRashid, along with the investment committee for SBIC I LP (the “SBIC Investment Committee”), which is comprised of Mark Hauser, Bilal Rashid, JeffreyCerny and Tod Reichert, are responsible for the evaluation and approval of all the investments made by us directly or through our wholly-owned subsidiaries,as appropriate.The process employed by the Advisor Investment Committees, including the Middle-Market Investment Committee, and the SBIC InvestmentCommittee is intended to bring the diverse experience and perspectives of the committees’ members to the investment process. The Middle-MarketInvestment Committee and SBIC Investment Committee serve to provide investment consistency and adherence to our core investment philosophy andpolicies. The Middle-Market Investment Committee and SBIC Investment Committee also determine appropriate investment sizing and implement ongoingmonitoring requirements of our investments.In certain instances, management may seek the approval of our Board prior to the making of an investment. In addition to reviewing investments, themeetings of the Middle-Market Investment Committee and SBIC Investment Committee, where applicable, serve as a forum to discuss credit views andoutlooks. Potential transactions and deal flows are reviewed on a regular basis. Members of the investment team are encouraged to share information andviews on credits with members of the Middle-Market Investment Committee and SBIC Investment Committee, where applicable, early in their analysis. Webelieve this process improves the quality of the analysis and assists the deal team members in working efficiently.8InvestmentsWe pursue an investment strategy focused primarily on investments in middle-market companies in the United States. We focus on investments inloans, in which OFS Advisor’s investment professionals have expertise, including investments in first-lien, unitranche, second-lien, and mezzanine loans and,to a lesser extent, on warrants and other equity securities. We seek to create a diverse portfolio by making investments in the securities of middle-marketcompanies that we expect to range generally from $3.0 million to $25.0 million each, although we expect this investment size will vary proportionately withthe size of our capital base.Structure of InvestmentsWe anticipate that our loan portfolio will continue to contain investments of the following types with the following characteristics:Senior Secured First-Lien Loans. First-lien senior secured loans comprise, and will continue to comprise, a significant portion of our investmentportfolio. We obtain security interests in the assets of these portfolio companies as collateral in support of the repayment of these loans (in certain cases,subject to a payment waterfall). The collateral takes the form of first-priority liens on specified assets of the portfolio company borrower and, typically, first-priority pledges of the ownership interests in the borrower. Our first lien loans may provide for moderate loan amortization in the early years of the loan, withthe majority of the amortization deferred until loan maturity. These loans are categorized as Senior Secured Loans in our consolidated schedule ofinvestments included in "Part II, Item 8. Financial Statements and Supplementary Data."Senior Secured Unitranche Loans. Unitranche loans are loans that combine both senior and subordinated debt into one loan under which theborrower pays a single blended interest rate that is intended to reflect the relative risk of the secured and unsecured components. We typically structure ourunitranche loans as senior secured loans. We obtain security interests in the assets of these portfolio companies as collateral in support of the repayment ofthese loans. This collateral takes the form of first-priority liens on the assets of a portfolio company and, typically, first-priority pledges of the ownershipinterests in the company. We believe that unitranche lending represents a significant growth opportunity for us, offering the borrower the convenience ofdealing with one lender, which may result in a higher blended rate of interest to us than we might realize in a traditional multi-tranche structure. Unitrancheloans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity.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 risk of loss if theborrower is unable to pay the lump sum or refinance the amount owed at maturity. In many cases, we will be the sole lender, or we, together with our affiliates,will be the sole lender, of unitranche loans, which can afford us additional influence with a borrower in terms of monitoring and, if necessary, remediation inthe event of under performance. These loans are categorized as Senior Secured Loans in our consolidated schedule of investments included in "Part II, Item 8.Financial Statements and Supplementary Data."Senior Secured Second-lien Loans. Second-lien senior secured loans obtain security interests in the assets of these portfolio companies as collateralin support of the repayment of such loans. This collateral typically takes the form of second-priority liens on the assets of a portfolio company, and we mayenter into an inter-creditor agreement with the holders of the portfolio company’s first-lien senior secured debt. These loans typically provide for nocontractual loan amortization in the initial years of the facility, with all amortization deferred until loan maturity. These loans are categorized as SeniorSecured Loans in our consolidated schedule of investments included in the financial statements included elsewhere in this prospectus supplement.Broadly Syndicated Loans. Broadly Syndicated Loans (whose features are similar to those described under “Senior Secured First-Lien Loans” and“Senior Secured Second-Lien Loans” above) are typically originated and structured by banks on behalf of large corporate borrowers with employee counts,revenues, EBITDAs and enterprise values larger than the middle-market characteristics described above. The proceeds of Broadly Syndicated Loans are oftenused for leveraged buyout transactions, mergers and acquisitions, recapitalizations, refinancings, and financing capital expenditures. Broadly SyndicatedLoans are typically distributed by the arranging bank to a diverse group of investors primarily consisting of: CLOs; senior secured loan and high yield bondmutual funds; closed-end funds, hedge funds, banks, and insurance companies; and finance companies. A borrower must comply with various covenantscontained in a loan agreement or note purchase agreement between the borrower and the holders of the Broadly Syndicated Loan (the “Loan Agreement”). Ina typical Broadly Syndicated Loan, an administrative agent (the “Agent”) administers the terms of the Loan Agreement. In such cases, the Agent is normallyresponsible for the collection of principal and interest payments from the borrower and the apportionment of these payments to the credit of all institutionsthat are parties to the Loan Agreement. We will generally rely upon the Agent or an intermediate participant to receive and forward to us our portion of theprincipal and interest payments on the Broadly Syndicated Loan. Additionally, we normally will rely on the Agent and the other loan investors to useappropriate credit remedies against the borrower. The Agent is typically responsible for monitoring compliance with covenants contained in the LoanAgreement based upon reports prepared by the borrower. The Agent may monitor the value of the collateral and, if the value of the collateral declines, mayaccelerate the Broadly Syndicated Loan, may give the borrower an opportunity to provide additional collateral or9may seek other protection for the benefit of the participants in the Broadly Syndicated Loan. The Agent is compensated by the borrower for providing theseservices under a Loan Agreement, and such compensation may include special fees paid upon structuring and funding the Broadly Syndicated Loan andother fees paid on a continuing basis. The Broadly Syndicated Loans in which we invest may include loans that are considered “covenant-lite” loans,because of their lack of a full set of financial maintenance covenants.Subordinated (“Mezzanine”) Loans. These investments are typically structured as unsecured, subordinated loans that typically provide forrelatively high, fixed interest rates that provide us with significant current interest income. These loans typically will have interest-only payments (oftenrepresenting a combination of cash pay and payment-in-kind ("PIK") interest) in the early years, with amortization of principal deferred to maturity.Mezzanine 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 risk of loss if theborrower is unable to pay the lump sum or refinance the amount owed at maturity. Mezzanine investments are generally more volatile than secured loans andmay involve a greater risk of loss of principal. Mezzanine loans often include a PIK feature (meaning a feature allowing for the payment of interest in the formof additional principal amount of the loan instead of in cash), which effectively operates as negative amortization of loan principal, thereby increasing creditrisk exposure over the life of the loan. These loans are categorized as Subordinated Loans in our consolidated schedule of investments included in thefinancial statements included elsewhere in this prospectus supplement.Equity Securities. Equity securities typically consist of either a direct minority equity investment in common or membership/partnership interests orpreferred stock of a portfolio company, and are typically not control-oriented investments. Our preferred equity investments typically contain a fixeddividend yield based on the par value of the equity security. Preferred equity dividends may be paid in cash at a stipulated date, usually quarterly, and areparticipating and/or cumulative. We may structure such equity investments to include provisions protecting our rights as a minority-interest holder, as well asa “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 registrationrights in connection with these equity interests, which may include demand and “piggyback” registration rights, which grants us the right to register ourequity interest when either the portfolio company or another investor in the portfolio company files a registration statement with the SEC to issue securities.Our equity investments typically are made in connection with debt investments to the same portfolio companies. These securities are categorized as aPreferred Equity or Common Equity in our consolidated schedule of investments included in "Part II, Item 8. Financial Statements and Supplementary Data."Warrants. In some cases, we may receive nominally priced warrants to buy a minority equity interest in the portfolio company in connection with aloan. As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure suchwarrants to include provisions protecting our rights as a minority-interest holder, as well as a put to sell such securities back to the issuer, upon the occurrenceof 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. These securities are categorized as Warrants in our consolidated schedule of investments included in "Part II, Item 8.Financial Statements and Supplementary Data."Structured Finance Notes. We may purchase interests in the equity securities of CLOs collateralized by portfolios consisting primarily of belowinvestment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. The equity of a CLO isunrated and subordinated to the debt tranches and typically represents approximately 8% to 11% of a CLO’s capital structure. A CLO’s equity represents thefirst loss position in the CLO. The holders of CLO equity interests are typically entitled to any cash reserves that form part of the structure when such reservesare permitted to be released. Structured Finance Notes are considered CLO subordinated debt positions. CLO subordinated debt positions are entitled torecurring distributions which are generally equal to the remaining cash flow of payments made by underlying securities less contractual payments to debtholders and fund expenses. Economically, CLO equity benefits from gains and suffers from losses and generally receive the difference between the interestreceived from the investment portfolio and the interest paid to the holders of debt tranches of the CLO structure. In addition, the CLO equity securities inwhich we may invest in the future are highly leveraged (with CLO equity securities typically being leveraged 9 to 13 times), which magnifies our risk of losson such investments.General Structuring Considerations. We tailor the terms of each investment to the facts and circumstances of the transaction and the prospectiveportfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve itsbusiness plan and improve its operating results. We seek to limit the downside potential of our investments by:•selecting investments that we believe have a very low probability of loss;•requiring a total return on our investments (including both interest and potential equity appreciation) that we believe will compensate usappropriately for credit risk; and10•negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses aspossible, consistent with the preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lienprotection, change of control provisions and board rights, including either observation or rights to a seat on the board of directors under somecircumstances.We expect to hold most of our investments to maturity or repayment, but we may sell some of our investments earlier if a liquidity event occurs,such as a sale, recapitalization or worsening of the credit quality of the portfolio company.MANAGEMENT AND OTHER AGREEMENTSInvestment Advisory AgreementOFS Advisor is registered as an investment adviser under the Advisers Act. OFS Advisor is a wholly owned subsidiary of OFSAM. Pursuant to theInvestment Advisory Agreement with and subject to the overall supervision of our board of directors and in accordance with the 1940 Act, OFS Advisorprovides investment advisory services to us. Under the terms of the Investment Advisory Agreement, OFS Advisor:•determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;•assists us in determining what securities we purchase, retain or sell;•identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfoliocompanies); and•executes, closes, services and monitors the investments we make.Management and Incentive FeeFor providing these services, OFS Advisor receives a fee from us, consisting of two components—a base management fee and an incentive fee. Thebase management fee is calculated at an annual rate of 1.75% based on the average value of our total assets (other than cash and cash equivalents butincluding assets purchased with borrowed amounts and including assets owned by any consolidated entity), adjusted for stock issuances and stock purchases,at the end of the two most recently completed calendar quarters. We have excluded from the base management fee calculation any base management fee thatwould be owed in respect of the intangible asset and goodwill resulting from the SBIC Acquisition. The base management fee is payable quarterly in arrears.Base management fees for any partial quarter are prorated based on the number of days in the quarter.The incentive fee has two parts. One part ("Part One") is calculated and payable quarterly in arrears based on our pre-incentive fee net investmentincome for the immediately preceding calendar quarter. “Pre-incentive fee net investment income” means interest income, dividend income and any otherincome (including any other fees such as commitment, origination and sourcing, structuring, diligence and consulting fees or other fees that we receive fromportfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter(including the base management fee, any expenses payable under the Administration Agreement and any interest expense and dividends paid on anyoutstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferredinterest or dividend feature (such as original issue discount, or "OID", debt instruments with PIK interest, equity investments with accruing or PIK dividend,and zero coupon securities), accrued income that we have not yet received in cash.Pre-incentive fee net investment income does not include any realized gains, realized losses, unrealized capital appreciation or unrealized capitaldepreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if wereceive pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, we will pay the applicable incentive fee even ifwe have incurred a loss in that quarter due to realized capital losses and unrealized capital depreciation.Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness andbefore taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed“hurdle rate” of 2.0% per quarter. If market interest rates rise, we may be able to invest our funds in debt instruments that provide for a higher return, whichwould increase our pre-incentive fee net investment income and make it easier for OFS Advisor to surpass the fixed hurdle rate and receive an incentive feebased on such net investment income. There is no accumulation of amounts on the hurdle rate from quarter to quarter and, accordingly, there is no clawbackof amounts previously paid if subsequent quarters are below the quarterly hurdle rate, and there is no delay of payment if prior quarters are below thequarterly hurdle rate. Pre-incentive fee net investment income fees are prorated for any partial quarter based on the number of days in such quarter.11We pay OFS Advisor an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:•no incentive fee in any calendar quarter in which the pre-incentive fee net investment income does not exceed the hurdle rate;•100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, thatexceeds the hurdle rate but is less than 2.5% in any calendar quarter. We refer to this portion of our pre-incentive fee net investment income (whichexceeds the hurdle rate but is less than 2.5%) as the “catch-up” provision. The catch-up is meant to provide OFS Advisor with 20.0% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this pre-incentive fee net investment income exceeds 2.5% in any calendarquarter; and•20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.5% in any calendar quarter.The following is a graphical representation of the calculation of the income-related portion of the incentive fee:Quarterly Incentive Fee Based on Net Investment IncomeThe second part ("Part Two") of the incentive fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each calendar year(or upon termination of the Investment Advisory Agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting(a) the sum of our cumulative aggregate realized capital losses and our aggregate unrealized capital depreciation from (b) our cumulative aggregate realizedcapital gains. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the aggregateamount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee for such year. The Company accrues theCapital Gains Fee if, on a cumulative basis, the sum of net realized capital gains and (losses) plus net unrealized appreciation and (depreciation) is positive.The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of eachinvestment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment.The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in ourportfolio when sold is less than (b) the accreted or amortized cost basis of such investment.The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment inour portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investments. Unrealized capitalappreciation is accrued, but not paid until said appreciation is realized. We accrue the Capital Gains Fee if, on a cumulative basis, the sum of the net realizedcapital gains (and losses) plus net unrealized appreciation (and depreciation) is positive. OFS Advisor has excluded from the Capital Gains Fee calculationthe realized gain with respect to the step acquisitions resulting from the SBIC Acquisition. The Capital Gains Fee for any partial year is prorated based on thenumber of days in such year.The base management fee is payable quarterly in arrears and was $6.3 million, $5.0 million, and $4.5 million, for the years ended December 31,2018, 2017, and 2016, respectively.12Examples of Incentive Fee CalculationExample 1—Income Related Portion of Incentive Fee:Assumptions•Hurdle rate(1) = 2.0%•Management fee(2) = 0.44%•Other estimated expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20%(1) Represents a quarter of the 8.0% annualized hurdle rate.(2) Represents a quarter of the 1.75% annualized management fee, which became effective October 31, 2013.(3) Excludes estimated offering expenses.Alternative 1Additional Assumptions •Investment income (including interest, dividends, fees, etc.) = 1.25%•Pre-incentive fee net investment income (investment income – (management fee + other expenses)) = 0.61%Pre-incentive fee net investment income does not exceed the hurdle rate, therefore there is no incentive fee.Alternative 2Additional Assumptions •Investment income (including interest, dividends, fees, etc.) = 2.80%•Pre-incentive fee net investment income (investment income – (management fee + other expenses)) = 2.16%Pre-incentive fee net investment income exceeds hurdle rate, therefore there is an incentive fee.Incentive Fee=100% × “Catch-Up” + the greater of 0% AND (20% × (pre-incentive fee net investment income – 2.5%)) =(100% ×(2.16% – 2.0%)) + 0% =100% × 0.16% =0.16%Alternative 3Additional Assumptions •Investment income (including interest, dividends, fees, etc.) = 3.50%•Pre-incentive fee net investment income (investment income – (management fee + other expenses)) = 2.86%Pre-incentive fee net investment income exceeds hurdle rate, therefore there is an incentive fee. Incentive Fee=100% × “Catch-Up” + the greater of 0% AND (20% × (pre-incentive fee net investment income – 2.5%)) =(100% × (2.5% – 2.0%)) + (20% × (2.86% – 2.5%)) =0.5% + (20% × 0.36%) =0.5% + 0.07% =0.57%13Example 2—Capital Gains Portion of Incentive Fee:Alternative 1Assumptions •Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)•Year 2: Investment A is sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million•Year 3: FMV of Investment B determined to be $25 million•Year 4: Investment B sold for $31 millionThe capital gains portion of the incentive fee, if any, would be: •Year 1: None (no sales transactions)•Year 2: $6 million (20% multiplied by $30 million realized capital gains on sale of Investment A)•Year 3: None; $5 million (20% multiplied by $30 million cumulative realized capital gains less $5 million cumulative unrealized capitaldepreciation) less $6 million (Capital Gains Fee paid in Year 2)•Year 4: $200,000; $6.2 million (20% multiplied by $31 million cumulative realized capital gains) less $6 million (Capital Gains Fee paid in Year 2)Alternative 2 Assumptions •Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25million investment made in Company C (“Investment C”)•Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25million•Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million•Year 4: FMV of Investment B determined to be $35 million•Year 5: Investment B sold for $20 millionThe capital gains portion of the incentive fee, if any, would be: •Year 1: None (no sales transactions)•Year 2: $5 million (20% multiplied by $30 million realized capital gains on Investment A less $5 million unrealized capital depreciation onInvestment B)•Year 3: $1.4 million; $6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains on Investment A and Investment Cless $3 million cumulative unrealized capital depreciation on Investment B)) less $5 million (Capital Gains Fee paid in Year 2)•Year 4: $0.6 million; $7 million (20% multiplied by $35 million (cumulative realized capital gains on Investment A and Investment C)) less $6.4million (cumulative Capital Gains Fee paid in all prior years)•Year 5: None; $5 million (20% multiplied by $25 million ($35 million cumulative realized capital gains on Investments A and C less $10 millionrealized capital losses on Investment B)) less $7 million (cumulative Capital Gains Fee paid in all prior years))Payment of Our Expenses.All investment professionals of OFS Advisor and/or its affiliates, when and to the extent engaged in providing investment advisory and managementservices to us, and the compensation and routine overhead expenses of personnel allocable to these services to us, are provided and paid for by OFS Advisorand not by us. We bear all other out-of-pocket costs and expenses of our operations and transactions. See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Results of Operations—Key Financial Measures—Expenses.”14Duration and TerminationUnless terminated earlier as described below, the Investment Advisory Agreement will remain in effect from year to year if approved annually by ourboard of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, and, in either case, if also approved by amajority of our directors who are not “interested persons” as defined in the 1940 Act. The Investment Advisory Agreement automatically terminates in theevent of its assignment, as defined in the 1940 Act, by OFS Advisor and may be terminated by either party without penalty upon not less than 60 days’written notice to the other. The holders of a majority of our outstanding voting securities may also terminate the Investment Advisory Agreement withoutpenalty upon not less than 60 days’ written notice. See “Item 1A. Risk Factors—Risks Related to our Business and Structure—We are dependent upon theOFS senior professionals for our future success and upon their access to the investment professionals and partners of OFS and its affiliates.” Administration AgreementPursuant to the Administration Agreement, OFS Services, an affiliate of OFS Advisor, provides the administrative services necessary for us tooperate. OFS Services furnishes us with office facilities and equipment, necessary software licenses and subscriptions and clerical, and bookkeeping andrecord keeping services at such facilities. Under the Administration Agreement, OFS Services performs, or oversees the performance of, our requiredadministrative services, which include being responsible for the financial records that we are required to maintain and preparing reports to our stockholdersand all other reports and materials required to be filed with the SEC or any other regulatory authority. In addition, OFS Services assists us in determining andpublishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, andgenerally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under theAdministration Agreement, OFS Services would provide managerial assistance on our behalf to certain portfolio companies that accept our offer to providesuch assistance. Payments under the Administration Agreement are equal to an amount based upon our allocable portion (subject to the review and approvalof our board of directors) of OFS Services’ overhead in performing its obligations under the Administration Agreement, including rent, informationtechnology, and our allocable portion of the cost of our officers, including our chief executive officer, chief financial officer, chief compliance officer, chiefaccounting officer, and their respective staffs. The Administration Agreement may be renewed annually with the approval of our board of directors, includinga majority of our directors who are not “interested persons.” The Administration Agreement may be terminated by either party without penalty upon 60 days’written notice to the other party. To the extent that OFS Services outsources any of its functions we pay the fees associated with such functions at costwithout incremental profit to OFS Services.IndemnificationThe Investment Advisory Agreement and the Administration Agreement both provide that OFS Advisor, OFS Services and their affiliates’ respectiveofficers, directors, members, managers, stockholders and employees are entitled to indemnification from us from and against any claims or liabilities,including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action takenor omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement or the Administration Agreement, except where attributable towillful misfeasance, bad faith or gross negligence in the performance of such person’s duties or reckless disregard of such person’s obligations and dutiesunder the Investment Advisory Agreement or the Administration Agreement.Board Approval of the Investment Advisory and Administrative AgreementsOur board, including our independent directors, approved the Investment Advisory Agreement at a meeting held on April 5, 2018. In reaching adecision to approve the investment advisory agreement, the board of directors reviewed a significant amount of information and considered, among otherthings: •the nature, quality and extent of the advisory and other services to be provided to us by OFS Advisor;•the fee structures of comparable externally managed BDCs that engage in similar investing activities;•our projected operating expenses and expense ratio compared to BDCs with similar investment objectives;•any existing and potential sources of indirect income to OFS Advisor from its relationship with us and the profitability of that relationship,including through the Investment Advisory Agreement;•information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement; and•the organizational capability and financial condition of OFS Advisor and its affiliates.Based on the information reviewed and the discussion thereof, the board of directors, including a majority of the non-interested directors, concludedthat the investment advisory fee rates are reasonable in relation to the services to be provided and approved the Investment Advisory Agreement as being inthe best interests of our stockholders.15Our board also reviewed services provided under the Administrative Agreement, and approved its renewal at the April 5, 2018 meeting. License AgreementWe have entered into a license agreement with OFSAM under which OFSAM has agreed to grant us a non-exclusive, royalty-free license to use thename “OFS.” Under this agreement, we have a right to use the “OFS” name for so long as OFS Advisor or one of its affiliates remains our investment adviser.Other than with respect to this limited license, we have no legal right to the “OFS” name. This license agreement will remain in effect for so long as theInvestment Advisory Agreement with OFS Advisor is in effect.REGULATIONGeneralWe have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions betweenBDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters andrequires 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 BDCunless approved by “a majority of our outstanding voting securities” as defined in the 1940 Act. A majority of the outstanding voting securities of acompany is defined under the 1940 Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of theoutstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of suchcompany. We do not anticipate any substantial change in the nature of our business.We generally cannot issue and sell our common stock at a price below net asset value per share. We may, however, issue and sell our common stock,or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if (1) our board of directorsdetermines that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders have approved our policy and practice ofmaking 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 pricewhich, in the determination of our board of directors, closely approximates the market value of such securities.The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SECpermitting the BDC to do so. On October 12, 2016, we received the Order from the SEC to permit us to co-invest in portfolio companies with certain BDCs,registered investment companies and private funds managed by OFS Advisor, or any adviser that controls, is controlled by, or is under common control with,OFS Adviser and is registered as an investment adviser under the Advisers Act, in a manner consistent with our investment strategy as well as applicable law,including the terms and conditions of the Order. Pursuant to the Order, we are generally permitted to participate in a co-investment transaction if a “requiredmajority” (as defined in Section 57(o) of the 1940 Act) of our independent directors makes certain conclusions in connection with a co-investmenttransaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and donot involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of ourstockholders and is consistent with our investment objective and strategies. We have applied for a new exemptive order (the “New Order”), which, if granted,would supersede the Order and would permit us greater flexibility to enter into co-investment transactions. There can be no assurance that we will obtain suchnew exemptive relief from the SEC.We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to suchsecurities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act. Our intention is to not write (sell)or buy put or call options to manage risks associated with the publicly traded securities of our portfolio companies, except that we may enter into hedgingtransactions to manage the risks associated with interest rate fluctuations. However, we may purchase or otherwise receive warrants to purchase the commonstock of our portfolio companies in connection with acquisition financing or other investments. Similarly, in connection with an acquisition, we may acquirerights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. We also do not intend to acquire securitiesissued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds, wegenerally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in thesecurities of one investment company, or invest more than 10% of the value of our total assets in the securities of more than one investment company. Withregard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject ourstockholders to additional expenses as they will be indirectly responsible for the costs and expenses of such companies. None of our investment policies arefundamental and may be changed without stockholder approval.16Qualifying AssetsUnder 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 assets, as defined by the 1940 Act.The principal categories of qualifying assets relevant to our business are the following:(a)Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limitedexceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of aneligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company isdefined in the 1940 Act as any issuer that:•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 BDC) or a company that would be aninvestment company but for certain exclusions under the 1940 Act; and•satisfies either of the following:◦does not have any class of securities listed on a national securities exchange or has any class of securities listed on a national securitiesexchange subject to a $250 million market capitalization maximum; or◦is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over themanagement or policies of the eligible portfolio company, and, as a result, the BDC has an affiliated person who is a director of theeligible portfolio company;(b)Securities of any eligible portfolio company which we control;(c)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 intransactions incident to such a private transaction, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior tothe purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending orfinancing arrangements;(d)Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and wealready own 60% of the outstanding equity of the eligible portfolio company;(e)Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rightsrelating to such securities; and(f)Cash, cash equivalents, U.S. government securities or high-quality debt securities that mature in one year or less from the date of investment.Control, as defined by the 1940 Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of theportfolio company.The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with and/or takeadvantage of any regulatory, legislative, administrative or judicial actions in this area.Managerial Assistance to Portfolio CompaniesA BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of makinginvestments in the types of securities described in (a), (b) or (c) above. However, in order to count portfolio securities as qualifying assets for the purpose ofthe 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small andsolvent companies described above) significant managerial assistance. Where the BDC purchases such securities in conjunction with one or more otherpersons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance, although this maynot be the sole method by which the BDC satisfies the requirement to make available 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. With respect to anSBIC, making available managerial assistance means the making of loans to a portfolio company.17Temporary InvestmentsPending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. governmentsecurities, repurchase agreements and high-quality debt investments that mature in one year or less from the date of investment, which we refer to,collectively, as temporary investments, so that 70% of our assets, as defined by the 1940 Act, are qualifying assets or temporary investments. We may investin highly rated commercial paper, U.S. Government agency notes, and U.S. Treasury bills or repurchase agreements relating to such securities that are fullycollateralized 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, ofa specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchaseprice by an amount that reflects an agreed-upon interest rate. Consequently, repurchase agreements are functionally similar to loans. There is no percentagerestriction on the proportion of our assets that may be invested in such repurchase agreements. However, the 1940 Act and certain diversification tests inorder to qualify as a RIC for U.S. federal income tax purposes typically require us to limit the amount we invest with any one counterparty. Accordingly, wedo not intend to enter into repurchase agreements with a single counterparty in excess of this limit. OFS Advisor monitors the creditworthiness of thecounterparties with which we enter into repurchase agreement transactions.Warrants and OptionsUnder the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase shares of capital stockthat it may have outstanding at any time. Under the 1940 Act, we may generally only offer warrants provided that (i) the warrants expire by their terms withinten years, (ii) the exercise or conversion price is not less than the current market value at the date of issuance, (iii) our stockholders authorize the proposal toissue such warrants, and our board of directors approves such issuance on the basis that the issuance is in the best interests of OFS Capital and its stockholdersand (iv) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securitiesaccompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise ofall outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25% of our outstanding voting securities. In particular, theamount of capital stock that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase capital stock cannotexceed 25% of the BDC’s total outstanding shares of capital stock.Senior SecuritiesAs a BDC, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage ratio for totalborrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Provisions of the SBCAA permit BDCs to be subject to aminimum asset coverage ratio of 150%, if specific conditions are satisfied, when issuing senior securities (i.e., the amount of debt may not exceed 66 2/3% ofthe value of our assets). As an approximation, prior to the enactment of the SBCAA, the most that a BDC could borrow for investment purposes was $1 forevery $1 of investor equity. Now, for those BDCs that satisfy the SBCAA’s approval and disclosure requirements and become subject to the reduced assetcoverage ratio, the BDC can borrow $2 for investment purposes for every $1 of investor equity.The SBCAA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% asset coverage,the BDC must either obtain: (i) approval of the required majority of its non-interested directors who have no financial interest in the proposal, which wouldbecome effective one year after the date of such approval, or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meetingin which quorum is present), which would become effective on the first day after the date of such stockholder approval.On May 3, 2018, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved theapplication of the modified asset coverage requirements and, as a result, the asset coverage ratio test applicable to us will be decreased from 200% to 150%,effective May 3, 2019. Additionally, we received exemptive relief from the SEC effective November 26, 2013, which allows us to exclude our SBAguaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the 1940 Act.We may borrow money when the terms and conditions available are favorable to do so and are aligned with our investment strategy and portfoliocomposition. The use of borrowed funds or the proceeds of preferred stock to make investments would have its own specific benefits and risks, and all of thecosts of borrowing funds or issuing preferred stock would be borne by holders of our common stock. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors—Risks Related to BDCs—Regulations governing our operation asa BDC affect our ability to and the way in which we raise additional capital. As a BDC, we will need to raise additional capital, which will expose us to risks,including the typical risks associated with leverage.”18Compliance with the Sarbanes-Oxley Act of 2002 and the Nasdaq Global Select Market Corporate Governance RegulationsThe Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly held companies andtheir insiders. Many of these requirements affect us. The Sarbanes-Oxley Act has required us to review our policies and procedures to determine whether wecomply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all future regulationsthat are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.In addition, the Nasdaq Global Select Market has adopted various corporate governance requirements as part of its listing standards. We believe weare in compliance with such corporate governance listing standards. We will continue to monitor our compliance with all future listing standards and willtake actions necessary to ensure that we are in compliance therewith.Exemptive ReliefWe are generally prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval ofour board of directors who are not interested persons and, in some cases, prior approval by the SEC. The SEC has interpreted the BDC prohibition ontransactions with affiliates to prohibit all “joint transactions” between entities that share a common investment adviser. Further, the 1940 Act generallyprohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so. On October 12, 2016, we received the Order from the SEC to permit us to co-invest in portfolio companies with certain BDCs, registered investmentcompanies and private funds managed by OFS Advisor or any adviser that controls, is controlled by, or is under common control with, OFS Adviser, and isregistered as an investment adviser under the Advisers Act, in a manner consistent with our investment strategy as well as applicable law, including the termsand conditions of the Order. Pursuant to the Order, we are generally permitted to participate in a co-investment transaction if a “required majority” (as definedin Section 57(o) of the 1940 Act) of our independent directors makes certain conclusions in connection with a co-investment transaction, including that (1)the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of usor our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with ourinvestment objective and strategies. The Order is subject to additional terms and conditions; there can be no assurance that we will be permitted to co-investwith certain of our affiliates other than in the circumstances currently permitted by regulatory guidance and in compliance with conditions of the Order. Wehave applied for the New Order which, if granted, would supersede the Order and would permit us greater flexibility to enter into co-investment transactions.There can be no assurance that we will obtain such new exemptive relief from the SEC.The staff of the SEC has granted no-action relief permitting purchases of a single class of privately placed securities provided that the advisernegotiates no term other than price and certain other conditions are met. As a result, unless under the Order, we only expect to co-invest on a concurrent basiswith certain funds advised by OFS Advisor when each of us will own the same securities of the issuer and when no term is negotiated other than price. Anysuch investment would be made, subject to compliance with existing regulatory guidance, applicable regulations and OFS Advisor’s allocation policy. Ifopportunities arise that would otherwise be appropriate for us and for another fund advised by OFS Advisor to invest in different securities of the same issuer,OFS Advisor will need to decide which fund will proceed with the investment. The decision by OFS Advisor to allocate an opportunity to another entitycould cause us to forego an investment opportunity that we otherwise would have made. Moreover, except in certain circumstances, we will be unable toinvest in any issuer in which another fund advised by OFS Advisor has previously invested.Small Business Investment Company RegulationsOur wholly owned subsidiary, SBIC I LP, is an SBIC and must maintain compliance with SBA regulations.SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans toeligible small businesses and invest in the equity securities of small businesses. The SBIC license allows SBIC I LP to receive SBA-guaranteed debenturefunding, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interestonly debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to bepaid prior to maturity but may be prepaid without penalty twice each year on certain dates. The interest rate of SBA-guaranteed debentures is fixed at the timeof issuance at a market-driven spread over U.S. Treasury Notes with 10-year maturities.SBA regulations currently limit the amount that an SBIC may borrow to up to a maximum of $150 million (or $175 million with SBA approval)when it has at least $75 million in regulatory capital (or $87.5 million with approval to borrow up to $175 million), receives a leverage commitment from theSBA and has been through an examination by the SBA subsequent19to licensing. For two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350 million.The investments of an SBIC are limited to loans to, and equity securities of, eligible small businesses. Under present SBA regulations, eligible smallbusinesses generally include businesses that (together with their affiliates) have a tangible net worth (total assets less goodwill less total liabilities) notexceeding $19.5 million and have average annual net income after U.S. federal income taxes not exceeding $6.5 million (average net income to be computedwithout benefit of any carryover loss) for the two most recent fiscal years. In addition, an SBIC must devote 25% of its investment activity to “smallerconcerns,” as defined by the SBA. A smaller concern generally includes businesses that have a tangible net worth not exceeding $6 million and have averageannual net income after U.S. federal income taxes not exceeding $2 million (average net income to be computed without benefit of any net carryover loss) forthe two most recent fiscal years. SBA regulations also provide alternative criteria to determine eligibility, which may include, among other things, theindustry in which the business is engaged, the number of employees of the business, its gross sales, and the extent to which the SBIC is proposing toparticipate in a change of ownership of the business. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in theequity securities of such businesses and provide them with consulting and advisory services.The SBA prohibits an SBIC from providing funds to small businesses for certain purposes, such as relending, real estate or investing in companiesoutside of the United States, and from providing funds to businesses engaged in a few prohibited industries and to certain “passive” (i.e., non-operating)companies. In addition, without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30% of the SBIC’s regulatorycapital in any one company and its affiliates.SBICs must invest idle funds that are not being used to make investments permitted under SBA regulations in the following limited types ofsecurities: (i) direct obligations of, or obligations guaranteed as to principal and interest by, the U.S. government, which mature within 15 months from thedate of the investment; (ii) repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities underlying therepurchase obligations must be direct obligations of or guaranteed by the federal government); (iii) certificates of deposit with a maturity of one year or less,issued by a federally insured institution; (iv) a deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less;(v) a checking account in a federally insured institution; or (vi) a reasonable petty cash fund.SBA regulations include restrictions on a “change of control” or other transfers of limited partnership interests in an SBIC. In addition, SBIC I LPmay also be limited in its ability to make distributions to us if it does not have sufficient accumulated net profit, in accordance with SBA regulations.SBIC I LP is subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratiosand other covenants. Receipt of the SBIC license and an SBA leverage commitment does not ensure that SBIC I LP will receive SBA guaranteed debenturefunding, and such funding is dependent upon SBIC I LP’s continued compliance with SBA regulations and policies.The SBA, as a creditor, will have a superior claim to the SBIC I LP’s assets over our stockholders in the event that SBIC I LP is liquidated or the SBAexercises its remedies under the SBA debentures issued by SBIC I LP in the event of a default.OtherWe are subject to periodic examination by the SEC for compliance with the Exchange Act, and 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 OFS Capital or our stockholders arising from willfulmisfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.We and OFS Advisor each have adopted and implemented written policies and procedures reasonably designed to prevent violation of relevantfederal securities laws, will review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and havedesignated a chief compliance officer to be responsible for administering the policies and procedures.Our internet address is www.ofscapital.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, proxy statement and amendments to those reports as soon as reasonably practicable after we electronically file suchmaterial with, or furnish it to, the SEC.Codes of EthicsWe and OFS Advisor have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personalinvestments and restricts certain personal securities transactions. Personnel subject to either code may20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 inaccordance with the code’s requirements. Our code of ethics is available, free of charge, on our website at www.ofscapital.com. The code of ethics is availableon the EDGAR Database on the SEC’s website at http://www.sec.gov. You may also obtain copies of the code of ethics, after paying a duplicating fee, byelectronic request at the following e-mail address: publicinfo@sec.gov.Proxy Voting Policies and ProceduresWe have delegated our proxy voting responsibility to OFS Advisor. The proxy voting policies and procedures of OFS Advisor are set out below. Theguidelines are reviewed periodically by OFS Advisor and our directors who are not “interested persons,” and, accordingly, are subject to change. For purposesof these proxy voting policies and procedures described below, “we,” “our” and “us” refer to OFS Advisor.IntroductionAs an investment adviser registered under the Advisers Act, we have a fiduciary duty to act solely in the best interests of our clients. As part of thisduty, we recognize that we must vote client securities in a timely manner free of conflicts of interest and in the best interests of our clients.These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6under, the Advisers Act.Proxy PoliciesWe vote proxies relating to our portfolio securities in what we perceive to be the best interest of our clients. We review on a case-by-case basis eachproposal submitted to a stockholder vote to determine its effect on the portfolio securities held by our clients. In most cases we will vote in favor of proposalsthat we believe are likely to increase the economic value of the underlying portfolio securities held by our clients. Although we will generally vote againstproposals that may have a negative effect on our clients’ portfolio securities, we may vote for such a proposal if there exist compelling long-term reasons todo so.Our proxy voting decisions are made by those senior officers who are responsible for monitoring each of our clients’ investments. To ensure that ourvote is not the product of a conflict of interest, we require that (1) anyone involved in the decision-making process disclose to our chief compliance officerany 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 (2) employeesinvolved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce anyattempted influence from interested parties. Where conflicts of interest may be present, we will disclose such conflicts to our client, including with respect toOFS Capital, those directors who are not interested persons and we may request guidance from such persons on how to vote such proxies for their account.Proxy Voting RecordsYou may obtain information about how we voted proxies for the Company free of charge, by making a written request for proxy voting informationto: OFS Capital Corporation, 10 S. Wacker Drive, Suite 2500, Chicago, Illinois 60606, Attention: Investor Relations, or by calling OFS Capital Corporationat (847) 734-2000. The SEC also maintains a website at http://www.sec.gov that contains such information.Privacy PrinciplesWe are committed to maintaining the privacy of our stockholders and to safeguarding their nonpublic personal information. The followinginformation is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we mayshare information with select other parties.Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information ofour stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders toanyone, 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 nonpublic personal information about our stockholders to employees of OFS Advisor and its affiliates with a legitimatebusiness need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of ourstockholders.Material U.S. Federal Income Tax ConsiderationsElection to be Taxed as a RICWe have elected to be taxed as a RIC under Subchapter M of the Code. As a RIC, we are not required to pay corporate-level U.S. federal incometaxes on any income that we distribute to our stockholders from our otherwise taxable21earnings and profits. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversificationrequirements, as described below. In addition, to receive RIC tax treatment, we must distribute to our stockholders, for each taxable year, the AnnualDistribution Requirement. The excess of net long-term capital gains over net short-term capital losses, if any ("Net Capital Gains"), are not a component of theAnnual Distribution Requirement, but impacts taxable income if not distributed as discussed below.Taxation as a RICIf we:•maintain our qualification as a RIC; and•satisfy the Annual Distribution Requirement;then we will not be subject to U.S. federal income tax on the portion of our ICTI or Net Capital Gains we distribute to stockholders. We will be subject to U.S.federal income tax at the regular corporate rates on any ICTI or Net Capital Gain not distributed (or deemed distributed) to our stockholders.We are also subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amountat least equal to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year (or, if we so elect, for that calendar year) and (3) any income and gains recognized, butnot distributed, in preceding years and on which we paid no U.S. federal income tax (the “Excise Tax Avoidance Requirement”). We may choose to retain aportion of our ordinary income and/or capital gain net income in any year and pay the 4% U.S. federal excise tax on the retained amounts.In order to maintain our qualification as a RIC for U.S. federal income tax purposes, we must, among other things:•continue to qualify 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, certain payments with respect to loans of stock and securities,gains from the sale or other disposition of stock, securities, or foreign currencies and other income (including but not limited to gains from options,futures or forward contracts) derived with respect to our business of investing in such stock, securities or currencies, and net income derived frominterests in “qualified publicly traded partnerships,” as such term is defined in the Code (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 othersecurities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of our assets and10% of the outstanding voting securities of such 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, ofone issuer, of two or more issuers that we control (as determined under applicable tax rules) and that are engaged in the same, similar orrelated trades or businesses or 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 foreignincome taxes, franchise taxes, or withholding liabilities.We are required to recognize ICTI in circumstances in which we have not received a corresponding payment in cash. For example, we hold debtobligations that are treated under applicable tax rules as issued with OID and debt instruments with PIK interest, and we must include in ICTI each year theportion of the OID and PIK interest that accrues for that year (as it accrues over the life of the obligation), irrespective of whether the cash representing suchincome is received by us in that taxable year. The continued recognition of non-cash ICTI may cause difficulty in meeting the Annual DistributionRequirement. We may be required to sell investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, orforgo new investment opportunities to meet this requirement. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatmentand thus become subject to corporate-level U.S. federal income tax.We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permittedto make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met.Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) otherrequirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirementor the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. See“Regulation—Senior Securities.”22Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (1) treatdividends that would otherwise qualify for the dividends received deduction or constitute qualified dividend income as ineligible for such treatment, (2)disallow, suspend or otherwise limit the allowance of certain losses or deductions, (3) convert lower-taxed long-term capital gain into higher-taxed short-termcapital gain or ordinary income, (4) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (5) cause us torecognize income or gain without receipt of a corresponding distribution of cash, (6) adversely affect the time as to when a purchase or sale of stock orsecurities is deemed to occur, (7) adversely alter the characterization of certain complex financial transactions and (8) produce income that will not beconsidered "qualifying income" for purposes of the 90% Income Test. We will monitor our transactions and may make certain tax elections to mitigate thepotential adverse effect of these provisions, but there can be no assurance that any adverse effects of these provisions will be mitigated.If we purchase shares in a “passive foreign investment company” (a “PFIC”), we may be subject to U.S. federal income tax on our allocable share of aportion of any “excess distribution” received on, or any gain from the disposition of, such shares even if our allocable share of such income is distributed as ataxable dividend to our stockholders. Additional charges in the nature of interest generally will be imposed on us in respect of deferred taxes arising from anysuch excess distribution or gain. 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 theforegoing requirements, we will be required to include in income each year our proportionate share of the ordinary earnings and net capital gain of the QEF,even if such income is not distributed by the QEF. Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in aPFIC; in this case, we will recognize as ordinary income our allocable share of any increase in the value of such shares, and as ordinary loss our allocableshare of any decrease in such value to the extent that any such decrease does not exceed prior increases included in its income. Under either election, we maybe required to recognize in a year income in excess of distributions from PFICs and proceeds from dispositions of PFIC stock during that year, and suchincome will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% U.S. federal excise tax.Some of the income and fees that we recognize may result in ICTI that will not be "qualifying income" for the 90% Income Test. In order to ensurethat such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may recognize such income and fees directly orindirectly through one or more entities taxed as corporations for U.S. federal income tax purposes. Such corporations are required to pay U.S. corporateincome tax on their earnings, which ultimately reduces our return on such income and fees.Failure to Qualify as a RICIf we are unable to maintain our qualification as a RIC, we will be subject to tax on all of our ICTI and Net Capital Gains at regular corporate rates;we will not receive a dividend deduction for any distributions to our stockholders. Distributions would not be required, and any distributions would betaxable to our stockholders as ordinary dividend income that would, for qualifying non-corporate U.S. stockholders, be eligible for the current 20%maximum rate to the extent of our current and accumulated earnings and profits (subject to limitations under the Code). Subject to certain limitations underthe Code, corporate distributions would be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earningsand profits would be treated first as a return of capital to the extent of the stockholder’s tax basis (reducing that basis accordingly), and any remainingdistributions would be treated as a capital gain. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to ourstockholders our earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years,then we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregateloss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of fiveyears, in order to qualify as a RIC in a subsequent year.23Item 1A.Risk FactorsRISK FACTORSInvesting in our common stock involves a number of significant risks. In addition to the other information contained in this Annual Report onForm 10-K, you should consider carefully the following information before making an investment in our common stock. The risks set out below are not theonly risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations andperformance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. Insuch case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.Risks Related to Our Business and Structure We are dependent upon the OFS senior professionals for our future success and upon their access to the investment professionals and partners of OFS andits affiliates.We do not have any internal management capacity or employees. We will depend on the diligence, skill and network of business contacts of the OFSsenior professionals to achieve our investment objective. Our future success will depend, to a significant extent, on the continued service and coordination ofthe OFS senior management team, particularly Bilal Rashid, Senior Managing Director and President of OFSC, Jeffrey Cerny, Senior Managing Director andTreasurer of OFSC, and Mark Hauser, Senior Managing Director of OFSC. Each of these individuals is an employee at will of OFSC. In addition, we rely onthe services of Richard Ressler, Chairman of the executive committee of OFSAM and Chairman of certain of the Advisor Investment Committees, pursuant toa consulting agreement with Orchard Capital Corporation. The departure of Mr. Ressler or any of the senior managers of OFSC, or of a significant number ofits other investment professionals, could have a material adverse effect on our ability to achieve our investment objective.We expect that OFS Advisor will continue to evaluate, negotiate, structure, close and monitor our investments in accordance with the terms of theInvestment Advisory Agreement. We can offer no assurance, however, that OFS senior professionals will continue to provide investment advice to us. If theseindividuals do not maintain their existing relationships with OFS and its affiliates and do not develop new relationships with other sources of investmentopportunities, we may not be able to grow our investment portfolio or achieve our investment objective. In addition, individuals with whom the OFS seniorprofessionals have relationships are not obligated to provide us with investment opportunities. Therefore, we can offer no assurance that such relationshipswill generate investment opportunities for us.OFS Advisor is a subsidiary of OFSAM that has no employees and depends upon access to the investment professionals and other resources of OFSand its affiliates to fulfill its obligations to us under the Investment Advisory Agreement. OFS Advisor also depends upon OFS to obtain access to deal flowgenerated by the professionals of OFS and its affiliates. Under a Staffing Agreement between OFSC, a subsidiary of OFSAM that employs OFS’s personnel,and OFS Advisor, OFSC has agreed to provide OFS Advisor with the resources necessary to fulfill these obligations. The Staffing Agreement provides thatOFSC will make available to OFS Advisor experienced investment professionals and access to the senior investment personnel of OFSC for purposes ofevaluating, negotiating, structuring, closing and monitoring our investments. We are not a party to this Staffing Agreement and cannot assure stockholdersthat OFSC will fulfill its obligations under the agreement. If OFSC fails to perform, we cannot assure stockholders that OFS Advisor will enforce the StaffingAgreement or that such agreement will not be terminated by either party or that we will continue to have access to the investment professionals of OFSC andits affiliates or their information and deal flow.The investment committees that oversee our investment activities are provided by OFS Advisor under the Investment Advisory Agreement. The lossof any member of the Advisor Investment Committees or of other OFS senior professionals could limit our ability to achieve our investment objective andoperate as we anticipate. This could have a material adverse effect on our financial condition and results of operation.Our business model depends to a significant extent upon strong referral relationships with financial institutions, sponsors and investment professionals.Any inability of OFS Advisor to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, couldadversely affect our business. We depend upon OFS Advisor to maintain relationships with financial institutions, sponsors and investment professionals, and we will continue torely to a significant extent upon these relationships to provide us with potential investment opportunities. If OFS Advisor fails to maintain such relationships,or to develop new relationships with other sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individualswith whom the principals of OFS Advisor have relationships are not obligated to provide us with investment opportunities, and, therefore, we can offer noassurance that these relationships will generate investment opportunities for us in the future.24Our financial condition and results of operation will depend on our ability to manage our business effectively.Our ability to achieve our investment objective and grow will depend on our ability to manage our business. This will depend, in turn, on the abilityof the Advisor Investment Committees to identify, invest in and monitor companies that meet our investment criteria. The achievement of our investmentobjectives on a cost-effective basis will depend upon the Advisor Investment Committees' ability to execute our investment process, their ability to providecompetent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms. OFS Advisor has substantialresponsibilities under the Investment Advisory Agreement. OFS Advisor's senior professionals and other personnel of OFS Advisor's affiliates, includingOFSC, may be called upon to provide managerial assistance to our portfolio companies. These activities may distract them or slow our rate of investment.Any failure to manage our business and our future growth effectively could have a material adverse effect on our business, financial condition and results ofoperations.To the extent PIK interest and PIK dividends constitute a portion of our income, we will be exposed to typical risks associated with such income beingrequired to be included in taxable and accounting income prior to receipt of cash representing such income.Our investments may include contractual PIK interest or PIK dividends, which represents contractual interest or dividends added to a loan balance orequity security and due at the end of such loan’s or equity security’s term. To the extent PIK interest and PIK dividends constitute a portion of our income, wewill be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash. Suchrisks include:•The higher interest or dividend rates of PIK instruments reflect the payment deferral and increased risk associated with these instruments, and PIKinstruments often represent a significantly higher risk than non-PIK instruments.•Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at thematurity of the obligation.•PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of thedeferred payments and the value of any associated collateral. PIK income may also create uncertainty about the source of our cash distributions.•For accounting purposes, any cash distributions to stockholders representing PIK income are not treated as coming from paid-in capital, even thoughthe cash to pay them comes from the offering proceeds. As a result, despite the fact that a distribution representing PIK income could be paid out ofamounts invested by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return ofcapital.•PIK interest or dividends have the effect of generating investment income at a compounding rate, thereby further increasing the incentive feespayable to OFS Advisor. Similarly, all things being equal, the deferral associated with PIK interest or dividends also decreases the investmentprincipal-to-value ratio at a compounding rate.Many of our portfolio investments are recorded at fair value as determined in good faith by our board of directors and, as a result, there may beuncertainty as to the value of our portfolio investments.Many of our portfolio investments take the form of securities that are not publicly traded. The fair value of securities and other investments that arenot publicly traded may not be readily determinable. We value these securities at fair value as determined in good faith by our board of directors, includingto reflect significant events affecting the value of our securities. All of our investments (other than cash and cash equivalents) are classified as Level 3 underAccounting Standards Codification Topic 820, Fair Value Measurement and Disclosures (ASC Topic 820). This means that our portfolio valuations are basedon unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. Inputs into the determinationof fair value of our portfolio investments require significant management judgment or estimation. Even if observable market data are available, suchinformation 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 pricein an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of suchinformation. We presently retain the services of an independent service provider to prepare the valuation of these securities.The types of factors that the board of directors takes into account in determining the fair value of our investments generally include, as appropriate,comparison to third-party yield benchmarks and comparison to publicly traded securities including such factors as yield, maturity and measures of creditquality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments andits earnings and cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularlyvaluations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, ourdeterminations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset valuecould be adversely affected if our determinations regarding the25fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.We adjust quarterly the valuation of our portfolio to reflect our board of directors’ determination of the fair value of each investment in our portfolio.Any changes in fair value are recorded in our statement of income as net change in unrealized appreciation or depreciation.SBA regulations limit the outstanding dollar amount of SBA guaranteed debenture funding that may be received by an SBIC or group of SBICs undercommon control.SBA regulations currently limit the amount that an SBIC may borrow to up to a maximum of $150 million (or $175 million with SBA approval)when it has at least $75 million in regulatory capital (or $87.5 million with approval to borrow up to $175 million), receives a leverage commitment from theSBA and has been through an examination by the SBA subsequent to licensing. For two or more SBICs under common control, the maximum amount ofoutstanding SBA debentures cannot exceed $350 million.We cannot presently predict whether or not we will borrow the maximum permitted amount; if we reach the maximum dollar amount of SBAguaranteed debentures permitted, and thereafter require additional capital, our cost of capital may increase, and there is no assurance that we will be able toobtain additional financing on acceptable terms.Moreover, SBIC I LP’s status as an SBIC does not automatically assure that it will receive SBA guaranteed debenture funding. Receipt of SBAleverage funding is dependent upon whether SBIC I LP is and continues to be in compliance with SBA regulations and policies and whether funding isavailable. The amount of SBA leverage funding available to SBICs is dependent upon annual Congressional authorizations and in the future may be subjectto annual Congressional appropriations. There can be no assurance that there will be sufficient debenture funding available at the times desired by SBIC I LP.As of December 31, 2018, the Company had fully funded its $75.0 million commitment to SBIC I LP. As of December 31, 2018, SBIC I LP had leveragecommitments of approximately $149.9 million from the SBA, and $149.9 million of outstanding SBA-guaranteed debentures, leaving no incrementalborrowing capacity under present SBA regulations.SBIC I LP is subject to SBA regulations.Our investment strategy includes SBIC I LP, which is regulated by the SBA. The SBA regulations require that a licensed SBIC be periodicallyexamined and audited by the SBA to determine its compliance with the relevant SBA regulations. If SBIC I LP fails to comply with applicable SBAregulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare outstanding debentures immediatelydue and payable, and/or limit its ability to make new investments. The SBA, as a creditor, will have a superior claim to SBIC I LP’s assets over SBIC I LP’slimited partners and our stockholders in the event SBIC I LP is liquidated or the SBA exercises its remedies under the SBA debentures issued by SBIC I LP inthe event of a default. In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to observe, anyprovision of the Small Business Investment Act of 1958 or any rule or regulation promulgated thereunder. These actions by the SBA would, in turn,negatively affect us because of our ownership interest in SBIC I LP.The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits an SBIC from providingfunds to small businesses for certain purposes, such as relending, real estate or investing in companies outside of the United States, and providing funds tobusinesses engaged in a few prohibited industries and to certain “passive” (i.e., non-operating) companies. In addition, without prior SBA approval, an SBICmay not invest an amount equal to more than approximately 30% of the SBIC’s regulatory capital in any one company and its affiliates. Compliance withSBIC requirements may cause SBIC I LP to forego attractive investment opportunities that are not permitted under SBA regulations.SBIC I LP is subject to ongoing regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financialratios and other covenants. In addition, SBIC I LP may also be limited in its ability to make distributions to us if it does not have sufficient accumulated netprofit, in accordance with SBA regulations. These requirements may make it more difficult for us to achieve our investment objectives.We finance our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk ofinvesting in us.The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculativeinvestment technique and increases the risks associated with investing in our securities. We may pledge up to 100% of our assets and may grant a securityinterest in all of our assets, other than assets held in SBIC I LP and our ownership interest in SBIC I LP and SBIC I GP, under the terms of any debt instrumentswe may enter into with lenders. In addition, under the terms of any credit facility or other debt instrument we enter into, we are likely to be required by itsterms to use the net proceeds of any investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applyingsuch net proceeds to any other uses. If the value of our assets decreases, leveraging would cause net asset value26to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our equity stake in a leveragedinvestment. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have had we not borrowed.Such a decline would also negatively affect our ability to make dividend payments on our common stock or preferred stock. Our ability to service our debtwill depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, because themanagement fee payable to OFS Advisor is payable based on our total assets (other than cash and cash equivalents and goodwill and intangible assets relatedto the SBIC Acquisition but including assets purchased with borrowed amounts and including assets owned by any consolidated entity), OFS Advisor has afinancial incentive to incur leverage which may not be consistent with our stockholders’ interests. In addition, our common stockholders will bear the burdenof any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the management fee payable to OFS Advisor.As a BDC, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage ratio for totalborrowings of at least 200% (or 150% if certain requirements are met) (i.e., the amount of debt may not exceed 50% or 66 2/3% of the value of our assets). See"Regulation". In addition, we may not be permitted to declare any cash dividend or other distribution on our outstanding common shares, or purchase anysuch shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 200% (or 150% if certain requirements are met) afterdeducting the amount of such dividend, distribution, or purchase price. If this ratio declines below the applicable threshold, we may not be able to incuradditional debt and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to makedistributions. As of December 31, 2018, our asset coverage ratio was greater than 1,000%, excluding the debt held by SBIC I LP.On May 3, 2018, the Board, including a "required majority" (as such item is determined in section 57(o) of the 1940 Act) of the Board, approved theapplication of a reduced 150% asset coverage ratio to us; therefore provided certain conditions are met, we will be subject to the reduced asset coverage ratioas of May 3, 2019.The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net ofexpenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.Assumed Return on Our Portfolio (Net of Expenses) (10)% (5)% —% 5% 10%Corresponding return to common stockholder (1)(30.00)% (18.67)% (7.33)% 4.01% 15.34%(1) Assumes $396.8 million in investments at fair value, $260.4 million in debt outstanding, $175.0 million in net assets, and an average cost of funds of4.9%. Assumptions are based on our financial condition and our average cost of funds at December 31, 2018.Based on our outstanding indebtedness of $260.4 million as of December 31, 2018 and the average cost of funds of 4.9% as of that date, ourinvestment portfolio must experience an annual return of at least 3.2% to cover interest payments on the outstanding debt.This example is for illustrative purposes only, and actual interest rates on our borrowings are likely to fluctuate. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and Capital Resources— Borrowings” for additional information.The amount of our debt outstanding increased due to the issuance of the Unsecured Notes.Our ability to generate sufficient cash flow in the future is, to some extent, subject to general economic, financial, competitive, legislative andregulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations to meetthe payment obligations of our debt.Because we have received the approval of our Board, we will be subject to 150% Asset Coverage beginning on May 3, 2019.The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for totalborrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However, the SBCAA has modified the 1940 Act byallowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certainrequirements are met. Under the SBCAA, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast,when quorum is met, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first dayafter such approval. Alternatively, the legislation allows a “required majority” (as defined in Section 57(o) of the 1940 Act) of our directors to approve anincrease in our leverage capacity, and such approval would become effective after27one year from the date of approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among otherthings, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.On May 3, 2018 our Board approved the application of the reduced asset coverage ratio to us. As a result, we will be able to increase our leverage upto an amount that reduces our asset coverage ratio from 200% to 150% (i.e., the amount of debt may not exceed 66 2/3% of the value of our assets) beginningon May 3, 2019, assuming that additional borrowings are available and we are able to amend our PWB Credit Facility to permit additional leverage.Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance ourinvestments, you will experience increased risks of investing in our securities. If the value of our assets increases, then the additional leverage would causethe net asset value attributable to our common stock to increase more sharply than it would have had we not increased our leverage. Conversely, if the valueof our assets decreases, the additional leverage would cause net asset value to decline more sharply than it otherwise would have had we not increased ourleverage. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase morethan it would without the additional leverage, while any decrease in our income would cause net investment income to decline more sharply than it wouldhave had we not increased our leverage. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or otherpayments related to our securities. Leverage is generally considered a speculative investment technique. See “- Risks Related to Our Business and Structure - We finance our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investingin us.”In addition, the ability of BDCs to increase their leverage will increase the capital available to BDCs and thus competition for the investments thatwe seek to make. This may negatively impact pricing on the investments that we do make and adversely affect our net investment income and results ofoperations.Changes in interest rates will affect our cost of capital and net investment income.To the extent we borrow money or issue preferred stock to make investments, our net investment income will depend, in part, upon the differencebetween the rate at which we borrow funds or pay dividends on preferred stock and the rate at which we invest those funds. As a result, we can offer noassurance 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 debt tofinance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We may useinterest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest ratehedging activities to the extent permitted by the 1940 Act.A rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments. Accordingly, an increase ininterest rates may result in an increase of the amount of incentive fees payable to OFS Advisor.We may enter into reverse repurchase agreements, which are another form of leverage.We may enter into reverse repurchase agreements as part of our management of our temporary investment portfolio. Under a reverse repurchaseagreement, we will effectively pledge our assets as collateral to secure a short-term loan. Generally, the other party to the agreement makes the loan in anamount equal to a percentage of the fair value of the pledged collateral. At the maturity of the reverse repurchase agreement, we will be required to repay theloan and correspondingly receive back our collateral. While used as collateral, the assets continue to pay principal and interest which are for the benefit of us.Our use of reverse repurchase agreements, if any, involves many of the same risks involved in our use of leverage, as the proceeds from reverserepurchase agreements generally will be invested in additional securities. There is a risk that the market value of the securities acquired in the reverserepurchase agreement may decline below the price of the securities that we have sold but remain obligated to purchase. In addition, there is a risk that themarket value of the securities retained by us may decline. If a buyer of securities under a reverse repurchase agreement were to file for bankruptcy orexperience insolvency, we may be adversely affected. Also, in entering into reverse repurchase agreements, we would bear the risk of loss to the extent thatthe proceeds of such agreements at settlement are less than the fair value of the underlying securities being pledged. In addition, due to the interest costsassociated with reverse repurchase agreements transactions, our net asset value would decline, and, in some cases, we may be worse off than if we had notused such instruments.We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risksof investing in us in the same way as our borrowings.Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on anypreferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must takepreference over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses andare not entitled to participate in any income or appreciation in excess of their stated preference.28We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.A number of entities compete with us to make the types of investments that we plan to make. We compete with public and private funds, otherBDCs, commercial and investment banks, commercial finance companies and, to the extent they provide an alternative form of financing, private equity andhedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Forexample, some of our competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risktolerances or different risk assessments than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposeson us as a BDC or the source of income, asset diversification and distribution requirements we must satisfy to maintain our RIC tax treatment. Thesecharacteristics could allow our competitors to consider a wider variety of instruments, establish more relationships and offer better pricing and more flexiblestructuring than we are able to. The competitive pressures we face may have a material adverse effect on our business, financial condition and results ofoperations. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we may not beable to identify and make investments that are consistent with our investment objective.With respect to the investments we make, we will not seek to compete based primarily on the interest rates we will offer, and we believe that some ofour competitors may make loans with interest rates that will be lower than the rates we offer. In the secondary market for acquiring existing loans, we expectto compete generally on the basis of pricing terms. With respect to all investments, we may lose some investment opportunities if we do not match ourcompetitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interestincome, lower yields and increased risk of credit loss. We may also compete for investment opportunities with OFSAM and its other affiliates or accountsmanaged by OFSAM or one of its other affiliates. Although OFS Advisor will allocate opportunities in accordance with its policies and procedures,allocations to such other accounts will reduce the amount and frequency of opportunities available to us and may not be in the best interests of us and ourstockholders. Moreover, the performance of investments will not be known at the time of allocation.We may suffer credit losses.Investment in middle-market companies is highly speculative and involves a high degree of risk of credit loss, and therefore our securities may notbe suitable for someone with a low tolerance for risk. These risks are likely to increase during volatile economic periods, such as the U.S. and many othereconomies have recently been experiencing.We will be subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a RIC.We have elected to be treated as a RIC under Subchapter M of the Code, but no assurance can be given that we will be able to maintain RIC status.As a RIC, we are not required to pay corporate-level U.S. federal income taxes on our income and capital gains distributed (or deemed distributed) to ourstockholders, provided that we satisfy certain distribution and other requirements. To continue to qualify for tax treatment as a RIC under the Code and to berelieved of federal taxes on income and gains distributed to our stockholders, we must meet certain source-of-income, asset diversification and distributionrequirements. The distribution requirement for a RIC is satisfied if we distribute at least 90% of our net ordinary income and net short-term capital gains inexcess of net long-term capital losses, if any, to our stockholders on an annual basis. Because we use debt financing, and may, in the future, issue preferredstock, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements or preferredstock that could, under certain circumstances, restrict us from making distributions necessary to qualify for tax treatment as a RIC. If we are unable to obtaincash from other sources, we may fail to maintain our qualification for the tax benefits available to RICs and, thus, may be subject to corporate-level U.S.federal income tax. To maintain our qualification as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter.Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of ourinvestments are in private or thinly traded public companies, any such dispositions could be made at disadvantageous prices and may result in substantiallosses. If we fail to continue to qualify for tax treatment as a RIC for any reason and become subject to corporate-level U.S. federal income tax, the resultingcorporate taxes could substantially reduce our net assets, the amount of income available for distributions to stockholders and the amount of our distributionsand the amount of funds available for new investments. Such a failure would have a material adverse effect on us and our stockholders.Our subsidiaries and portfolio companies may be unable to make distributions to us that will enable us to meet RIC requirements, which could result in theimposition of an entity-level tax.In order for us to maintain our tax treatment as a RIC and to minimize corporate-level taxes, we are required to distribute on an annual basissubstantially all of our taxable income, which includes income from our subsidiaries and portfolio companies. As a substantial portion of our investments aremade through SBIC I LP, we are significantly dependent on that entity for cash distributions to enable us to meet the RIC distribution requirements. SBIC ILP may be limited by the SBIC Act and SBA regulations governing SBICs from making certain distributions to us that may be necessary to enable us tocontinue to29qualify as a RIC. We may have to request a waiver of the SBA’s restrictions for SBIC I LP to make certain distributions to maintain our tax treatment as a RICand we cannot assure stockholders that the SBA will grant such waiver. If our subsidiaries and portfolio companies are unable to make distributions to us, thismay result in loss of RIC tax treatment and a consequent imposition of a corporate-level federal income tax on us.We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.For U.S. federal income tax purposes, we will include in income certain amounts that we have not yet received in cash, such as the accretion of OID.This may arise if we purchase assets at a discount, receive warrants in connection with the making of a loan or in other circumstances, or through contractedPIK interest or dividends (meaning interest or dividends paid in the form of additional principal amount of the loan or equity security instead of in cash),which represents contractual interest or dividends added to the loan balance or equity security and due at the end of the investment term. Such OID, whichcould be significant relative to our overall investment activities, or increases in loan or equity investment balances as a result of contracted PIK arrangements,will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that wewill 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 therequirement to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to maintainthe tax benefits available to RICs. In such a case, we may have to sell some of our investments at times and/or at prices we would not consider advantageous,raise additional debt or equity capital or reduce new investment originations and sourcings to meet these distribution requirements. If we sell built-in-gainassets, we may be required to recognize taxable income in respect of the built-in-gain on such assets. In such a case, we would have to distribute all of ourtaxable gain (including the built-in-gain) in respect of such sale to avoid the imposition of entity-level tax on such gain. If we are not able to obtain suchcash from other sources, we may fail to maintain the tax benefits available to RICs and thus be subject to corporate-level U.S. federal income tax.We may in the future choose to pay distributions in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive.We distribute taxable distributions that are payable in cash or shares of our common stock at the election of each stockholder. In accordance withguidance issued by the Internal Revenue Service, a publicly traded RIC should generally be eligible to treat a distribution of its own stock as fulfilling itsRIC distribution requirements if each stockholder is permitted to elect to receive his or her distribution in either cash or stock of the RIC (even where there isa limitation on the percentage of the distribution payable in cash, provided that the limitation is at least 20%), subject to the satisfaction of certainguidelines. If too many stockholders elect to receive their distributions in cash, each such stockholder would receive a pro rata share of the total cash to bedistributed and would receive the remainder of their distribution in shares of stock. If this and certain other requirements are met, for U.S. federal income taxpurposes, the amount of the distribution paid in stock generally will be a taxable distribution in an amount equal to the amount of cash that could have beenreceived instead of stock. If we decide to make any distributions consistent with this guidance that are payable in part in our stock, stockholders receivingsuch distribution would be required to include the full amount of the distribution (whether received in cash, our stock, or a combination thereof) as ordinaryincome (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current andaccumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to suchdividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, it may be subject to transactionfees (e.g., broker fees or transfer agent fees) and the sales proceeds may be less than the amount included in income with respect to the dividend, dependingon the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax withrespect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of ourstockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we may need additionalcapital to finance our growth and such capital may not be available on favorable terms or at all.We have elected to be taxed for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. If we meet certain requirements,including source of income, asset diversification and distribution requirements, and if we continue to qualify as a BDC, we will continue to qualify for taxtreatment as RIC under the Code and will not have to pay corporate-level taxes on income we distribute to our stockholders as dividends, allowing us tosubstantially reduce or eliminate our corporate-level U.S. federal tax liability. As a BDC, we are generally required to meet a coverage ratio of total assets tototal senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200% at the time we issue any debtor preferred stock, or 150%, if certain requirements are met. This requirement limits the amount that we may30borrow. Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt or preferred stock andrequire us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure investors that debt and equity financing will beavailable 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 net asset value 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 net asset value could decline.Our PWB Credit Facility contains various covenants and restrictions which, if not complied with, could accelerate our repayment obligations under thecredit facility or limit its use, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to paydistributions.The PWB Credit Facility provides us with a senior secured revolving line of credit of up to $50.0 million, with maximum availability equal to 50%of the aggregate outstanding principal amount of eligible loans included in the borrowing base and otherwise specified in the PWB Credit Facility. The PWBCredit Facility is guaranteed by our subsidiary OFS Capital WM and secured by all of our current and future assets excluding assets held by SBIC I LP andour SBIC I LP and SBIC I GP partnership interests. The PWB Credit Facility contains customary terms and conditions, including, without limitation,affirmative and negative covenants such as information reporting requirements, a minimum tangible net asset value, a minimum quarterly net investmentincome after incentive fees, and a statutory asset coverage test. The PWB Credit Facility also contains customary events of default, including, withoutlimitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness,bankruptcy, change in investment advisor, and the occurrence of a material adverse change in our financial condition. The PWB Credit Facility permits us tofund additional investments as long as we are within the conditions set out in the PWB Credit Facility. Our continued compliance with these covenantsdepends on many factors, some of which are beyond our control, and there are no assurances that we will continue to comply with these covenants. Ourfailure to satisfy these covenants could result in foreclosure by our lender, which would accelerate our repayment obligations under the PWB Credit Facilityand thereby have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to ourstockholders. We had $12.0 million outstanding under the PWB Credit Facility as of December 31, 2018. Availability under the PWB Credit Facility as ofDecember 31, 2018 was $38.0 million based on the stated advance rate of 50% under the borrowing base.Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and could again materiallyand adversely affect debt and equity capital markets in the United States and around the world and our business.The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, maycontribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets and may cause economicuncertainties or deterioration in the United States and worldwide. The impact of downgrades by rating agencies to the United States government’s sovereigncredit rating or its perceived creditworthiness as well as potential government shutdowns could adversely affect the United States and global financialmarkets and economic conditions. Since 2010, several European Union, or EU, countries have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the Euro and theaccompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy offoreign nations, such as Russia and China, may have a severe impact on the worldwide and United States financial markets. The decision made in the UnitedKingdom referendum to leave the EU (the so-called “Brexit”) has led to volatility in global financial markets and may lead to weakening in consumer,corporate and financial confidence in the United Kingdom and Europe. While the United Kingdom is currently expected to leave the EU on March 29, 2019,uncertainty remains as to the exact timing and process, which may lead to continued volatility. Additionally, volatility in the Chinese stock markets andglobal markets for commodities may affect other financial markets worldwide. We cannot predict the effects of these or similar events in the future on theUnited States and global economies and securities markets or on our investments. We monitor developments in economic, political and market conditionsand seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successfulin doing so.Adverse developments in the credit markets may impair our ability to secure debt financing.During the economic downturn in the United States that began in mid-2007, many commercial banks and other financial institutions stoppedlending or significantly curtailed their lending activity. In addition, in an effort to stem losses and reduce their exposure to segments of the economy deemedto be high risk, some financial institutions limited routine refinancing and loan modification transactions and even reviewed the terms of existing facilities toidentify bases for accelerating the maturity of existing lending facilities. As a result, should we experience another economic downturn in the United States, itmay be difficult for us to obtain desired financing to finance the growth of our investments on acceptable economic terms, or at all.31If we are unable to consummate credit facilities on commercially reasonable terms, our liquidity may be reduced significantly. If we are unable torepay amounts outstanding under any facility we may enter into and are declared in default or are unable to renew or refinance any such facility, it wouldlimit our ability to initiate significant originations or to operate our business in the normal course. These situations may arise due to circumstances that wemay be unable to control, such as inaccessibility of the credit markets, a severe decline in the value of the U.S. dollar, a further economic downturn or anoperational problem that affects third parties or us, and could materially damage our business. Moreover, we are unable to predict when economic and marketconditions may become more favorable. Even if such conditions improve broadly and significantly over the long term, adverse conditions in particularsectors of the financial markets could adversely impact our business.Terrorist attacks, acts of war or natural disasters may impact the businesses in which we invest and harm our business, operating results and financialcondition.Terrorist acts, acts of war or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such actshave created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities,military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which maynegatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operatingresults and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.The failure in cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuityplanning could impair our ability to conduct business effectively.The occurrence of a disaster such as a cyberattack, a natural catastrophe, an industrial accident, events unanticipated in our disaster recoverysystems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations andfinancial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If asignificant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severelycompromised.We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures,our computer systems could be subject to cyberattacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Likeother companies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures anddisruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in,and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result indamage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.Third parties with whom we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and theserelationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. While weengage 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.We may experience fluctuations in our quarterly operating results.We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the debtsecurities we acquire, the default rate on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealizedgains or losses, distributions from our subsidiaries and portfolio companies, the degree to which we encounter competition in our markets and generaleconomic conditions. In light of these factors, results for any period should not be relied upon as being indicative of performance in future periods.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 orregulations, could have a material adverse effect on our, and our portfolio companies’, business, results of operations or financial condition.We and our portfolio companies are subject to regulation by laws at the U.S. federal, state and local levels, including those that govern BDCs,SBICs, RICs, or non-depository commercial lenders. These laws and regulations, including applicable accounting standards, as well as their interpretation,may change from time to time, and new laws, regulations, accounting standards and interpretations may also come into effect. Any such new or changed lawsor regulations could have a material adverse effect on our business.We are also subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, feesand other charges, disclosures to portfolio companies, the terms of secured transactions, collection32and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that haveadopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or wemight have to restrict our operations. If we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of ourbusiness and may be subject to civil fines and criminal penalties.In addition, changes to the laws and regulations governing our operations related to permitted investments may cause us to alter our investmentstrategy, including making investments in entities such as SBIC I LP, in order to avail ourselves of new or different opportunities. Such changes could resultin material differences to the strategies and plans set forth in this Annual Report on Form 10-K and our accounting practices described in this Annual Reporton Form 10-K, and may shift our investment focus from the areas of expertise of OFS Advisor to other types of investments in which OFS Advisor may havelittle or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on our results of operations and the value of astockholder’s investment.Over the last several years, there has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector,raising the possibility that some portion of the non-bank financial sector will be subject to new or different regulation. While it cannot be known at this timewhether these regulations will be implemented or what form they will take, increased regulation of non-bank credit extension could negatively impact ouroperations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect ourbusiness.Legislative or other actions relating to taxes could have a negative effect on us.Significant U.S. federal tax reform legislation was recently enacted that, among other things, permanently reduces the maximum federal corporateincome tax rate, reduces the maximum individual income tax rate (effective for taxable years 2018 through 2025), restricts the deductibility of businessinterest expense, changes the rules regarding the calculation of net operating loss deductions that may be used to offset taxable income, expands thecircumstances in which a foreign corporation will be treated as a “controlled foreign corporation” and, under certain circumstances, requires accrual methodtaxpayers to recognize income for U.S. federal income tax purposes no later than the income is taken into account as revenue in an applicable financialstatement. The impact of this new legislation on us, our stockholders and the entities in which we may invest is uncertain. Prospective investors are urged toconsult their tax advisors regarding the effects of the new legislation on an investment in us.We cannot predict with certainty how any future changes in the tax laws might affect us, our investors or our portfolio investments. New legislationand any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect ourability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our investors of such qualification, or could have otheradverse consequences. Investors are urged to consult with their tax advisor regarding tax legislative, regulatory or administrative developments andproposals and their potential effect on an investment in our securities.Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us.There has been on-going discussion and commentary regarding potential significant changes to United States trade policies, treaties and tariffs.There is significant uncertainty about the future relationship between the United States and other countries with respect to the trade policies, treaties andtariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and thestability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States.Any of these factors could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and have a material adverse effecton their business, financial condition and results of operations, which in turn would negatively impact us.The effect of global climate change may impact the operations of our portfolio companies.There may be evidence of global climate change. Climate change creates physical and financial risk and some of our portfolio companies may beadversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature andhumidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitudeof any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products orservices is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition,through decreased revenues. Extreme weather conditions in general require more systems backup, adding to costs, and can contribute to increased systemstresses, including service interruptions.Loss of status as a RIC would reduce our net asset value and distributable income.33We have qualified as a RIC under the Code. As a RIC we do not have to pay federal income taxes on our income (including realized gains) that wedistribute to our stockholders, provided that we satisfy certain distribution and other requirements. Accordingly, we are not permitted under accounting rulesto establish reserves for taxes on our unrealized capital gains. If we fail to qualify for RIC status in any year, to the extent that we had unrealized gains, wewould have to establish reserves for taxes, which would reduce our net asset value and the amount potentially available for distribution. In addition, if we, asa RIC, were to decide to make a deemed distribution of net realized capital gains and retain the net realized capital gains, we would have to establishappropriate reserves for taxes that we would have to pay on behalf of stockholders. It is possible that establishing reserves for taxes could have a materialadverse effect on the value of our common stock.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, except as otherwise provided in the 1940 Act, to modify or waive certain of our operating policies andstrategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so asto cease to be, or withdraw our election as, a BDC. Under Delaware law, we also cannot be dissolved without prior stockholder approval except by judicialaction. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and the pricevalue of our common stock. Nevertheless, any such changes could adversely affect our business and impair our ability to make distributions.We incur significant costs as a result of being a publicly traded company.As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirementsapplicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, includingrequirements under the Sarbanes-Oxley Act and other rules implemented by the SEC.Efforts to comply with the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act mayadversely affect us and the market price of our securities.Under current SEC rules, we are required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Actand related rules and regulations of the SEC. We are required to review our internal control over financial reporting on an annual basis, and evaluate anddisclose changes in our internal control over financial reporting on a quarterly and annual basis.As a result, we expect to continue to incur additional expenses that may negatively impact our financial performance and our ability to makedistributions. This process also results in a diversion of management’s time and attention. In the event that we are unable to maintain compliance withSection 404 of the Sarbanes-Oxley Act and related rules, we and the market price of our securities may be adversely affected.We previously identified a material weakness in our internal control over financial reporting, which has since been remediated. Any future failure toestablish and maintain effective internal control over financial reporting could have an adverse effect on our business and stock price.Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosurecontrols and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in theirimplementation could cause us to fail to meet our reporting obligations.We previously identified a material weakness related to the design and operating effectiveness of controls over the reliability of financialinformation reported by portfolio companies that is used as financial inputs in the Company’s investment valuations. We addressed the materialweakness through, among other things, adding new and/or enhanced existing controls surrounding the valuation process and financial reporting oversight ofvarious controlled/affiliated portfolio companies.Although we have remediated this material weakness in our internal control over financial reporting, any failure to improve our disclosure controlsand procedures or internal control over financial reporting to address any identified weaknesses in the future, if and when they are identified, could preventus from maintaining accurate accounting records and discovering material accounting errors. Any of these results could adversely affect our business and thevalue of our common stock.Capital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditionscould materially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on ourbusiness, financial condition and results of operations.The global capital markets have experienced a period of disruption as evidenced by a lack of liquidity in the debt capital markets, write-offs in thefinancial services sector, the re-pricing of credit risk and the failure of certain major financial34institutions. While the capital markets have improved, these conditions could deteriorate again in the future. During such market disruptions, we may havedifficulty raising debt or equity capital, especially as a result of regulatory constraints.Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so couldhave a material adverse effect on our business. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result,we may realize significantly less than the value at which we have recorded our investments. In addition, significant changes in the capital markets, includingthe disruption and volatility, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidityevents involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverseimpact on our business, financial condition and results of operations.Various social and political tensions in the United States and around the world, including in the Middle East, Eastern Europe and Russia, maycontinue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause furthereconomic uncertainties or deterioration in the United States and worldwide. Several EU countries, including Greece, Ireland, Italy, Spain, and Portugal,continue to face budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is alsocontinued concern about national-level support for the euro and the accompanying coordination of fiscal and wage policy among European Economic andMonetary Union member countries. The recent United States and global economic downturn, or a return to the recessionary period in the United States, couldadversely impact our investments. We cannot predict the duration of the effects related to these or similar events in the future on the United States economyand securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving ourinvestment objective, but there can be no assurance that we will be successful in doing so.Risks Related to OFS Advisory and its AffiliatesWe have potential conflicts of interest related to obligations that OFS Advisor or its affiliates may have to other clients.OFS Advisor and its affiliates manage other assets, including those of other BDCs, registered investment companies, separately managed accounts,accounts for which OFS Advisor or its affiliates may serve as a subadvisor and CLOs, and may manage other entities in the future, and these other funds andentities may have similar or overlapping investment strategies. Our executive officers, directors and members of the Advisor Investment Committees serve asofficers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment funds or other investment vehiclesmanaged by OFS Advisor or its affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in ouror our stockholders’ best interests or may require them to devote time to services for other entities, which could interfere with the time available to provideservices to us. For example, OFS Advisor currently serves as the investment adviser to HPCI, a non-traded BDC, that invests in senior secured loans of middle-market companies in the United States, similar to those we target for investment, including first-lien, second-lien and unitranche loans as well as subordinatedloans and, to a lesser extent, warrants and other equity securities. OFS Advisor also serves as the investment adviser to OCCI, a closed-end managementinvestment company that primarily invests in CLO debt and subordinated securities.Therefore, many investment opportunities will satisfy the investmentcriteria for both HPCI and us and, in certain instances, investment opportunities may be appropriate for OCCI and us. HPCI operates as a distinct and separateentity and any investment in our common stock will not be an investment in HPCI. In addition, our executive officers and certain of our independentdirectors serve in substantially similar capacities for HPCI and OCCI. Similarly, OFS Advisor and/or its affiliates may have other clients with, similar,different or competing investment objectives. In serving in these multiple capacities, our executive officers and directors, OFS Advisor and/or its affiliates,and members of the Advisor Investment Committees may have obligations to other clients or investors in those entities, the fulfillment of which may not bein the best interests of us or our stockholders.OFS Advisor and OFSAM have procedures and policies in place designed to manage the potential conflicts of interest between OFS Advisor’sfiduciary obligations to us and its fiduciary obligations to other clients. For example, such policies and procedures are designed to ensure that investmentopportunities are allocated in a fair and equitable manner among us and other clients of OFS Advisor. An investment opportunity that is suitable for clients ofOFS Advisor may not be capable of being shared among some or all of such clients due to the limited scale of the opportunity or other factors, includingregulatory restrictions imposed by the 1940 Act.There can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.Our independent directors may face conflicts of interest related to their obligations to the affiliated BDC for which they also serve as independentdirectors.The independent directors of our board of directors also comprise the independent directors of the board of directors of HPCI, an affiliated BDC thatis also managed by OFS Advisor. In their capacities as directors for a BDC board, the independent directors have a duty to make decisions on behalf of thatBDC that are in the best interests of that BDC and its35stockholders. Accordingly, our independent directors may face conflicts of interest when making a decision on behalf of one BDC that may not be in the bestinterest of the other BDC. For example, the SEC has granted exemptive relief to us, OFS Advisor, HPCI, and certain other of our affiliates to co-invest incertain transactions that would otherwise be prohibited by the 1940 Act. In accordance with that relief, the independent directors must make certain findingson behalf of each BDC with respect to initial co-investment transactions, including that the terms of the proposed transaction, including the consideration tobe paid, are reasonable and fair to the BDC and its stockholders and do not involve overreaching in respect of the BDC or its stockholders on the part of anyof the other participants in the proposed transaction. Under such circumstances, the independent directors may face conflicts of interest when making thesedeterminations on behalf of us and HPCI.Members of the Advisor Investment Committees, OFS Advisor or its affiliates may, from time to time, possess material non-public information, limiting ourinvestment discretion.OFS senior professionals and members of the Advisor Investment Committees may serve as directors of, or in a similar capacity with, companies inwhich we invest, the securities of which are purchased or sold on our behalf. In the event that material nonpublic information is obtained with respect to suchcompanies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations,we could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on usand our stockholders.The valuation process for certain of our portfolio holdings may create a conflict of interest.Many of our portfolio investments are made in the form of securities that are not publicly traded. As a result, our board of directors will determine thefair value of these securities in good faith as described below in “Many of our portfolio investments are recorded at fair value as determined in good faith byour board of directors and, as a result, there may be uncertainty as to the value of our portfolio investments.” In connection with that determination,investment professionals from OFS Advisor may provide our board of directors with portfolio company valuations based upon the most recent portfoliocompany financial statements available and projected financial results of each portfolio company. In addition, the members of our board of directors who arenot independent directors have a substantial indirect pecuniary interest in OFS Advisor. The participation of the OFS Advisor’s investment professionals inour valuation process, and the indirect pecuniary interest in OFS Advisor by those members of our board of directors, could result in a conflict of interestsince OFS Advisor’s management fee is based, in part, on our total assets (other than cash and cash equivalents but including assets purchased with borrowedamounts and including assets owned by any consolidated entity).We may have additional conflicts related to other arrangements with OFS Advisor or its affiliates.We have entered into a license agreement with OFSAM under which OFSAM has granted us a non-exclusive, royalty-free license to use the name“OFS.” See “Item 1. Business—License Agreement.” In addition, we rent office space from a subsidiary of OFSAM and pay to that subsidiary our allocableportion of overhead and other expenses incurred in performing its obligations under the Administration Agreement, such as rent and our allocable portion ofthe cost of our officers, including our chief executive officer, chief financial officer, chief compliance officer and chief accounting officer. This will createconflicts of interest that our board of directors must monitor.The Investment Advisory Agreement with the OFS Advisor and the Administration Agreement with OFS Services were not negotiated on an arm’s lengthbasis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.The Investment Advisory Agreement and the Administration Agreement were negotiated between related parties. Consequently, their terms,including fees payable to OFS Advisor, may not be as favorable to us as if they had been negotiated with an unaffiliated third party. In addition, we couldchoose not to enforce, or to enforce less vigorously, our rights and remedies under these agreements because of our desire to maintain our ongoingrelationship with OFS Advisor, OFS Services and their respective affiliates. Any such decision, however, would breach our fiduciary obligations to ourstockholders.Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us.BDCs generally are prohibited under the 1940 Act from knowingly participating in certain transactions with their affiliates without the priorapproval of their independent directors and, in some cases, of the SEC. Those transactions include purchases and sales, and so-called “joint” transactions, inwhich a BDC and one or more of its affiliates engage in certain types of profit-making activities. Any person that owns, directly or indirectly, five percent ormore of a BDC’s outstanding voting securities will be considered an affiliate of the BDC for purposes of the 1940 Act, and a BDC generally is prohibitedfrom engaging in purchases or sales of assets or joint transactions with such affiliates, absent the prior approval of the BDC’s independent directors.Additionally, without the approval of the SEC, a BDC is prohibited from engaging in purchases or sales of assets or joint transactions with the BDC’s officers,directors, and employees, and advisor (and its affiliates).36BDCs may, however, invest alongside certain related parties or their respective other clients in certain circumstances where doing so is consistentwith current law and SEC staff interpretations. For example, a BDC may invest alongside such accounts consistent with guidance promulgated by the SECstaff permitting us and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, includingthat the BDC’s advisor, acting on the BDC’s behalf and on behalf of other clients, negotiates no term other than price. Co-investment with such otheraccounts is not permitted or appropriate under this guidance when there is an opportunity to invest in different securities of the same issuer or where thedifferent investments could be expected to result in a conflict between the BDC’s interests and those of other accounts.On October 12, 2016, we received the Order from the SEC that permits us to co-invest in portfolio companies with certain affiliates, provided that wecomply with the conditions of the Order. Pursuant to the Order, we are generally permitted to co-invest with BDCs, registered investment companies andprivate funds managed by OFS Advisor or any adviser that controls, is controlled by, or is under common control with, OFS Advisor, and is registered as aninvestment adviser under the Advisers Act, in a manner consistent with our investment strategy as well as applicable law, including the terms and conditionsof the Order. Under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certainconclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, arereasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) thetransaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.When we invest alongside clients of OFSAM and its affiliates or their respective other clients, OFS Advisor will, to the extent consistent withapplicable law, regulatory guidance, or the Order, allocate investment opportunities in accordance with its allocation policy. Under this allocation policy, iftwo or more investment vehicles with similar or overlapping investment strategies are in their investment periods, an available opportunity will be allocatedbased on the provisions governing allocations of such investment opportunities in the relevant organizational, offering or similar documents, if any, for suchinvestment vehicles. In the absence of any such provisions, OFS Advisor will consider the following factors and the weight that should be given with respectto each of these factors:•investment guidelines and/or restrictions, if any, set forth in the applicable organizational, offering or similar documents for the investment vehicles;•the status of tax restrictions and tests and other regulatory restrictions and tests;•risk and return profile of the investment vehicles;•suitability/priority of a particular investment for the investment vehicles;•if applicable, the targeted position size of the investment for the investment vehicles•level of available cash for investment with respect to the investment vehicles;•total amount of funds committed to the investment vehicles; and•the age of the investment vehicles and the remaining term of their respective investment periods, if any.In situations where co-investment with other accounts is not permitted or appropriate, OFS Advisor will need to decide which account will proceedwith the investment. The decision by OFS Advisor to allocate an opportunity to another entity could cause us to forego an investment opportunity that weotherwise would have made. These restrictions, and similar restrictions that limit our ability to transact business with our officers or directors or theiraffiliates, may limit the scope of investment opportunities that would otherwise be available to us.Our base management fee may induce OFS Advisor to cause us to incur leverage.Our base management fee is payable based upon our total assets, other than cash and cash equivalents but including assets purchased with borrowedamounts and including assets owned by any consolidated entity. This fee structure may encourage OFS Advisor to cause us to borrow money to financeadditional investments. Under certain circumstances, the use of borrowed money may increase the likelihood of default, which would disfavor holders of ourcommon stock. Given the subjective nature of the investment decisions made by OFS Advisor on our behalf, our board of directors may not be able tomonitor this potential conflict of interest effectively.Our incentive fee may induce OFS Advisor to make certain investments, including speculative investments.The incentive fee payable by us to OFS Advisor may create an incentive for OFS Advisor to make investments on our behalf that are riskier or morespeculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to OFS Advisor isdetermined may encourage OFS Advisor to use leverage to increase the37return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor our stockholders.OFS Advisor receives an incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive feebased on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, OFS Advisor may have atendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice couldresult in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly duringeconomic downturns.We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to theextent we so invest, will bear our ratable share of any such investment company’s expenses, including management and performance fees. We remainobligated to pay management and incentive fees to OFS Advisor with respect to the assets invested in the securities and instruments of other investmentcompanies. With respect to each of these investments, each of our stockholders will bear his or her share of the management and incentive fee of OFS Advisoras well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.Our board of directors is charged with protecting our interests by monitoring how OFS Advisor addresses these and other conflicts of interestsassociated with its management services and compensation. While our board of directors is not expected to review or approve each borrowing or incurrenceof leverage, our independent directors will periodically review OFS Advisor’s services and fees. In connection with these reviews, our independent directorswill consider whether our fees and expenses (including those related to leverage) remain appropriate.Our incentive fee structure may create incentives for OFS Advisor that are not fully aligned with the interests of our stockholders.In the course of our investing activities, we will pay management and incentive fees to OFS Advisor. The base management fee is based on our totalassets (other than cash and cash equivalents and the intangible asset and goodwill resulting from the SBIC Acquisition, but including assets purchased withborrowed amounts and including assets owned by any consolidated entity). As a result, investors in our common stock will invest on a “gross” basis andreceive distributions on a “net” basis after expenses, resulting in a lower rate of return than one might achieve through direct investments. Because these feesare based on our total assets, other than cash and cash equivalents but including assets purchased with borrowed amounts and including any assets owned byany consolidated entity, OFS Advisor will benefit when we incur debt or use leverage. Our board of directors is charged with protecting our interests bymonitoring how OFS Advisor addresses these and other conflicts of interests associated with its management services and compensation. While our board ofdirectors is not expected to review or approve each borrowing or incurrence of leverage, our independent directors will periodically review OFS Advisor’sservices and fees as well as its portfolio management decisions and portfolio performance. In connection with these reviews, our independent directors willconsider whether our fees and expenses (including those related to leverage) remain appropriate. As a result of this arrangement, OFS Advisor or its affiliatesmay from time to time have interests that differ from those of our stockholders, giving rise to a conflict.We may pay an incentive fee on income we do not receive in cash.The part of the incentive fee payable to OFS Advisor that relates to our pre-incentive fee net investment income is computed and paid on incomethat may include interest income that has been accrued but not yet received in cash. This fee structure may be considered to involve a conflict of interest forOFS Advisor to the extent that it may encourage OFS Advisor to favor debt financings that provide for deferred interest, rather than current cash payments ofinterest. OFS Advisor may have an incentive to invest in deferred interest securities in circumstances where it would not have done so but for the opportunityto continue to earn the incentive fee even when the issuers of the deferred interest securities would not be able to make actual cash payments to us on suchsecurities. This risk could be increased because OFS Advisor is not obligated to reimburse us for any incentive fees received even if we subsequently incurlosses or never receive in cash the deferred income that was previously accrued.OFS Advisor’s liability is limited under the Investment Advisory Agreement, and we have agreed to indemnify OFS Advisor against certain liabilities,which may lead OFS Advisor to act in a riskier manner on our behalf than it would when acting for its own account.Under the Investment Advisory Agreement, OFS Advisor will not assume any responsibility to us other than to render the services called for underthat agreement, and it will not be responsible for any action of our board of directors in following or declining to follow OFS Advisor’s advice orrecommendations. Under the terms of the Investment Advisory Agreement, OFS Advisor and its affiliates’ respective officers, directors, members, managers,stockholders and employees will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners foracts or omissions performed in accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting38gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Investment Advisory Agreement. In addition, we haveagreed to indemnify OFS Advisor and its affiliates’ respective officers, directors, members, managers, stockholders and employees from and against anyclaims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operationsor any action taken or omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement, except where attributable to grossnegligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Investment Advisory Agreement. These protections maylead OFS Advisor to act in a riskier manner when acting on our behalf than it would when acting for its own account.OFS Advisor can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in ouroperations that could adversely affect our financial condition, business and results of operations.OFS Advisor has the right, under the Investment Advisory Agreement, to resign at any time upon not less than 60 days’ written notice, whether wehave found a replacement or not. If OFS Advisor resigns, we may not be able to find a new investment advisor or hire internal management with similarexpertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operationsare likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to beadversely affected and the value of our shares may decline. In addition, the coordination of our internal management and investment activities is likely tosuffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the OFS Advisorand its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack offamiliarity with our investment objectives may result in additional costs and time delays that may adversely affect our financial condition, business andresults of operations.OFS Services can resign from its role as our Administrator under the Administration Agreement, and we may not be able to find a suitable replacement,resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.OFS Services has the right to resign under the Administration Agreement, whether we have found a replacement or not. If OFS Services resigns, wemay not be able to find a new administrator or hire internal management with similar expertise and ability to provide the same or equivalent services onacceptable terms, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and resultsof operations as well as our ability to pay distributions are likely to be adversely affected and the value of our shares may decline. In addition, thecoordination of our internal management and administrative activities is likely to suffer if we are unable to identify and reach an agreement with a serviceprovider or individuals with the expertise possessed by OFS Services. Even if we are able to retain a comparable service provider or individuals to performsuch services, whether internal or external, their integration into our business and lack of familiarity with our investment objectives may result in additionalcosts and time delays that may adversely affect our financial condition, business and results of operations.Risks Related to BDCsRegulations governing our operation as a BDC affect our ability to and the way in which we raise additional capital. As a BDC, we will need to raiseadditional capital, which will expose us to risks, including the typical risks associated with leverage.We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as“senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted as a BDC to issue seniorsecurities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% (or 150% if certain conditions are satisfied) of grossassets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets decline, wemay be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repaya portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not beavailable for distributions to our common stockholders. If we issue senior securities, we will be exposed to typical risks associated with leverage, includingan increased risk of loss.On May 3, 2018, the Board, including a "required majority" (as such item is determined in section 57(o) of the 1940 Act) of the Board, approved theapplication of a reduced 150% asset coverage ratio to us; therefore provided certain conditions are met, we will be subject to the reduced asset coverage ratioas of May 3, 2019.As of December 31, 2018, we had $260.4 million of debt outstanding. Our ability to incur additional debt and remain in compliance with the assetcoverage test will be limited. We may seek an additional credit facility to finance investments or for working capital requirements. There can be no assurancethat we will be able to obtain such financing on favorable terms or39at all. We have received an exemptive order from the SEC to permit us to exclude the debt of SBIC I LP guaranteed by the SBA from our definition of seniorsecurities in our statutory asset coverage ratio under the 1940 Act.If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would haveseparate voting rights on certain matters and might have other rights, preferences or privileges more favorable than those of our common stockholders, andthe issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premiumprice for holders of our common stock or otherwise be in our stockholders’ best interest. Holders of our common stock will directly or indirectly bear all of thecosts associated with offering and servicing any preferred stock that we issue. In addition, any interests of preferred stockholders may not necessarily alignwith the interests of holders of our common stock and the rights of holders of shares of preferred stock to receive dividends would be senior to those ofholders of shares of our common stock. We are not generally able to issue and sell our common stock at a price below net asset value per share. We may,however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of ourcommon stock if our board of directors determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve any suchsale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board ofdirectors, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuingcommon stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that timewill decrease, and our stockholders might experience dilution.Our ability to invest in public companies may be limited in certain circumstances.To maintain our status as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at thetime the acquisition is made, at least 70% of our assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions). Subject to certainexceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securitiesexchange may be treated as a qualifying asset only if such issuer has a common equity market capitalization that is less than $250 million at the time of suchinvestment and meets the other specified requirements.If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to continue to qualify as a BDC or be precluded from investingaccording to our current business strategy.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 assets, as defined by the 1940 Act, are qualifying assets.We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded frominvesting in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If a sufficient portion of ourassets are not qualifying assets, we could violate the 1940 Act provisions applicable to BDCs. As a result of such violation, specific rules under the 1940 Actcould prevent us, for example, from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) orcould require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. If we need to dispose of suchinvestments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be able to find a buyer for such investments and,even if we do find a buyer, we may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on our business,financial condition and results of operationsIf we do not maintain our status as a BDC, we would be subject to regulation as a registered closed-end investment company under the 1940 Act. Asa registered closed-end fund, we would be subject to substantially more regulatory restrictions under the 1940 Act which would significantly decrease ouroperating flexibility.Risks Related to Our InvestmentsEconomic recessions or downturns could impair our portfolio companies and harm our operating results.Many of our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods.Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. Adverse economicconditions may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions couldlead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our fundingcosts, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing ourinvestments and harm our operating results.A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially,termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other40agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extentnecessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, lenders in certain cases can be subject tolender liability claims for actions taken by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possiblethat we could become subject to a lender liability claim, including as a result of actions taken if we render significant managerial assistance to the borrower.Furthermore, if one of our portfolio companies were to file for bankruptcy protection, even though we may have structured our investment as senior secureddebt, depending on the facts and circumstances, including the extent to which we provided managerial assistance to that portfolio company, a bankruptcycourt might re-characterize our debt holding and subordinate all or a portion of our claim to claims of other creditors.Our investments in the debt instruments of leveraged portfolio companies may be risky and, due to the significant volatility of such companies, we couldlose all or part of our investment in bankruptcy proceedings or otherwise.Investment in leveraged companies involves a number of significant risks. Leveraged companies in which we invest may have limited financialresources and may be unable to meet their obligations under their debt securities that we hold due to the significant volatility of such companies. Negativedevelopments may be accompanied by deterioration of the value of any collateral and a reduction in the likelihood of our realizing any guarantees that wemay have obtained in connection with our investment. Such developments may ultimately result in the leveraged companies in which we invest entering intobankruptcy proceedings, which have a number of inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversaryproceedings and are beyond the control of the creditors. A bankruptcy filing by an issuer may adversely and permanently affect the issuer. If the proceeding isconverted to a liquidation, the value of the issuer may not equal the liquidation value that was believed to exist at the time of the investment. The duration ofa bankruptcy proceeding is also difficult to predict, and a creditor’s return on investment can be adversely affected by delays until the plan of reorganizationor liquidation ultimately becomes effective. The administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid outof the debtor’s estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, our influence withrespect to the class of securities or other obligations we own may be lost by increases in the number and amount of claims in the same class or by differentclassification and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingentclaims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial. In addition, since ourmezzanine loans are generally subordinated to senior loans and are generally unsecured, other creditors may rank senior to us in the event of a bankruptcyproceeding.Our investments in debt instruments may include “covenant-lite” loans. Covenants are contractual restrictions that lenders place on companies tolimit the corporate actions a company may pursue. Generally, the loans in which we expect to invest will have financial maintenance covenants, which areused to proactively address materially adverse changes in a portfolio company’s financial performance. However, to a lesser extent, we may invest in“covenant-lite” loans. We use the term “covenant-lite” to refer generally to loans that do not have a complete set of financial maintenance covenants.Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based,which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’sfinancial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk ofloss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.Our investments in private and middle-market portfolio companies are generally considered lower credit quality obligations, are risky, and we could loseall or part of our investment.Investment in private and middle-market companies involves a number of significant risks. Generally, little public information exists about thesecompanies, and we rely on the ability of OFS Advisor’s investment professionals to obtain adequate information to evaluate the potential returns frominvesting in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investmentdecision, and we may lose money on our investments. Middle-market companies may have limited financial resources and may be unable to meet theirobligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in thelikelihood of our realizing any guarantees we may have obtained in connection with our investment. Such companies typically have shorter operatinghistories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions andmarket conditions, as well as general economic downturns.Middle-market companies are more likely to be considered lower grade investments, commonly called “junk bonds,” which are either rated belowinvestment grade by one or more nationally-recognized statistical rating agencies at the time of investment, or may be unrated but determined by the OFSAdvisor to be of comparable quality. Lower grade securities or comparable unrated securities are considered predominantly speculative regarding the issuer’sability to pay interest and41principal, and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for lower gradedebt tend to be very volatile and are less liquid than investment grade securities. For these reasons, an investment in our company is subject to the followingspecific risks: increased price sensitivity to a deteriorating economic environment; greater risk of loss due to default or declining credit quality; adversecompany specific events are more likely to render the issuer unable to make interest and/or principal payments; and if a negative perception of the lowergrade debt market develops, the price and liquidity of lower grade securities may be depressed. This negative perception could last for a significant period oftime.Additionally, middle-market companies are more likely to depend on the management talents and efforts of a small group of persons. Therefore, thedeath, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, onus. Middle-market companies also may be parties to litigation and may be engaged in rapidly changing businesses with products subject to a substantial riskof obsolescence. In addition, our executive officers, directors and OFS Advisor may, in the ordinary course of business, be named as defendants in litigationarising from our investments in the portfolio companies.Investments in equity securities involve a substantial degree of risk.We have purchased, and may purchase in the future, common stock and other equity securities, including warrants, in various portfolio companies.Although equity securities historically have generated higher average total returns than debt securities over the long term, equity securities may experiencemore volatility in those returns than debt securities. The equity securities we acquire may fail to appreciate, decline in value or lose all value, and our abilityto recover our investment will depend on our portfolio company's success. Investments in equity securities involve a number of significant risks, includingthe risk of further dilution in the event the portfolio company issues additional securities. Investments in preferred securities involve special risks, such as therisk of deferred distributions, illiquidity and limited voting rights.Our equity ownership in a portfolio company may represent a control investment. Our ability to exit a control investment in a timely manner could result ina realized loss on the investment.If we obtain a control investment in a portfolio company, our ability to divest ourselves from a debt or equity investment could be restricted due toilliquidity in a private stock, limited trading volume on a public company’s stock, inside information on a company’s performance, insider blackout periods,or other factors that could prohibit us from disposing of the investment as we would if it were not a control investment. Additionally, we may choose not totake certain actions to protect a debt investment in a control investment portfolio company. As a result, we could experience a decrease in the value of ourportfolio company holdings and potentially incur a realized loss on the investment.Our investments in CLOs carry additional risks to the risks associated with investing in private debt.In addition to the general risks associated with debt securities and structured products discussed herein, CLOs carry additional risks, including, butnot limited to (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of thecollateral may decline in value or default; (iii) the possibility that the investments in CLOs are subordinate to other classes or tranches thereof, (iv) thepotential of spread compression in the underlying loans of the CLO, which could reduce credit enhancement in the CLOs and (v) the complex structure of thesecurity may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results. CLO equitysecurities that we may acquire are subordinated to more senior tranches of CLO debt. CLO equity securities are subject to increased risks of default relative tothe holders of superior priority interests in the same securities. In addition, at the time of issuance, CLO equity securities are under-collateralized in that theliabilities of a CLO at inception exceed its total assets. When we invest in CLOs, we may be in a first loss or subordinated position with respect to realizedlosses on the assets of the CLOs in which it is invested. We may recognize phantom taxable income from our investments in the subordinated tranches ofCLOs. Between the closing date and the effective date of a CLO, the CLO collateral manager will generally expect to purchase additional collateralobligations for the CLO. During this period, the price and availability of these collateral obligations may be adversely affected by a number of market factors,including price volatility and availability of investments suitable for the CLO, which could hamper the ability of the collateral manager to acquire a portfolioof collateral obligations that will satisfy specified concentration limitations and allow the CLO to reach the initial par amount of collateral prior to theeffective date. An inability or delay in reaching the target initial par amount of collateral may adversely affect the timing and amount of interest or principalpayments received by the holders of the CLO debt securities and distributions of the CLO on equity securities and could result in early redemptions whichmay cause CLO debt and equity investors to receive less than the face value of their investment.In addition, the portfolios of certain CLOs in which we may invest may contain “covenant-lite” loans. Accordingly, to the extent we are exposed to“covenant-lite” loans, we may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenancecovenants.The failure by a CLO in which we invest to satisfy42financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in the payments we receivefrom the CLO. In the event that a CLO fails certain tests, holders of CLO senior debt may be entitled to additional payments that would, in turn, reduce thepayments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiatenew terms, which may include the waiver of certain financial covenants, with a defaulting CLO or any other investment we may make. If any of these occur, itcould adversely affect our operating results and cash flows.Our CLO investments will be exposed to leveraged credit risk. If a CLO does not meet certain minimum collateral value ratios and/or interestcoverage ratios, primarily due to senior secured loan defaults, then cash flow that otherwise would have been available to pay us distributions may instead beused to redeem any senior notes or to purchase additional senior secured loans, until the ratios again exceed the minimum required levels or any senior notesare repaid in full.We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient.We will at times take a security interest in the available assets of our portfolio companies, including the equity interests of their subsidiaries and, insome cases, the equity interests of our portfolio companies held by their stockholders. In the event of a default by a portfolio company on a secured loan, wewill only have recourse to the assets collateralizing the loan. There is a risk that the collateral securing our loans may decrease in value over time, may bedifficult to sell in a timely manner, may be difficult to appraise, and may fluctuate in value based upon the success or deterioration of the business and marketconditions, including as a result of the inability of a portfolio company to raise additional capital. Additionally, in the case of certain of our investments, wedo not have a first lien position on the collateral and may not receive the full value of the collateral upon liquidation. If the underlying collateral value is lessthan the loan amount, we will suffer a loss.In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subjectto equitable subordination. In addition, certain of our loans are subordinate to other debt of the portfolio company. If a portfolio company defaults on ourloan or on debt senior to our loan, or in the event of a portfolio company bankruptcy, our loan will be satisfied only after the senior debt receives payment.Where debt senior to our loan exists, the presence of inter-creditor arrangements may limit our ability to amend our loan documents, assign our loans, acceptprepayments, exercise our remedies (through “standstill” periods) and control decisions made in bankruptcy proceedings relating to the portfolio company.Bankruptcy and portfolio company litigation can significantly increase collection losses and the time needed for us to acquire the underlying collateral inthe event of a default, during which time the collateral may decline in value, causing us to suffer losses.Borrowers of Broadly Syndicated Loans may be permitted to designate unrestricted subsidiaries under the terms of their financing agreements, whichwould exclude such unrestricted subsidiaries from restrictive covenants under the financing agreement with the borrower. Without restriction under thefinancing agreement, the borrower could take various actions with respect to the unrestricted subsidiary including, among other things, incur debt, grantsecurity on its assets, sell assets, pay dividends or distribute shares of the unrestricted subsidiary to the borrower’s shareholders. Any of these actions couldincrease the amount of leverage that the borrower is able to incur and increase the risk involved in our investments in Broadly Syndicated Loans accordingly.If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able toobtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder aportfolio company’s ability to refinance our loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtainnew financing. If a borrower is unable to repay our loan at maturity, we could suffer a loss which may adversely impact our financial performance.The lack of liquidity in our investments may adversely affect our business.All of our assets are presently invested in illiquid securities, and a substantial portion of our investments in leveraged companies is subject to legaland other restrictions on resale or is otherwise less liquid than more broadly traded public securities. The illiquidity of these investments may make itdifficult 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 realizesignificantly less than the value at which we have previously recorded these investments. We may also face other restrictions on our ability to liquidate aninvestment in a portfolio company to the extent that we, OFS Advisor, OFSAM or any of its other affiliates have material nonpublic information regardingsuch portfolio company.Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset valuethrough increased net unrealized depreciation.As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith byour board of directors. As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value ofour investments:43•a comparison of the portfolio company’s securities to publicly traded securities;•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•changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made in thefuture and other relevant factors.When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will use the pricing indicated by theexternal event to corroborate our valuation. We will record decreases in the market values or fair values of our investments as unrealized depreciation.Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in our portfolio. The effect of all of thesefactors on our portfolio may reduce our net asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we couldincur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on our business,financial condition and results of operations.We are a non-diversified management investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to theproportion of our assets that may be invested in securities of a single issuer.We are classified as a non-diversified management investment company within the meaning of the 1940 Act, which means that we are not limited bythe 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in thesecurities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result ofchanges in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrencethan a diversified investment company. Beyond our asset diversification requirements as a RIC under the Code, we do not have fixed guidelines fordiversification, and our investments could be concentrated in relatively few portfolio companies.Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any ofthese companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.Although we believe our portfolio is well-diversified across companies and industries, our portfolio is, and may in the future be, concentrated in alimited number of portfolio companies and industries. Beyond the asset diversification requirements associated with our qualification as a RIC under theCode, we do not have fixed guidelines for diversification. As a result, the aggregate returns we realize may be significantly adversely affected if a smallnumber of investments perform poorly or if we need to write down the value of any one investment. Additionally, while we are not targeting any specificindustries, our investments may be concentrated in relatively few industries. As a result, a downturn in any particular industry in which we are invested couldalso significantly impact the aggregate returns we realize.Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments,in seeking to:•increase or maintain in whole or in part our position as a creditor or equity ownership percentage in a portfolio company;•exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or•preserve or enhance the value of our investment.We have discretion to make follow-on investments, subject to the availability of capital resources. Failure on our part to make follow-on investmentsmay, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity forus 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 makea follow-on investment because we may not want to increase our level of risk, because we prefer other opportunities or because we are inhibited bycompliance with BDC requirements or the desire to maintain our RIC status. Our ability to make follow-on investments may also be limited by OFS Advisor’sallocation policy.Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfoliocompanies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.44We generally do not hold controlling equity positions in our portfolio companies. For portfolio companies in which we do not hold a controllingequity interest, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/orstockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt andequity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with theactions of a portfolio company and may therefore suffer a decrease in the value of our investments.Defaults by our portfolio companies will harm our operating results.A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially,termination of its loans and foreclosure on its assets. This could trigger cross-defaults under other agreements and jeopardize such portfolio company’s abilityto meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or tonegotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.We have invested a substantial portion of our capital in senior secured, unitranche, second-lien and mezzanine loans issued by our portfoliocompanies. The portfolio companies may be permitted to incur, other debt that ranks equally with, or senior to, the debt securities in which we invest. Bytheir terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we areentitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization orbankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled toreceive payment in full before we receive any distribution in respect of our investment. After repaying senior creditors, the portfolio company may not haveany remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have toshare 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 first-priority debt of such companies. The senior-secured liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debtand may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. Theholders of obligations secured by first-priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, anyrealization 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 onmarket and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of thecollateral 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 were not sufficient to repay amounts outstanding under the loan obligations secured by the second-priorityliens, then we, to the extent not repaid from the proceeds of the sale of the collateral, would only have an unsecured claim against the portfolio company’sremaining assets, if any.The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with more senior debt outstanding mayalso be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of such senior debt. Under a typicalintercreditor agreement, at any time that obligations that have the benefit of the first-priority liens are outstanding, any of the following actions that may betaken in respect of the collateral will be at the direction of the holders of the obligations secured by the first-priority liens:•the ability to cause the commencement of enforcement proceedings against the collateral;•the ability to control the conduct of such proceedings;•the approval of amendments to collateral documents;•releases of liens on the collateral; and•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.We may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of suchcompanies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and maysecure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured bysuch liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations infull45before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers andother factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligationsafter payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then ourunsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.Cybersecurity risks and cyber incidents may adversely affect our business or the business of our portfolio companies by causing a disruption to ouroperations or the operations of our portfolio companies, a compromise or corruption of our confidential information or the confidential information ofour portfolio companies and/or damage to our business relationships or the business relationships of our portfolio companies, all of which couldnegatively impact the business, financial condition and operating results of us or our portfolio companies.A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of the information resources of usor our portfolio companies. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to ourinformation systems or those of our portfolio companies for purposes of misappropriating assets, stealing confidential information, corrupting data or causingoperational disruption. We and OFS Advisor’s employees have been and expect to continue to be the target of fraudulent calls, emails and other forms ofactivities. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information,increased cybersecurity protection and insurance costs, litigation and damage to business relationships. The costs related to cyber or other security threats ordisruptions may not be fully insured or indemnified by other means. As our and our portfolio companies’ reliance on technology has increased, so have therisks posed to our information systems, both internal and those provided by OFS Services and third-party service providers, and the information systems ofour portfolio companies. OFS Advisor has implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions,but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will notoccur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident. In addition, cybersecurityhas become a top priority for regulators around the world, and some jurisdictions have enacted laws requiring companies to notify individuals of datasecurity breaches involving certain types of personal data. If we fail to comply with the relevant laws and regulations, we could suffer financial losses, adisruption of our businesses, liability to investors, regulatory intervention or reputational damage.If we make subordinated investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to us.We make subordinated investments that rank below other obligations of the obligor in right of payment. Subordinated investments are subject togreater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or in general economic conditions. If wemake a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio maycreate increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations.The disposition of our investments may result in contingent liabilities.A significant portion of our investments involve private securities. In connection with the disposition of an investment in private securities, we maybe required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of abusiness. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate, orwith respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfythrough our return of distributions previously made to us. We may be subject to additional risks if we engage in hedging transactions and/or invest in foreign securities.The 1940 Act generally requires that 70% of our investments be in issuers each of whom is organized under the laws of, and has its principal place ofbusiness in, any state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands or any other possession of the United States. Ourinvestment strategy does not presently contemplate investments in securities of non-U.S. companies. We expect that these investments would focus on thesame debt investments that we make in U.S. middle-market companies and accordingly would be complementary to our overall strategy and enhance thediversity of our holdings. Investing in securities of emerging market issuers involves many risks, including economic, social, political, financial, tax andsecurity conditions in the emerging market, potential inflationary economic environments, regulation by foreign governments, different accountingstandards and political uncertainties. Economic, social, political, financial, tax and security conditions also could negatively affect the value of emergingmarket companies. These factors could include changes in the emerging market government’s economic and fiscal policies, the possible imposition of, orchanges in, currency exchange laws or other laws or restrictions applicable to the emerging market companies or investments in their securities and thepossibility of fluctuations in the rate of exchange between currencies.46Engaging in either hedging transactions or investing in foreign securities would entail additional risks to our stockholders. We could, for example,use instruments such as interest rate swaps, caps, collars and floors and, if we were to invest in foreign securities, we could use instruments such as forwardcontracts or currency options and borrow under a credit facility in currencies selected to minimize our foreign currency exposure. In each such case, wegenerally would seek to hedge against fluctuations of the relative values of our portfolio positions from changes in market interest rates or currency exchangerates. Hedging against a decline in the values of our portfolio positions would not eliminate the possibility of fluctuations in the values of such positions orprevent losses if the values of the positions declined. However, such hedging could establish other positions designed to gain from those same developments,thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions could also limit the opportunity for gain if the values of theunderlying portfolio positions increased. Moreover, it might not be possible to hedge against an exchange rate or interest rate fluctuation that was sogenerally anticipated that we would not be able to enter into a hedging transaction at an acceptable price.While we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currencyexchange rates or interest rates could result in poorer overall investment performance than if we had not engaged in any such hedging transactions. Inaddition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positionsbeing hedged could vary. Moreover, for a variety of reasons, we might not seek to establish a perfect correlation between the hedging instruments and theportfolio holdings being hedged. Any such imperfect correlation could prevent us from achieving the intended hedge and expose us to risk of loss. Inaddition, it might 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 would likely fluctuate as a result of factors not related to currency fluctuations.We may not realize gains from our equity investments.When we invest in senior secured, unitranche, second-lien and Mezzanine loans, we may acquire warrants or other equity securities of portfoliocompanies as well. We may also invest in equity securities directly. To the extent we hold equity investments, except as described below, we will attempt todispose of them and realize gains upon our disposition of them. However, the equity interests we receive may not appreciate in value and may decline invalue. As a result, 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 interestsmay not be sufficient to offset any other losses we experience. In the case of SBIC I LP, our wholly-owned subsidiary, we will not receive direct benefits fromthe sale of assets in their portfolios. Rather, our return on our investment in such assets will depend on the ability of SBIC I LP’s portfolio to generate cashflow in excess of payments required, as appropriate, to be made to other parties under the terms of the SBA debentures, and distribution, subject to SBAregulation, of the excess to us.Uncertainty relating to the LIBOR calculation process may adversely affect the value of any portfolio of LIBOR-indexed, floating-rate debt securities.Concerns have been publicized that some of the member banks surveyed by the British Bankers' Association (“BBA”) in connection with thecalculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rateapplicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or otherconsequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member bankshave entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations byregulators and governmental authorities in various jurisdictions are ongoing.Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined. Uncertainty as tothe nature of such potential changes may adversely affect the market for LIBOR-based securities, including our potential portfolio of LIBOR-indexed,floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolongedincrease or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our potential portfolioof LIBOR-indexed, floating-rate debt securities.On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by theend of 2021. It is unclear if at that time whether or not LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that itcontinues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised oflarge US financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed byTreasury securities. The future of LIBOR at this time is uncertain. If LIBOR ceases to exist, we may need to renegotiate the credit agreements extendingbeyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that isestablished. Any such renegotiated agreements or methodology of the new standard may not be as favorable to us as the current agreements and LIBOR,which may adversely affect our net investment income.47Risks Related to Our SecuritiesThere is a risk that stockholders may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be areturn of capital.We have made distributions on a quarterly basis to our stockholders out of assets legally available for distribution. We cannot assure stockholdersthat we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Ourability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this Annual Report on Form 10-K. Due tothe asset coverage test applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions. Our ability to make distributionsmay also be affected by our ability to receive distributions from SBIC I LP, which is governed by SBA regulations.When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earningsand profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of aninvestor’s basis in our stock and, assuming that an investor holds our stock as a capital asset, thereafter as a capital gain. A return of capital is a return tostockholders of a portion of their original investment in us rather than income or capital gains.The market price of our common stock may fluctuate significantly.As with any stock, the market price of our common stock will fluctuate with market conditions and other factors. Our common stock is intended forlong-term investors and should not be treated as a trading vehicle. Shares of BDCs frequently trade at a discount from their net asset value. The market priceand liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and maynot be directly related to our operating performance. These factors include:•significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which is not necessarily relatedto the operating performance of these companies;•exclusion of our common stock from certain market indices, such as the Russell 2000 Financial Services Index, which could reduce the ability ofcertain investment funds to own our common stock and put short-term selling pressure on our common stock;•changes in regulatory policies or tax guidelines, particularly with respect to RICs, SBICs or BDCs;•loss of RIC or BDC status;•failure of SBIC I LP to maintain its status as an SBIC;•our origination activity, including the pace of, and competition for, new investment opportunities;•changes or perceived changes in earnings or variations in operating results;•changes or perceived 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;•the inability to secure additional debt or equity capital;•potential future sales of common stock or debt securities convertible into or exchangeable or exercisable for our common stock or the conversion ofsuch securities;•departure of OFS Advisor’s, OFSC’s or any of their affiliates’ key personnel;•operating performance of companies comparable to us;•general economic trends and other external factors; and•loss of a major funding source.Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.The shares of our common stock beneficially owned by our principal stockholders, including OFSAM, are generally available for resale, subject tothe provisions of Rule 144 promulgated under the Securities Act unless registered for sale under48the Securities Act. We have entered into a registration rights agreement granting OFSAM the right to require us to register its shares for resale. Sales ofsubstantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for ourcommon stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have anadverse 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 discouraginga third party from making an acquisition proposal for us. We have also adopted measures that may make it difficult for a third party to obtain control of us,including provisions of our certificate of incorporation dividing our board of directors into three classes with the term of one class expiring at each annualmeeting of stockholders. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stockthe opportunity to realize a premium over the market price of our common stock.Our common stock may trade below its net asset value per share, which limits our ability to raise additional equity capital.If our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common stock at itsmarket price without first obtaining the approval for such issuance from our stockholders and our independent directors. Shares of BDCs, including shares ofour common stock, have traded at discounts to their net asset values. As of December 31, 2018, our net asset value per share was $13.10. The daily averageclosing price of our shares on the Nasdaq Global Select Market for the year ended December 31, 2018 was $11.49. If our common stock trades below net assetvalue, the higher the cost of equity capital may result in it being unattractive to raise new equity, which may limit our ability to grow. The risk of tradingbelow net asset value is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether shares of our commonstock will trade above, at or below our net asset value.Our Unsecured Notes are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future and will rank paripassu with, or equal to, all outstanding and future unsecured, unsubordinated indebtedness issued by us and our general liabilities.Our Unsecured Notes are not secured by any of our assets or any of the assets of any of our subsidiaries. As a result, the Unsecured Notes are effectivelysubordinated to any secured indebtedness we or our subsidiaries have outstanding (including the PWB Credit Facility) or that we or our subsidiaries mayincur in the future (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest) to the extent of the value of the assetssecuring such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our secured indebtedness or securedindebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtednessbefore the assets may be used to pay other creditors, including the holders of the Unsecured Notes.The Unsecured Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.The Unsecured Notes are obligations exclusively of OFS Capital Corporation, and not of any of our subsidiaries. None of our subsidiaries are a guarantorof the Unsecured Notes, and the Unsecured Notes will not be required to be guaranteed by any subsidiary we may acquire or create in the future. Any assets ofour subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Unsecured Notes. Except to the extent we are acreditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such entities(and therefore the claims of our creditors, including holders of the Unsecured Notes) with respect to the assets of such entities. Even if we are recognized as acreditor of one or more of these entities, our claims would still be effectively subordinated to any security interests in the assets of any such entity and to anyindebtedness or other liabilities of any such entity senior to our claims. Consequently, the Unsecured Notes will be structurally subordinated to allindebtedness and other liabilities, including trade payables, of any of our existing or future subsidiaries, including SBIC I LP. Certain of these entitiescurrently serve as guarantors under the PWB Credit Facility, and in the future our subsidiaries may incur substantial additional indebtedness, all of which isand would be structurally senior to the Unsecured Notes.49The indenture under which the Unsecured Notes were issued contains limited protection for holders of the unsecured Notes.The indenture under which the Unsecured Notes were issued offers limited protection to holders of the Unsecured Notes. The terms of the indenture andthe Unsecured Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions,circumstances or events that could have a material adverse impact on your investment in the Unsecured Notes. In particular, the terms of the indenture and theUnsecured Notes will not place any restrictions on our or our subsidiaries’ ability to:•issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would beequal in right of payment to the Unsecured Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectivelysenior in right of payment to the Unsecured Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that isguaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Unsecured Notes and (4) securities, indebtedness orobligations issued or incurred by our subsidiaries that would be senior to our equity interests in those entities and therefore rank structurally seniorto the Unsecured Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation thatwould cause a violation of Section 18(a)(1)(A) as modified by such provisions of Section 61(a) of the 1940 Act as may be applicable to us from timeto time or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in each case, toany exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, includingthrough the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least200% (or 150% on and after May 3, 2019) after such borrowings.•pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment tothe Unsecured Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that wouldcause our asset coverage to fall below the threshold specified in Section 18(a)(1)(B) as modified by such provisions of Section 61(a) of the 1940 Actas may be applicable to us from time to time or any successor provisions, giving effect to (i) any exemptive relief granted to us by the SEC and(ii) no-action relief granted by the SEC to another BDC (or to us if we determine to seek such similar no-action or other relief) permitting the BDCto declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by such provisions ofSection 61(a) of the 1940 Act as may be applicable to us from time to time in order to maintain the BDC’s status as a RIC under Subchapter M ofthe Code. These provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, orpurchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% (or 150% on and after May 3, 2019) at the timeof the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase;•sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);•enter into transactions with affiliates;•create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;•make investments; or•create restrictions on the payment of dividends or other amounts to us from our subsidiaries.In addition, the indenture does not require us to make an offer to purchase the Unsecured Notes in connection with a change of control or any otherevent.Furthermore, the terms of the indenture and the Unsecured Notes do not protect holders of the unsecured Notes in the event that we experience changes(including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that we or oursubsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.Our ability to recapitalize, incur additional debt (including additional debt that matures prior to the maturity of the Unsecured Notes), and take a numberof other actions that are not limited by the terms of the Unsecured Notes may have important consequences for you as a holder of the Unsecured Notes,including making it more difficult for us to satisfy our obligations with respect to the Unsecured Notes or negatively affecting the trading value of theUnsecured Notes.50Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Unsecured Notes, includingadditional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for, tradinglevels, and prices of the Unsecured Notes.We may choose to redeem the Unsecured Notes when prevailing interest rates are relatively low.On or after April 30, 2020 for the Unsecured Notes Due April 2025 or October 31, 2020 for the Unsecured Notes Due October 2025, we may choose toredeem the Unsecured Notes from time to time, especially if prevailing interest rates are lower than the rate borne by the Unsecured Notes. If prevailing ratesare lower at the time of redemption, and we redeem the Unsecured Notes, you likely would not be able to reinvest the redemption proceeds in a comparablesecurity at an effective interest rate as high as the interest rate on the Unsecured Notes being redeemed. Our redemption right also may adversely impact yourability to sell the Unsecured Notes as the optional redemption date or period approaches.Item 1B.Unresolved Staff CommentsNot applicable.Item 2.PropertiesWe do not own or lease any real estate or other physical properties material to our operation. Our headquarters are located at 10 S. Wacker Drive,Suite 2500, Chicago, IL, 60606, and are provided by OFS Services pursuant to the Administration Agreement. Additional operations are conducted fromoffices in New York, New York and Los Angeles, California, which are also provided by OFS Services pursuant to the Administration Agreement. We believethat our office facilities are suitable and adequate for our business as we contemplate continuing to conduct it.Item 3.Legal Proceedings We, OFS Advisor and OFS Services, are not currently subject to any material pending legal proceedings threatened against us as of December 31,2018. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of ourrights under contracts with our portfolio companies. Furthermore, third parties may try to seek to impose liability on us in connection with the activities ofour portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will havea material effect upon our business, financial condition, results of operations or cash flows.Item 4.Mine Safety Disclosures Not applicable.51PART IIItem 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesCommon Stock and HoldersOur common stock is traded on the Nasdaq Global Select Market under the symbol "OFS". The last reported sale price for our common stock on theNasdaq Global Select Market on March 4, 2019 was $12.05 per share. As of March 4, 2019, there were two holders of record of the common stock, one ofwhich was OFSAM. The other holder of record does not identify stockholders for whom shares are held beneficially in “nominee” or “street name.” Issuer Purchases of Equity Securities On May 22, 2018, the Board authorized us to initiate a stock repurchase program under which the we may acquire up to $10.0 million of itsoutstanding common stock (the "Stock Repurchase Program"). Under the Stock Repurchase Program, we are authorized to repurchase shares in open-markettransactions, including through block purchases, depending on prevailing market conditions and other factors. The Stock Repurchase Program may beextended, modified or discontinued at any time for any reason. We expect the Stock Repurchase Program to be in place through May 22, 2020, or until theapproved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not obligate us to acquire any specific number of shares,and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stockrepurchases.The following table summarizes the shares of common stock that we repurchased under the Stock Repurchase Program during the three monthsended December 31, 2018 (amount in thousands except shares).Period Total Number ofSharesPurchased AveragePrice PaidPer Share Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans orPrograms Maximum Number (orApproximate DollarValue) of Shares (or Units)That May Yet bePurchased Under the Plansor ProgramsOctober 1, 2018 through December 31, 2018 300 $10.29 300 $9,997Total 300 10.29 300 9,99752Stock Performance GraphThis graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the Russell 1000 Index and the SNL U.S.RICs Index, for the last five fiscal years. The graph assumes that, on December 31, 2013, a person invested $100 in our common stock, the Standard & Poor’s500 Stock Index, the Russell 1000 Index and the SNL U.S. RICs Index. The graph measures total stockholder return, which takes into account changes instock price and assumes reinvestment of all dividends and distributions prior to any tax effect.The graph and other information under the heading "Stock Performance Graph" in Part II Item 5 of this Form 10-K is "furnished" and shall not bedeemed 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 Actand shall not be deemed incorporated by reference in any filing under the Exchange Act. The stock price performance included in the above graph is notnecessarily indicative of future stock price performance.Sales of Unregistered SecuritiesThere was $0.2 million of distributions reinvested during the year ended December 31, 2018 under the DRIP.53Item 6.Selected Consolidated Financial DataThe following selected financial and other data should be read in conjunction with our consolidated financial statements and notes thereto and“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included in this annual report on Form 10-K (amountsin thousands, except per share data and number of portfolio companies at period end): For the Years Ended December 31, 2018 2017 2016 2015 2014Statement of Operations Data: Investment income Interest income$38,607 $28,124 $26,400 $27,764 $20,653PIK interest income1,193 1,508 1,194 1,206 683Dividend income315 482 475 245 124Preferred equity PIK dividend income906 1,399 1,433 1,116 446Fee income1,813 1,913 1,592 1,933 914Total investment income42,834 33,426 31,094 32,264 22,820Expenses Management fees6,335 4,999 4,516 5,225 2,916Incentive fees, net of waiver4,387 2,962 3,333 2,627 1,253Other expenses13,727 9,588 9,100 11,001 9,516Total expenses, net24,449 17,549 16,949 18,853 13,685Net investment income18,385 15,877 14,145 13,411 9,135Net realized gain (loss) on investments(4,779) 6,833 2,404 (1,562) (3,359)Net unrealized appreciation (depreciation) on investments(4,034) (14,800) (2,721) 6,382 4,164Net increase in net assets resulting from operations9,572 7,910 13,828 18,231 9,940Per share data: Net asset value$13.10 $14.12 $14.82 $14.76 $14.24Net investment income1.38 1.28 1.46 1.39 0.95Net realized gain (loss) on investments(0.36) 0.55 0.25 (0.17) (0.35)Net unrealized appreciation (depreciation) on investments(0.30) (1.19) (0.29) 0.66 0.42Net increase in net assets resulting from operations0.72 0.64 1.43 1.89 1.03Distributions declared (1)1.73 1.36 1.36 1.36 1.36Total return based on market value (7)2.8% (4.7)% 32.3% 9.0% 2.4%Balance sheet data at period end: Investments, at fair value$396,797 $277,499 $281,627 $257,296 $312,234Cash and cash equivalents38,172 72,952 17,659 32,714 12,447Other assets6,452 7,327 5,744 4,666 (2) 11,823 (2)Total assets441,421 357,778 305,030 294,676 (2) 336,504 (2)Debt254,826 164,823 156,343 146,460 (2) 194,935 (2)Total liabilities266,398 169,442 161,252 151,664 (2) 199,033 (2)Total net assets175,023 188,336 143,778 143,012 137,471Other data (unaudited): Weighted average yield on performing debt investments (3) (6)11.50% 12.11 % 12.08% 11.89% 9.53%Weighted average yield on total debt investments (4) (6)11.12% 11.59 % 11.72% 11.84% 9.41%Weighted average yield on total investments (5) (6)10.49% 10.35 % 10.88% 10.79% 8.99%Number of portfolio companies at end of year50 37 41 39 62 (1)The return of capital portion of these distributions for the years ended December 31, 2018, 2017, 2016, 2015, and 2014, was $0, $0, $0.09, $0.23, and$0.72, respectively.(2)On January 1, 2016, we adopted ASU 2015-03 which requires that debt issuance costs related to a recognized debt liability to be presented on thebalance sheet as a direct deduction from the carrying amount of the debt liability rather than as an asset. Adoption of ASU 2015-03 requires the changesto be applied retrospectively.54(3)The weighted average yield on our performing debt investments is computed as (a) the annual stated accruing interest on our debt investments at thebalance sheet date, plus the annualized accretion of loan origination fees, original issue discount, market discount or premium, and loan amendment feesdivided by (b) amortized cost of our debt investments, excluding debt investments in non-accrual status as of the balance sheet date.(4)The weighted average yield on our performing debt investments is computed as (a) the annual stated accruing interest on our debt investments at thebalance sheet date, plus the annualized accretion of loan origination fees, original issue discount, market discount or premium, and loan amendment feesdivided by (b) amortized cost of our debt investments, including debt investments in non-accrual status as of the balance sheet date.(5)The weighted average yield on total investments is computed as (a) the annual stated accruing interest on our debt investments at the balance sheet date,plus the annualized accretion of loan origination fees, original issue discount, market discount or premium, and loan amendment fees, plus the casheffective yield on our performing preferred equity investments divided by (b) amortized cost of our total investment portfolio, including debtinvestments in non-accrual status basis as of the balance sheet date.(6)The weighted average yield of our investments is not the same as a return on investment for our stockholders but, rather, the gross investment incomefrom our investment portfolio before the payment of all of our fees and expenses. There can be no assurance that the weighted average yield will remainat its current level.(7)Calculation is ending market value less beginning market value, adjusting for dividends and distributions reinvested at prices obtained in theCompany’s dividend reinvestment plan for the respective distributions.55Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. These forward-lookingstatements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolioinvestments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,”“would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. Thesestatements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control anddifficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including withoutlimitation:•our ability and experience operating a BDC or an SBIC, or maintaining our tax treatment as a RIC under Subchapter M of the Code;•our dependence on key personnel;•our ability to maintain or develop referral relationships;•our ability to replicate historical results;•the ability of OFS Advisor to identify, invest in and monitor companies that meet our investment criteria;•actual and potential conflicts of interest with OFS Advisor and other affiliates of OFSAM;•constraint on investment due to access to material nonpublic information;•restrictions on our ability to enter into transactions with our affiliates;•limitations on the amount of SBA-guaranteed debentures that may be issued by an SBIC;•our ability to comply with SBA regulations and requirements;•the use of borrowed money to finance a portion of our investments;•our increased ability to incur leverage pursuant to the SBCAA, beginning on May 3, 2019;•competition for investment opportunities;•the ability of SBIC I LP to make distributions enabling us to meet RIC requirements;•our ability to raise debt or equity capital as a BDC;•the timing, form and amount of any distributions from our portfolio companies;•the impact of a protracted decline in the liquidity of credit markets on our business;•the general economy and its impact on the industries in which we invest;•uncertain valuations of our portfolio investments; and•the effect of new or modified laws or regulations governing our operations.Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions couldprove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and otheruncertainties, the inclusion of a projection or forward-looking statement in this Annual Report on Form 10-K should not be regarded as a representation by usthat our plans and objectives will be achieved. These risks and uncertainties include, among others, those described or identified in “Item 1A. Risk Factors”in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of thisAnnual Report on Form 10-K.We have based the forward-looking statements on information available to us on the date of this Annual Report on Form 10-K. Except as required bythe federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, futureevents or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may filewith the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The forward-looking statementsand projections contained in this annual report on Form 10-K are excluded from the safe harbor protection provided by Section 21E of the SecuritiesExchange Act.56The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statementsand the related notes thereto contained elsewhere in this Annual Report on Form 10-K.Critical Accounting Policies and Significant EstimatesThe preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, contingent assets and liabilities at the date of the financial statements, and revenues and expensesduring the periods reported. Actual results could materially differ from those estimates. Critical accounting policies are those that require management tomake subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Changes that may berequired in the underlying assumptions or estimates in these areas could have a material impact on our current and future financial condition and results ofoperations.Our critical accounting policies and estimates are those relating to revenue recognition and fair value estimates. Management has discussed thedevelopment and selection of each critical accounting policy and estimate with the Audit Committee of the Board. For a descriptions of our revenuerecognition and fair value policies, see Note 2 to the consolidated financial statements included in "Item 8.–Financial Statements" of this report.Revenue recognitionOur investment activities frequently involve the acquisition of multiple financial instruments or rights either in an initial transaction, or insubsequent or "follow-on" transactions, including amendments to existing securities. These financial instruments can include loans, preferred and commonstock, warrants, or membership interests in limited liability companies. Acquired rights can include fixed or variable fees that can be either guaranteed orcontingent upon operating performance of the underlying portfolio companies. Moreover, these fees may be payable in cash or additional securities.Acquired rights and financial instruments together, referred to as Instruments.The revenue recognized on these instruments is a function of the fee or other consideration allocated to them, including amounts allocated to capitalstructuring fees, at the time of acquisition. Additionally, subsequent amendments to these instruments can involve both:•a determination as to whether the amendment is◦of such significance to deem it the consummation of the initial investment transaction and the acquisition of new Instruments (i.e., a"significant modification"), or◦a modification of those Instruments to be recognized over their remaining lives, and•an additional allocation of consideration among newly acquired Instruments.These allocations are generally based on the relative fair value of the instruments at the time of the transaction, a process involving fair valueestimates which is also a critical accounting policy and significant estimate. Moreover, these allocations and determinations can differ between GAAP andfederal income tax bases. Once determined, these allocations directly affect the discount/premium and yield on debt securities, the cost and net gains/losseson equity securities, and capital structuring fees recognized in the statements of operations; and ICTI. These allocations require an understanding of the termsand conditions of the underlying agreements and requires significant management judgment.Fair value estimatesAs of December 31, 2018, total investments representing approximately 90% of our total assets were carried on the consolidated balance sheet at fairvalue. As discussed more fully in “Item 8.–Financial Statements–Note 2” GAAP requires us to categorize fair value measurements according to a three-levelvaluation hierarchy. The hierarchy gives the highest priority to quoted, active market prices for identical assets and liabilities (Level 1) and the lowestpriority to valuation techniques that require significant management judgment because one or more of the significant inputs are unobservable in the marketplace (Level 3). All of our investments carried at fair value are classified as Level 3; we typically do not hold equity securities or other instruments that areactively traded on an exchange.As described in “Item 8.–Financial Statements–Note 5”, we follow a process, under the supervision and review of the Board, to determine theseunobservable inputs used to calculate the fair values of our investments. The most significant unobservable inputs in these fair value measurements are thediscount rates, EBITDA multiples and projected cash flows contractually due from the investment.Our discounted cash flow valuations involve a determination of discount rate commensurate with the risk inherent in the investment. We use twomethods to estimate discount rates: the weighted-average cost of capital method, which is a method based upon a hypothetical recapitalization of the entitygiven its current operating performance and current market conditions; and a hypothetical debt rating method, which assigns a surrogate debt rating to theentity based on known industry standards for57assigning such ratings and estimates the discount rate based on observed market conditions for similar rated debt. These methods generally produces a rangeof discount rates, and we generally select the midpoint of the range for use in fair value measures, subject to limitations on the basis of the borrowers' abilityto prepay the debt without penalty.Our market approach valuations, generally applied to equity investments and investments in non-performing debt, involve a determination of anenterprise value multiple to a financial performance metric of the portfolio company, generally EBITDA. These determinations are based on identification ofa comparable set of publicly traded companies and determination of a public-to-private liquidity adjustment factor. This method generally produces a rangeof multiplier values and we generally select the midpoint of the range for fair value measures.The following table illustrates the impact of our fair value measures if we selected the low or high end of the range for all investments at December31, 2018 (dollar amounts in thousands): Fair Value at December 31,2018 Range of Fair ValueInvestment Type Low-end High-endDebt investments: Senior Secured $295,087 $289,637 $300,772Subordinated $44,540 43,891 45,189 Equity investments: Preferred equity $14,613 13,528 15,057Common equity and warrants $18,627 15,113 22,540The above tables excludes $23,930, $-0-, and $-0-, of senior secured debt investments, subordinated debt investments and equity investments, respectively,valued at Transaction Prices.Related Party TransactionsWe have entered into a number of business relationships with affiliated or related parties, including the following:•The Investment Advisory Agreement with OFS Advisor to manage our operating and investment activities. Under the Investment AdvisoryAgreement we have agreed to pay OFS Advisor an annual base management fee based on the average value of our total assets (other than cashand cash equivalents but including assets purchased with borrowed amounts and including assets owned by any consolidated entity) as well asan incentive fee based on our investment performance. See “Item 1—Management and Other Agreements” and “Item 8–Financial Statementsand Supplementary Data–Note 3.”•The Administration Agreement with OFS Services, an affiliate of OFS Advisor, to provide us with the office facilities and administrative servicesnecessary to conduct our operations. See “Item 1–Management and Other Agreements” and “Item 8–Financial Statements and SupplementaryData–Note 3.”•A license agreement with OFSAM, the parent company of OFS Advisor, under which OFSAM has agreed to grant us a non-exclusive, royalty-free license to use the name “OFS.” Under this agreement, we have a right to use the “OFS” name for so long as OFS Advisor or one of itsaffiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “OFS” name. This licenseagreement will remain in effect for so long as the Investment Advisory Agreement with OFS Advisor is in effect.OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to us and OFS Advisor is free to furnish similar services to otherentities, including other BDCs managed by OFS Advisor, so long as its services to us are not impaired. OFS Advisor also serves as the investment adviser orcollateral manager to CLOs and other assets, including HPCI, a non-traded BDC with an investment strategy similar to ours, as well as OCCI, a newlyorganized, non-diversified, externally managed, closed-end management investment company that has registered as an investment company under the 1940Act that primarily invests in the debt and subordinated securities of CLOs.Portfolio Composition and Investment ActivityPortfolio CompositionAs of December 31, 2018, the fair value of our debt investment portfolio totaled $363.6 million in 44 portfolio companies, of which 88% and 12%were senior secured loans and subordinated loans, respectively, and approximately $33.2 million in equity investments, at fair value, in 13 portfoliocompanies in which we also held debt investments and six portfolio companies in which we solely held an equity investment. We had unfundedcommitments of $8.2 million to four portfolio58companies at December 31, 2018. Set forth in the tables and charts below is selected information with respect to our portfolio as of December 31, 2018 and2017.The following table summarizes the composition of our investment portfolio as of December 31, 2018 and 2017 (dollar amounts in thousands): December 31, 2018 December 31, 2017 Amortized Cost Fair Value Amortized Cost Fair ValueSenior secured debt investments (1)$325,873$319,017 $196,020 $195,112Subordinated debt investments56,21244,540 63,031 51,198Preferred equity19,62014,613 24,103 19,200Common equity and warrants11,60618,627 6,821 11,989Total$413,311 $396,797 $289,975 $277,499Total number of portfolio companies50 50 37 37 (1)Includes debt investments in which we have entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, we haveagreed to receive our principal payments after the repayment of certain co-lenders pursuant to a payment waterfall. The aggregate amortized cost and fairvalue of these investments was $68,207 and $67,480 at December 31, 2018, respectively, and $21,709 and $21,919, at December 31, 2017, respectively.The following table shows the portfolio composition by geographic region at amortized cost and fair value, and as a percentage of total investments.The geographic composition is determined by the location of the portfolio companies' corporate headquarters (dollar amounts in thousands): Amortized Cost Fair Value December 31, 2018December 31, 2017December 31, 2018December 31, 2017South - US$124,795 30.2% $126,123 43.5% $123,344 31.1% $124,699 44.9%Northeast - US109,899 26.6 106,506 36.7 92,570 23.4 91,012 32.8West - US124,991 30.2 32,976 11.4 120,788 30.4 33,097 11.9Midwest - US53,626 13.0 20,431 7.0 60,095 15.1 24,621 8.9Canada— — 3,939 1.4 — — 4,070 1.5Total$413,311 100.0% $289,975 100.0% $396,797 100.0% $277,499 100.0% As of December 31, 2018, our investment portfolio’s three largest industries by fair value, were (1) Professional, Scientific, and Technical Services(13.7%), (2) Manufacturing (13.5%), and (3) Information (10.4%), totaling approximately 37.6% of the investment portfolio. For a full summary of ourinvestment portfolio by industry, see "Note 4, Investments" to the consolidated financial statements included in "Part II, Item 8. Financial Statements andSupplementary Data" of this report.The following table presents our debt investment portfolio by investment size as of December 31, 2018 and 2017 (dollar amounts in thousands): Amortized Cost Fair Value December 31, 2018December 31, 2017December 31, 2018December 31, 2017Up to $4,000$24,785 6.4% $28,403 10.9% $25,117 6.9% $24,745 10.1%$4,001 to $7,00066,756 17.5 53,271 20.5 60,151 16.5 45,765 18.6$7,001 to $10,00092,389 24.2 84,596 32.7 92,687 25.5 84,026 34.1$10,001 to $13,00044,527 11.7 37,706 14.6 34,032 9.4 38,033 15.4Greater than $13,000153,628 40.2 55,075 21.3 151,570 41.7 53,741 21.8Total$382,085 100.0% $259,051 100.0% $363,557 100.0% $246,310 100.0%59The following table displays the composition of our performing debt investment portfolio by weighted average yield as of December 31, 2018 and2017: December 31, 2018 2017Weighted Average Yield -Performing Debt Investments (1) SeniorSecured Debt SubordinatedDebt Total Debt SeniorSecured Debt SubordinatedDebt Total DebtLess than 8% 0.7% —% 0.7% 2.0% —% 1.6%8% – 10% 22.5 — 19.8 26.7 — 21.110% – 12% 42.9 26.9 41.0 38.4 11.5 32.712% – 14% 29.5 56.5 32.7 10.1 50.8 18.6Greater than 14% 4.4 16.6 5.8 22.8 37.7 26.0Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Weighted average yield – performingdebt investments (1) 11.33% 12.74% 11.50% 11.76% 13.40% 12.11%Weighted average yield – total debtinvestments (2) 11.33% 9.93% 11.12% 11.76% 11.05% 11.59%(1) The weighted average yield on our performing debt investments is computed as (a) the annual stated accruing interest plus the annualized accretion of NetLoan Fees divided by (b) amortized cost of our debt investments, excluding debt investments in non-accrual status as of the balance sheet date.(2)The weighted average yield on our total debt investments is computed as (a) the annual stated accruing interest plus the annualized accretion of NetLoan Fees divided by (b) amortized cost of our debt investments, including debt investments in non-accrual status as of the balance sheet date.The weighted average yield on total investments was 10.49% and 10.35%, at December 31, 2018 and 2017, respectively. Weighted average yield ontotal investments is computed as (a) the annual stated accruing interest on our debt investments at the balance sheet date, plus the annualized accretion of NetLoan Fees, plus the effective yield on our performing preferred equity investments, divided by (b) amortized cost of our total investment portfolio, includingassets in non-accrual status as of the balance sheet date. The weighted average yield of our investments is not the same as a return on investment for ourstockholders but, rather, the gross investment income from our investment portfolio before the payment of all of our fees and expenses. There can be noassurance that the weighted average yield will remain at its current level.The weighted average yield on our performing debt decreased from 12.11% at December 31, 2017 to 11.50% at December 31, 2018, primarily due toapproximately $138.0 million in sales and repayments of debt investments with a weighted average yield of 12.49%, and the deployment of $247.9 millionin new originations with a weighted average yield of 11.19% during the year ended December 31, 2018. This decline was partly offset by increases inweighted average yield due to LIBOR on existing loan investments held at December 31, 2017.As of December 31, 2018 and 2017, floating rate loans at fair value were 87% and 76% of our debt investment portfolio, respectively, and fixed rateloans at fair value were 13% and 24% of our debt investment portfolio, respectively.Non-Accrual LoansAt December 31, 2018, we had three loans (Community Intervention Services, Inc., Master Cutlery, LLC and Southern Technical Institute, LLC) onnon-accrual status with respect to all interest and Net Loan Fee amortization, with an amortized cost and fair value of $12.4 million and $0.9 million,respectively. In August 2018, the Elgin Fasteners Group senior secured loan became contractually due. The lending group entered into a forbearanceagreement with respect to the maturity date through September 26, 2019, subject to other terms and conditions. The investment continues to accrue interestas the borrower has continued to make interest and amortization payments.At December 31, 2017, we had two loans (Community Intervention Services, Inc. and Southern Technical Institute, LLC) on non-accrual status withrespect to all interest and unamortized Net Loan Fees with an amortized cost and fair value of $11.1 million and $1.2 million, respectively. Our loaninvestment in My Alarm Center, LLC, which was on non-accrual status at June 30, 2017, was restructured and exchanged for a new class of preferred equitysecurities and common equity securities in July 2017. See "Item 8.–Financial Statements–Note 4" for further information.60PIK and Cash Dividend AccrualsPayment-in-kind dividends on preferred equity securities are recognized at fair value when earned. However, at December 31, 2018, we owned fourpreferred equity securities (Master Cutlery, LLC, Stancor, L.P., My Alarm Center, LLC and TRS Services, LLC), with an aggregate amortized cost and fairvalue of $9.9 million and $3.8 million, respectively, for which, notwithstanding the fair value on certain of the preferred equity securities, the fair value of themost-recent PIK dividend as of December 31, 2018, was recognized at $0. At December 31, 2017, we owned four preferred equity securities (Master Cutlery,LLC, Stancor, L.P., Southern Technical Institute, LLC and TRS Services, LLC), with an aggregate amortized cost and fair value of $10.5 millionand $3.7 million, respectively, for which the fair value of the most-recently recognized PIK dividend as of December 31, 2017, was $0. In addition, beginningJune 30, 2017, the Company discontinued recognition of the cash preferred dividend from its investment in Master Cutlery, LLC.Investment ActivityThe following is a summary of our cash investment activity for the years ended December 31, 2018 and 2017 (dollar amounts in millions): Year Ended December 31, 2018 Year Ended December 31, 2017 DebtInvestments EquityInvestments DebtInvestments EquityInvestmentsInvestments in new portfolio companies$196.4$4.7 $114.5 $4.4Investments in existing portfolio companies: Follow-on investments63.61.3 19.0 1.4Delayed draw funding6.2— 3.6 —Total investments in existing portfolio companies69.81.3 22.6 1.4Total investments in new and existing portfolio companies$266.2$6.0 $137.1 $5.8Number of new portfolio company investments284 17 4Number of existing portfolio company investments204 17 2Proceeds/distributions from principal payments/equityinvestments$100.7 $— $105.1 $—Proceeds from investments sold or redeemed39.1 8.3 17.8 19.2Total proceeds from principal payments, equitydistributions and investments sold$139.8 $8.3 $122.9 $19.2Non-cash Investment ActivityIn June 2018, our investment in Southern Technical Institute, LLC was restructured. We converted our subordinated note, SP-1 preferred shares, andwarrants for a $1.5 million subordinated loan and 1,764,720 shares of Class A-1 common units. Subsequent to the conversion, we sold our Class A-1 commonunits but retained a significant economic interest in the units. The cost and fair value of the subordinated loan and economic interest were $0 and $0 as ofDecember 31, 2018. We recognized a realized loss on the restructuring of $5.6 million for the year ended December 31, 2018, of which $4.4 million wasrecognized as unrealized losses as of December 31, 2017.In December 2017, our investment in Jobson Healthcare Information, LLC ("Jobson") was restructured, whereby the lender group, including us,purchased all the outstanding equity of Jobson for a nominal purchase price. Immediately after the restructuring, and as of December 31, 2017, we ownedapproximately 12.6% of the common equity of Jobson. In February 2018, in connection with the restructuring, we sold our warrant investment, on a pro-ratabasis, to the other members of the lender group for a nominal amount. As of December 31, 2017, the amortized cost and fair value of our common equityinvestment in Jobson was $0; the amortized cost and fair value of our warrant investment in Jobson was $0.5 million and $0, respectively; and the amortizedcost and fair value of our debt investment in Jobson was $15.2 million and $12.9 million, respectively.In July 2017, our senior secured debt investment with a cost basis of $6.7 million, and preferred equity investments, with an aggregate cost basis of$0.3 million, in My Alarm Center, LLC ("My Alarm"), were restructured and exchanged for common equity and a new class of preferred equity securities witha fair value of $0 and $1.8 million, respectively. As of June 30, 2017, we had recognized cumulative unrealized losses of $5.2 million on our pre-restructuredsecurities of My Alarm Center, LLC, which upon restructuring, were recognized as realized losses during the quarter ended September 30, 2017.61Our level of investment activity may vary substantially from period to period depending on various factors, including, but not limited to, theamount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity, the general economic environment andthe competitive environment for the types of investments we make.We categorize debt investments into seven risk categories based on relevant information about the ability of borrowers to service their debt. Foradditional information regarding our risk categories, see “Item 1. Business—Portfolio Review/Risk Monitoring.” The following table shows the classificationof our debt investments portfolio by risk category as of December 31, 2018 and 2017 (dollar amounts in thousands): As of December 31, 2018 2017Risk Category DebtInvestments, atFair Value % of DebtInvestments DebtInvestments, atFair Value % of DebtInvestments1 (Low Risk) $— —% $— —%2 (Below Average Risk) 3,788 1.0 3,755 1.53 (Average) 329,635 90.7 222,027 90.14 (Special Mention) 29,284 8.1 16,454 6.75 (Substandard) — — 2,873 1.26 (Doubtful) 850 0.2 1,201 0.57 (Loss) — — — — $363,557 100.0% $246,310 100.0%During the year ended December 31, 2018, we reclassified three debt investments (TRS Services, LLC, GGC Aerospace Topco L.P. and MTEHoldings Corp.) from risk category 3 to risk category 4, with an aggregate fair value of $21.46 million at December 31, 2017, primarily due to decliningperformance in the underlying businesses of the portfolio companies. We also reclassified our debt investment in Master Cutlery, LLC, with a fair value of$2.87 million at December 31, 2017, from risk category 5 to risk category 6 and classified the investment as non-accrual with respect to PIK interest and NetLoan Fees. All other year over year changes in the fair value of our debt investments within each category, were a result of new debt investments, the receiptof amortization payments on existing debt investments, repayment of certain debt investments in full, changes in the fair value of our existing debtinvestments within the categories, and other investment activity.Results of OperationsKey Financial MeasuresThe following is a discussion of the key financial measures that management employs in reviewing the performance of our operations.Total Investment Income. We generate revenue primarily in the form of interest income on debt investments, and dividend income from our equityinvestments. Our debt investments typically have a term of three to eight years and bear interest at fixed and floating rates. As of December 31, 2018, floatingrate and fixed rate loans comprised 87% and 13%, respectively, of our current debt investment portfolio at fair value; however, in accordance with ourinvestment strategy, we expect that over time the proportion of fixed rate loans will continue to increase. In some cases, our investments provide for PIKinterest, or PIK dividends (meaning interest or dividends paid in the form of additional principal amount of the loan or equity security instead of in cash). Wealso generate revenue in the form of management, valuation, and other contractual fees, which is recognized as the related services are rendered. In thegeneral course of business, we receive certain fees from portfolio companies which are non-recurring in nature. Such non-recurring fees include prepaymentfees on certain loans repaid prior to their scheduled due date, which are recognized as earned when received, and fees for capital structuring services fromcertain portfolio companies, which are recognized as earned upon closing of the investment. Net Loan Fees are capitalized, and accreted or amortized overthe life of the loan as interest income. When we receive principal payments on a loan in an amount that exceeds its amortized cost, we recognize the excessprincipal payment as income in the period it is received.62Expenses. Our primary operating expenses include interest expense due under our outstanding borrowings, the payment of fees to OFS Advisorunder the Investment Advisory Agreement, our allocable portion of overhead expenses under the Administration Agreement and other operating costsdescribed below. Additionally, we will pay interest expense on any outstanding debt under any new credit facility or other debt instrument we may enter into.We will bear all other out-of-pocket costs and expenses of our operations and transactions, whether incurred by us directly, OFS Services or its affiliates, or onour behalf by a third party, including:•the cost of calculating our net asset value, including the cost of any third-party valuation services;•the cost of effecting sales and repurchases of shares of our common stock and other securities;•fees payable to third parties relating to making investments, including out-of-pocket fees and expenses associated with performing duediligence and reviews of prospective investments;•transfer agent and custodial fees;•out-of-pocket fees and expenses associated with marketing efforts;•federal and state registration fees and any stock exchange listing fees;•U.S. federal, state and local taxes;•independent directors’ fees and expenses;•brokerage commissions;•fidelity bond, directors’ and officers’ liability insurance and other insurance premiums;•direct costs, such as printing, mailing and long-distance telephone;•fees and expenses associated with independent audits and outside legal costs;•costs associated with our reporting and compliance obligations under the 1940 Act and other applicable U.S. federal and state securities laws;and•other expenses incurred by either OFS Services or us in connection with administering our business.Net Gain (Loss) on Investments. Net gain (loss) on investments consists of the sum of: (a) realized gains and losses from the sale of debt or equitysecurities, or the redemption of equity securities; and (b) net unrealized appreciation or depreciation on debt and equity investments, net of applicable taxesto the extent the investments are held through taxable wholly owned subsidiaries. In the period in which a realized gain or loss is recognized, such gain orloss will generally be offset by the reversal of previously recognized unrealized appreciation or depreciation, and the net gain recognized in that period willgenerally be smaller. The unrealized appreciation or depreciation on debt securities is also reversed when those investments are redeemed or paid off prior tomaturity. In such instances, the reversal of accumulated unrealized appreciation or depreciation will be reported as a net loss or gain, respectively, and may bepartially offset by the acceleration of any premium or discount on the debt security, which is reported in interest income, and any prepayment fees on the debtsecurity, which is reported in fee income.We do not believe that our historical operating performance is necessarily indicative of our future results of operations that we expect to report infuture periods. We are primarily focused on investments in middle-market companies in the United States, including debt investments and, to a lesser extent,equity investments, including warrants and other minority equity securities. Moreover, as a BDC and a RIC, we are also subject to certain constraints on ouroperations, including, but not limited to, limitations imposed by the 1940 Act and the Code. In addition, SBIC I LP is subject to regulation and oversight bythey SBA. For the reasons described above, the results of operations described below may not necessarily be indicative of the results we expect to report infuture periods.Net increase in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition ofrealized gains and losses and unrealized appreciation and depreciation. As a result, annual comparisons of net increase in net assets resulting from operationsmay not be meaningful.63Comparison of years ended December 31, 2018, 2017, and 2016.Consolidated operating results for the years ended December 31, 2018, 2017, and 2016 are as follows (in thousands): Years Ended December 31, 2018 2017 2016Investment incomeInterest income:Cash interest income$36,068$26,444$24,901Net Loan Fee amortization2,2881,4501,414Other interest income25123085Total interest income38,60728,12426,400PIK income: PIK interest income1,193 1,508 1,194Preferred equity PIK dividends906 1,399 1,433Total PIK income2,099 2,907 2,627Dividend income:Preferred equity cash dividends—165168Common equity dividends315317307Total dividend income315482475Fee income: Management, valuation, and syndication922163159Prepayment, structuring, and other fees8911,7501,433Total fee income1,8131,9131,592Total investment income42,83433,42631,094Total expenses, net24,44917,54916,949Net investment income18,38515,87714,145Net loss on investments(8,813)(7,967)(317)Net increase in net assets resulting from operations$9,572$7,910$13,828Interest and PIK income by debt investment type for the years ended December 31, 2018, 2017, and 2016 are summarized below (in thousands): Years Ended December 31, 2018 2017 2016Interest and PIK interest income: Senior secured debt investments$32,127 $21,785 $19,485Subordinated debt investments7,673 7,847 8,109Total interest and PIK interest income$39,800 $29,632 $27,594Comparison of investment income for the years ended December 31, 2018 and 2017:Interest and PIK interest income increased approximately $10.2 million, due to a $8.9 million increase in recurring interest income caused by a$76.8 million increase in the average outstanding loan balance during 2018 along with an increase of $0.7 million in recurring interest income resulting froma 23 basis point increase in the weighted average yield in our debt portfolio during the year ended December 31, 2018. Acceleration of Net Loan Fees of $1.1million and $0.6 million were included in interest income for the years ended December 31, 2018 and 2017, respectively, from the repayment of loans priorto their scheduled due dates.We recorded prepayment fees of $0.9 million resulting from $50.0 million of unscheduled principal payments during the year ended December 31,2018, compared to $1.0 million from $60.2 million of unscheduled principal payments during 2017. We recognized capital structuring fees of $0.0 millionand $0.5 million for the years ended December 31, 2018 and 2017, respectively, upon the closing of $0 and $55.7 million of debt and equity investments,respectively. We ceased recognition of such fees with the adoption of ASC 606. We recognized syndication fees of $0.7 million and $0.2 million for the yearsended December 31, 2018 and 2017, respectively, resulting from approximately $64 million and $21 million in loan originations during that period in whichOFS Advisor sourced, structured, and arranged the lending group, and for which we were additionally compensated.64Comparison of investment income for the years ended December 31, 2017 and 2016: Interest and PIK interest income increased approximately $3.2 million, due to a $3.4 million increase in recurring interest income caused by a 12%increase in the average outstanding loan balance during 2017, offset by a decrease of $1.4 million in recurring interest income resulting from a 63 basis pointdecrease in the weighted average yield in our debt portfolio during the year ended December 31, 2017. Acceleration of Net Loan Fees of $0.6 million and$0.6 million were included in interest income for the years ended December 31, 2017 and 2016, respectively, from the repayment of loans prior to theirscheduled due dates.Fee income increased $0.3 million primarily due to an increase in prepayment fees and capital structuring fees. We recorded prepayment feesof $1.0 million resulting from $60.2 million of unscheduled principal payments during the year ended December 31, 2017, compared to $0.9 million from$25.0 million of unscheduled principal payments during 2016. We recognized capital structuring fees of $0.5 million and $0.4 million for the yearsended December 31, 2017 and 2016, respectively, upon the closing of $55.7 million and $37.3 million of debt and equity investments, respectively.Expenses Years Ended December 31, 2018 2017 2016 (Amounts in thousands)Interest expense$9,232 $5,813 $5,302Management fees6,335 4,999 4,516Incentive fee, net of waiver4,387 2,962 3,333Professional fees1,245 1,115 1,200Administration fee1,601 1,314 1,304General and administrative expenses1,649 1,346 1,294Total expenses$24,449 $17,549 $16,949 Comparison of expenses for the years ended December 31, 2018 and 2017:Interest expense increased by $3.4 million primarily due to interest expense of $3.1 million associated with the Unsecured Notes issued in April andOctober of 2018, see "Item 8.–Financial Statements–Note 7" for details.Management fee expense increased by $1.3 million due to an increase in our average total assets, primarily due to an increase in net investmentactivity, including deployment of $95.4 million in proceeds from the issuance of the Unsecured Notes.Incentive fee expense increased by $1.4 million primarily due to a $2.5 million increase in net investment income relating to the deployment of theproceeds from the Unsecured Notes, as well as a decrease in 2017 relating to Part One incentive fees, due to a share issuance adjustment related to theOffering, which raised the hurdle rate to a level that was not exceeded in the second quarter because the Offering proceeds were not fully deployed.Administration fees increased by $0.3 million primarily due to an increase in allocated accounting labor and software costs.General and administrative expenses increased $0.3 million primarily due to legal and other offering costs incurred during the first quarter of 2018in connection with a foreign debt transaction that we elected not to pursue due to regulatory changes and market conditions.Comparison of expenses for the years ended December 31, 2017 and 2016:Interest expense increased primarily due to an increase in borrowings under our PWB Credit Facility. The average dollar amount of borrowingsoutstanding under the PWB Credit Facility during the years ended December 31, 2017 and 2016 was $8.5 million and $0.6 million, respectively.Management fee expense increased by $0.5 million due to an increase in our average total assets, primarily due to an increase in net investmentactivity, including deployment of funds from the Offering.Incentive fee expense decreased by $0.4 million primarily due to a $0.6 million decrease in Part One incentive fees, due to a share issuanceadjustment related to the Offering, which raised the hurdle rate to a level that was not exceeded in the second quarter because the Offering proceeds were notfully deployed, offset by an increase in pre-incentive fee net investment income due to an increase in net investment activity, including additionaldeployment of funds from the Offering, and an increase in the accrued Capital Gains Fee. During the year ended December 31, 2017, we did not incur aCapital Gains Fee,65compared to a Capital Gains Fee of $(0.1) million recorded during the year ended December 31, 2016, which represents the reversal of the accrued CapitalGains Fee at December 31, 2015.Net gain (loss) on investments Years Ended December 31, 2018 2017 2016 (Amounts in thousands)Senior secured debt$(9,020) $(4,441) $411,000Subordinated debt(3,308) (8,667) (2,368)Preferred equity(1,993) 5,373 (2,584,000)Common equity and warrants5,508 (232) 4,224Net loss on investments$(8,813) $(7,967) $(317,000)Year ended December 31, 2018We recognized net losses of $9.0 million on senior secured debt during the year ended December 31, 2018, primarily as a result of a realized loss of$3.5 million on our senior secured debt investment in Jobson recognized upon the sale in the second quarter of 2018, as well as by the negative net impact ofmark-to-market adjustments in the fourth quarter relating to our Broadly Syndicated Loan investments resulting in an unrealized loss of $5.5 million.We recognized net losses of $3.3 million on subordinated debt during the year ended December 31, 2018, primarily as a result of a realized loss of$3.5 million on the restructuring of the Southern Technical Institute, LLC subordinated debt investment, of which $2.3 million was recognized as unrealizedlosses in prior years, and net unrealized depreciation of $2.1 from the negative impact of specific performance factors, principally related to Master CutleryLLC.We recognized net losses of $2.0 million on preferred equity investments for the year ended December 31, 2018, primarily as a result of a $1.4million unrealized loss on TRS Services, LLC, and other negative net impact of portfolio company-specific performance factors on other investmentsresulting in an additional unrealized loss of $0.6 million.We recognized net gains of $5.5 million on common equity and warrant investments for the year ended December 31, 2018, as a result of netrealized gains of $3.7 million, primarily driven by a $4.1 million realized gain on the sale of All Metal Holdings, LLC, and the positive impact of portfoliocompany-specific performance factors resulting in unrealized appreciation of $1.8 million for the year ended December 31, 2018.Year ended December 31, 2017We recognized net losses of $4.4 million on senior secured debt during the year ended December 31, 2017, primarily as a result of a realized loss of$5.0 million on our senior secured debt investment in My Alarm recognized upon restructuring in the third quarter of 2017, offset by the positive net impactof portfolio company-specific performance factors on other investments. We held the My Alarm investment from the fourth quarter of 2015 and recognizedunrealized appreciation of $0.2 million and $0 during the years ended December 31, 2016 and 2015, respectively.We recognized net losses of $8.7 million on subordinated debt during the year ended December 31, 2017, primarily as a result of the net negativeimpact of portfolio company-specific performance factors, including unrealized depreciation of $5.4 million recognized on our debt investment inCommunity Intervention Services, Inc., which was placed on non-accrual status during 2016, unrealized depreciation of $2.1 million recognized on our debtinvestment in Southern Technical Institute, LLC, which was placed on non-accrual status during the fourth quarter of 2017, and $1.6 million of unrealizeddepreciation on our debt investment in Master Cutlery, LLC.We recognized net gains of $5.4 million on preferred equity investments for the year ended December 31, 2017, primarily as a result of $7.7 millionof net realized gains recognized upon sale of three equity investments, offset by the negative impact from changes to EBITDA multiples used in ourvaluations and negative impacts of portfolio company-specific performance factors, including a $2.1 million unrealized loss recognized on our equityinvestment in Southern Technical Institute, LLC. Included in net gains of $7.7 million for the year ended December 31, 2017, were realized gains of $11.0million we recognized upon sale of the three aforementioned equity investments. We recognized cumulative unrealized appreciation of approximately $3.3million on these investments through December 31, 2016, which resulted in an aggregate net gain of $7.7 million during the year ended December 31, 2017.In addition, previously recognized cumulative unrealized depreciation of $0.3 million at June 30, 2017, on our preferred equity investment in My Alarm, wasrealized upon restructuring.We recognized net losses of $0.2 million on common equity and warrant investments for the year ended December 31, 2017, primarily as a result ofthe negative impact of portfolio company-specific performance factors, offset by a $0.4 million66net gain realized upon sale of a common equity investment, which includes a realized gain of $0.9 million, for which we had recognized cumulativeunrealized appreciation of $0.5 million through December 31, 2016.Year ended December 31, 2016We recognized net gains of $0.4 million on senior secured debt during the year ended December 31, 2016, primarily as a result of the net positiveimpact of market based transactions on our fair values, offset by the net impact of portfolio company-specific performance factors, the pay-off of certainsenior secured debt investments, and $0.4 million as a result of the Valuation Methodology Change.We recognized net losses of $2.4 million on subordinated debt during the year ended December 31, 2016, principally due to the net impact ofportfolio company-specific performance factors and $0.5 million as a result of the Valuation Methodology Change.We recognized net losses of $2.6 million on preferred equity investments for the year ended December 31, 2016, primarily due to the net impact ofportfolio company-specific performance factors offset by $2.1 million as a result of the Valuation Methodology Change.We recognized net gains of $4.2 million on common equity and warrant investments for the year ended December 31, 2016, primarily due to the netimpact of portfolio company-specific performance factors and $0.4 million as a result of the Valuation Methodology Change. In addition, we realized gainsof $2.1 million from the redemption of an equity investment. We held this investment from the first quarter of 2014 and recognized unrealized gains of $2.1million and $0.5 during the years ended December 31, 2015 and 2014, respectively. The net impact of this transaction was a recognized net loss of $0.5during the year ended December 31, 2016 due to the reversal of the accumulated unrealized gains in excess of the recognized realized gain.Liquidity and Capital ResourcesAt December 31, 2018, we held cash and cash equivalents of $38.2 million, which includes cash and cash equivalents of $36.0 million held by SBICI LP, our wholly owned SBIC. Our use of cash held by SBIC I LP is restricted by SBA regulation, including limitations on the amount of cash SBIC I LP candistribute to OFS Capital Corporation as parent company (the "Parent"). Any such distributions to the Parent from SBIC I LP are generally restricted to astatutory measure of undistributed accumulated earnings of SBIC I LP under SBA regulation. During the year ended December 31, 2018, the Parent receivedcash distributions of $21.9 million from SBIC I LP. At December 31, 2018, the Parent had $8.4 million of cash and cash equivalents available for generalcorporate activities, including approximately $6.3 million held by SBIC I LP that was available for distribution to it. Additionally, we had $38.0 millionborrowings available through our PWB Credit Facility, $50 million of Unsecured Notes Due April 2025 and $48.5 million of Unsecured Notes Due October2025 outstanding at December 31, 2018. Our asset coverage as of December 31, 2018 was 254%.67Sources and Uses of Cash and Cash EquivalentsWe generate cash through operations from net investment income and the net liquidation of portfolio investments, and use cash in our operations inthe net purchase of portfolio investments. Significant variations may exist between net investment income and cash from net investment income, primarilydue to the recognition of non-cash investment income, including Net Loan Fee amortization, PIK interest, and PIK dividends, which generally will not befully realized in cash until we exit the investment. As discussed in "Item 8. Financial Statements—Note 3", we pay OFS Advisor a quarterly incentive fee withrespect to our pre-incentive fee net investment income, which includes investment income that has not been received in cash. In addition, we must distributesubstantially all our taxable income, which approximates, but will not always equal, the cash we generate from net investment income to maintain our RICtax treatment. Historically, our distributions have been in excess of taxable income and we have limited history of net taxable gains. We also obtain cash tofund investments or general corporate activities from the issuance of securities and our revolving line of credit. These principal sources and uses of cash andliquidity are presented below (in thousands): Years Ended December 31, 2018 2017 2016Cash from net investment income$18,782$11,451 $10,051Cash received from net realized gains (losses)40211,017 2,228Net (purchases and originations) repayments of portfolio investments(120,272)(11,795) (23,595)Net cash provided by (used in) operating activities(101,088) 10,673 (11,316)Proceeds from common stock offering, net of expenses—53,423 —Proceeds from issuance of the Unsecured Notes, net of discounts95,446 — —Distributions paid to stockholders(22,895)(16,700) (13,062)Net borrowings (repayments) under revolving line of credit(5,600)8,100 9,500Payment of debt issuance costs(643)(203) (177)Net Increase (decrease) in cash and cash equivalents$(34,780) $55,293 $(15,055)Comparison of the years ended December 31, 2018 and 2017:At December 31, 2018, we held cash and cash equivalents of $38.2 million, a decrease of $34.8 million from December 31, 2017.Cash from net investment incomeCash from net investment income increased $7.3 million for the year ended December 31, 2018, compared to the prior year. The increase to cashfrom net investment income was principally due to an increase in interest income resulting from the deployment of the Unsecured Notes proceeds.Cash received from realized gains (losses)Cash received on realized gains (losses) may differ from realized gains in the statement of operations due to delays in the receipt of sale proceedsrelated to escrow and earn-out provisions in the investment sales transactions.Net (purchases and originations) repayments of portfolio investmentsDuring the year ended December 31, 2018, net purchases and originations of portfolio investments were primarily due to $272.2 million of cash weused to purchase portfolio investments, offset by $148.0 million of cash we received from amortized cost repayments and sales on our portfolio investments.During the year ended December 31, 2017, net purchases were due to $142.9 million of cash we used to purchase portfolio investments, offset by $142.1million of cash we received from amortized cost repayments on our portfolio investments.Proceeds from issuance of the Unsecured Notes, net of expensesDuring the year ended December 31, 2018, we issued $98.5 million in Unsecured Notes, with net proceeds of $95.4 million after deductingunderwriting discounts and offering costs.Cash distributions paidCash distributions increased $6.2 million for the year ended December 31, 2018 compared to the prior year, mostly due to the $4.9 million specialdividend paid in the first quarter of 2018 for an undistributed net long-term capital gains realized by the Company in 2017.68Comparison of the years ended December 31, 2017 and 2016:At December 31, 2017, we held cash and cash equivalents of $73.0 million, an increase of $55.3 million from December 31, 2016.Cash from net investment incomeCash from net investment income increased $1.4 million for the year ended December 31, 2017, compared to the prior year. The increase in cashfrom net investment income was principally due to an increase in interest income and prepayment and structuring fees collected, and a decrease in cash paidfor incentive fees, which primarily resulted from a share issuance adjustment related to the Offering, offset by an increase in cash paid for management fees,primarily due to an increase in net investment activity, including additional deployment of funds from the Offering, and an increase in cash interest paid onour PWB Credit Facility.Cash received from realized gainsCash received on realized gains may differ from realized gains in the statement of operations due to delays in the receipt of sale proceeds related toescrow and earn-out provisions in the investment sales transactions.Net (purchases and originations) repayments of portfolio investmentsDuring the year ended December 31, 2017, net purchases and originations of portfolio investments were due to $142.9 million of cash we used topurchase portfolio investments, offset by $131.1 million of cash we received from amortized cost repayments on our portfolio investments. During the yearended December 31, 2016, net purchases and originations of portfolio investments were due to $68.2 million of cash we used to purchase portfolioinvestments, offset by $44.6 million of cash we received from amortized cost repayments on our portfolio investments.Proceeds from common stock offering, net of expensesIn April 2017, we issued 3,625,000 shares of our common stock in the Offering at a price of $14.57 per share, including shares purchased by theunderwriters pursuant to their exercise of the over-allotment option. OFS Advisor paid all of the underwriting discounts and commissions and an additionalsupplemental payment of $0.25 per share, representing the difference between the public offering price of $14.57 per share and the net offering proceeds of$14.82 per share, which also represented our NAV per share at the time of the Offering. All payments made by OFS Advisor in connection with the Offeringare not subject to reimbursement by us. We received $53.7 million in net proceeds from the Offering.BorrowingsSBA DebenturesSBIC I LP has a SBIC license that allowed it to obtain leverage by issuing SBA-guaranteed debentures. These debentures are non-recourse to us, andbear interest payable semi-annually, and each debenture has a maturity date that is ten years following issuance. The interest rate on SBA debentures are fixedat the first pooling date after issuance, which is March and September of each year, at market-driven spreads over U.S. Treasury Notes with ten-year maturities.SBA regulations currently limit the amount that an SBIC may borrow up to a maximum of $150 million (or $175 million with SBA approval) when it has atleast $75 million in regulatory capital (or $87.5 million with approval to borrow up to $175 million), receives a leverage commitment from the SBA and hasbeen through an examination by the SBA subsequent to licensing. For two or more SBICs under common control, the maximum amount of outstanding SBA-provided leverage cannot exceed $350 million. As of December 31, 2018 and 2017, SBIC I LP had fully drawn the $149.9 million of leverage commitmentsfrom the SBA, which bears interest at a weighted-average fixed cash interest rate of 3.18%.69The following table shows our outstanding SBA debentures payable as of December 31, 2018 and 2017 (in thousands): SBA debentures outstandingPooling Date Maturity Date Fixed InterestRate December 31, 2018 December 31, 2017September 19, 2012 September 1, 2022 3.049% $14,000 $14,000September 25, 2013 September 1, 2023 4.448 7,000 7,000March 26, 2014 March 1, 2024 3.995 5,000 5,000September 24, 2014 September 1, 2024 3.819 4,110 4,110September 24, 2014 September 1, 2024 3.370 31,265 31,265March 25, 2015 March 1, 2025 2.872 65,920 65,920September 23, 2015 September 1, 2025 3.184 22,585 22,585SBA debentures outstanding 149,880 149,880Unamortized debt issuance costs (2,280) (2,657)SBA debentures outstanding, net of unamortized debt issuance costs $147,600 $147,223On a stand-alone basis, SBIC I LP held $251.1 million and $251.6 million in assets at December 31, 2018 and 2017, respectively, which accountedfor approximately 57% and 70% of the Company’s total consolidated assets, respectively.SBIC I LP is periodically examined and audited by the SBA’s staff to determine its compliance with SBA regulations. If SBIC I LP fails to complywith applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit SBIC I LP’s use of debentures, declareoutstanding debentures immediately due and payable, and/or limit SBIC I LP from making new investments. In addition, SBIC I LP may also be limited in itsability to make distributions to the Company if it does not have sufficient capital in accordance with SBA regulations. Such actions by the SBA would inturn, negatively affect the Company.PWB Credit FacilityWe are party to a BLA with Pacific Western Bank, as lender, to provide us with a senior secured revolving credit facility, or PWB Credit Facility. ThePWB Credit Facility is available for general corporate purposes including investment funding. The maximum availability of the PWB Credit Facility is equalto 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which excludes subordinated loan investments (asdefined in the BLA) and as otherwise specified in the BLA. The PWB Credit Facility is guaranteed by OFS Capital WM and secured by all of our current andfuture assets excluding assets held by SBIC I LP and the Company’s partnership interests in SBIC I LP and SBIC I GP.The BLA contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reportingrequirements, a minimum tangible net asset value, a minimum quarterly net investment income after incentive fees, and a statutory asset coverage test. TheBLA also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a materialrespect, breach of covenant, cross-default to other indebtedness, bankruptcy, change in investment advisor, and the occurrence of a material adverse changein our financial condition. As of December 31, 2018, we were in compliance with the applicable covenants.The terms of the PWB Credit Facility as of December 31, 2018 are as follows (amounts in thousands): MaximumAvailability Floor Rate Interest Rate Unused Fee Maturity DatePWB Credit Facility$50,000 5.25% Prime + 0.75% 0.50% January 31, 2020Availability under the PWB Credit Facility was $38.0 million, based on the stated advance rate of 50% under the borrowing base, and the $12.0million outstanding as of December 31, 2018.Unsecured NotesIn April 2018, we publicly offered the Unsecured Notes Due April 2025 with aggregate principal of $50.0 million. The total net proceeds to theCompany from the Unsecured Notes Due April 2025, after deducting underwriting discounts and offering costs of $1.8 million were $48.2 million. In Octoberand November 2018, the Company publicly offered the Unsecured Notes Due October 2025 with aggregate principal of $48.5 million, which included apartial exercise of the underwriters overallotment option. The total net proceeds to the Company from the Unsecured Notes Due October 2025, after70deducting underwriting discounts and offering expenses of $1.7 million, were $46.8 million. The combined Unsecured Notes totaled $98.5 million inaggregate principal debt, with net proceeds of $95.0 million to the Company.The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all of our current and future unsecured indebtedness.Because the Unsecured Notes are not secured by any of our assets, they are effectively subordinated to all existing and future secured unsubordinatedindebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assetssecuring such indebtedness, including, without limitation, borrowings under the PWB Credit Facility.As of December 31, 2018, the Unsecured Notes had the following terms and balances (amounts in thousands):Unsecured NotesPrincipal Stated InterestRate (1) EffectiveInterest Rate (2) Maturity (3) 2018 InterestExpense (4)Unsecured Notes Due April 2025$50,000 6.375% 6.875% 4/30/2025 $2,439Unsecured Notes Due October 202548,525 6.50% 7.01% 10/31/2025 697Total$98,525 $3,136(1)The weighted-average fixed cash interest rate on the Unsecured Notes as of December 31, 2018 was 6.44%.(2)The effective interest rate on the Unsecured Notes includes deferred debt issuance cost amortization.(3)The Unsecured Notes Due April 2025 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after April 30,2020. The Unsecured Notes Due October 2025 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or afterOctober 31, 2020.(4)Interest expense includes deferred issuance costs amortization of $228 for the year ended December 31, 2018.The average dollar borrowings and average interest rate for all debt the years ended December 31, 2018, 2017, and 2016, were as follows:Year ended Average DollarBorrowings Average InterestRateDecember 31, 2018 $206,936 4.37%December 31, 2017 158,368 3.55December 31, 2016 150,458 3.44Other Liquidity MattersWe expect to fund the growth of our investment portfolio utilizing borrowings under SBA debentures, future equity offerings, and issuances ofsenior securities or future borrowings to the extent permitted by the 1940 Act. We cannot assure stockholders that our plans to raise capital will be successful.In addition, we intend to distribute to our stockholders substantially all of our taxable income in order to satisfy the requirements applicable to RICs underSubchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments or make additional investments in our portfoliocompanies. The illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell theseinvestments, we may realize significantly less than their recorded value.As a BDC, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage ratio for totalborrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Provisions of the SBCAA permit BDCs to be subject to aminimum asset coverage ratio of 150%, if specific conditions are satisfied, when issuing senior securities (i.e., the amount of debt may not exceed 66 2/3% ofthe value of our assets). As an approximation, prior to the enactment of the SBCAA, the most that a BDC could borrow for investment purposes was $1 forevery $1 of investor equity. Now, for those BDCs that satisfy the SBCAA’s approval and disclosure requirements and become subject to the reduced assetcoverage ratio, the BDC can borrow $2 for investment purposes for every $1 of investor equity.The SBCAA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% asset coverage,the BDC must either obtain: (i) approval of the required majority of its non-interested directors who have no financial interest in the proposal, which wouldbecome effective one year after the date of such approval, or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meetingin which quorum is present), which would become effective on the first day after the date of such stockholder approval.On May 3, 2018, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved theapplication of the modified asset coverage requirements and, as a result, the asset coverage ratio test71applicable to us will be decreased from 200% to 150%, effective May 3, 2019. Additionally, we received exemptive relief from the SEC effective November26, 2013, which allows us to exclude our SBA guaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the1940 Act.This requirement limits the amount that we may borrow. To fund growth in our investment portfolio in the future, we anticipate needing to raiseadditional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be availableon favorable terms, if at all.Contractual Obligations and Off-Balance Sheet ArrangementsThe following table shows our contractual obligations as of December 31, 2018 (in thousands): Principal and Interest Payments due by period (2)Contractual Obligations (1)Total Less than 1year 1-3 years 3-5 years After5 yearsPWB Credit Facility (3)$12,812 $750 $12,062 $— $—SBA Debentures178,862 4,761 9,535 30,095 134,471Unsecured Notes127,584 6,342 6,342 6,342 108,558Total$319,258 $11,853 $27,939 $36,437 $243,029(1)Excludes commitments to extend credit to our portfolio companies.(2)The PWB Credit Facility is scheduled to mature on January 31, 2020. The SBA debentures are scheduled to mature between September 2022 and 2025.The Unsecured Notes are scheduled to mature between April 2025 and October 2025.(3)Contractual interest is based on LIBOR at December 31, 2018 and assumes no interim additional borrowings or repayments under the revolving line ofcredit between December 31, 2018 and maturity.We have entered into contracts with affiliates under which we will incur material future commitments—the Investment Advisory Agreement,pursuant to which OFS Advisor has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which OFS Services has agreedto furnish us with the facilities and administrative services necessary to conduct our day-to-day operations.We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of ourportfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk inexcess of the amount recognized in the balance sheet. We had $8.2 million of total unfunded commitments to four portfolio companies at December 31,2018.DistributionsWe are taxed as a RIC under the Code. Generally, a RIC is entitled to deduct dividends it pays to its stockholders from its income to determine“taxable income.” Taxable income includes our taxable interest, dividend and fee income, and taxable net capital gains. Taxable income generally differsfrom net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generallyexcludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized. In addition, gains realizedfor financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains using installment saletreatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow, received asconsideration from the sale of investments are collected in cash. Taxable income includes non-cash income, such as changes in accrued and reinvestedinterest and dividends, which includes contractual PIK interest, and the amortization of discounts and fees. Cash collections of income resulting fromcontractual PIK interest and dividends or the amortization of discounts and fees generally occur upon the repayment of the loans or debt securities thatinclude such items. Non-cash taxable income is reduced by non-cash expenses, such as realized losses and depreciation, and amortization expense.Our board of directors maintains a variable dividend policy with the objective of distributing four quarterly distributions in an amount not less than90-100% of our taxable quarterly income or potential annual income for a particular year. In addition, at the end of the year, we may also pay an additionalspecial dividend, or fifth dividend, such that we may distribute approximately all of our annual taxable income in the year it was earned, while maintainingthe option to spill over our excess taxable income to a following year. Each year, a statement on Form 1099-DIV identifying the source of the distribution ismailed to the Company’s stockholders. For the year ended December 31, 2018, approximately $1.36 per share, $0.37 per share, and $0 per share of theCompany’s distributions represented ordinary income, long-term capital gain, and a return of capital to its stockholders, respectively. In addition, onFebruary 12, 2018, our Board declared a special distribution of72$0.37 per share payable on March 29, 2018 to stockholders of record as of March 22, 2018, which represents undistributed net long-term capital gains as ofDecember 31, 2017.For a detailed description of our distributions paid for the years ended December 31, 2018, 2017, and 2016, see "Item 8.–Financial Statements–Note10."Recent DevelopmentsOn March 5, 2019, our Board declared a distribution of $0.34 per share for the first quarter of 2019, payable on March 29, 2019 to stockholders ofrecord as of March 22, 2019.73Item 7A.Quantitative and Qualitative Disclosures about Market RiskWe are subject to financial market risks, including changes in interest rates. Changes in interest rates affect both our cost of funding and thevaluation of our investment portfolio. As of December 31, 2018, 87% of our debt investments bore interest at floating interest rates and 13% of our debtinvestments bore fixed interest rates, at fair value. The interest rates on our debt investments bearing floating interest rates are usually based on a floatingLIBOR, and the debt investments typically contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis. Asignificant portion of our loans that are subject to the floating LIBOR rates are also subject to a minimum base rate, or floor, that we charge on our loans if thecurrent market rates are below the respective floors. As of December 31, 2018, 100% of our floating rate loans were based on a floating LIBOR (not subject toa floor).Our outstanding SBA debentures and Unsecured Notes bear interest at a fixed rate. Our PWB Credit Facility has a floating interest rate provisionbased on the Prime Rate, with a 5.25% interest rate floor, and was 6.25% as of December 31, 2018.Assuming that the consolidated balance sheet as of December 31, 2018, were to remain constant and that we took no actions to alter our existinginterest rate sensitivity, the following tables show the annualized impact of hypothetical base rate changes in interest rates (in thousands):Basis point increaseInterest incomeInterest expenseNet increase(decrease)50$1,929$61$1,8681003,5571223,4351505,1851835,0022006,8132436,5702508,4413048,137Basis point decreaseInterest incomeInterest expense (1)Net increase(decrease)50$(1,327)$(61)$(1,266)100(2,947)(122)(2,825)150(4,518)(4,518)200(5,241)—(5,241)250(5,479)—(5,479)(1) Our PWB Credit Facility contains a 5.25% interest rate floor, and therefore a decline in the Prime Rate would not materially impact interest expense.Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes as of December 31, 2018, it does not adjustfor potential changes in the credit market, credit quality, size and composition of the assets in our portfolio, and other business developments, includingborrowings under our credit facility, that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can begiven that actual results would not differ materially from the statement above.We are subject to financial market risks, including changes in interest rates. Changes in interest rates affect both our cost of funding and thevaluation of our investment portfolio. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policiesand limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Ourinvestment portfolio and investment income may be affected by changes in various interest rates, including LIBOR and the Prime Rate.74ITEM 8. FINANCIAL STATEMENTS Index to Financial StatementsReports of Independent Registered Public Accounting Firm 76 Consolidated Statements of Assets and Liabilities as of December 31, 2018 and 2017 79 Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016 80 Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2018, 2017, and 2016 81 Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016 82 Consolidated Schedules of Investments as of December 31, 2018 and 2017 83 Notes to Consolidated Financial Statements 9875Report of Independent Registered Public Accounting FirmTo the Board of Directors and StockholdersOFS Capital CorporationChicago, IllinoisOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated statements of assets and liabilities of OFS Capital Corporation (the “Company”),including the consolidated schedules of investments, as of December 31, 2018 and 2017, the related consolidated statements ofoperations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2018, and the relatednotes, including the financial highlights for each of the five years in the period ended December 31, 2018 (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of the Company at December 31, 2018 and 2017, and the results of its operations, changes in its net assets, and itscash flows for each of the three years in the period ended December 31, 2018, and its financial highlights for each of the five years inthe period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in InternalControl - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)and our report dated March 15, 2019 expressed an unqualified opinion thereon.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission 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 toobtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to erroror fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whetherdue 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. Our procedures included confirmation ofsecurities owned as of December 31, 2018 and 2017 by correspondence with the custodian, loan agent, portfolio companies, or byother appropriate auditing procedures where replies were not received. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ BDO USA, LLPWe have served as the Company’s auditors since 2014.Chicago, IllinoisMarch 15, 201976Report of Independent Registered Public Accounting FirmTo the Board of Directors and StockholdersOFS Capital CorporationChicago, IllinoisOpinion on Internal Control over Financial ReportingWe have audited OFS Capital Corporation’s (the “Company’s”) internal control over financial reporting as of December 31, 2018,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsof the Treadway Commission (the “COSO criteria”) In our opinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(“PCAOB”), the consolidated statements of assets and liabilities, including the consolidated schedule of investments, of the Company asof December 31, 2018 and 2017, the related consolidated statements of operations, changes in net assets, and cash flows for each of thethree years in the period ended December 31, 2018, and the related notes, including the financial highlights for each of the five years inthe period ended December 31, 2018 and our report dated March 15, 2019 expressed unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on InternalControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reportingbased on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to theCompany in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financialreporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effecton the financial statements.77Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ BDO USA, LLPChicago, IllinoisMarch 15, 201978OFS Capital Corporation and Subsidiaries Consolidated Statements of Assets and Liabilities(Dollar amounts in thousands, except per share data)December 31,2018 2017Assets Investments, at fair value Non-control/non-affiliate investments (amortized cost of $312,223 and $209,360, respectively)$297,749 $197,374Affiliate investments (amortized cost of $90,751 and $70,402, respectively)89,103 69,557Control investment (amortized cost of $10,337 and $10,213, respectively)9,945 10,568Total investments at fair value (amortized cost of $413,311 and $289,975, respectively)396,797 277,499Cash and cash equivalents38,172 72,952Interest receivable2,787 2,734Prepaid expenses and other assets3,665 4,593Total assets$441,421 $357,778 Liabilities Revolving line of credit$12,000 $17,600SBA debentures (net of deferred debt issuance costs of $2,280 and 2,657, respectively)147,600 147,223Unsecured notes (net of discounts and deferred debt issuance costs of $3,299 and $0, respectively)95,226 —Interest payable2,791 1,596Payable to investment adviser and affiliates3,700 2,463Payable for investments purchased4,151—Accrued professional fees637 433Other liabilities293 127Total liabilities$266,398 $169,442 Commitments and contingencies (Note 6) Net Assets Preferred stock, par value of $0.01 per share, 2,000,000 shares authorized, 0 shares issued and outstanding as of December 31,2018 and December 31, 2017, respectively$— $—Common stock, par value of $0.01 per share, 100,000,000 shares authorized, 13,357,337 and 13,340,217 shares issued andoutstanding as of December 31, 2018 and December 31, 2017, respectively134 133Paid-in capital in excess of par187,540 187,398Total distributable earning (accumulated loss)(12,651) 805Total net assets$175,023 $188,336 Total liabilities and net assets$441,421 $357,778 Number of shares outstanding13,357,337 13,340,217Net asset value per share$13.10 $14.12See Notes to Consolidated Financial Statements.79OFS Capital Corporation and Subsidiaries Consolidated Statements of Operations(Dollar amounts in thousands, except per share data)Years Ended December 31,2018 2017 2016Investment incomeInterest income:Non-control/non-affiliate investments$27,547$20,078$17,076Affiliate investments10,0556,5067,451Control investment1,0051,5401,873Total interest income38,60728,12426,400Payment-in-kind interest and dividend income:Non-control/non-affiliate investments6681,4001,070Affiliate investments1,3211,3751,437Control investment110132120Total payment-in-kind interest and dividend income:2,0992,9072,627Dividend income: Non-control/non-affiliate investments—5036Affiliate investments130140170Control investment185292269Total dividend income315482475Fee income: Non-control/non-affiliate investments9871,0861,366Affiliate investments760675110Control investment66152116Total fee income1,8131,9131,592Total investment income42,83433,42631,094ExpensesInterest and financing expense9,2325,8135,302Management fees6,3354,9994,516Incentive fee4,4092,9623,333Professional fees1,2451,1151,200Administration fee1,6011,3141,304Other Expenses1,6491,3461,294 Total expenses before incentive fee waiver24,471 17,549 16,949Incentive fee waiver (see Note 3)(22)——Total expenses, net of incentive fee waiver24,44917,54916,949Net investment income18,38515,87714,145Net realized and unrealized gain (loss) on investmentsNet realized gain (loss) on non-control/non-affiliate investments(4,966)(3,248)2,387Net realized gain on affiliate investments18710,08117Net unrealized depreciation on non-control/non-affiliate investments(2,484)(9,715)(6,699)Net unrealized appreciation (depreciation) on affiliate investments(803)(5,088)3,341Net unrealized appreciation (depreciation) on control investments(747)3637Net loss on investments(8,813)(7,967)(317)Net increase in net assets resulting from operations$9,572$7,910$13,828Net investment income per common share - basic and diluted$1.38$1.28$1.46Net increase in net assets resulting from operations per common share - basic and diluted$0.72$0.64$1.43Distributions declared per common share$1.73$1.36$1.36Basic and diluted weighted average shares outstanding13,348,20312,403,7069,692,634See Notes to Consolidated Financial Statements.80OFS Capital Corporation and Subsidiaries Consolidated Statements of Changes in Net Assets(Dollar amounts in thousands, except per share data) Years Ended December 31, 2018 2017 2016Common Stock Balance at beginning of year$133 $97 $96Common stock issued from reinvestment of stockholder distributions, net of repurchase1 36 1Balance at December 31134 133 97 Paid-in capital in excess of par Balance at beginning of year187,398 134,300 134,446Common stock issued from reinvestment of stockholder distributions, net of repurchase204 53,507 120Return of capital distributions— — (858)Tax reclassifications of permanent differences(62) (409) 592Balance at December 31187,540 187,398 134,300 Total distributable earnings (accumulated losses) Net investment income18,385 15,877 14,145Realized net gains (losses) on investments(4,779) 6,833 2,404Unrealized depreciation net of taxes(4,034) (14,800) (2,721) Net increase in net assets resulting from operations9,572 7,910 13,828Balance at beginning of year805 9,381 8,471Distributions to stockholders(23,090) (16,895) (12,326)Tax reclassifications of net assets in accordance with GAAP62 409 (592)Balance at December 31(12,651) 8059,381 Total net assets at December 31$175,023 $188,336 $143,778 Shares outstanding Balance at beginning of year13,340,217 9,700,297 9,691,170Public offering of common stock— 3,625,000 —Common stock issued from reinvestment of stockholder distributions17,420 14,920 9,127Repurchase of common stock(300) — —Number of shares outstanding at December 3113,357,337 13,340,217 9,700,297See Notes to Consolidated Financial Statements.81OFS Capital Corporation and SubsidiariesConsolidated Statements of Cash Flows(Dollar amounts in thousands) Years Ended December 31, 2018 2017 2016Cash flows from operating activities Net increase in net assets resulting from operations$9,572$7,910$13,828Adjustments to reconcile net increase in net assets resulting from operations to net cashprovided by (used in) operating activities:Net realized (gain) loss on investments4,779(6,833)(2,404)Net change in unrealized depreciation on investments4,03414,8002,721Amortization of net loan fees(2,288)(1,450)(1,414)Amendment fees collected161175261Payment-in-kind interest and dividend income(2,099)(2,907)(2,627)Amortization and write-off of debt issuance costs781553490Amortization of intangible asset195195195Purchase and origination of portfolio investments(272,155)(142,900)(68,237)Proceeds from principal payments on portfolio investments100,699105,07841,404Proceeds from sale or redemption of portfolio investments47,43537,0445,274Distributions received from portfolio investments——192Changes in operating assets and liabilities:Interest receivable(53) (964)(937)Interest payable1,195(3)51Payable to investment adviser and affiliates1,237(91)(172)Other assets and liabilities5,4196659Net cash provided by (used in) operating activities(101,088)10,673(11,316)Cash flows from financing activities Proceeds from common stock offering, net of expenses— 53,423 —Payment of common stock offering costs— (72) —Proceeds from unsecured notes offerings, net of discounts95,446 — —Distributions paid to stockholders(22,895)(16,700)(13,062)Borrowings under revolving line of credit96,50044,7009,500Repayments under revolving line of credit(102,100)(36,600)—Payment of debt issuance costs(643)(131)(177)Net cash provided by (used in) financing activities66,30844,620(3,739)Net increase (decrease) in cash and cash equivalents(34,780)55,293(15,055)Cash and cash equivalents — beginning of year72,95217,65932,714Cash and cash equivalents — end of year$38,172$72,952$17,659Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest$7,256$5,263$4,762Reinvestment of stockholder distributions195196122See Notes to Consolidated Financial Statements.82OFS Capital Corporation and SubsidiariesConsolidated Schedule of InvestmentsDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue(3)PercentofNetAssetsNon-control/Non-affiliate Investments BayMark Health ServicesOutpatient Mental Health andSubstance Abuse CentersSenior Secured Loan10.60%(L +8.25%)3/22/20183/1/2025$4,000$3,964$3,9332.2%Brookfield WEC Holdings Inc.,Business to Business ElectronicMarketsSenior Secured Loan9.27%(L +6.75%)12/6/20188/3/20261,9591,9591,9141.1Carolina Lubes, Inc. (4)Automotive Oil Change andLubrication ShopsSenior Secured Loan (8)10.24%(L +7.82%)8/23/20178/23/202220,84020,70520,83911.9Senior Secured Loan (Revolver)(7)9.65%(L +7.25%)8/23/20178/23/2022—(11)——20,84020,69420,83911.9Cirrus Medical Staffing, Inc. (4)Temporary Help ServicesSenior Secured Loan11.05%(L +8.25%)3/5/201810/19/202212,92612,77912,7327.3Senior Secured Loan (Revolver)(7)11.05%(L +8.25%)3/5/201810/19/20221,2801,2801,2610.714,20614,05913,9938.0Community Intervention Services,Inc. (4) (6) (10) (11)Outpatient Mental Health andSubstance Abuse CentersSubordinated Loan7.0% cash /6.0% PIKN/A7/16/20151/16/20219,0607,639——Confie Seguros Holdings II Co.Insurance Agencies andBrokeragesSenior Secured Loan11.24%(L +8.50%)7/7/201511/1/20259,6789,4899,2905.3Constellis Holdings, LLCOther Justice, Public Order, andSafety ActivitiesSenior Secured Loan11.52%(L +9.00%)4/28/20174/21/20259,9509,8329,4375.4Convergint TechnologiesSecurity Systems Services(except Locksmiths)Senior Secured Loan9.27%(L +6.75%)9/28/20182/2/20263,4813,4223,3271.983OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue(3)PercentofNetAssetsDavis Vision, Inc.Direct Health and MedicalInsurance CarriersSenior Secured Loan9.28%(L +6.75%)7/17/201812/1/2025$5,854$5,700$5,5703.2%DuPage Medical GroupOffices of Physicians, MentalHealth SpecialistsSenior Secured Loan9.50%(L +7.00%)8/22/20178/15/202510,09810,1859,7715.6Eblens Holdings, Inc.Shoe StoreSubordinated Loan (11)12.0% cash /1.00% PIKN/A7/13/20171/13/20238,9208,8558,8215Common Equity (71,250 Class Aunits) (10)7/13/20177137220.48,9209,5689,5435.4Elgin Fasteners GroupBolt, Nut, Screw, Rivet, andWasher ManufacturingSenior Secured Loan9.30%(L +6.50%)10/31/20118/27/18 (5)3,6453,6453,5092.0Envocore Holding, LLC (FKALRI Holding, LLC) (4)Electrical Contractors and OtherWiring InstallationContractorsSenior Secured Loan12.05%(L +9.25%)6/30/20176/30/202217,34417,21216,8219.6Preferred Equity (238,095 SeriesB units) (10)6/30/20173003000.2Preferred Equity (13,315 SeriesC units) (10)8/13/20181313—17,34417,52517,1349.8Excelin Home Health, LLCHome Health Care ServicesSenior Secured Loan12.31%(L +9.50%)10/25/20184/25/20244,2504,1684,1682.4GGC Aerospace Topco L.P.Other Aircraft Parts andAuxiliary EquipmentManufacturingSenior Secured Loan11.49%(L +8.75%)12/29/20179/8/20245,0004,8944,0332.3Common Equity (368,852 ClassA units) (10)12/29/20174501040.1Common Equity (40,984 Class Bunits) (10)12/29/2017504—5,0005,3944,1412.4GOBP Holdings, Inc.,Supermarkets and OtherGrocery (exceptConvenience) StoresSenior Secured Loan10.05%(L +7.25%)10/17/201810/22/20261,4001,3861,3490.884OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue(3)PercentofNetAssetsHyland Software, Inc.Software PublishersSenior Secured Loan6.02%(L +3.50%)10/24/20187/1/2024$173$173$1660.1%Senior Secured Loan9.52%(L +7.00%)10/24/20187/7/20252,6012,6202,5341.42,7742,7932,7001.5Inergex HoldingsOther Computer Related ServicesSenior Secured Loan9.39%(L +7.00%)10/1/201810/1/202413,09212,90412,9047.4Senior Secured Loan (Revolver)(7)0.50%10/1/201810/1/2024—(27)——13,09212,87712,9047.4JBR Clinical Research, Inc. (4) (8)Research and Development in theSocial Sciences andHumanitiesSenior Secured Loan9.10%(L +6.71%)8/2/20188/2/202329,94329,69329,01616.5MAI Holdings, Inc. (4)Printing Machinery andEquipment ManufacturingSenior Secured Loan9.50%N/A6/21/20186/1/20235,0005,0004,8412.8My Alarm Center, LLC (4) (10)(13)Security Systems Services(except Locksmiths)Preferred Equity (1,485 Class Aunits), 8% PIK7/14/20171,5711,5360.9Preferred Equity (1,198 Class Bunits)7/14/20171,198——Preferred Equity (335 Class Zunits) 25% PIK9/12/20183251,0380.6Common Equity (64,149 units)7/14/2017———3,0942,5741.5Online Tech Stores, LLC (4)Stationery and Office SuppliesMerchant WholesalersSubordinated Loan10.50% cash /1.0% PIKN/A2/1/20188/1/202316,15015,88215,7858.9OnSite Care, PLLC (4) (8)Home Health Care ServicesSenior Secured Loan10.22%(L +7.85%)8/10/20188/10/20237,1007,0357,0084.0Parfums Holding Company, Inc.Cosmetics, Beauty Supplies, andPerfume StoresSenior Secured Loan11.56%(L +8.75%)11/16/20176/30/20256,3206,3346,2923.685OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue(3)PercentofNetAssetsPelican Products, Inc.Unlaminated Plastics ProfileShape ManufacturingSenior Secured Loan10.13%(L +7.75%)9/24/20185/1/2026$6,055$6,060$5,9013.4%Performance Team LLC (4)General Warehousing andStorageSenior Secured Loan12.52%(L +10.00%)5/24/201811/24/202320,30020,11820,64711.7PM Acquisition LLCAll Other General MerchandiseStoresSenior Secured Loan11.50% cash /2.50% PIKN/A9/30/201710/29/20215,5125,4315,2173.0Common Equity (499 units) (10)(13)9/30/20174991370.15,5125,9305,3543.1Resource Label Group, LLCCommercial Printing (exceptScreen and Books)Senior Secured Loan10.90%(L +8.50%)6/7/201711/26/20234,8214,7674,7722.7Rocket Software, Inc.Software PublishersSenior Secured Loan6.77%(L +4.25%)11/20/201811/19/20256706676450.4Senior Secured Loan10.77%(L +8.25%)11/20/201811/19/20265,1875,1365,0462.95,8575,8035,6913.3RPLF Holdings, LLC (10) (13)Software PublishersCommon Equity (254,110 ClassA units)1/17/20182542910.2Sentry Centers Holdings, LLCOther Professional, Scientific,and Technical ServicesSenior Secured Loan (14)13.50%(L +11.50%)1/25/20167/24/20208,8558,8028,7535.0Common Equity (5,000 Series Cunits) (10) (13)3/31/2014—5009830.68,8559,3029,7365.6Southern Technical Institute, LLC(4) (6) (10)Colleges, Universities, andProfessional SchoolsSubordinated Loan6.00% PIKN/A6/27/201812/31/20211,517———Other6/27/2018————1,517———86OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue(3)PercentofNetAssetsSSH Group Holdings, Inc.,Child Day Care ServicesSenior Secured Loan6.77%(L +4.25%)7/26/20187/30/2025$982$979$9200.5%Senior Secured Loan10.77%(L +8.25%)7/26/20187/30/20267,2167,1476,8393.98,1988,1267,7594.4Stancor, L.P. (4) (10)Pump and Pumping EquipmentManufacturingPreferred Equity (1,250,000Class A units), 8% PIK8/19/2014—1,5011,4160.8STS Operating, Inc.Industrial Machinery andEquipment MerchantWholesalersSenior Secured Loan6.77%(L +4.25%)5/16/201812/11/20246386376020.3Senior Secured Loan10.52%(L +8.00%)5/15/20184/30/20269,0739,0698,4844.89,7119,7069,0865.1The Escape Game, LLC (4)Senior Secured LoanOther amusement and recreationindustries11.27%(L +8.75%)12/22/201712/22/20227,0006,9586,8553.9Senior Secured Loan (DelayedDraw) (7)11.22%(L +8.75%)7/20/201812/22/20223,7333,7333,6562.110,73310,69110,5116.0Truck Hero, Inc.Truck Trailer ManufacturingSenior Secured Loan10.76%(L +8.25%)5/30/20174/21/20257,0146,9776,8083.9United Biologics Holdings, LLC(4) (10)Medical LaboratoriesPreferred Equity (151,787 units)7/26/2012—920—Warrants (29,374 units)7/26/20123/05/2022(12)—8225——9145—Wand Intermediate I LPAutomotive Body, Paint, andInterior Repair andMaintenanceSenior Secured Loan9.84%(L +7.25%)5/14/20189/19/20223,7703,8023,7472.187OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue (3)PercentofNetAssetsWastebuilt EnvironmentalSolutions, LLC.Industrial Supplies MerchantWholesalersSenior Secured Loan11.27%(L +8.75%)10/11/201810/11/2024$7,000$6,858$6,8583.9%Other900890.1Total Non-control/Non-affiliateInvestments309,407312,223297,749169.9Affiliate Investments3rd Rock Gaming Holdings, LLCSoftware PublishersSenior Secured Loan10.30%(L +7.50%)3/13/20183/12/202321,62621,35320,02311.4Common Equity (2,547,250units) (10) (13)3/13/2018—2,5471,0730.621,62623,90021,09612.0Contract Datascan Holdings,Inc. (4)Office Machinery andEquipment Rental andLeasingSubordinated Loan11.50%N/A8/5/20152/5/20218,0007,9908,0004.6Preferred Equity (3,061 Series Ashares), 10% PIK8/5/2015—4,9446,6523.8Common Equity (11,273 shares)(10)6/28/2016—1042,3131.38,00013,03816,9659.7DRS Imaging Services, LLCData Processing, Hosting, andRelated ServicesSenior Secured Loan (4) (8)12.23%(L +9.42%)3/8/201811/20/202310,86410,77410,6176.1Common Equity (1,135 units)(10) (13)3/8/2018—1,1351,1970.710,86411,90911,8146.8Master Cutlery, LLC (4) (6) (10)Sporting and RecreationalGoods and SuppliesMerchant WholesalersSubordinated Loan (11)13.00% PIKN/A4/17/20154/17/20205,2294,7648500.5Preferred Equity (3,723 Series Aunits), 8% PIK4/17/2015—3,483——Common Equity (15,564 units)4/17/2015————5,2298,2478500.588OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)Portfolio Company (1)Investment TypeIndustryInterest Rate(2)SpreadAboveIndex (2) InitialAcquisitionDateMaturityPrincipalAmountAmortizedCostFairValue (3)PercentofNetAssetsNeoSystems Corp. (4) (10)Other Accounting ServicesPreferred Equity (521,962convertible shares), 10% PIK8/14/2014$—$1,537$2,2501.3%Pfanstiehl Holdings, Inc. (4)Pharmaceutical PreparationManufacturingSubordinated Loan10.50%N/A1/1/20149/29/20223,7883,8143,7882.2Common Equity (400 Class Ashares)1/1/2014—2178,3604.83,7884,03112,1487.0Professional Pipe Holdings, LLCPlumbing, Heating, and Air-Conditioning ContractorsSenior Secured Loan12.77%(L +10.25%)3/23/20183/23/20237,7797,6477,4664.3Common Equity (1,414 Class Aunits) (10)3/23/2018—1,4147690.47,7799,0618,2354.7TRS Services, LLC (4) (11)Commercial and IndustrialMachinery and Equipment(except Automotive andElectronic) Repair andMaintenanceSenior Secured Loan11.27% cash /1.0% PIK(L +8.75%)12/10/201412/10/201914,68114,61714,4468.3Preferred Equity (329,266 ClassAA units), 15% PIK6/30/2016—4654730.3Preferred Equity (3,000,000Class A units), 11% PIK (10)12/10/2014—3,3748260.5Common Equity (3,000,000units) (10)12/10/2014—572——14,68119,02815,7459.1Total Affiliate Investments71,96790,75189,10351.1Control InvestmentMTE Holding Corp. (4)Travel Trailer and CamperManufacturingSubordinated Loan (to MirageTrailers, LLC, a controlled,consolidated subsidiary of MTEHolding Corp.)14.00% cash /1.50% PIK(L +11.50%)11/25/201511/25/20207,2967,2687,2964.2Common Equity (554 shares)11/25/2015—3,0692,6491.57,29610,3379,9455.7Total Control Investment7,29610,3379,9455.7Total Investments$388,670$413,311$396,797226.7%89OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2018(Dollar amounts in thousands)(1)Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as "restricted securities"as such term is defined under Regulation S-X Rule 6-03(f) or Securities Act Rule 144.(2)Substantially all of the investments that bear interest at a variable rate are indexed to LIBOR (L), and reset monthly, quarterly, or semi-annually. Variable-rate loans with anaggregate cost of $316,260 include LIBOR reference rate floor provisions of generally 1% to 2%. At December 31, 2018, the reference rate on all such instruments was above thestated floors. For each investment, the Company has provided the spread over the reference rate and current interest rate in effect at December 31, 2018. Unless otherwise noted,all investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision.(3)Fair value was determined using significant unobservable inputs for all of the Company's investments. See Note 5 for further details.(4)Investments (or portion thereof) held by SBIC I LP. All other investments pledged as collateral under the PWB Credit Facility.(5)Elgin Fasteners Group became contractually due on August 27, 2018. The lending group entered into a forbearance agreement to extend the maturity through September 26,2019. The investment shall continue to accrue interest as the borrower has continued to make interest and amortization payments.(6)Investment was on non-accrual status as of December 31, 2018, meaning the Company has ceased recognizing all or a portion of income on the investment. See Note 5 forfurther details.(7)Subject to unfunded commitments. See Note 6 for further details.(8)The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its principal payment after the repaymentof certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of December 31, 2018:Portfolio CompanyReported InterestRate Interest Rate perCredit Agreement Additional Interest perAnnumCarolina Lubes, Inc.10.24% 9.65% 0.59%DRS Imaging Services, LLC12.23% 10.80% 1.43%JBR Clinical Research, Inc.9.10% 8.64% 0.46%OnSite Care, PLLC10.22% 8.60% 1.62%(9)Reserved.(10)Non-income producing.(11)The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities aspayment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additionaldetails on these PIK investments, including the maximum annual PIK interest rate allowed as of December 31, 2018Portfolio Company Investment Type Range of PIKOption Range of CashOption Maximum PIKRate AllowedCommunity Intervention Services, Inc. Subordinated Loan 0% or 6.00% 13.00% or 7.00% 6.00%Eblens Holdings, Inc. Subordinated Loan 0% or 1.00% 14.00% or 12.00% 1.50%Master Cutlery, LLC Senior Secured Loan 0% to 13.00% 13.00% to 0% 13.00%TRS Services, LLC Senior Secured Loan 0% or 1.00% 11.25% or 1.00% 1.00%(12)Represents expiration date of the warrants.(13)All or portion of investment held by a wholly-owned subsidiary subject to corporate income tax. See Note 8 for further details.(14)Maximum interest rate allowable under the terms of this investment is 13.50%See Notes to Financial Statements.90OFS Capital Corporation and SubsidiariesConsolidated Schedule of InvestmentsDecember 31, 2017(Dollar amounts in thousands)Portfolio Company (1)Investment Type Industry Interest Rate(2) SpreadAboveIndex (2) InitialAcquisitionDate Maturity PrincipalAmount AmortizedCost FairValue PercentofNetAssetsNon-control/Non-affiliate Investments Aegis Acquisition, Inc. Testing Laboratories Senior Secured Loan 10.17% (L +8.50%) 10/31/2017 8/24/2021 $3,520 $3,470 $3,439 1.8% Armor Holdings II LLC Other Professional, Scientific,and Technical Services Senior Secured Loan 10.70% (L +9.00%) 7/20/2016 12/26/2020 3,500 3,476 3,570 1.9 Avison Young Canada, Inc. Offices of Real Estate Agentsand Brokers Senior Secured Loan (5) (6) 9.50% N/A 12/23/2016 12/15/2021 4,000 3,939 4,070 2.3 BJ's Wholesale Club, Inc. Warehouse Clubs andSupercenters Senior Secured Loan 8.95% (L +7.50%) 5/9/2017 2/3/2025 9,268 9,158 9,063 4.8 Carolina Lubes, Inc. (5) (9) Automotive Oil Change andLubrication Shops Senior Secured Loan 9.28% (L +7.25%) 8/23/2017 8/23/2022 21,411 21,236 21,430 11.4Senior Secured Loan (Revolver) 8.59% (L +7.25%) 8/23/2017 8/23/2022 487 473 489 0.3Preferred Equity (973 units) 14%PIK 8/23/2017 3,039 3,065 1.6 21,898 24,748 24,984 13.3Community Intervention Services,Inc. (5) Outpatient Mental Health andSubstance Abuse Centers Subordinated Loan (7) (11) 7.0% cash /6.0% PIK N/A 7/16/2015 1/16/2021 8,530 7,639 — — Confie Seguros Holdings II Co. Insurance Agencies andBrokerages Senior Secured Loan 10.98% (L +9.50%) 7/7/2015 5/8/2019 9,678 9,579 9,417 5.0 Constellis Holdings, LLC Other Justice, Public Order,and Safety Activities Senior Secured Loan 10.69% (L +9.00%) 4/28/2017 4/21/2025 9,950 9,813 9,919 5.3 91OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2017(Dollar amounts in thousands)Portfolio Company (1)Investment Type Industry Interest Rate(2) SpreadAboveIndex (2) InitialAcquisitionDate Maturity PrincipalAmount AmortizedCost FairValue PercentofNetAssetsDuPage Medical Group Offices of Physicians, MentalHealth Specialists Senior Secured Loan 8.42% (L +7.00%) 8/22/2017 8/15/2025 $5,600 $5,547 $5,503 2.9% Eblens Holdings, Inc. Shoe Store Subordinated Loan 12.0% cash /1.00% PIK N/A 7/13/2017 1/13/2023 8,830 8,749 8,726 4.6Common Equity (71,250 Class Aunits) 7/13/2017 713 771 0.4 8,830 9,462 9,497 5.0Elgin Fasteners Group Bolt, Nut, Screw, Rivet, andWasher Manufacturing Senior Secured Loan 8.44% (L +6.75%) 10/31/2011 8/27/2018 3,888 3,873 3,544 1.9 GGC Aerospace Topco L.P. Other Aircraft Parts andAuxiliary EquipmentManufacturing Senior Secured Loan 10.23% (L +8.75%) 12/29/2017 9/8/2024 5,000 4,875 4,875 2.6Common Equity (368,852 ClassA units) 12/29/2017 450 450 0.2Common Equity (40,984 Class Bunits) 12/29/2017 50 50 — 5,000 5,375 5,375 2.8LRI Holding, LLC (5) Electrical Contractors andOther Wiring InstallationContractors Senior Secured Loan 10.94% (L +9.25%) 6/30/2017 6/30/2022 18,269 18,125 18,205 9.7Preferred Equity (238,095 SeriesB units) 6/30/2017 300 300 0.2 18,269 18,425 18,505 9.9Maverick Healthcare Equity, LLC(5) Home Health EquipmentRental Preferred Equity (1,250,000units) (10) 12/10/2014 900 141 0.1Common Equity (1,250,000 ClassA units) (10) 12/10/2014 — — — 900 141 0.1My Alarm Center, LLC (5) Security Systems Services(except Locksmiths) Preferred Equity (1,485 Class Aunits), 8% PIK (10) (13) 7/14/2017 1,540 1,540 0.8Preferred Equity (1,198 Class Bunits) 7/14/2017 1,198 1,198 0.6Common Equity (64,149 units)(13) 7/14/2017 — 43 — 2,738 2,781 1.492OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2017(Dollar amounts in thousands)Portfolio Company (1)Investment Type Industry Interest Rate(2) SpreadAboveIndex (2) InitialAcquisitionDate Maturity PrincipalAmount AmortizedCost FairValue PercentofNetAssetsNVA Holdings, Inc. Veterinary Services Senior Secured Loan 8.69% (L +7.00%) 5/18/2016 8/14/2022 $743 $743 $748 0.4%O2 Holdings, LLC (5) Fitness and Recreational SportsCenters Senior Secured Loan 14.56% (L +13.00%) 9/2/2016 9/2/2021 13,350 12,977 13,617 7.2 Parfums Holding Company, Inc. Cosmetics, Beauty Supplies,and Perfume Stores Senior Secured Loan 10.45% (L +8.75%) 11/16/2017 6/30/2025 3,520 3,492 3,472 1.8 Planet Fitness Midwest LLC (5) Fitness and Recreational SportsCenters Subordinated Loan 13.00% N/A 6/16/2016 12/16/2021 5,000 4,964 5,011 2.7 PM Acquisition LLC All Other General MerchandiseStores Senior Secured Loan 11.50% cash /1.00% PIK N/A 9/30/2017 10/29/2021 6,187 6,108 6,059 3.2Common equity (499 units) (10) 9/30/2017 499 278 0.1 6,187 6,607 6,337 3.3Resource Label Group, LLC Commercial Printing (exceptScreen and Books) Senior Secured Loan 10.19% (L +8.50%) 6/7/2017 11/26/2023 4,821 4,755 4,767 2.5 Security Alarm FinancingEnterprises, L.P. (5) Security Systems Services(except Locksmiths) Subordinated Loan (14) 14.00% cash /0.69% PIK (L +13.00%) 10/14/2016 6/19/2020 12,525 12,441 12,364 6.6 Sentry Centers Holdings, LLC Other Professional, Scientific,and Technical Services Senior Secured Loan 13.07% (L +11.50%) 1/25/2016 7/24/2019 4,195 4,156 4,259 2.3Preferred Equity (5,000 Series Cunits), 8% PIK (10) (13) 3/31/2014 527 527 0.3 4,195 4,683 4,786 2.693OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2017(Dollar amounts in thousands)Portfolio Company (1)Investment Type Industry Interest Rate(2) SpreadAboveIndex (2) InitialAcquisitionDate Maturity PrincipalAmount AmortizedCost FairValue PercentofNetAssetsSouthern Technical Institute, LLC(5) Colleges, Universities, andProfessional Schools Subordinated Loan (10) 15.00% PIK N/A 12/2/2014 12/2/2020 $3,520 $3,451 $1,201 0.6%Preferred Equity (1,764,720Class SP-1 units), 15.75% PIK (8)(10) 3/30/2016 2,094 — —Warrants (2,174,905 Class Aunits) (10) 3/30/2016 3/30/2026(12) 46 — — 3,520 5,591 1,201 0.6Stancor, L.P. (5) Pump and PumpingEquipment Manufacturing Senior Secured Loan 9.56% (L +8.00%) 8/19/2014 8/19/2019 7,919 7,896 7,919 4.2Preferred Equity (1,250,000Class A units), 8% PIK (8) (10) 8/19/2014 1,501 1,486 0.8 7,919 9,397 9,405 5.0The Escape Game, LLC (5) Other amusement andrecreation industries Senior Secured Loan 10.32% (L +8.75%) 12/22/2017 12/20/2022 7,000 6,948 6,948 3.7 TravelCLICK, Inc. Computer Systems Design andRelated Services Senior Secured Loan 9.32% (L +7.75%) 10/16/2015 11/6/2021 7,334 7,303 7,334 3.9 Truck Hero, Inc. Truck Trailer Manufacturing Senior Secured Loan 9.89% (L +8.25%) 5/30/2017 4/21/2025 7,014 6,971 7,064 3.8 United Biologics Holdings, LLC(5) Medical Laboratories Senior Secured Loan (11) 12.00% cash /2.00% PIK N/A 7/26/2012 4/30/2018 4,266 4,248 4,266 2.3Subordinated Loan (10) 8.00 % PIK N/A 7/6/2016 4/30/2019 7 7 7 —Preferred Equity (151,787 units)(10) 4/16/2013 9 92 —Warrants (29,374 units) (10) 7/26/2012 3/5/2022(12) 82 147 0.1 4,273 4,346 4,512 2.4 Total Non-control/Non-affiliateInvestments 199,332 209,360 197,374 104.9 94OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2017(Dollar amounts in thousands)Portfolio Company (1)Investment Type Industry Interest Rate(2) SpreadAboveIndex (2) InitialAcquisitionDate Maturity PrincipalAmount AmortizedCost FairValue PercentofNetAssetsAffiliate Investments All Metals Holding, LLC (5) Metal Service Centers andOther Metal MerchantWholesalers Senior Secured Loan 12.00% cash /1.00% PIK N/A 12/31/2014 12/28/2021 $12,869 $12,288 $12,759 6.8%Common Equity (637,954 units)(10) 12/31/2014 565 1,785 0.9 12,869 12,853 14,544 7.7Contract Datascan Holdings,Inc. (5) Office Machinery andEquipment Rental andLeasing Subordinated Loan 12.00% N/A 8/5/2015 2/5/2021 8,000 7,985 8,000 4.2Preferred Equity (3,061 Series Ashares), 10% PIK (10) 8/5/2015 4,347 5,964 3.2Common Equity (11,273 shares)(10) 6/28/2016 104 260 0.1 8,000 12,436 14,224 7.5Jobson Healthcare Information,LLC (5) (9) Other Professional, Scientific,and Technical Services Senior Secured Loan (11) 10.13% cash /5.30% PIK (L +13.43%) 7/23/2014 7/21/2019 15,447 15,241 12,910 6.9Common Equity (13 memberunits) 12/15/2017 — — —Warrants (1 member unit) (10) 7/23/2014 7/21/2019(12) 454 — — 15,447 15,695 12,910 6.9Master Cutlery, LLC (5) Sporting and RecreationalGoods and SuppliesMerchant Wholesalers Subordinated Loan 13.00% N/A 4/17/2015 4/17/2020 4,705 4,692 2,873 1.5Preferred Equity (3,723 Series Aunits), 8% PIK (8) (10) 4/17/2015 3,483 — —Common Equity (15,564 units)(10) 4/17/2015 — — — 4,705 8,175 2,873 1.5NeoSystems Corp.(5) Other Accounting Services Subordinated Loan 10.50% cash /1.25% PIK N/A 8/29/2014 8/13/2019 2,143 2,136 2,143 1.1Preferred Equity (521,962convertible shares), 10% PIK(10) 8/14/2014 1,390 2,248 1.2 2,143 3,526 4,391 2.395OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2017(Dollar amounts in thousands)Portfolio Company (1)Investment Type Industry Interest Rate(2) SpreadAboveIndex (2) InitialAcquisitionDate Maturity PrincipalAmount AmortizedCost FairValue PercentofNetAssetsPfanstiehl Holdings, Inc. (5) Pharmaceutical PreparationManufacturing Subordinated Loan 10.50% N/A 1/1/2014 9/29/2021 $3,788 $3,823 $3,755 2.0%Common Equity (400 Class Ashares) 1/1/2014 217 4,755 2.5 3,788 4,040 8,510 4.5TRS Services, LLC (5) Commercial and IndustrialMachinery and Equipment(except Automotive andElectronic) Repair andMaintenance Senior Secured Loan 10.07% (L +8.50%) 12/10/2014 12/10/2019 9,466 9,330 9,466 5.0Preferred Equity (329,266 ClassAA units), 15% PIK (10) 6/30/2016 401 409 0.2Preferred Equity (3,000,000Class A units), 11% PIK (8) (10) 12/10/2014 3,374 2,230 1.2Common Equity (3,000,000units) (10) 12/10/2014 572 — — 9,466 13,677 12,105 6.4Total Affiliate Investments 56,418 70,402 69,557 36.8 Control Investment MTE Holding Corp. (2) (5) Travel Trailer and CamperManufacturing Subordinated Loan (to MirageTrailers, LLC, a controlled,consolidated subsidiary of MTEHolding Corp.) 13.07% cash /1.50% PIK (L +13.50%) 11/25/2015 11/25/2020 7,186 7,144 7,118 3.8Common Equity (554 shares) 11/25/2015 3,069 3,450 1.8 7,186 10,213 10,568 5.6Total Control Investment 7,186 10,213 10,568 5.6 Total Investments $262,936 $289,975 $277,499 147.3% (1)Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as "restricted securities"as such term is defined under Regulation S-X Rule 6-03(f) or Securities Act Rule 144.(2)Substantially all of the investments that bear interest at a variable rate are indexed to LIBOR (L), and reset monthly, quarterly, or semi-annually. Variable-rate loans with anaggregate cost of $189,022 include LIBOR reference rate floor provisions of generally 1% to 2%; at December 31, 2017, approximately 7% of the Company's LIBOR referencedamounts are subject to a reference rate floor of 2.00%. For each investment, the Company has provided the spread over the reference rate and current interest rate in effect atDecember 31, 2017. Unless otherwise noted, all investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIKprovision.(3)Fair value was determined using significant unobservable inputs for all of the Company's investments. See Note 5 for further details.(4)The negative amount represents the excess of the par value of an unfunded commitment in excess of its fair value.(5)Investments (or portion thereof) held by SBIC I LP. All other investments pledged as collateral under the PWB Credit Facility.96OFS Capital Corporation and SubsidiariesConsolidated Schedule of Investments - ContinuedDecember 31, 2017(Dollar amounts in thousands)(6)Non-qualifying assets under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of the Company's assets, as defined under Section 55 of the 1940 Act, atthe time of acquisition of any additional non-qualifying assets. As of December 31, 2017, 97.53% of the Company's assets were qualifying assets.(7)Investment was on non-accrual status as of December 31, 2017, meaning the Company has ceased recognizing all or a portion of income on the investment. See Note 4 forfurther details.(8)The fair value of the most-recently recognized PIK dividend as of December 31, 2017, was $0.(9)The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certainco‑lenders pursuant to a payment waterfall. The reported interest rate of 9.28% at December 31, 2017, includes additional interest of 0.69% per annum as specified under thecontractual arrangement among the Company and the co‑lenders.(10)Non-income producing.(11)The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities aspayment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additionaldetails on these PIK investments, including the maximum annual PIK interest rate allowed as of December 31, 2017: Portfolio Company Investment Type Range of PIKOption Range of CashOption Maximum PIKRate AllowedCommunity Intervention Services, Inc. Subordinated Loan 0% or 6.00% 13.00% or 7.00% 6.00%Eblens Holdings, Inc. Subordinated Loan 0% or 1.00% 13.00% or 12.00% 1.00%Jobson Healthcare Information, LLC Senior Secured Loan 1.50% to 5.30% 13.93% to 10.13% 5.30%United Biologics Holdings, LLC Senior Secured Loan 0% or 2.00% 14.00% or 12.00% 2.00%(12)Represents expiration date of the warrants.(13)All or portion of investment held by a wholly-owned subsidiary subject to income tax.(14)The PIK provision is reset at the beginning of each interest period equal to the excess of reference rate over the reference rate floor of 1.00%. The PIK interest rate in the schedulerepresents the current PIK interest rate in effect.See Notes to Financial Statements.97OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 1. OrganizationOFS Capital Corporation (the "Company"), a Delaware corporation, is an externally managed, closed-end, non-diversified management investment company.The Company has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940Act"). In addition, for income tax purposes, the Company has elected to be treated as a regulated investment company ("RIC") under Subchapter M of Codeunder the Internal Revenue Code of 1986, as amended (the "Code").The Company’s investment objective is to provide stockholders with current income and capital appreciation through its strategic investment focus primarilyon debt investments and, to a lesser extent, equity investments primarily in middle-market companies principally in the United States. OFS CapitalManagement, LLC, a wholly owned subsidiary of OFSAM and registered investment advisor under the Advisers Act ("Advisor"), manages the day-to-dayoperations of, and provides investment advisory services to, the Company.In addition, OFS Advisor also serves as the investment adviser for Hancock Park Corporate Income, Inc. ("HPCI"), a Maryland corporation and a BDC. HPCI’sinvestment objective is similar to that of the Company. OFS Advisor also serves as the investment adviser for OFS Credit Company, Inc. ("OCCI"), a newlyorganized, non-diversified, externally managed, closed-end management investment company that has registered as an investment company under the 1940Act that primarily invests in CLO debt and subordinated securities. In addition, Orchard First Source Asset Management, LLC, a full-service provider ofcapital and leveraged finance solutions to U.S. Corporations ("OFSAM"), owns 2,946,474 shares, or 22%, of the outstanding common stock of the Company.The Company may make investments directly or through SBIC I LP, its investment company subsidiary licensed under the U.S. Small BusinessAdministration's ("SBA") small business investment company program ("SBIC Program"). The SBIC Program is designed to stimulate the flow of capital intoeligible businesses. SBIC I LP is subject to SBA regulatory requirements, including limitations on the businesses and industries in which it can invest,requirements to invest at least 25% of its "regulatory capital" in "eligible smaller businesses", as defined under the Small Business Investment Act of 1958, asamended ("SBIC Act"), limitations on the financing terms of investments, and capitalization thresholds that may limit distributions to the Company; and issubject to periodic audits and examinations of its financial statements.Note 2. Summary of Significant Accounting PoliciesBasis of presentation: The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in theUnited States of America ("GAAP"), including ASC Topic 946, Financial Services-Investment Companies, and the requirements for reporting on Form 10-K,the 1940 Act, and Articles 6 and 12 of Regulation S-X. In the opinion of management, the consolidated financial statements include all adjustments,consisting only of normal and recurring accruals and adjustments, necessary for fair presentation in accordance with GAAP. Certain amounts in the priorperiod financial statements have been reclassified to conform to the current year presentation.Principles of consolidation: The Company consolidates majority-owned investment company subsidiaries. The Company does not own any controlledoperating company whose business consists of providing services to the Company, which would also require consolidation. All intercompany balances andtransactions are eliminated upon consolidation.Investments: The Company applies fair value accounting in accordance with ASC Topic 820, Fair Value Measurements, which defines fair value, establishesa framework to measure fair value, and requires disclosures regarding fair value measurements. Fair value is defined as the price to sell an asset or transfer aliability in an orderly transaction between market participants at the measurement date. Fair value is determined through the use of models and othervaluation techniques, valuation inputs, and assumptions market participants would use to value the investment. Highest priority is given to prices foridentical assets quoted in active markets (Level 1) and the lowest priority is given to unobservable valuation inputs (Level 3). The availability of observableinputs can vary significantly and is affected by many factors, including the type of product, whether the product is new to the market, whether the product istraded on an active exchange or in the secondary market, and the current market conditions. To the extent that the valuation is based on less observable orunobservable inputs, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determiningfair value is greatest for financial instruments classified as Level 3 (i.e., those instruments valued using non-observable inputs), which comprise the entirety ofthe Company’s investments.98OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Changes to the valuation policy are reviewed by management and the Company’s board of directors (the "Board"). As the Company’s investments change,markets change, new products develop, and valuation inputs become more or less observable, the Company will continue to refine its valuationmethodologies.See Note 5 for more detailed disclosures of the Company’s fair value measurements of its financial instruments.Investment classification: The Company classifies its investments in accordance with the 1940 Act. Under the 1940 Act, “Control Investments” are definedas investments in those companies in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of boardrepresentation, “Affiliate Investments” are defined as investments in those companies in which the Company owns between 5% and 25% of the votingsecurities, and “Non-Control/Non-Affiliate Investments” are those that neither qualify as Control Investments nor Affiliate Investments.Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofinvestment income, expenses, gains and losses during the reporting period. Actual results could differ significantly from those estimates.Cash and cash equivalents:Cash and cash equivalents consist of cash and highly liquid investments not held for resale with original maturities of threemonths or less. The Company’s cash and cash equivalents are maintained with a member bank of the FDIC and at times, such balances may be in excess of theFederal Deposit Insurance Corporation ("FDIC") insurance limits. Included in cash and cash equivalents was $38,172 and $72,140 held in a US Bank Money Market Deposit Account as ofDecember 31, 2018 and 2017, respectively. In addition, the Company's use of cash and cash equivalents held by SBIC I LP is limited by SBA regulation,including, but not limited to, investment in eligible portfolio companies and general corporate purposes, subject to a statutory measure of undistributedaccumulated earnings.Revenue recognition:Interest income:Interest income is recorded on an accrual basis and reported as an interest receivable until collected. Interest income is accrued daily based onthe outstanding principal amount and the contractual terms of the debt investment. Certain of the Company’s investments contain a payment-in-kind interestincome provision (“PIK interest”). The PIK interest, computed at the contractual rate specified in the applicable investment agreement, is added to theprincipal balance of the investment, rather than being paid in cash, and recorded as interest income at fair value, as applicable, on the consolidated statementsof operations. The Company discontinues accrual of interest income, including PIK interest, when there is reasonable doubt that the interest income will becollected.Loan origination fees, original issue discount (“OID”), market discount or premium, and loan amendment fees (collectively, “Net Loan Fees”) are recorded asan adjustment to the amortized cost of the investment, and accreted or amortized as an adjustment to interest income over the life of the respective debtinvestment using a method that approximates the effective interest method. When the Company receives a loan principal payment, the unamortized Net LoanFees related to the paid principal is accelerated and recognized in interest income.Further, the Company may acquire or receive equity, warrants or other equity-related securities (“Equity”) in connection with the Company’s acquisition of,or subsequent amendment to, debt investments. The Company determines the cost basis of Equity based on its fair value, and the fair value of debtinvestments and other securities or consideration received. Any resulting difference between the face amount of the debt and its recorded cost resulting fromthe assignment of value to the Equity is treated as OID, and accreted into interest income as described above.Dividend income: Dividend income on common equity securities in limited liability companies, partnerships and other private entities, generally payable incash, is recorded at the time dividends are declared. Dividend income on preferred equity investments is accrued daily based on the contractual terms of thepreferred equity investment. Dividends on preferred equity securities may be payable in cash or in additional preferred securities, and are generally notpayable unless declared or upon liquidation. Declared dividends payable in cash are reported as dividend receivables until collected. Non-cash dividendspayable in additional preferred securities or contractually earned but not declared (“PIK dividends”) are recognized at fair value and recorded as anadjustment to the cost basis of the investment. Distributions in excess of the accumulated net income of the underlying portfolio company are recorded as areduction in the cost of the common or preferred stock investment.Fee income:The Company generates revenue in the form of management, valuation, and other contractual fees, that is recognized as the related services arerendered. In the general course of its business, the Company receives certain fees from portfolio companies which are non-recurring in nature. Such non-recurring fees include prepayment fees on certain loans repaid99OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) prior to their scheduled due date, which are recognized as earned when received, and fees for capital structuring or advisory services from certain portfoliocompanies, which are recognized as earned upon closing of the investment.Investment Transactions and net realized and unrealized gain or loss on investments: Investment transactions are reported on a trade-date basis. Unsettledtrades as of the balance sheet date are included in payable for investments purchased. Realized gains or losses on investments are measured by the differencebetween the net proceeds from the disposition and the amortized cost basis of the investment. Investments are valued at fair value as determined in good faithby Company management under the supervision and review of the Board. After recording all appropriate interest, dividend, and other income, some of whichis recorded as an adjustment to the cost basis of the investment as described above, the Company reports changes in the fair value of investments as netchanges in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.Non-accrual loans: When there is reasonable doubt that principal, cash interest, or PIK interest, will be collected, debt investments are placed on non-accrualstatus and the Company will cease recognizing cash interest, PIK interest, or Net Loan Fee amortization, as applicable. When an investment is placed on non-accrual status, all interest previously accrued but not collected , other than PIK interest that has been contractually added to the adjusted cost basis of theinvestment prior to the designation date, is reserved against current period interest income. Interest payments subsequently received on non-accrualinvestments may be recognized as income or applied to principal depending upon management’s judgment. Interest accruals and Net Loan Fee amortizationare resumed on non-accrual investments only when they are brought current with respect to principal, interest, and when, in the judgment of management, theinvestments are estimated to be fully collectible as to all principal and interest. In the opinion of management, if there is a question as to the ability of thedebtor to meet the terms of the loan agreement, or interest or principal is more than 90 days contractually past due, the loan investment will be placed on non-accrual status. Past due status is based on how long after the contractual due date a principal or interest payment is received. See Note 4 for furtherinformation.Income taxes: The Company has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. To qualify as a RIC, theCompany must, among other things, meet certain source of income and asset diversification requirements, and timely distribute at least 90% of its ICTI to itsstockholders. The Company has made, and intends to continue to make, the requisite distributions to its stockholders, which generally relieves the Companyfrom U.S. federal income taxes.Depending on the level of ICTI earned in a tax year, the Company may choose to retain ICTI in an amount less than that which would trigger U.S. federalincome tax liability under Subchapter M of the Code. However, the Company would be liable for a 4% excise tax on such income. Excise tax liability isrecognized when the Company determines its estimated current year annual investment company table income ("ICTI"), as defined in the Code, exceedsdistributions from current year ICTI. The Company recognized excise tax of $130, $0 and $0 for the years ended December 31, 2018, 2017 and 2016. SeeNote 8 for further information.The Company may utilize wholly owned holding companies taxed under Subchapter C of the Code ("Taxable Blockers") when making equity investments inportfolio companies taxed as pass-through entities to meet its source-of-income requirements as a RIC. Taxable Blockers, which are investment companiesunder GAAP, and are consolidated in the Company’s GAAP financial statements and may result in current and deferred federal and state income tax expensewith respect to income derived from those investments. Such income, net of applicable income taxes, is not included in the Company’s tax-basis netinvestment income until distributed by the Taxable Blocker, which may result in timing and character differences between the Company’s GAAP and tax-basis net investment income and realized gains and losses. Income tax expense from Taxable Blockers related to net investment income are included ingeneral and administrative expenses, or the applicable net realized or unrealized gain (loss) line item from which the federal or state income tax originated forcapital gains and losses. See Note 8 for further information.The Company evaluates tax positions taken in the course of preparing its tax returns to determine whether they are “more-likely-than-not” to be sustained bythe applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold could result in greater and undistributed ICTI,income and excise tax expense, and, if involving multiple years, a re-assessment of the Company’s RIC status. GAAP requires recognition of accrued interestand penalties related to uncertain tax benefits as income tax expense. There were no uncertain income tax positions at December 31, 2018 and 2017. Thecurrent and prior three tax years remain subject to examination by U.S. federal and most state tax authorities.Distributions: Distributions to common stockholders are recognized on the record date. The timing of distributions as well as the amount to be paid out as adistribution is determined by the Board each quarter. Distributions from net investment income100OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) and net realized gains are determined in accordance with the Code. Net realized capital gains, if any, are distributed at least annually, although the Companymay decide to retain such capital gains for investment. Distributions paid in excess of ICTI and not capital gains are considered returns of capital tostockholders.The Company has adopted a distribution reinvestment plan ("DRIP") that provides for reinvestment of any distributions the Company declares in cash onbehalf of its stockholders, unless stockholder elects to receive cash. As a result, if the Board authorizes and the Company declares a cash distribution, thenstockholders who have not “opted out” of the DRIP will have their cash distribution automatically reinvested in additional shares of the Company’s commonstock, rather than receiving the cash distribution.The Company may use newly issued shares under the guidelines of the DRIP, or the Company may purchase shares in the open market in connection with itsobligations under the plan.Deferred debt issuance costs: Deferred debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company’sborrowings. Deferred debt issuance costs are presented as a direct reduction of the related debt liability on the consolidated statements of assets and liabilitiesexcept for deferred debt issuance costs associated with the Company’s line of credit arrangements, which are included in prepaid expenses and other assets onthe consolidated statements of assets and liabilities. Unamortized debt issuance costs included in prepaid expenses and other assets on the consolidatedstatements of assets and liabilities as of December 31, 2018 and 2017 were $180 and $80, respectively. Deferred debt issuance costs are amortized to interestexpense over the term of the related debt.Goodwill: On December 4, 2013, in connection with the the Company's acquisition of the remaining ownership interests in SBIC I LP and SBIC I GP, LLC onDecember 4, 2013, making SBIC I LP a wholly owned subsidiary of the Company ("SBIC Acquisition"), the Company recorded goodwill of $1,077, which isincluded in prepaid expenses and other assets on the consolidated statements of assets and liabilities. Goodwill is not subject to amortization. Goodwill isevaluated for impairment annually or more frequently if events occur or circumstances change that indicate goodwill may be impaired. There have been nogoodwill impairments since the date of the SBIC Acquisition.Intangible asset: On December 4, 2013, in connection with the SBIC Acquisition, the Company recorded an intangible asset of $2,500 attributable to theSBIC license. The Company amortizes this intangible asset on a straight-line basis over its estimated useful life of 13 years. The Company expects to incurannual amortization expense of $195 in each annual period through December 31, 2025 and $145 in 2026.The Company tests its intangible asset for impairment if events or circumstances suggest that the asset carrying value may not be fully recoverable. Theintangible asset, net of accumulated amortization of $991 and $795 at December 31, 2018 and 2017, respectively, is included in prepaid expenses and otherassets in the consolidated statements of assets and liabilities.Interest expense: Interest expense is recognized on an accrual basis as incurred.Concentration of credit risk: Aside from its debt instruments, financial instruments that potentially subject the Company to concentrations of credit riskconsist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. Tomitigate this risk, the Company places cash deposits only with high credit quality institutions. Management believes this risk of loss is minimal. The amountof loss due to credit risk from debt investments if borrowers fail to perform according to the terms of the contracts, and the collateral or other security for thoseinstruments proved to be of no value to the Company, is equal to the Company's recorded investment in debt instruments and the unfunded loancommitments as disclosed in Note 6.101OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) New Accounting StandardsThe following table discusses recently issued ASUs by the FASB:Standard Description Period of Adoption Effect of Adoption on the Financial StatementsStandards that were adopted ASU No. 2018-13, Fair ValueMeasurement (Topic 820),Disclosure Framework -Changes to the DisclosureRequirements for Fair ValueMeasurement Eliminates, adds and modifies certaindisclosure requirements for fair valuemeasurements Third Quarter 2018prospectively No material impact to the Company's consolidatedfinancial statements.ASU 2016-15, Statement ofCash Flows Addresses eight specific cash flowissues with the objective of reducingthe existing diversity in practice inhow certain cash receipts and cashpayments are presented and classifiedin the statement of cash flows. First Quarter 2018prospectively No material impact to the Company's consolidatedfinancial statements.ASU 2016-19, TechnicalCorrections and Improvements Makes minor corrections andclarifications that affect a wide varietyof topics in the Accounting StandardsCodification, including anamendment to Topic 820, Fair ValueMeasurement, which clarifies thedifference between a valuationapproach and a valuation techniquewhen applying the guidance of thatTopic. The amendment also requiresan entity to disclose when there hasbeen a change in either or both avaluation approach and/or a valuationtechnique. The transition guidance forthe Topic 820 amendment must beapplied prospectively because it couldpotentially involve the use ofhindsight that includes fair valuemeasurements. First Quarter 2018prospectively No material impact to the Company's consolidatedfinancial statements.The following table discusses recently issued ASUs by the FASB yet to be adopted by the Company:Standard Description Effect of Adoption on the Financial StatementsStandards that are not yetadopted ASU 2017-04, Intangibles -Goodwill and Other (Topic350): Simplifying the Test forGoodwill Impairment Removes Step 2 of the goodwill impairment test, whichrequires a hypothetical purchase price allocation. Agoodwill impairment will now be the amount by which areporting unit's carrying value exceeds its fair value, not toexceed the carrying amount of goodwill. Annual or any interim goodwill impairment tests in fiscalyears beginning after December 15, 2019. Earlyapplication is permitted. The adoption of ASU 2017-04 isnot expected to have a material effect on the Company'sconsolidated financial statements.102OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Standard Description Effect of Adoption on the Financial StatementsStandards that are not yetadopted ASU 2017-08, PremiumAmortization on PurchasedCallable Debt Securities Shortens the amortization period for certain purchasedcallable debt securities held at a premium to the earliest calldate. Securities held at a discount are to continue to beamortized to maturity. Annual reporting periods beginning after December 15,2018, including interim periods within those fiscal years.Early adoption is permitted, including adoption in aninterim period. If an entity early adopts the ASU in aninterim period, any adjustments should be reflected as ofthe beginning of the fiscal year that includes that interimperiod. Additionally, in the period of adoption, an entityshould provide disclosures about a change in accountingprinciple. The adoption of ASU 2017-08 is not expected tohave a material effect on the Company's consolidatedfinancial statements.SEC Disclosure Update and SimplificationIn August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosurerequirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of informationto investors and simplify compliance. The Company adopted the final rule under SEC Release No. 33-10532 as of December 31, 2018. The Company hasevaluated the impact of the amendments and determined the effect of the adoption of the simplification rules on financial statements will be limited to themodification and removal of certain presentations on the financial statements.The SEC Release requires presentation changes to the Company's Consolidated Statements of Changes in Net Assets. The changes in presentation have beenretrospectively applied to the Consolidated Statements of Assets and Liabilities and Consolidated Statement of Changes in Net Assets for the years endedDecember 31, 2017. The following tables provide reconciliations of retrospective changes applied to the prior period. December 31, 2017Accumulated undistributed net investment income$9,404Accumulated undistributed net realized gains3,881Net unrealized depreciation on investments(12,480)Total distributable earnings$805 For the Year Ended December 31,Distributions to stockholders20172016Accumulated net investment income$14,158$12,157Accumulated net realized gains2,738169 Total distributions from total distributable earnings (accumulated losses)16,89612,326Return of capital distributions—858Total distributions to stockholders16,89613,184Note 3. Related Party TransactionsInvestment Advisory and Management Agreement: OFS Advisor manages the day-to-day operations of, and provides investment advisory services to, theCompany pursuant to an agreement dated November 7, 2012 ("Investment Advisory103OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Agreement"). The Investment Advisory Agreement was most recently re-approved on April 5, 2018. Under the terms of the Investment Advisory Agreement,which are in accordance with the 1940 Act and subject to the overall supervision of the Company’s Board, OFS Advisor is responsible for sourcing potentialinvestments, conducting research and diligence on potential investments and equity sponsors, analyzing investment opportunities, structuring investments,and monitoring investments and portfolio companies on an ongoing basis. OFS Advisor is a subsidiary of OFSAM and a registered investment advisor underthe Investment Advisers Act of 1940, as amended.OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to the Company and OFS Advisor is free to furnish similar services toother entities, including other BDCs affiliated with OFS Advisor, so long as its services to the Company are not impaired. OFS Advisor also serves as theinvestment adviser or collateral manager to CLOs and other companies, including HPCI and OCCI.OFS Advisor receives fees for providing services, consisting of two components: a base management fee and an incentive fee. The base management fee iscalculated at an annual rate of 1.75% and based on the average value of the Company’s total assets (other than cash and cash equivalents but including assetspurchased with borrowed amounts and including assets owned by any consolidated entity) at the end of the two most recently completed calendar quarters,adjusted for any share issuances or repurchases during the quarter. OFS Advisor has elected to exclude the value of the intangible asset and goodwillresulting from the SBIC Acquisition from the base management fee calculation.The base management fee is payable quarterly in arrears and was $6,335, $4,999, and $4,516, for the years ended December 31, 2018, 2017, and 2016,respectively. The Company owed the Advisor management fees of $1,749 and $1,273 as of December 31, 2018 and 2017, respectively.The incentive fee has two parts. The first part ("Part One") is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee netinvestment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income,dividend income and any other income (including any other fees such as commitment, origination and sourcing, structuring, diligence and consulting fees orother fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter,minus operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement (as defined below)and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment incomeincludes, in the case of investments with a deferred interest or dividend feature (such as OID, debt instruments with PIK interest, equity investments withaccruing or PIK dividend and zero coupon securities), accrued income that the Company has not yet received in cash.Pre-incentive fee net investment income is expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness andbefore taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter and adjusted for any shareissuances or repurchases during such quarter. Accordingly, as a result of the follow-on public offering of 3,625,000 shares of common stock in April 2017 (the"Offering"), the Part One incentive fee was reduced by $593 for the three months ended June 30, 2017, determined by adjusting the value of net assets, asdefined above, at March 31, 2017 by the daily weighted average of the Offering proceeds available to the Company during the three months ended June 30,2017. The incentive fee with respect to pre-incentive fee net income is 20.0% of the amount, if any, by which the pre-incentive fee net investment income forthe immediately preceding calendar quarter exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of eachcalendar quarter. Under this provision, in any calendar quarter, OFS Advisor receives no incentive fee until the net investment income equals the hurdle rateof 2.0%, but then receives, as a “catch-up,” 100.0% of the pre-incentive fee net investment income with respect to that portion of such pre-incentive fee netinvestment income, if any, that exceeds the hurdle rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment incomeexceeds 2.5% in any calendar quarter, OFS Advisor will receive 20.0% of the pre-incentive fee net investment income.Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss. Forexample, if the Company receives pre-incentive fee net investment income in excess of the quarterly minimum hurdle rate, the Company will pay theapplicable incentive fee even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investmentincome used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the base managementfee. These calculations are appropriately prorated for any period of less than three months.104OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) The second part ("Part Two") of the incentive fee (the “Capital Gain Fee”) is determined and payable in arrears as of the end of each calendar year (or upontermination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2012, and equals 20.0% of the Company’saggregate realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed netof all realized capital losses and unrealized capital depreciation through the end of such year, less all previous amounts paid in respect of the Capital GainFee; provided that the incentive fee determined as of December 31, 2012, was calculated for a period of shorter than twelve calendar months to take intoaccount any realized capital gains computed net of all realized capital losses and unrealized capital depreciation for the period beginning on the date of theCompany’s election to be a BDC and ending December 31, 2012.The Company accrues the Capital Gain Fee if, on a cumulative basis, the sum of net realized capital gains and (losses) plus net unrealized appreciation and(depreciation) is positive. If, on a cumulative basis, the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation) decreasesduring a period, the Company will reverse any excess Capital Gain Fee previously accrued such that the amount of Capital Gains Fee accrued is no more than20% of the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation). OFS Advisor has excluded from the Capital Gain Feecalculation any realized gain with respect to (1) the SBIC Acquisition, and (2) the WM Asset Sale.The Company incurred incentive fee expense of $4,409, $2,962, and $3,333 for the years ended December 31, 2018, 2017, and 2016, respectively. Incentivefees for the years ended December 31, 2018, 2017, and 2016, included Part One incentive fees (based on net investment income) of $4,409, which includedan irrevocably waiver of receipt of $22 by OFS Advisor, $2,962, which included a share issue adjustment of $(593) related to the Company's Offering, and$3,472, respectively, and Part Two incentive fees (based upon net realized and unrealized gains and losses, or capital gains) of $0, $0 and $(139),respectively.The Company owed the Advisor incentive fees of $1,368 and $714 as of December 31, 2018 and 2017, respectively.License Agreement: The Company entered into a license agreement with OFSAM under which OFSAM has agreed to grant the Company a non-exclusive,royalty-free license to use the name “OFS.”Administration Agreement: OFS Services furnishes the Company with office facilities and equipment, necessary software licenses and subscriptions, andclerical, bookkeeping and record keeping services at such facilities pursuant to an Administration Agreement. The Administration Agreement was mostrecently re-approved by the Board on April 5, 2018. Under the Administration Agreement, OFS Services performs, or oversees the performance of, theCompany’s required administrative services, which include being responsible for the financial records that the Company is required to maintain andpreparing reports to its stockholders and all other reports and materials required to be filed with the SEC or any other regulatory authority. In addition, OFSServices assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its tax returns and the printing anddissemination of reports to its stockholders, and generally oversees the payment of the Company’s expenses and the performance of administrative andprofessional services rendered to the Company by others. Under the Administration Agreement, OFS Services also provides managerial assistance on theCompany’s behalf to those portfolio companies that have accepted the Company’s offer to provide such assistance. Payment under the AdministrationAgreement is equal to an amount based upon the Company’s allocable portion of OFS Services’s overhead in performing its obligations under theAdministration Agreement, including, but not limited to, rent, information technology services and the Company’s allocable portion of the cost of itsofficers, including its chief executive officer, chief financial officer, chief compliance officer, chief accounting officer, and their respective staffs. To theextent that OFS Services outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to OFSServices.Administration fee expense was $1,601, $1,314 and $1,304 for the years ended December 31, 2018, 2017, and 2016, respectively. The Company owed OFSServices administration fees of $577 and $476 as of December 31, 2018 and 2017, respectively.105OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 4. InvestmentsAs of December 31, 2018, the Company had loans to 44 portfolio companies, of which 88% were senior secured loans and 12% were subordinated loans, atfair value, as well as equity investments in 13 of these portfolio companies. The Company also held an equity investment in six portfolio companies in whichit did not hold a debt investment. At December 31, 2018, investments consisted of the following: Percentage of Total Percentage of Total AmortizedCost Amortized Cost Net Assets Fair Value Fair Value Net AssetsSenior secured debt investments$325,873 78.8% 186.2% $319,017 80.4% 182.3%Subordinated debt investments56,212 13.6 32.1 44,540 11.2 25.4Preferred equity19,620 4.7 11.2 14,613 3.7 8.4Common equity and warrants11,606 2.8 6.6 18,627 4.7 10.6Total$413,311 100.0% 236.1% $396,797 100.0% 226.7%In June 2018, the Company's investment in Southern Technical Institute, LLC was restructured. The Company converted its subordinated note, SP-1 preferredshares, and warrants for a $1,471 subordinated loan and 1,764,720 shares of Class A-1 common units. The cost and fair value of the securities received were $-0- and $-0- as of December 31, 2018. The Company recognized a realized loss on the restructuring of $5,608 for the year ended December 31, 2018, of which$4,407 was recognized as unrealized losses as of December 31, 2017.At December 31, 2018, the Company had three loans (Community Intervention Services, Inc., Southern Technical Institute, LLC and Master Cutlery, LLC)on non-accrual status with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $12,403 and $850thousand, respectively.In August 2018, the Elgin Fasteners Group senior secured loan became contractually due. The lending group entered into a forbearance agreement withrespect to the maturity date through September 26, 2019, subject to other terms and conditions. The investment continues to accrue interest as the borrowerhas continued to make interest and amortization payments.At December 31, 2018, all of the Company’s investments were domiciled in the United States. The industry compositions of the Company’s investmentportfolio were as follows: Percentage of Total Percentage of Total AmortizedCost Amortized Cost Net Assets Fair Value Fair Value Net AssetsAdministrative and Support and Waste Managementand Remediation Services Security Systems Services (except Locksmiths)$6,5161.6% 3.7% $5,901 1.5% 3.4%Temporary Help Services14,0593.4 8.0 13,9933.5 8.0Arts, Entertainment, and Recreation Other Amusement and Recreation Industries10,6912.6 6.1 10,5112.6 6.0Construction Electrical Contractors and Other Wiring InstallationContractors17,5254.2 10.0 17,1344.3 9.8Plumbing, Heating, and Air-Conditioning Contractors 9,0612.2 5.2 8,2352.1 4.7Education Services Colleges, Universities, and Professional Schools — — — — — —Finance and Insurance Direct Health and Medical Insurance Carriers5,7001.4 3.3 5,5701.4 3.2Insurance Agencies and Brokerages9,4892.3 5.4 9,2902.3 5.3106OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Percentage of Total Percentage of Total Amortized Cost Amortized Cost Net Assets Fair Value Fair Value Net AssetsHealth Care and Social Assistance Child Day Care Services8,1262.0 4.6 7,7592.0 4.4Home Health Care Services11,2032.7 6.4 11,1762.8 6.4Medical Laboratories91— 0.1 45— —Offices of Physicians, Mental Health Specialists10,1852.5 5.8 9,7712.5 5.6Outpatient Mental Health and Substance AbuseCenters11,6032.8 6.6 3,9331.0 2.2Information Data Processing, Hosting, and Related Services11,9092.9 6.8 11,8143.0 6.7Software Publishers32,7507.9 18.6 29,7787.5 16.9Manufacturing Bolt, Nut, Screw, Rivet, and Washer Manufacturing3,6450.9 2.1 3,5090.9 2.0Commercial Printing (except Screen and Books)4,7671.2 2.7 4,7721.2 2.7Other Aircraft Parts and Auxiliary EquipmentManufacturing5,3941.3 3.1 4,1411.0 2.4Pharmaceutical Preparation Manufacturing4,0311.0 2.3 12,1483.1 6.9Printing Machinery and Equipment Manufacturing5,0001.2 2.9 4,8411.2 2.8Pump and Pumping Equipment Manufacturing1,5010.4 0.9 1,4160.4 0.8Travel Trailer and Camper Manufacturing10,3372.5 5.9 9,9452.5 5.7Truck Trailer Manufacturing6,9771.7 4.0 6,8081.7 3.9Unlaminated Plastics Profile Shape Manufacturing6,0601.5 3.5 5,9011.5 3.4Other Services (except Public Administration) Automotive Body, Paint, and Interior Repair andMaintenance3,8020.9 2.2 3,7470.9 2.1Automotive Oil Change and Lubrication Shops20,6945.0 11.8 20,8395.3 11.9Commercial and Industrial Machinery and Equipment(except Automotive and Electronic) Repair andMaintenance19,0284.6 10.9 15,7454.0 9.0Professional, Scientific, and Technical Services Other Accounting Services1,5370.4 0.9 2,2500.6 1.3Other Computer Related Services12,8773.1 7.4 12,9043.3 7.4Other Professional, Scientific, and Technical Services9,3022.3 5.3 9,7362.5 5.6Research and Development in the Social Sciences andHumanities29,6937.2 17.0 29,0167.3 16.5Public Administration 107OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Percentage of Total Percentage of Total AmortizedCost Amortized Cost Net Assets Fair Value Fair Value Net AssetsOther Justice, Public Order, and Safety Activities9,8322.4 5.6 9,4372.4 5.4Real Estate and Rental and Leasing Home Health Equipment Rental9000.2 0.5 89— 0.1Office Machinery and Equipment Rental and Leasing13,0383.2 7.4 16,9654.3 9.7Retail Trade Cosmetics, Beauty Supplies, and Perfume Stores6,3341.5 3.6 6,2921.6 3.6Shoe store9,5682.2 5.5 9,5432.4 5.5Supermarkets and Other Grocery (except Convenience)Stores1,3860.3 0.8 1,3490.3 0.8All Other General Merchandise Stores5,9301.4 3.4 5,3541.2 3.1Transportation and Warehousing General Warehousing and Storage20,1184.9 11.5 20,6475.2 11.8Wholesale Trade Business to Business Electronic Markets1,9590.5 1.1 1,9140.5 1.1Industrial Machinery and Equipment MerchantWholesalers9,7062.3 5.5 9,0862.3 5.2Industrial Supplies Merchant Wholesalers6,8581.7 3.9 6,8581.7 3.9Sporting and Recreational Goods and SuppliesMerchant Wholesalers8,2472.0 4.7 8500.2 0.5Stationery and Office Supplies Merchant Wholesalers15,8823.7 9.1 15,7854.0 9.0$413,311100.0% 236.1% $396,797100.0% 226.7%As of December 31, 2017, the Company had loans to 35 portfolio companies, of which 79% were senior secured loans and 21% were subordinated loans, atfair value, as well as equity investments in 17 of these portfolio companies. The Company also held an equity investment in two portfolio companies inwhich it did not hold a debt investment. At December 31, 2017, investments consisted of the following:At December 31, 2017, investments consisted of the following: Percentage of Total Percentage of Total AmortizedCost Amor-tizedCost Net Assets Fair Value Fair Value Net AssetsSenior secured debt investments$196,020 67.6% 104.1% $195,112 70.3% 103.5%Subordinated debt investments63,031 21.7% 33.5 51,198 18.4% 27.2Preferred equity24,103 8.3% 12.8 19,200 6.9% 10.2Common equity and warrants6,821 2.4% 3.6 11,989 4.3% 6.4Total$289,975 100.0% 154.0% $277,499 100.0% 147.3%In December 2017, the Company's investment in Jobson Healthcare Information, LLC ("Jobson") was restructured, whereby the lender group, including theCompany, purchased all the outstanding equity of Jobson for a nominal purchase price. Immediately after the restructuring, and as of December 31, 2017, theCompany owned approximately 12.6% of the common equity of Jobson. In February 2018, in connection with the restructuring, the Company sold itswarrant investment, on a pro-rata basis, to the other members of the lender group for a nominal amount. As of December 31, 2017, the amortized cost and108OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) fair value of the Company's common equity investment was $-0-; the amortized cost and fair value of the Company's warrant investment was $453 and $-0-,respectively; and the amortized cost and fair value of the Company's debt investment was $15,241 and $12,910, respectively. The Company recognizedrealized losses of $3,931 on its senior secured debt investment and warrants upon their sale during the year ended December 31, 2018.In July 2017, the Company's senior secured debt investment with a cost basis of $6,701, and preferred equity investments, with an aggregate cost basis of$247, in My Alarm Center, LLC, were restructured and exchanged for common equity and a new class of preferred equity securities with a fair value of $-0-and $1,745 respectively. As of June 30, 2017, the Company recognized cumulative unrealized losses of $5,203, which upon restructuring, was realizedduring the quarter ended September 30, 2017.At December 31, 2017, the Company had two loans (Community Intervention Services, Inc. and Southern Technical Institute, LLC) on non-accrual statuswith respect to all interest and unamortized Net Loan Fees with an amortized cost and fair value of $11,100 and $1,200, respectively.At December 31, 2017, all but one (domiciled in Canada) of the Company’s investments, with an amortized cost and fair value of $3,939 and $4,070,respectively, were domiciled in the United States. The industry compositions of the Company’s investment portfolio were as follows: Percentage of Total: Percentage of Total: AmortizedCost Amortized Cost Net Assets Fair Value Fair Value Net AssetsAdministrative and Support and Waste Managementand Remediation Services Security Systems Services (except Locksmiths) $15,179 5.2% 8.1% $15,145 5.5% 8.0%Arts, Entertainment, and Recreation Fitness and Recreational Sports Centers 17,941 6.2 9.5 18,628 6.7 9.9Other Amusement and Recreation Industries 6,948 2.4 3.7 6,948 2.5 3.7Construction Electrical Contractors and Other Wiring InstallationContractors 18,425 6.4 9.8 18,505 6.7 9.8Education Services Colleges, Universities, and Professional Schools 5,591 1.9 3.0 1,201 0.4 0.6Finance and Insurance Insurance Agencies and Brokerages 9,579 3.3 5.1 9,417 3.4 5.0Offices of Real Estate Agents and Brokers 3,939 1.4 2.1 4,070 1.5 2.2Health Care and Social Assistance Medical Laboratories 4,346 1.5 2.3 4,512 1.6 2.4Offices of Physicians, Mental Health Specialists 5,547 1.9 2.9 5,503 2.0 2.9Outpatient Mental Health and Substance AbuseCenters 7,639 2.6 4.1 — — —Manufacturing Bolt, Nut, Screw, Rivet, and Washer Manufacturing 3,873 1.3 2.1 3,544 1.3 1.9Commercial Printing (except Screen and Books) 4,755 1.6 2.5 4,767 1.7 2.5Other Aircraft Parts and Auxiliary EquipmentManufacturing 5,375 1.9 2.9 5,375 1.9 2.9Pharmaceutical Preparation Manufacturing 4,040 1.4 2.1 8,510 3.1 4.5109OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Percentage of Total: Percentage of Total: AmortizedCost Amortized Cost Net Assets Fair Value Fair Value Net AssetsPump and Pumping Equipment Manufacturing 9,397 3.2 5.0 9,405 3.4 5.0Travel Trailer and Camper Manufacturing 10,213 3.5 5.5 10,568 3.7 5.5Truck Trailer Manufacturing 6,971 2.4 3.8 7,064 2.5 3.7Other Services (except Public Administration) Automotive Oil Change and Lubrication Shops 24,748 8.5 13.0 24,984 9.0 13.5Commercial and Industrial Machinery and Equipment(except Automotive and Electronic) Repair andMaintenance 13,677 4.8 7.3 12,105 4.4 6.4Professional, Scientific, and Technical Services Computer Systems Design and Related Services 7,303 2.5 3.9 7,334 2.6 3.9Other Accounting Services 3,526 1.2 1.9 4,391 1.6 2.3Other Professional, Scientific, and Technical Services 23,854 8.2 12.5 21,266 7.7 11.3Testing Laboratories 3,470 1.2 1.8 3,439 1.2 1.8Veterinary Services 743 0.3 0.4 748 0.3 0.4Public Administration Other Justice, Public Order, and Safety Activities 9,813 3.4 5.2 9,919 3.6 5.3Real Estate and Rental and Leasing Home Health Equipment Rental 900 0.3 0.5 141 0.1 0.1Office Machinery and Equipment Rental and Leasing 12,436 4.3 6.6 14,224 5.1 7.6Retail Trade Cosmetics, Beauty Supplies, and Perfume Stores 3,492 1.2 1.9 3,472 1.3 1.8Shoe store 9,462 3.3 5.0 9,497 3.4 5.0Warehouse Clubs and Supercenters 9,158 3.2 4.9 9,063 3.3 4.8All Other General Merchandise Stores 6,607 2.3 3.5 6,337 2.3 3.4Wholesale Trade Metal Service Centers and Other Metal MerchantWholesalers 12,853 4.4 6.8 14,544 5.2 7.7Sporting and Recreational Goods and SuppliesMerchant Wholesalers 8,175 2.8 4.3 2,873 1.0 1.5 $289,975 100.0% 154.0% $277,499 100.0% 147.3%Unconsolidated Significant Subsidiaries: In accordance with Regulation S-X and GAAP, the Company is not permitted to consolidate any subsidiary orother entity that is not an investment company, including those in which the Company has a controlling interest unless the business of the controlledoperating company consists of providing services to the Company. In accordance with Regulation S-X Rules 3-09 and 4-08(g), the Company evaluates itsunconsolidated controlled portfolio companies as significant subsidiaries under the respective rules. As of December 31, 2017, MTE Holding Corp. andSubsidiaries was considered a significant unconsolidated subsidiary under Regulation S-X Rule 4-08(g). The Company's voting ownership in MTE HoldingCorp. and Subsidiaries is limited to 50% through a substantive participating voting rights110OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) agreement with an unaffiliated investor. Based on the requirements under Regulation S-X Rule 4-08(g), the summarized consolidated financial information ofMTE Holding Corp. and Subsidiaries is presented below: December 31Balance Sheet: 20182017Current assets $5,900$7,161Noncurrent assets 25,10325,408Total assets $31,003$32,569Current liabilities $979$3,116Noncurrent liabilities 19,88617,276Total liabilities 20,86520,392Non-controlling interest 4,5265,675Controlling interest 5,6126,502Total equity $10,138$12,177 Year Ended December 31Summary of Operations: 20182017 2016Net Sales $29,902$31,614 $27,704Gross Profit 3,2169,857 7,436Net income (loss) (597)2,106 2,232Net income (loss) attributable to MTE Holding Corp. 1911,594 1,235Note 5. Fair Value of Financial InstrumentsInvestmentsThe Company’s investments are valued at fair value as determined in good faith by Company management under the supervision, and review and approval ofthe Board. These fair values are determined in accordance with a documented valuation policy and a consistently applied valuation process.Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date. Fair values are determined with models or other valuation techniques, valuation inputs, and assumptions market participants woulduse in pricing an asset or liability. Valuation inputs are organized in a hierarchy that gives the highest priority to prices for identical assets or liabilitiesquoted in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of inputs in the fair value hierarchy are describedbelow:Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.Level 2: Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset orliability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputsinclude: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities inmarkets that are not active, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derivedprincipally from or corroborated by observable market data. Level 3: Unobservable inputs for the asset or liability, and situations where there is little, if any, market activity for the asset or liability at themeasurement date.The inputs into the determination of fair value are based upon the best information under the circumstances and may require significant managementjudgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, aninvestment’s level within the fair value hierarchy is based on the lowest level111OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement inits entirety requires judgment, and considers factors specific to the investment.The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the measurement date. All ofthe Company’s investments, which are measured at fair value, were categorized as Level 3 based upon the lowest level of significant input to the valuations.There were no transfers among Level 1, 2 and 3 for the years ended December 31, 2018, 2017, and 2016.Each quarter, for investments for which unadjusted quoted prices in active markets are not available, the Company assesses whether market quotations, pricesfrom pricing services or bids from brokers or dealers (collectively, "Indicative Prices") are available, as well as the Company's ability to transact at suchIndicative Prices. Investments for which sufficient Indicative Prices exist are generally valued consistent with such Indicative Prices. The Companyperiodically corroborates observed Indicative Prices with its actual investment purchase prices and/or other valuation techniques, such as the discounted cashflow method described below. Based on the corroborating analysis and the experience of the Company’s management in purchasing and selling theseinvestments, the Company believes that these Indicative Prices may be reasonable indicators of fair value. In certain instances, the Company may not rely onor may only partially rely on the Indicative Prices when the Company determines such Indicative Prices are not of sufficient strength to rely on as the soleindication of fair value. In such instances, the Company applies a weighting factor to the Indicative Price and an alternative fair value analysis, typically adiscounted cash flow analysis. The weighting factor placed on an Indicative Price is applied consistently based upon its relative strength, which considers,among other factors, and when available, the depth and liquidity of the Indicative Price. Weighting factors are not significant to the overall fair valuemeasurement, but rather are applied to incorporate relevant market data when available.In addition, each quarter, the Company assesses whether an arm’s length transaction occurred in the same security, including the Company's new investmentsduring the quarter, the cost of which (“Transaction Prices”), may be considered a reasonable indication of fair value for up to three months after thetransaction date.Due to the private nature of this marketplace (meaning actual transactions are not publicly reported), and the non-binding nature of the Indicative Prices, andthe general inability to observe the input for the full length of the term of an investment, the Company believes that these valuation inputs are classified asLevel 3 within the fair value hierarchy.Investments that are not valued using Indicative Prices or Transaction Prices are typically valued using two different valuation techniques. The Companytypically estimates the fair value of debt investments by a discounted cash flows technique in which a current price is imputed for the investment based uponan assessment of the expected market yield (or discount rate) for similarly structured investments with a similar level of risk. The Company considers thecurrent contractual interest rate, the maturity and other terms of the investment relative to risk of the portfolio company and various market indices. A keydeterminant of portfolio-company risk is the leverage through the investment relative to earnings metrics of the portfolio company. The fair value ofCompany’s equity investments as well as certain of its non-performing debt investments are estimated through analysis of the portfolio companies’ enterprisevalue under a market approach. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values ofdebt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining enterprise value under the market approachinvolves multiple analysis whereby appropriate multiples are applied to an earnings metric of the portfolio company, typically earnings before net interestexpense, income tax expense, depreciation and amortization (“EBITDA”). EBITDA multiples are typically determined based upon review of marketcomparable transactions and publicly traded comparable companies, if any. The Company may also utilize other portfolio-company earnings metrics todetermine enterprise value, such as recurring monthly revenue ("RMR”) or a delineated measure of portfolio company EBITDA. Application of thesevaluation methodologies involves a significant degree of judgment by management.Due to the inherent uncertainty of determining the fair value of Level 3 investments, the fair value of the investments may differ significantly from the valuesthat would have been used had a ready market or observable inputs existed for such investments and may differ materially from the values that mayultimately be received or settled. Further, such investments are generally subject to legal and other restrictions, or otherwise are less liquid than publiclytraded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company might realize significantlyless than the value at which such investment had previously been recorded. The Company’s investments are subject to market risk. Market risk is thepotential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which theinvestments are traded.112OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) The following tables provide quantitative information about the Company’s significant Level 3 fair value inputs to the Company’s fair value measurementsas of December 31, 2018 and 2017. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy, theCompany may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The table below is notintended to be exhaustive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements. Fair Value atDecember 31, 2018(1) Valuation technique Unobservable inputs Range(Weighted average)Debt investments:Senior secured$295,087Discounted cash flowDiscount rates6.94% - 19.70% (12.49%)Subordinated36,394Discounted cash flowDiscount rates7.16% - 15.40% (7.21%)8,146Market approachEBITDA multiples3.50x - 7.65x (5.10x)Equity investments Preferred equity12,039Market approachEBITDA multiples 4.50x - 8.50x (7.42x) 2,574 Market approach Reoccurring MonthlyRevenue 38.0x - 42.0x (40.0x) Common equity andwarrants18,627Market approachEBITDA multiples3.50x - 11.00x (8.68x)(1)Excludes $23,930, $-0-, and $-0- of senior secured debt investments, subordinated debt investments, and equity investments, respectively, valued at aTransaction Price. Fair Value atDecember 31, 2017(1) Valuation technique Unobservable inputs Range(Weighted average)Debt investments: Senior secured$152,231 Discounted cash flow Discount rates 10.01% - 16.50% (12.24%) 12,910 Enterprise value EBITDA multiples 7.50x - 7.50x (7.50x) 9,063 Indicative Prices Broker-dealers' quotes N/A Subordinated47,117 Discounted cash flow Discount rates 11.24% - 16.90% (14.69%) 4,074 Market approach EBITDA multiples 4.25x - 7.25x (6.37x) Equity investments Preferred equity19,200 Market approach EBITDA multiples 4.25x - 13.48x (7.80x) Common equity andwarrants11,489 Market approach EBITDA multiples 4.25x - 8.28x (6.27x)(1)Excludes $20,908, $7, and $500 of senior secured debt investments, subordinated debt investments, and equity investments, respectively, valued at aTransaction Price.Changes in market credit spreads or events impacting the credit quality of the underlying portfolio company (both of which could impact the discount rate),as well as changes in EBITDA and/or EBITDA multiples, among other things, could have a significant impact on fair values, with the fair value of a particulardebt investment susceptible to change in inverse relation to the changes in the discount rate. Changes in EBITDA and/or EBITDA multiples, as well aschanges in the discount rate, could have a significant impact on fair values, with the fair value of an equity investment susceptible to change in tandem withthe changes in EBITDA and/or EBITDA multiples, and in inverse relation to changes in the discount rate. Due to wide range of approaches towardsdeveloping input assumptions to these valuation techniques and the degree of subjectivity used in making the estimates, comparisons between theCompany’s disclosures and those of other companies may not be meaningful.113OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) The following tables present changes in investments measured at fair value using Level 3 inputs for the years ended December 31, 2018 and 2017: Year Ended December 31, 2018 SeniorSecured DebtInvestments SubordinatedDebtInvestments PreferredEquity Common Equityand Warrants TotalLevel 3 assets, January 1, 2018$195,112$51,198$19,200$11,989$277,499 Net realized gain (loss) on investments(3,076) (3,469) (1,889) 3,655 (4,779)Net unrealized appreciation (depreciation) on investments(5,944) 161 (104) 1,853 (4,034)Amortization of Net Loan Fees2,076 212 — — 2,288Capitalized PIK interest and dividends388 668 907 — 1,963Amendment fees(159) (2) — — (161)Purchase and origination of portfolio investments245,278 20,930 338 5,609 272,155Proceeds from principal payments on portfolio investments(75,541) (25,158) — — (100,699)Sale and redemption of portfolio investments(39,117) — (3,339) (4,979) (47,435)Reclassification between preferred equity and common equityand warrants— — (500) 500 — Level 3 assets, December 31, 2018$319,017$44,540$14,613$18,627$396,797 Year Ended December 31, 2017 SeniorSecured DebtInvestments SubordinatedDebtInvestments PreferredEquity Common Equityand Warrants TotalLevel 3 assets, January 1, 2017$180,955 $63,410 $23,721 $13,541 $281,627 Net realized gain on investments(4,908) — 10,704 1,037 6,833Net unrealized appreciation (depreciation) on investments467 (8,667) (5,331) (1,265) (14,796)Amortization of Net Loan Fees1,395 55 — — 1,450Capitalized PIK interest and dividends1,042 466 1,399 — 2,907Amendment fees(280) — — — (280)Purchase and origination of portfolio investments127,812 9,244 4,631 1,213 142,900Proceeds from principal payments on portfolio investments(82,137) (22,941) — — (105,078)Sale and redemption of portfolio investments(17,858) — (17,669) (2,537) (38,064)Conversion from debt investment to equity investment (Note4)(1,745) — 1,745 — —Conversion from subordinated to senior secured debtinvestment (Note 4)(9,631) 9,631 — — — Level 3 assets, December 31, 2017$195,112 $51,198 $19,200 $11,989 $277,499114OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) The net unrealized appreciation (depreciation) reported in the Company’s consolidated statements of operations for the years ended December 31, 2018 and2017, attributable to the Company’s Level 3 assets still held at those respective year ends was as follows: Year Ended December 31, 20182017Senior secured debt investments$(6,738)$1,013Subordinated debt investments138(8,681)Preferred equity(2,172)(767)Common equity and warrants2,573(2,061)Net unrealized depreciation on investments held$(6,199)$(10,496)Other Financial Assets and LiabilitiesGAAP requires disclosure of the fair value of financial instruments not reported at fair value on a recurring basis for which it is practical to estimate suchvalue. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value ofsuch items due to the short maturity of such instruments. The PWB Facility is a variable rate instrument and fair value is approximately book value.The following tables present the fair value measurements of the Company's debt and indicate the fair value hierarchy of the significant unobservable inputsutilized by the Company to determine such fair values as of December 31, 2018 and 2017: December 31, 2018DescriptionLevel 1 Level 2 Level 3 (1) TotalOFS Capital Corporation 6.375% Notes due 2025$48,500 $— $— $48,500OFS Capital Corporation 6.5% Notes due 202546,603 — — 46,603SBA-guaranteed debentures— — 147,956 147,956Total debt, at fair value$95,103 $— $147,956 $243,059 December 31, 2017DescriptionLevel 1 Level 2 Level 3 (1) TotalSBA-guaranteed debentures$— $— $155,510 $155,510Total debt, at fair value$— $— $155,510 $155,510(1) For Level 3 measurements, fair value is estimated by discounting remaining payments using current market rates for similar instruments at themeasurement date and considering such factors as the legal maturity date.The following are the carrying values and fair values of the Company’s debt as of December 31, 2018 and 2017: As of December 31, 2018 As of December 31, 2017DescriptionCarrying Value Fair Value Carrying Value Fair ValueOFS Capital Corporation 6.375% Notes due 2025$48,377 $48,500 $— $—OFS Capital Corporation 6.5% Notes due 202546,849 46,603 — —SBA-guaranteed debentures147,600 147,956 147,223 155,510Total debt, at fair value$242,826 $243,059 $147,223 $155,510115OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 6. Commitments and ContingenciesThe Company has the following unfunded commitments to portfolio companies as of December 31, 2018:Name of Portfolio Company Investment Type AmountCarolina Lubes, Inc.Senior Secured Loan (Revolver)$2,920Cirrus Medical Staffing, Inc.Senior Secured Loan (Revolver)128Inergex HoldingsSenior Secured Loan (Revolver)1,875The Escape Game, LLCSenior Secured Loan (Delayed Draw)3,267$8,190From time to time, the Company is involved in legal proceedings in the normal course of its business. Although the outcome of such litigation cannot bepredicted with any certainty, management is of the opinion, based on the advice of legal counsel, that final disposition of any litigation should not have amaterial adverse effect on the financial position of the Company as of December 31, 2018.Additionally, the Company is subject to periodic inspection by regulators to assess compliance with applicable BDC regulations and the SBIC I LP is subjectto periodic inspections by the SBA.In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that providegeneral indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be madeagainst the Company that have not occurred. The Company believes the risk of any material obligation under these indemnifications to be low.Note 7. BorrowingsSBA Debentures: The SBIC Program allows SBIC I LP to obtain leverage by issuing SBA-guaranteed debentures, subject to issuance of a capital commitmentby the SBA and customary procedures. These debentures are non-recourse to the Company, have interest payable semi-annually and a ten-year maturity. Theinterest rate is fixed at the time of SBA pooling, which is March and September of each year, at a market-driven spread over U.S. Treasury Notes with ten-yearmaturities.Under present regulations of the SBIC Act, the maximum amount of SBA-guaranteed debt that may be issued by a single SBIC licensee is $150,000 (or$175,000 with SBA approval). An SBIC fund may borrow up to two times the amount of its regulatory capital, subject to customary regulatory requirements.For two or more SBICs under common control, the maximum amount of outstanding SBA-provided leverage cannot exceed $350,000. In connection with theSBIC Acquisition, the Company increased its total commitments to SBIC I LP to $75,000, which became a drop down SBIC fund of the Company onDecember 4, 2013. During 2014, the Company fully funded its $75,000 commitment to SBIC I LP. As of December 31, 2018 and 2017, SBIC I LP had fullydrawn the $149,880 of leverage commitments from the SBA.On a stand-alone basis, SBIC I LP held $251,060 and $251,601 in assets at December 31, 2018 and 2017, respectively, which accounted for approximately57% and 70% of the Company’s total consolidated assets, respectively. These assets can not be pledged under any debt obligation of the Company.116OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) The following table shows the Company’s outstanding SBA debentures payable as of December 31, 2018 and 2017: Fixed InterestRate SBA debentures outstandingPooling Date Maturity Date December 31, 2018 December 31, 2017September 19, 2012 September 1, 2022 3.049% $14,000 $14,000September 25, 2013 September 1, 2023 4.448 7,000 7,000March 26, 2014 March 1, 2024 3.995 5,000 5,000September 24, 2014 September 1, 2024 3.819 4,110 4,110September 24, 2014 September 1, 2024 3.370 31,265 31,265March 25, 2015 March 1, 2025 2.872 65,920 65,920September 23, 2015 September 1, 2025 3.184 22,585 22,585SBA debentures outstanding 149,880 149,880Unamortized debt issuance costs (2,280) (2,657)SBA debentures outstanding, net of unamortized debt issuance costs $147,600 $147,223The Company received exemptive relief from the SEC effective November 26, 2013, which permits the Company to exclude SBA guaranteed debenturesfrom the definition of senior securities in the statutory asset coverage ratio under the 1940 Act, allowing for greater capital deployment.The effective interest rate on the SBA debentures, which includes amortization of deferred debt issuance costs, was 3.43% as of December 31, 2018 and 2017.Interest expense on the SBA debentures was $5,137, $5,141, and $5,156 for the years ended December 31, 2018, 2017, and 2016, respectively, whichincludes $377, $380, and $382 of debt issuance costs amortization, respectively.The weighted-average fixed cash interest rate on the SBA debentures as of December 31, 2018 and 2017, was 3.18%.Unsecured Notes: In April 2018, the Company publicly offered the Unsecured Notes Due April 2025 with an aggregate principal of $50,000. The total netproceeds to the Company from the Unsecured Notes Due April 2025, after deducting underwriting discounts and offering costs of $1,753 were $48,247. InOctober and November 2018, the Company publicly offered the Unsecured Notes Due October 2025 with an aggregate principal of $48,525, which includeda partial exercise of the underwriters overallotment option. The total net proceeds to the Company from the Unsecured Notes Due October 2025, afterdeducting underwriting discounts and offering expenses of $1,723, were $46,802. The Unsecured Notes Due April 2025 and the Unsecured Notes DueOctober 2025, combined (the “Unsecured Notes”), totaled $98,525 in aggregate principal debt, with net proceeds of $95,049 to the Company.The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all current and future unsecured indebtedness of the Company.Because the Unsecured Notes are not secured by any of the Company's assets, they are effectively subordinated to all existing and future securedunsubordinated indebtedness (or any indebtedness that is initially unsecured as to which the Company subsequently grant a security interest), to the extentof the value of the assets securing such indebtedness, including, without limitation, borrowings under the senior secured revolving credit facility between theCompany and Pacific Western Bank ("PWB Credit Facility").The indenture governing the Unsecured Notes contains certain covenants (i) prohibiting additional borrowings, including through the issuance of additionaldebt securities, unless the Company's asset coverage, as defined in the 1940 Act, after giving effect to any exemptive relief granted to the Company by theSEC, equals at least 200% (or 150% on and after May 3, 2019) after such borrowings; and (ii) prohibiting (a) the declaration of any cash dividend ordistribution upon any class of the Company’s capital stock (except to the extent necessary for the Company to maintain its treatment as a RIC underSubchapter M of the Code), or (b) the purchase of any capital stock if the Company’s asset coverage, as defined in the 1940 Act, were below 200% (or 150%on and after May 3, 2019) at the time of such capital transaction and after deducting the amount of such transaction.117OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) As of December 31, 2018, the Unsecured Notes had the following terms and balances:Unsecured NotesPrincipal Unamor-tizedDiscount andIssuance Costs Stated InterestRate (1) Effec-tiveInterest Rate(2) Maturity (3) 2018 InterestExpense (4)Unsecured Notes Due April 2025$50,000 $1,623 6.375% 6.875% 4/30/2025 $2,439Unsecured Notes Due October 202548,525 1,676 6.500% 7.007% 10/31/2025 697Total$98,525 $3,299 $3,136(1) The weighted-average fixed cash interest rate on the Unsecured Notes as of December 31, 2018, was 6.44%.(2) The effective interest rate on the Unsecured Notes includes deferred debt issuance cost amortization.(3) The Unsecured Notes Due April 2025 and October 2025 may be redeemed in whole or in part at any time or from time to time at the Company’s option onor after April 30, 2020 and on or after October 31, 2020, respectively.(4) Interest expense includes debt issuance costs amortization of $228 for the year ended December 31, 2018.PWB Credit Facility: The Company is party to a business loan agreement ("BLA") with Pacific Western Bank, as lender, to provide the Company with a$50,000 senior secured revolving credit facility. The PWB Credit Facility is available for general corporate purposes including investment funding and isscheduled to mature on January 31, 2020. The maximum availability of the PWB Credit Facility is equal to 50% of the aggregate outstanding principalamount of eligible loans included in the borrowing base, which excludes subordinated loan investments and as otherwise specified in the BLA. The PWBCredit Facility is guaranteed by OFS Capital WM and secured by all of our current and future assets excluding assets held by SBIC I LP and the Company’spartnership interests in SBIC I LP and SBIC I GP. The PWB Credit Facility bears interest at a variable rate of the Prime Rate plus a 0.75% margin, with a5.25% floor, and includes an unused commitment fee, payable monthly in arrears, equal to 0.50% per annum on any unused portion. As of December 31,2018, the interest rate on the unpaid principal balance of the PWB Credit Facility was 6.25%.The average dollar amount of borrowings outstanding during the year ended December 31, 2018, was $11,387. The effective interest rate, which includesamortization of deferred debt issuance costs as of December 31, 2018, was 6.61% based on the maximum amount available under the PWB Credit Facility.Interest expense on the PWB Credit Facility was $959, $672, and $146 for the years ended December 31, 2018, 2017, and 2016, respectively, which includes$180, $172, and $108 of deferred financing amortization, respectively Unamortized debt issuance costs included in prepaid expenses and other assets on theconsolidated statements of assets and liabilities as of December 31, 2018 and 2017 were $180 and $80, respectively.Availability under the PWB Credit Facility was $38,000 based on the stated advance rate of 50% under the borrowing base, and the $12,000 outstanding asof December 31, 2018.The BLA contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reportingrequirements, a minimum tangible net asset value, a minimum quarterly net investment income after incentive fees, and a statutory asset coverage test. TheBLA also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a materialrespect, breach of covenant, cross-default to other indebtedness, bankruptcy, change in investment advisor, and the occurrence of a material adverse changein our financial condition. As of December 31, 2018, the Company was in compliance with the applicable covenants.The average dollar borrowings and average interest rate for all debt the years ended December 31, 2018, 2017, and 2016, were as follows:Year ended Average DollarBorrowings Average InterestRateDecember 31, 2018 $206,936 4.37%December 31, 2017 158,368 3.55December 31, 2016 150,458 3.44118OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 8. Federal Income TaxFiling status: The Company has elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, the Company isrequired to distribute annually to its stockholders at least 90% of its ICTI, as defined by the Code. Additionally, to avoid a 4% U.S. federal excise tax onundistributed earnings the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% ofits net capital gains for the one-year period ending October 31 of that calendar year, and (iii) any income recognized, but not distributed, in preceding yearsand on which the Company paid no U.S. federal income tax. Maintenance of the Company's RIC status also requires adherence to certain source of incomeand asset diversification requirements.Taxable income and distributions: The Company has met the required distribution, source of income and asset diversification requirements as ofDecember 31, 2018, and intends to continue meeting these requirements. Accordingly, there is no liability for federal income taxes at the Company level.The Company’s ICTI differs from the net increase in net assets resulting from operations primarily due to differences in income recognition on the unrealizedappreciation/depreciation of investments, income from Company’s equity investments in pass-through entities, PIK dividends that have not yet beendeclared and paid by underlying portfolio companies, capital gains and losses and the net creation or utilization of capital loss carryforwards. The Companyrecognized approximately $3,879 of ordinary taxable income in 2018 related to the recapture of passive losses recognized over the four-year period endedDecember 31, 2017, on its investment in Jobson Healthcare, that was not recognized in the net increase in net assets resulting from operations.The distributions paid to stockholders are reported as ordinary income, long-term capital gains, and returns of capital. The tax character of distributions paidwere as follows: Years Ended December 31, 20182017 2016Ordinary taxable income$18,053$14,158$12,157Long-term capital gain5,0362,738169Return of capital——858Total distributions to stockholders$23,089$16,896$13,184Tax-basis components of distributable earnings (accumulated losses) as of December 31, 2018 and 2017, were as follows: December 31, 20182017Ordinary income$3,712$—Net long-term capital gains (capital loss carryforward – non-expiring)(5,176)4,936The Company records reclassifications to its capital accounts related to permanent differences between GAAP and tax treatment related to goodwillamortization, excise taxes, and other permanent differences; and temporary differences between GAAP and tax treatment of realized gains and losses, incomearising from Company’s equity investments in pass-through entities, PIK dividends, and other temporary differences. The Company recorded reclassificationsto increase (decrease) additional paid-in capital against total distributable earnings (accumulated loss) of $(62), $(409) and $592 for the years endedDecember 31, 2018, 2017, and 2016, respectively.119OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) The tax-basis cost of investments and associated tax-basis gross unrealized appreciation (depreciation) inherent in the fair value of investments as ofDecember 31, 2018 and 2017, were as follows: December 31, 2018 2017Tax-basis amortized cost of investments$408,715 $282,401Tax-basis gross unrealized appreciation on investments18,426 16,207Tax-basis gross unrealized depreciation on investments(30,344) (21,109)Tax-basis net unrealized appreciation (depreciation) on investments(11,918) (4,902)Fair value of investments$396,797 $277,499Deferred taxes: The Company recognizes deferred taxes on the unrealized appreciation or depreciation of securities held through Taxable Blockers. Deferredtax assets and liabilities are measured using enacted corporate federal tax rates expected to apply to taxable income in the years in which those unrealizedgains and losses are realized. The recoverability of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely thannot that any portion of the deferred tax asset will not be realized on the basis of the projected taxable income or other taxable events in the Taxable Blocker.Deferred tax assets and liabilities, and related valuation allowance, as of December 31, 2018 and 2017, were as follows: December 31, 2018 2017Total deferred tax assets$310 $—Total deferred tax liabilities(225) (4)Valuation allowance on net deferred tax assets(85) —Net unrealized appreciation (depreciation) on investments reported in the consolidated statements of operations includes $(4), $4 and $-0-of net deferred tax(benefit) expense for the year ended December 31, 2018, 2017, and 2016, respectively.120OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 9. Financial HighlightsThe following is a schedule of financial highlights for the years ended December 31, 2018, 2017, 2016, 2015 and 2014:Years Ended December 31,201820172016 2015 2014Per share operating performance: Net asset value per share at beginning of year$14.12$14.82$14.76 $14.24 $14.58Distributions(1.73)(1.36)(1.36) (1.36) (1.36)Net investment income(10)1.381.281.46 1.39 0.95Net realized gain (loss) on non-control/non-affiliate investments(10)(0.37)(0.26)0.25 (0.31) 0.02Net realized gain on affiliate investments(10)0.010.81— 0.14 —Net realized loss on control investment(10)——— — (0.37)Net unrealized appreciation (depreciation) on non-control/non-affiliateinvestments(10)(0.19)(0.78)(0.69) 0.53 0.05Net unrealized appreciation (depreciation) on affiliate investments(10)(0.06)(0.41)0.33 0.13 0.19Net unrealized appreciation on control investment(10)(0.06)—0.07 — 0.18Issuance of common stock (5)— (0.03) — — —Other (6)— 0.05 — — —Net asset value per share at end of year$13.10$14.12$14.82 $14.76 $14.24 Per share market value, end of period$10.60$11.90$13.76 $11.48 $11.78Total return based on market value (1)3.5%(4.7)%32.3% 9.0% 2.4%Total return based on net asset value (2)7.8%5.0 %10.9% 16.0% 7.5%Shares outstanding at end of period13,357,33713,340,2179,700,297 9,691,170 9,650,834Weighted average shares outstanding13,348,20312,403,7069,693,801 9,670,153 9,634,471Ratio/Supplemental Data (in thousands except ratios) Average net asset value (3)$182,468$171,631$142,818 $140,002 $138,131Net asset value at end of year$175,023$188,336$143,778 $143,012 $137,471Net investment income$18,385$15,877$14,145 $13,411 $9,135Ratio of total expenses, net to average net assets (8)13.4%10.2 %11.9% 13.5% 9.9%Ratio of net investment income to average net assets (9)10.5%8.4 %9.8% 9.6% 6.6%Portfolio turnover (7)41.9%50.4 %18.1% 44.6% 34.9%(1)Calculation is ending market price less beginning market price, adjusted for distributions reinvested at prices based on the Company’s dividendreinvestment plan for the respective distributions.(2)Calculation is ending net asset value less beginning net asset value, adjusting for dividends and distributions reinvested at the Company’s dividendreinvestment plan for the respective distributions.(3)Based on the average of the net asset value at the beginning of the indicated period and the end of each calendar quarter within the period indicated.(4)Reserved.(5)The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the Offering.(6)Represents the impact of different share amounts used in calculating per share data as a result of calculating certain per share data based on a weightedaverage shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.(7)Portfolio turnover rate is calculated using the lesser of year-to-date sales and principal payments or year-to-date purchases over the average of theinvestments at fair value.(8)Ratio of total expenses before incentive fee waiver to average net assets was 13.4% for the year ended December 31, 2018.(9)Ratio of net investment income before incentive fee waiver to average net assets was 10.5% for the year ended December 31, 2018.(10)Calculated on the average share method.121OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 10. Capital TransactionsDistributions: The Company intends to make distributions to stockholders on a quarterly basis of substantially all of its net investment income. In addition,although the Company intends to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for suchdistributions. The Company may in the future decide to retain such net investment income and capital gains for investment or corporate purposes.The Company has elected to pay excise tax on undistributed net investment income in the amount of $130, $-0- and $-0- for the years ended December 31,2018, 2017, and 2016, respectively.The Company may be limited in its ability to make distributions due to the BDC asset coverage requirements of the 1940 Act. The Company’s ability tomake distributions may also be affected by its restrictions imposed by the SBA regulations on the Company's wholly owned SBIC subsidiary. Net assets ofSBIC I LP were $101,727 and $102,675, which included consolidated cash and cash equivalents of $36,031 and $72,116, not available for distribution atDecember 31, 2018 and 2017, respectively.The following table summarizes distributions declared and paid for the years ended December 31, 2018, 2017, and 2016:Date Declared Record Date Payment Date AmountPer Share CashDistribution DRIP SharesIssued DRIP SharesValueYear ended December 31, 2016 March 7, 2016 March 17, 2016 March 31, 2016 $0.34 $3,280 1,154 $15May 2, 2016 June 16, 2016 June 30, 2016 0.34 3,269 1,998 26August 5, 2016 September 16, 2016 September 30, 2016 0.34 3,258 2,888 38October 31, 2016 December 16, 2016 December 30, 2016 0.34 3,255 3,087 43 $1.36 $13,062 9,127 $122Year ended December 31, 2017 March 9, 2017 March 17, 2017 March 31, 2017 $0.34 $3,257 2,919 $41May 2, 2017 June 16, 2017 June 30, 2017 0.34 4,483 3,439 49August 1, 2017 September 15, 2017 September 29, 2017 0.34 4,491 3,196 42October 31, 2017 December 15, 2017 December 29, 2917 0.34 4,469 5,366 64 $1.36 $16,700 14,920 $196Year ended December 31, 2018 February 12, 2018 (1)March 22, 2018March 29, 2018$0.37$4,8864,459$50February 27, 2018March 22, 2018March 29, 20180.344,4904,09846May 1, 2018June 22, 2018June 29, 20180.344,5181,68420August 3, 2018September 14, 2018September 28, 20180.344,5112,36628October 30, 2018December 17, 2018December 31, 20180.344,4894,81351 $1.73 $22,894 17,420 $195 (1) Special distribution representing undistributed net long-term capital gains realized by the Company in 2017.The following table represents DRIP participation for the years ended December 31, 2018, 2017, and 2016, respectively:For the Year Ended DRIP SharesValue Total DistributionDeclared DRIP SharesIssued Average Value PerShareDecember 31, 2018 $195 $23,089 17,420 $11.16December 31, 2017 196 16,896 14,920 13.18December 31, 2016 122 13,184 9,127 13.23Since the Company’s IPO, distributions to stockholders total $90,864, or $8.36 per share on a cumulative basis.Distributions in excess of the Company’s current and accumulated ICTI would be treated first as a return of capital to the extent of the stockholder’s tax basis,and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of the Company’s distributions is made annually asof the end of its fiscal year based upon its ICTI for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basismay not be representative of the actual tax attributes of the Company’s distributions for a full year. Each year, a statement on Form 1099-DIV identifying the122OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) source of the distribution is mailed to the Company’s stockholders. For the year ended December 31, 2018, approximately $1.36 per share, $0.37 per share,and $-0- per share of the Company’s distributions represented ordinary income, long-term capital gain, and a return of capital to its stockholders,respectively.Stock repurchase program: On May 22, 2018, the Board authorized the Company to initiate the Stock Repurchase Program under which the Company mayacquire up to $10,000 of its outstanding common stock. Under the Stock Repurchase Program, the Company is authorized to repurchase shares in open-market transactions, including through block purchases, depending on prevailing market conditions and other factors. The Stock Repurchase Program maybe extended, modified or discontinued at any time for any reason. The Company expects the Stock Repurchase Program to be in place through May 22, 2020,or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not obligate the Company to acquire anyspecific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, priceand volume of stock repurchases. The Company repurchased 300 shares for $3 under the Stock Repurchase Program during the year ended December 31,2018.Note 11. Selected Quarterly Financial Data (Unaudited) Three Months Ended December 31,2018 September 30,2018 June 30,2018 March 31,2018Total investment income$12,571$10,982$10,278$9,003Net investment income5,3214,6904,5583,816Net gain (loss) on investments(9,416)489437(323)Net increase (decrease) in net assets resulting from operations(4,095)5,1794,9953,493Net investment income per share – basic and diluted (1)$0.40 $0.35 $0.34 $0.29Net increase (decrease) in net assets resulting from operations per share –basic and diluted (1)$(0.30)$0.39$0.37$0.26Net asset value per share (2)$13.10$13.75$13.70$13.67 Three Months Ended December 31,2017 September 30,2017 June 30,2017 March 31,2017Total investment income$8,292 $9,122 $7,978 $8,034Net investment income3,819 4,402 4,316 3,340Net gain (loss) on investments331 (3,227) (6,597) 1,526Net increase (decrease) in net assets resulting from operations4,150 1,175 (2,281) 4,866Net investment income per share – basic and diluted (1)$0.28 $0.33 $0.33 $0.34Net increase (decrease) in net assets resulting from operations per share –basic and diluted (1)$0.22 $0.09 $(0.17) $0.50Net asset value per share (2)$14.12 $14.15 $14.40 $14.98(1)Based on weighted average shares outstanding for the respective period.(2)Based on shares outstanding at the end of the respective period.123OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 12. Consolidated Schedule of Investments In and Advances To Affiliates Year ended December 31, 2018 Name ofPortfolioCompany InvestmentType (1) NetRealizedGain(Loss) Net change inunrealizedappreciation/(depreciation) Interest& PIKInterest Dividends Fees TotalIncome(2) December 31,2017, FairValue GrossAdditions(3) GrossReductions(4) December 31,2018, FairValue (5)ControlInvestment MTEHoldingCorp. SubordinatedSecured Loan $— $54 $1,115 $— $66 $1,181 $7,118 $177 $— $7,296 CommonEquity — (801) — 185 — 185 3,450 — (801) 2,649 — (747) 1,115 185 66 1,366 10,568 177 (801) 9,945 TotalControlInvestment (747) 1,115 185 66 1,366 10,568 177 (801) 9,945 AffiliateInvestments 3rd RockGamingHoldings,LLC Senior SecuredLoan — (1,330) 1,777 — — 1,777 — 21,750 (1,727) 20,023 CommonEquity (6) — (1,474) — — — — — 2,560 (1,487) 1,073 — (2,804) 1,777 — — 1,777 — 24,310 (3,214) 21,096 All MetalsHolding,LLC Senior SecuredLoan — (471) 2,748 — 588 3,336 12,759 7,230 (19,989) — CommonEquity (6) 4,118 (1,220) — — — — 1,785 258 (2,043) — 4,118 (1,691) 2,748 — 588 3,336 14,544 7,488 (22,032) — ContractDatascanHoldings,Inc. SubordinatedLoan — (5) 950 — — 950 8,000 6 (6) 8,000 PreferredEquity A (7) — 91 597 — — 597 5,964 688 — 6,652 CommonEquity (6) — 2,053 — — — — 260 2,053 — 2,313 — 2,139 1,547 — — 1,547 14,224 2,747 (6) 16,965124OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Year ended December 31, 2018 Name ofPortfolioCompany InvestmentType (1) NetRealizedGain(Loss) Net change inunrealizedappreciation/(depreciation) Interest& PIKInterest Dividends Fees TotalIncome(2) December 31,2017, FairValue GrossAdditions(3) GrossReductions(4) December 31,2018, FairValue (5) DRSImagingServices,LLC Senior SecuredLoan $— $(157) $659 $— $163 $822 $— $10,802 $(185) $10,617 CommonEquity (6) — 62 — — — — — 1,197 — 1,197 — (95) 659 — 163 822 — 11,999 (185) 11,814 JobsonHealthcareInformation(8) Senior SecuredLoan (3,477) 2,331 905 — — 905 12,910 2,751 (15,661) — CommonEquity (6) — — — — — — — — — — Warrants (6) (454) 454 — — — — — 454 (454) — (3,931) 2,785 905 — — 905 12,910 3,205 (16,115) — MasterCutlery,LLC SubordinatedLoan — (2,095) 156 — — 156 2,873 117 (2,140) 850 PreferredEquity (6) — — — — — — — — — — CommonEquity (6) — — — — — — — — — — — (2,095) 156 — — 156 2,873 117 (2,140) 850 NeoSystemsCorp. SubordinatedLoan — (7) 283 — — 283 2,143 47 (2,190) — Preferred Stock(7) — (145) 146 — — 146 2,248 147 (145) 2,250 — (152) 429 — — 429 4,391 194 (2,335) 2,250 PfanstiehlHoldings,Inc SubordinatedLoan — 42 392 — — 392 3,755 42 (9) 3,788 CommonEquity — 3,605 — 130 — 130 4,755 3,605 — 8,360 — 3,647 392 130 — 522 8,510 3,647 (9) 12,148 125OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Year ended December 31, 2018 Name ofPortfolioCompany InvestmentType (1) NetRealizedGain(Loss) Net change inunrealizedappreciation/(depreciation) Interest& PIKInterest Dividends Fees TotalIncome(2) December 31,2017, FairValue GrossAdditions(3) GrossReductions(4) December 31,2018, FairValue (5)ProfessionalPipeHoldings,LLC SeniorSecured Loan $— $(181) $845 $— $— $845 $— $8,355 $(889) $7,466 CommonEquity (6) — (645) — — — — — 1,414 (645) 769 — (826) 845 — — 845 — 9,769 (1,534) 8,235 TRSServices,Inc. SeniorSecured Loan — (307) 1,856 — 9 1,865 9,466 7,942 (2,962) 14,446 PreferredEquity (ClassAA units) (7) — — 62 — — 62 409 64 — 473 PreferredEquity (ClassA units) (6) — (1,404) — — — — 2,230 — (1,404) 826 CommonEquity (6) — — — — — — — — — — — (1,711) 1,918 — 9 1,927 12,105 8,006 (4,366) 15,745 TotalAffiliateInvestments 187 (803) 11,376 130 760 12,266 69,557 71,482 (51,936) 89,103TotalControlandAffiliateInvestments $187 $(1,550) $12,491 $315 $826 $13,632 $80,125 $71,659 $(52,737) $99,048(1)Principal balance of debt investments and ownership detail for equity investments are shown in the consolidated schedule of investments. TheCompany's investments are generally classified as "restricted securities" as such term is defined under Regulation S-X Rule 6-03(f) or Securities Act Rule144.(2)Represents the total amount of interest, fees or dividends included in 2018 income for the portion of the year ended December 31, 2018, that aninvestment was included in Control or Affiliate Investment categories, respectively.(3)Gross additions include increases in cost basis resulting from a new portfolio investment, PIK interest, fees and dividends, accretion of OID, and netincreases in unrealized net appreciation or decreases in net unrealized depreciation.(4)Gross reductions include decreases in the cost basis of investments resulting from principal repayments and sales, if any, and net decreases in netunrealized appreciation or net increases in net unrealized depreciation.(5)Fair value was determined using significant unobservable inputs. See Note 5 for further details.(6)Non-income producing.(7)Dividends credited to income include dividends contractually earned but not declared.(8)Jobson became an affiliate investment effective December 31, 2017, due to an increase in voting ownership interest.126OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Year ended December 31, 2017 Name ofPortfolioCompany InvestmentType (1) NetRealizedGain(Loss) Net change in unrealizedappreciation/(depreciation) Interest& PIKInterest Dividends Fees TotalIncome(2) December 31,2016, FairValue GrossAdditions(3) GrossReductions(4) December 31,2017, FairValue (5)ControlInvestments MalabarInternational SubordinatedLoan $— $— $504 $— $32 $536 $7,683 $150 $(7,833) $— PreferredEquity — — — 65 — 65 5,868 1,608 (7,476) — — — 504 65 32 601 13,551 1,758 (15,309) — MTEHoldingCorp. SeniorSecuredLoan — (64) 1,168 — 120 1,288 9,766 90 (2,738) 7,118 CommonEquity — 67 — 227 — 227 3,383 67 — 3,450 — 3 1,168 227 120 1,515 13,149 157 (2,738) 10,568 TotalControlInvestments — 3 1,672 292 152 2,116 26,700 1,915 (18,047) 10,568 AffiliateInvestments All MetalsHolding,LLC SeniorSecuredLoan — (259) 1,830 — 26 1,856 12,865 283 (389) 12,759 CommonEquity (6) — 508 — — — — 1,277 508 — 1,785 — 249 1,830 — 26 1,856 14,142 791 (389) 14,544 ContractDatascanHoldings,Inc. SubordinatedLoan — 93 978 — — 978 7,902 98 — 8,000 PreferredEquity (6) (7) — — 542 — — 542 5,421 543 — 5,964 CommonEquity (6) — 73 — — — — 187 — 73 260 — 166 1,520 — — 1,520 13,510 641 73 14,224127OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Year ended December 31, 2017 Name ofPortfolioCompany InvestmentType (1) NetRealizedGain(Loss) Net change in unrealizedappreciation/(depreciation) Interest& PIKInterest Dividends Fees TotalIncome(2) December 31,2016, FairValue GrossAdditions(3) GrossReductions(4) December 31,2017, FairValue (5) Intelli-MarkTechnologies,Inc. SeniorSecuredLoan $— $(159) $438 $— $175 $613 $8,841 $68 $(8,909) $— CommonEquity (6) 874 (498) — — — — 1,998 — (1,998) — 874 (657) 438 — 175 613 10,839 68 (10,907) — JobsonHealthcareInformation,LLC (8) SeniorSecuredLoan — — — — — — — 12,910 — 12,910 CommonEquity — — — — — — — — — — Warrants — — — — — — — — — — — — — — — — — 12,910 — 12,910 MalabarInternational (9) SubordinatedLoan — (41) 415 — 256 671 — 7,833 (7,833) — PreferredEquity 5,590 (1,585) — 56 — 56 — 7,476 (7,476) — 5,590 (1,626) 415 56 256 727 — 15,309 (15,309) — MasterCutlery, LLC SubordinatedLoan — (1,537) 640 — — 640 4,440 653 (2,220) 2,873 PreferredEquity (6) (7) — (954) — — — — 954 — (954) — CommonEquity (6) — — — — — — — — — — — (2,491) 640 — — 640 5,394 653 (3,174) 2,873 NeoSystemsCorp. SubordinatedLoan — 421 408 — — 408 3,656 487 (2,000) 2,143 PreferredEquity (6) (7) — 861 133 — — 133 1,255 993 — 2,248 — 1,282 541 — — 541 4,911 1,480 (2,000) 4,391128OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Year ended December 31, 2017 Name ofPortfolioCompany InvestmentType (1) NetRealizedGain(Loss) Net change in unrealizedappreciation/(depreciation) Interest& PIKInterest Dividends Fees TotalIncome(2) December 31,2016, FairValue GrossAdditions(3) GrossReductions(4) December 31,2017, FairValue (5) PfanstiehlHoldings, Inc SubordinatedLoan $— $(46) $387 $— $— $387 $3,810 $1 $(56) $3,755 CommonEquity — (1,328) — 84 — 84 6,083 — (1,328) 4,755 — (1,374) 387 84 — 471 9,893 1 (1,384) 8,510 StrategicPharmaSolutions, Inc. SeniorSecuredLoan — (39) 746 — 158 904 8,383 67 (8,450) — PreferredEquity (6) (7) 3,617 (1,111) 81 — — 81 3,026 81 (3,107) — 3,617 (1,150) 827 — 158 985 11,409 148 (11,557) — TRS Services,Inc. SeniorSecuredLoan — 194 1,024 — 60 1,084 9,549 310 (393) 9,466 PreferredEquity(Class AAunits)(6)(7) — — 55 — — 55 354 55 — 409 PreferredEquity(Class Aunits) (6)(7) — 319 204 — — 204 1,707 523 — 2,230 CommonEquity (6) — — — — — — — — — — — 513 1,283 — 60 1,343 11,610 888 (393) 12,105 TotalAffiliateInvestments 10,081 (5,088) 7,881 140 675 8,696 81,708 32,889 (45,040) 69,557Total ControlandAffiliateInvestments $10,081 $(5,085) $9,553 $432 $827 $10,812 $108,408 $34,804 $(63,087) $80,125129OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) (1)Principal balance of debt investments and ownership detail for equity investments are shown in the consolidated schedule of investments.(2)Represents the total amount of interest, fees or dividends included in 2017 income for the portion of the year ended December 31, 2017, that aninvestment was included in Control or Affiliate Investment categories, respectively.(3)Gross additions include increases in cost basis resulting from a new portfolio investment, PIK interest, fees and dividends, accretion of OID, and netincreases in unrealized net appreciation or decreases in net unrealized depreciation.(4)Gross reductions include decreases in the cost basis of investments resulting from principal repayments and sales, if any, and net decreases in netunrealized appreciation or net increases in net unrealized depreciation, and transfers from Affiliate Investment to Control Investment.(5)Fair value was determined using significant unobservable inputs. See Note 6 for further details.(6)Non-income producing.(7)Dividends credited to income include dividends contractually earned but not declared.(8)Jobson became an affiliate investment effective December 31, 2017, due to an increase in voting ownership interest.(9)Malabar was reclassified from a control investment to an affiliate investment due to a decrease in voting interest.130OFS Capital Corporation and SubsidiariesNotes to Consolidated Financial Statements(Dollar amounts in thousands, except per share data) Note 13. Subsequent Events Not Disclosed ElsewhereOn March 5, 2019, the Company’s Board declared a distribution of $0.34 per share for the first quarter of 2019, payable on March 29, 2019 to stockholders ofrecord as of March 22, 2019.131Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2018. The term “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company inreports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rulesand forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to bedisclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management,including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance ofachieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.Based on the foregoing evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer and our Chief FinancialOfficer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.Management’s Annual Report on Internal Control Over Financial ReportingOur management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequateinternal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Our internal control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for externalreporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) providereasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that thereceipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that couldhave a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changesin conditions, or that the degree of compliance with polices or procedures may deteriorate.Our management (with the supervision and participation of our Chief Executive Officer and Chief Financial Officer) conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31, 2018 based on the framework in Internal Control – Integrated Frameworkissued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.Based on our assessment, management concluded that, as of December 31, 2018, our internal control over financial reporting is effective based onthose criteria.Attestation Report of the Registered Public Accounting FirmOur internal control over financial reporting as of December 31, 2018, has been audited by BDO USA, LLP, an independent registered publicaccounting firm, as stated in their report, which is included in Item 8 of Part II of this Annual Report under the heading Report of Independent RegisteredPublic Accounting Firm.Changes in Internal Control over Financial ReportingAs previously disclosed in Item 9A of our Form 10-K for the year ended December 31, 2017, management concluded that there was a materialweakness in internal control over financial reporting related the design and operating effectiveness of controls over the reliability of financial informationreported by portfolio companies that is used as financial inputs in the Company’s investment valuations. In response to the material weakness identified,management developed and implemented a remediation plan to address the underlying causes of the material weakness.The remediation plan included a tracking system to ensure all portfolio company audited financial statements are received and reviewed to confirmthe reliability of financial information reported by portfolio companies.132During the twelve months ended December 31, 2018, we implemented the new internal control procedures described above to address the previouslyidentified material weakness as of December 31, 2017. After completing our testing of the design and operating effectiveness of our control enhancements,we concluded that we have remediated the previously identified material weakness.Other than controls implemented in response to the material weakness described above, no change in our internal control over financial reporting (asdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2018 that has materially affected, oris reasonably likely to materially affect, our internal control over financial reporting.Item 9B.Other InformationNone.133PART IIIItem 10.Directors, Executive Officers and Corporate GovernanceThe information required by Item 10 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscalyear.Item 11.Executive CompensationThe information required by Item 11 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscalyear.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholders MattersThe information required by Item 12 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscalyear.Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscalyear.Item 14. Principal Accountant Fees and ServicesThe information required by Item 14 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s2019 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscalyear.134PART IVItem 15.Exhibits and Financial Statement Schedulesa. Documents Filed as Part of this Report1. Financial Statements: See "Part II, Item 8. Financial Statements and Supplementary Data" of this report for a list of financial statements.2. Financial Statement Schedules: Schedule 12-14 Investments in and Advances to Affiliates—See "Part II, Item 8. Financial Statements andSupplementary Data—Note 12" of this report.3. Exhibits required to be filed by Item 601 of Regulation S-K: See Item 15b. below.b. ExhibitsThe following table lists exhibits filed as part of this report, according to the number assigned to them in Item 601 of Regulation S-K. All exhibitslisted in the following table are incorporated by reference except for those exhibits denoted in the last column. Please note that the agreements included asexhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosureinformation about us or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicableagreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of thedate they were made or at any other time. Incorporated by Reference ExhibitNumber DescriptionForm and SEC FileNo.Filing Date with SECFiled with this10-K3.1 Certificate of Incorporation of OFS Capital CorporationN-2 (333-166363)March 18, 2011 3.2 Certificate of Correction to Certificate of Incorporation of OFSCapital Corporation10-K (814-00813)March 26, 2013 3.3 Bylaws of OFS Capital CorporationN-2/A (333-166363) March 18, 2011 4.1 Form of Stock Certificate of OFS Capital CorporationN-2/A (333-166363) March 18, 2011 4.2 Form of Base IndentureN-2 (333-200376)November 19, 2014 4.3 Form of Warrant AgreementN-2/A (333-200376)December 16, 2014 4.4 Form of Subscription Agent AgreementN-2/A (333-200376)December 16, 2014 4.5 Form of Subscription CertificateN-2/A (333-200376)December 16, 2014 4.6 Form of Certificate of DesignationN-2/A (333-200376)December 16, 2014 4.7 First Supplemental Indenture dated as of April 16, 2018, between OFSCapital Corporation and U.S. Bank National Association, as trusteePOS EX (333-217302)April 16, 2018 4.8 Form of 6.375% Note due 2025 (incorporated by reference to Exhibit4.8 hereto and Exhibit A therein)POS EX (333-217302)April 16, 2018 135 Incorporated by Reference ExhibitNumber DescriptionForm and SEC FileNo.Filing Date with SECFiled with this10-K4.9 Second Supplemental Indenture dated as of October 16, 2018between OFS Capital Corporation and U.S. Bank NationalAssociation, as trusteePOS EX (333-222419)October 16, 2018 4.10 Form of 6.50% Note due 2025 (incorporated by reference to Exhibit4.10 hereto and Exhibit A therein)POS EX (333-222419)October 16, 2018 10.1 Form of Dividend Reinvestment PlanN-2/A (333-166363) March 18, 2011 10.2 Investment Advisory and Management Agreement between OFSCapital Corporation and OFS Capital Management, LLC10-Q (814-00813)November 7, 2014 10.3 Form of Custody AgreementN-2/A (333-166363) March 18, 2011 10.4 Administration Agreement between OFS Capital Corporation andOFS Capital Services, LLCN-2/A (333-166363) March 18, 2011 10.5 License Agreement between OFS Capital Corporation and OrchardFirst Source Asset Management, LLCN-2/A (333-166363) March 18, 2011 10.6 Form of Indemnification Agreement between OFS CapitalCorporation and each of its directors and executive officersN-2/A (333-166363) March 18, 2011 10.7 Form of Registration Rights Agreement between OFS CapitalCorporation and Orchard First Source Asset Management, LLCN-2/A (333-166363)July 24, 2012 10.8 Loan Portfolio Purchase Agreement among OFS Capital WM, LLCand Madison Capital Funding LLC, dated May 28, 20158-K (814-00813)June 2, 2015 10.9 Business Loan Agreement between OFS Capital Corporation andPacific Western Bank dated March 7, 201810-K (814-00813)March 12, 2018 10.10 Promissory Note between OFS Capital Corporation and PacificWestern Bank dated November 5, 201510-Q (814-00813)November 6, 2015 10.11 Change in terms to the Business Loan Agreement between OFSCapital Corporation and Pacific Western Bank dated March 7, 201810-K (814-00813)March 12, 2018 10.12 Commercial Guaranty Agreement among OFS Capital Corporation,OFS Capital WM, LLC, and Pacific Western Bank dated March 7,201810-K (814-00813)March 12, 2018 11.1 Computation of Per Share Earnings + 14.1 Joint Code of Ethics of OFS Capital Corporation and OFS Advisor * 136 Incorporated by Reference ExhibitNumber DescriptionForm and SEC FileNo.Filing Date with SECFiled with this10-K21.1 List of Subsidiaries * 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14 ofthe Securities Exchange Act of 1934, as amended * 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14 of theSecurities Exchange Act of 1934, as amended * 32.1 Certification of Chief Executive Officer pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 † 32.2 Certificate of Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002 †*Filed herewith.+Included in the notes to the financial statements contained in this report†Furnished herewithItem 16.Form 10-K SummaryNone.137SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. OFS Capital Corporation Date: March 15, 2019/s/ Bilal Rashid Bilal RashidChief Executive Officer and Chairman of the Board of DirectorsPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacity and on the dates indicated.Date: March 15, 2019/s/ Bilal Rashid Bilal Rashid, Chief Executive Officer and Chairman of the Board of Directors(Principal Executive Officer) Date: March 15, 2019/s/ Marc Abrams Marc Abrams, Director Date: March 15, 2019/s/ Robert J. Cresci Robert J. Cresci, Director Date: March 15, 2019/s/ Elaine E. Healy Elaine E. Healy, Director Date: March 15, 2019/s/ Jeffrey A. Cerny Jeffrey A. Cerny, Chief Financial Officer, Treasurer (Principal FinancialOfficer) and Director Date: March 15, 2019/s/ Jeff Owen Jeff Owen, Chief Accounting Officer (Principal Accounting Officer)138Exhibit 14.1OFS Capital Management, LLCOFS CLO Management, LLCOFS Capital CorporationOFS Credit Company, Inc.Hancock Park Corporate Income, Inc.Code of EthicsRestated and Adopted on October 30, 2018This Code of Ethics is the property of OFS Capital Management, LLC and certain affiliated entities and must be returned to it if anindividual’s association with it terminates for any reason.The content of this Code of Ethics is confidential, and should not be revealed to third parties without the consent of the ChiefCompliance Officer (“CCO”). The policies and procedures set forth herein supersede previous versions.TABLE OF CONTENTSPageI.GENERAL (CODE OF ETHICS) 1A.INTRODUCTION 3B.STATEMENT OF STANDARDS OF BUSINESS CONDUCT 3C.PERIODIC COMPLIANCE AND TRAINING 7D.ACKNOWLEDGMENT 7E.REPORTING AND SANCTIONS 7F.ADDITIONAL RESTRICTIONS AND WAIVERS BY OFS ADVISER AND THE OFS FUNDS 8G.REVIEW BY THE BOARD OF DIRECTORS OF EACH OFS FUND 8H.CCO REPORTING 9I.CONFLICT WITH EMPLOYEE HANDBOOK 9II.PERSONAL INVESTMENT POLICY 10A.INTRODUCTION AND DEFINITIONS 10B.RECORDKEEPING AND REPORTING REQUIREMENTS 121.Reports 122.Determining Whether an Account is an Affiliated Account 133.Managed Accounts 144.Non-Transferable Accounts 145.Transactions Subject to Review 15C.STATEMENT OF RESTRICTIONS 151.Restricted List 152.Private Placements and Initial Public Offerings 173.Trades by OFS Fund Directors 174.Trades of OFS Fund Securities or CMCT 175.Trades by Access Persons Serving on Company Boards 17TABLE OF CONTENTS (cont’d)Page6.No Personal Trades Through OFS Adviser’s Traders 187.Use of Brokerage for Personal or Family Benefit 188.No “Front Running” 18D.REQUIREMENTS OF DISINTERESTED DIRECTORS 18III.INSIDE INFORMATION POLICY 19A.INTRODUCTION 19B.KEY TERMS 201.What is a “Security”? 202.Who is an Insider? 203.What is Material Information? 214.What is Nonpublic Information? 225.Contacts with Companies 226.Tender Offers 227.Penalties for Insider Trading 22C.INSIDER TRADING PROCEDURES 231.Identifying Inside Information 232.Restricting Access to Material and Nonpublic Information 233.Review and Dissemination of Certain Investment Related Information 244.Determination of Materiality 245.Policies and Procedures Relating to Paid Research Consultants and Expert Network Firms RegardingSecurities 24IV.GIFTS, ENTERTAINMENT AND POLITICAL ACTIVITIES 27A.INTRODUCTION 27B.GIFTS AND ENTERTAINMENT POLICY 271.Business Meals 27TABLE OF CONTENTS (cont’d)Page2.Providing Gifts 283.Receiving Gifts 284.Entertainment 295.Travel and Lodging 296.Providing Meals, Gifts and Entertainment to Public Officials and Union Employees 307.Receipt of Meals, Gifts or Entertainment by Traders from Brokers/Agent Bank Employees 30C.POLITICAL ACTIVITY POLICY 301.Introduction 302.Indirect Violations 323.Periodic Disclosure 32V.OUTSIDE AFFILIATIONS POLICY 33A.OUTSIDE BUSINESS ACTIVITIES 33B.DIRECTOR AND OFFICER POSITIONS 33C.EMPLOYEE RELATIONSHIPS 34VI. ANTI-CORRUPTION POLICY…………………………………………………………35VII. CIM COMPUTER ACCEPTABLE USE POLICY……………………………………...38VIII. PERSONAL USE OF FIRMS RESOURCES AND RELATIONSHIPS POLICY……..391I.GENERAL (CODE OF ETHICS)A.INTRODUCTIONThe Code of Ethics (“Code”) has been jointly adopted by OFS Capital Management and OFS CLO Management, LLC(collectively, “OFS Adviser” or the "Firm”)and certain entities that are controlled by or under common control with OFS CapitalManagement (“Affiliates”), as determined from time to time by Senior Management, and each of OFS Capital Corporation, HancockPark Corporate Income, Inc., OFS Credit Company, Inc. and any investment company that OFS Adviser may sponsor and/or managefrom time to time (each, an “OFS Fund” and collectively, “OFS Funds”) in order to establish applicable policies, guidelines andprocedures that promote ethical practices and conduct by all Supervised Persons of OFS Adviser, including, but not limited to, certainemployees, interns, temporary employees, principals and others designated by Compliance, and that prevent violations of applicablelaws including the Investment Advisers Act of 1940, as amended (“Advisers Act”) and the Investment Company Act of 1940, asamended (“Company Act”).1 “Supervised Person” is defined as any director, officer, member or employee (or other personoccupying similar status or performing similar functions) of OFS Adviser or any other person who provides investment advice onbehalf of OFS Adviser and is subject to the supervision and control of OFS Adviser 2 . Unless instructed otherwise or approved by theCompliance Department, temporary employees and consultants will generally be deemed a Supervised Person if the employee’s orconsultant’s work assignment or engagement exceeds ninety (90) calendar days. This Code is available to all Supervised Persons onOFS Adviser’s public network drive and Sharepoint site. All Supervised Persons must read it carefully and must verify at leastannually (and at such other times that a Compliance Officer may request) that he or she has read, understands, and agrees to abide bythe Code.The Code is designed to address conflicts of interest that may arise in your personal dealings and those in which you engage onbehalf of the Firm and its Advisory Clients3. The following policies comprise the Code consists and address certain conflicts:1 The Code is adopted by OFS Adviser and each OFS Fund pursuant to and in accordance with the requirements of each of Rules 204A-1 and 206(4)-7 under theAdvisers Act and Rules 17j-1 and 38a-1under the Company Act.2 The Chief Compliance Officer or his/her designee may consider any director, officer, member, principal or employee, including, but not limited to, intern andtemporary employees, of an Affiliate of OFS Adviser to be a Supervised Person of OFS Adviser if the Chief Compliance Officer determines that such person performs servicesfor OFS Adviser, through any staffing or similar agreement, such that the person would constitute a Supervised Person if such person was a director, officer, member, employee,intern or temporary employee of OFS Adviser. The Compliance Department maintains a list of all such persons and whether each person is (1) a Supervised Person and (2) anAccess Person and will notify each person of relevant requirements. The majority of OFS Adviser’s personnel are employees of Orchard First Source Capital, Inc., an Affiliate ofOFS Adviser..3 Advisory Client means any individual, group of individuals, partnership, trust, company or other investment fund entity for whom OFS Adviser acts as investmentadviser. For example, any OFS Fund is an Advisory Client. For the avoidance of doubt, Advisory Clients include public and private investment funds, including comingledfunds and single investor funds (“Funds”) and managed accounts managed by OFS Adviser, but do not include the underlying individual investors in such Funds (“Investors”),although certain protections afforded to Advisory Clients pursuant to this Code do extend to Investors through Rule 206(4)-8 of the Advisers Act.•the Personal Investment Policy,•the Inside Information Policy,•the Gifts and Entertainment Policy,•Political Activity Policy,•Outside Affiliations Policy, and•Anti-Corruption Policy.OFS Adviser and each OFS Fund require that all Supervised Persons observe the applicable standards of care set forth in thesepolicies and not seek to evade the provisions of the Code in any way, including through indirect acts by Related Persons or otherassociates.All activities involving the OFS Funds are subject to the Company Act and the policies and procedures adopted by each OFS Fund in connectiontherewith as set forth in the Rule 38a-1 Compliance Manual (“38a-1 Manual”) for each OFS Fund. The obligations set forth in the Code and the38a-1 Manual are in addition to and not in lieu of the policies and procedures set forth in the Firm’s Employee Handbook and any otherCompliance Policies adopted by OFS Adviser in respect of the conduct of its business.B.STATEMENT OF STANDARDS OF BUSINESS CONDUCTAs a fundamental mandate, OFS Adviser and each OFS Fund demand the highest standards of ethical conduct and care fromall Supervised Persons and OFS Fund Directors. Supervised Persons and OFS Fund Directors must abide by this basic businessstandard and must not take inappropriate advantage of their position with the Firm or OFS Fund. Each Supervised Person and OFSFund Director is under a duty to exercise his or her authority and responsibility for the primary benefit of our Advisory Clients,including the OFS Funds, and the Firm, and may not have outside interests or engage in activities that inappropriately conflict orappear to conflict with the interests of the Firm or its Advisory Clients, including the OFS Funds. Examples of such conflicts include:•engaging a service provider on behalf of Advisory Clients or the Firm in which you or your Related Person has afinancial interest.•accepting extravagant gifts or entertainment from a potential service provider to the Firm.•making charitable donations at the request of a prospective Advisory Client when the Advisory Client will directlybenefit from such donation.•contributing to the reelection campaign of a Governor who has the authority to appoint pension plan board memberswho are responsible for selecting investment advisers for such pension plan.•purchasing an interest in a company or property that you know the Firm is targeting for investment.•assuming an outside position with a company that competes directly with the Firm.The above list of examples is not exhaustive, and you, as a Supervised Person or OFS Fund Director, are responsible for assessing theunique facts and circumstances of your activities for potential conflicts and consulting with OFS Adviser’s Legal and ComplianceDepartments prior to engaging in such activities.Each Supervised Person and OFS Fund Director must avoid circumstances or conduct that adversely affect or that appear toadversely affect OFS Adviser or its Advisory Clients, including the OFS Funds. Every Supervised Person and OFS Fund Directormust comply with applicable federal securities laws and must promptly report suspected violations of the Code to a ComplianceOfficer. OFS Adviser strictly prohibits retaliation against any individual reporting suspected violations, who, in good faith, seeks helpor reports known or suspected violations, including Supervised Persons who assist in making a report or who cooperate in aninvestigation (see Section I.E. Reporting and Sanctions).GENERAL GUIDELINES1.Supervised Persons and OFS Directors may not employ any device, scheme or artifice to defraud an OFS Fund or anyAdvisory Client, make any untrue statement of a material fact to an OFS Fund or any Advisory Client, or omit to state amaterial fact necessary in order to make the statements not misleading, engage in any act, practice or course of businessthat operates or would operate as a fraud or deceit upon an OFS Fund or any other Advisory Client,engage in any manipulative practice with respect to an OFS Fund or any other Advisory Client, or engage in anymanipulative practice with respect to Securities, including price manipulation.2.Except with the prior approval of a Compliance Officer, in consultation with a Supervised Person’s supervisor and/orSenior Management, a Supervised Person may not act as a director, officer, general partner, managing member,principal, proprietor, consultant, agent, representative, trustee or employee of any unaffiliated public or private entity orbusiness other than an OFS Fund, OFS Adviser, or an Affiliate of OFS Adviser. (See Section IV)3.All Supervised Persons must disclose to OFS Adviser and their respective OFS Fund any interests they may have inany entity that is not affiliated with OFS Adviser or any OFS Fund and that has a known business relationship withOFS Adviser, an Affiliate of OFS Adviser or any OFS Fund.4.Except with the prior approval of a Compliance Officer, and as specifically permitted by law, Supervised Persons maynot have a material direct or indirect interest (e.g., as principal, co-principal, agent, member, partner, or materialshareholder or beneficiary) in any transaction that conflicts with the interests of OFS Adviser or its Advisory Clients.5.Except with the prior approval of a Compliance Officer, Access Persons may not invest in any Initial Public Offering(“IPO”) or Private Placement (including hedge funds and other private investment vehicles). (See Section II.C.2) Thisrequirement also applies to Private Placements that are Advisory Clients of OFS Adviser, such as OFS Credit IncomeFund, L.P.6.No Supervised Person, except in the course of the rightful exercise of his or her job responsibilities, shall reveal to anyother person, information regarding any Advisory Client or any investment or Security transaction being considered,recommended or executed on behalf of any Advisory Client. (See Section III.)7.No OFS Fund Director, except in the course of the rightful exercise of his or her board responsibilities, shall reveal toany other person information regarding any OFS Fund or any “Portfolio Company”, defined as any legal entity inwhich an OFS Fund or another Advisory Client holds an investment regardless of whether or not the investment is aSecurity, or any investment or Security transaction being considered, recommended, or executed on behalf of any otherAdvisory Client. (See Section III.)8.No Supervised Person shall make any recommendation concerning the purchase or sale of any Security by an AdvisoryClient without disclosing, to the extent known, the interest of the Firm or any Supervised Person, if any, in suchSecurity or the issuer thereof, including, without limitation (a) any direct or indirect beneficial ownership of anySecurity of such issuer; (b) any contemplated transaction by such person in such Security; and (c) any present orproposed relationship with respect to such Security, issuer or its affiliates.4. Private Placement is defined as an offering that is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant tosection 4(2) or section 4(5) or pursuant to rule 504, rule 505 or rule 506 thereunder.9.Subject to certain exceptions permitted by applicable law, each OFS Fund shall not, directly or indirectly extend,maintain or arrange for the extension of credit or the renewal of an extension of credit, in the form of a personal loan toany officer or director of the Fund. Any Supervised Person or person who serves as a director on the board of directorsof any OFS Fund (“OFS Fund Director”) who becomes aware that their respective OFS Fund may be extending orarranging for the extension of credit to a director or officer, or person serving an equivalent function, should notify andconsult with a Compliance Officer to ensure that the proposed extension of credit complies with this Code and theapplicable law.10.No Supervised Person shall engage in insider trading (as described in the “Inside Information Policy” in Section III.)whether for his or her own benefit or for the benefit of others.11.No Supervised Person may communicate material, nonpublic information concerning any Security, or its issuer, orPortfolio Company to anyone unless it is properly within his or her duties to do so. No OFS Fund Director maycommunicate material, nonpublic information concerning any Security of an issuer in which the OFS Fund Directorknows, or, in the course of his or her duties as a director, should have known, OFS Fund has a current investment, orwith respect to which an investment or Security is Being Considered for Purchase or Sale by any OFS Fund (“OFSFund Portfolio Security”) or Portfolio Company of their respective OFS Fund to anyone unless it is properly within hisor her duties to do so. A Security is “Being Considered for Purchase or Sale” when a recommendation to purchase orsell the Security has been made and communicated and, with respect to the person making the recommendation, whensuch person seriously considers making such a recommendation. In all cases, a Security which has been recommendedfor purchase or sale pursuant to an Investment Committee memorandum, presentation, due diligence package or otherformal Investment Committee recommendation shall be deemed to be a Security Being Considered for Purchase orSale.12.Each Supervised Person shall complete a compliance questionnaire (the “Regulatory Compliance Disclosure”) prior toemployment and annually thereafter, within the prescribed deadline, as provided by the Compliance Department,(“Compliance Due Date”) through the Firm’s automated compliance system. Each Supervised Person shall supplementthe Regulatory Compliance Disclosure, as necessary, to reflect any material changes between annual disclosures, andmust immediately notify Compliance if any of the conditions addressed in the Regulatory Compliance Disclosurebecome applicable to such Supervised Person.13.Every Supervised Person must avoid any activity that might give rise to a question as to whether the Firm’s objectivityas a fiduciary has been compromised. (See Section V)14.Access Persons are required to disclose to a Compliance Officer the existence of any account that has the ability to holdany Reportable Securities (e.g., brokerage or trading accounts and IRAs), as well the account’s holdings (immediatelyupon commencement of employment (which shall include the accounts and holdings of the Access Person’s RelatedPersons), and in no case later than ten (10) calendar days beyond Access Person’s start date. Such Accounts must bedisclosed even if they contain a zero balance or non-Reportable Securities. Access Persons are required to discloseaccounts that are Managed Accounts; however, disclosing the holdings of such Managed Accounts is not required.With limited exceptions provided herein, Access Persons are also required to maintain Non-Managed Accounts capableofholding Reportable Securities with Approved Brokers, which have contracted to provide holdings and transactionreporting to the Compliance Department on the Firm’s automated compliance system. Access Persons must confirm theaccuracy and completeness of the information so provided to the Firm on a quarterly and annual basis by theCompliance Due Date. Initial and quarterly reports must disclose the existence of all accounts, even if none of thoseaccounts at the time hold a Reportable Security. (See Section II).15.The intentional creation, transmission or use of false rumors is inconsistent with the Firm’s commitment to high ethicalstandards and may violate the antifraud provisions of the Advisers Act, among other securities laws of the UnitedStates. Accordingly, no Supervised Person may maliciously create, disseminate or use false rumors. This prohibitioncovers oral and written communications, including the use of electronic communication media such as e-mail, PINmessages, instant messages, tweets, text messages, blogs and chat rooms. Because of the difficulty identifying “false”rumors, the Firm discourages Supervised Persons from creating, passing or using any rumor.C.PERIODIC COMPLIANCE AND TRAININGEach Supervised Person is required to complete all assigned compliance certifications and disclosures by the Compliance DueDate. Absent an exemption granted to you by a Compliance Officer, failure to complete such items by the Compliance Due Date willlikely constitute a violation of this Code and may result in the imposition of sanctions.The Compliance Department also presents and/or coordinates mandatory training on this Code at least annually, and mayassign mandatory or voluntary training at such other times as a Compliance Department deems appropriate. Failure to attend orcomplete mandatory training sessions, unless excused in writing by a Compliance Officer, will likely constitute a violation of this Codeand may lead to the imposition of sanctions. The Compliance Department maintains an attendance or completion list, as appropriate, ofall Supervised Persons assigned to such training sessions.D.ACKNOWLEDGMENTEach Supervised Person must certify upon commencement of employment, at least annually thereafter, and at such other timesas a Compliance Officer may determine, that he or she has read, understands, is subject to and has complied with the Code. AnySupervised Person who has any questions about the applicability of the Code to a particular situation should promptly consult with aCompliance Officer.E.REPORTING AND SANCTIONSWhile compliance with the provisions of the Code is anticipated, Supervised Persons should be aware that, in response to anyviolations, the Firm (or any OFS Fund, as applicable) shall take any action deemed necessary under the circumstances including, butwithout limitation, the imposition of appropriate sanctions. These sanctions may include, among others, verbal or written warnings, thereversal of trades, reallocation of trades to client accounts, disgorgement of profits, suspension or termination of personal trading orinvestment privileges, reduction in bonus or bonus opportunity, payment of a monetary fine payable to a recognized charitableorganization of the Supervised Person’s choice or, in more serious cases, suspension or termination of employment and/or the makingof any civil or criminal referral to the appropriate governmental authorities.Moreover, Supervised Persons are required to promptly report any violation(s) of this Code, any other compliance policiesadopted by OFS Adviser or the Rule 38a-1 Manual adopted by any OFS Fund (collectively “Compliance Policies”), or any activitythat may adversely affect the Firm’s or any OFS Fund’s business or reputation, to a Compliance Officer. The Compliance Departmentshall maintain a record of all violations of the Code and any corrective actions taken. Supervised Persons are encouraged to identifythemselves when reporting such conduct, but they may also report anonymously. Reporting should be made through a letter to aCompliance Officer or via the telephonic and electronic reporting procedures detailed in the Firm’s “Whistleblower HotlineInformation” attached hereto as Attachment A. Further, all activities reported by Supervised Persons will be treated anonymously andconfidentially (to the extent reasonably practicable) in order to encourage Supervised Persons to come forward with perceivedproblems. The Firm and each OFS Fund are committed to a full, unbiased review of any matter(s) raised.The Firm and OFS Fund prohibit retaliation against any such personnel who, in good faith, seeks help or reports known orsuspected violations (even if the reported event is determined not to be a violation), including personnel who assist in making a reportor who cooperate in an investigation. Any Supervised Person who engages in retaliatory conduct will be subject to disciplinary action,up to and including termination of employment.F.ADDITIONAL RESTRICTIONS AND WAIVERS BY OFS ADVISER AND THE OFS FUNDSFrom time to time, a Compliance Officer may determine that it is in the best interests of the Firm to subject certain SupervisedPersons or other persons (i.e., consultants and third party service providers) to restrictions or requirements in addition to those set forthin the Code. In such cases, the affected persons will be notified of the additional restrictions or requirements and will be required toabide by them as if they were included in the Code. In addition, under extraordinary circumstances, the Compliance Officer may granta waiver of certain of these restrictions or requirements contained in the Code on a case by case basis. In order for a Supervised Personto rely on any such waiver, it must be granted in writing.Any waiver of the requirements of the Code for executive officers of any OFS Fund or any OFS Fund Director may be madeonly by the respective OFS Fund’s board of directors or a committee of the board, and must be promptly disclosed to shareholders ofthe OFS Fund as required by law or relevant exchange rule or regulation.The Compliance Department maintains a log of all requests for exceptions and waivers and the determinations made withrespect to such requests.G.REVIEW BY THE BOARD OF DIRECTORS OF EACH OFS FUNDThe CCO will prepare a written report to be considered by the board of directors of each OFS Fund (1) quarterly, that identifiesany violations of the Code with respect to each OFS Fund requiring significant remedial action during the past quarter and the natureof that remedial action; and (2) annually, that (a) describes any issues arising under the Code since the last written report to the Board,including, but not limited to, information about material violations of the Code and sanctions imposed in response to such violations,and (b) identifies any recommended changes in existing restrictions or procedures based upon each OFS Fund’s and/or OFS Adviser’sexperience under the Code, then-prevailing industry practices, or developments in applicable laws or regulations, and (c) certifies thateach OFS Fund and OFS Adviser have each adopted procedures reasonably designed to prevent violations of the Code, and of thefederal securities laws in accordance with the requirements of the Advisers Act and the Company Act.The board of directors of each OFS Fund will also be asked to approve any material changes to the Code within six (6) monthsafter the adoption of such change, based on a determination that the Code, as amended, contains policies and procedures reasonablydesigned to prevent violations of the federal securities laws.H.CCO REPORTINGThe CCO will prepare a written report to be considered by Senior Management no less than annually, that (a) describes anyissues arising under the Code since the last written report, including, but not limited to, information about material violations of theCode and sanctions imposed in response to such violations, and (b) identifies any recommended changes in existing restrictions orprocedures based upon OFS Adviser’s experience under the Code, then-prevailing industry practices, or developments in applicablelaws or regulations.The CCO of each OFS Fund, as applicable, prepares a written report to be considered by the relevant OFS Fund Directors noless than annually, that (a) describes any issues arising under the Compliance Policies since the last written report, including, but notlimited to, information about material violations of the Compliance Policies and sanctions imposed in response to such violations, and(b) identifies any recommended changes in existing restrictions or procedures based upon each OFS Fund’s and/or OFS Adviser’sexperience under the Compliance Policies, then-prevailing industry practices, or developments in applicable laws or regulations.I.CONFIDENTIALITYPersonnel will be given access to and become acquainted with highly confidential information about the Firm such as itsfinancial information, business plans and strategies, investment strategies and opportunities, affiliated companies and internal policiesand practices, as well as information relating to past, current and prospective Advisory Clients and Portfolio Companies. Suchinformation must not be disclosed or discussed with anyone other than the Firm’s employees under any circumstances, and only on a“need to know” basis, unless otherwise permitted by the Legal or Compliance Departments.J.CONFLICT WITH EMPLOYEE HANDBOOKWhere this Code addresses policies that are also addressed in other corporate policies or in the Employee Handbook of OrchardFirst Source Capital, Inc. or another Affiliate by which a Supervised Person is employed, the policies herein are intended to augment,and not to supersede or replace, the relevant corporate or Employee Handbook policies. In the event of any conflict that would prohibita Supervised Person from complying with both sets of policies, the Supervised Person should address the conflict to a ComplianceOfficer.II.PERSONAL INVESTMENT POLICYA.INTRODUCTION AND DEFINITIONSThe Advisers Act, specifically Rule 204A-1, requires “Access Persons” of a registered investment adviser, such as OFSAdviser, to provide periodic reports regarding transactions and holdings in Reportable Securities beneficially owned by AccessPersons. Rule 17j-1 under the Company Act requires similar reports for “Access Persons” to a Fund, such as each of the OFS Funds.The purpose of this Personal Investment Policy and related procedures is to advise Access Persons of their ethical and legalresponsibilities with respect to Securities transactions that may involve (i) possible conflicts of interest with Advisory Clients, includingthe OFS Funds, and (ii) the possession and use of material, nonpublic information (“MNPI”). It is a violation of the Code for anyAccess Person of OFS Adviser or any OFS Fund to use their knowledge concerning a trade, pending trade, or contemplated trade orinvestment by an OFS Fund or any other Advisory Client to profit personally, directly or indirectly, as a result of such transaction,including by purchasing or selling such Securities.The following definitions are utilized within this Personal Investments Policy and more broadly within the rest of the Code.“Access Person” with respect to OFS Adviser means (a) any Supervised Person who (i) has access to nonpublic informationregarding any Advisory Client’s purchase or sale of Securities, or nonpublic information regarding the portfolio holdings of anyAdvisory Client (including any OFS Fund); or (ii) is involved in making Securities recommendations to Advisory Clients (includingany OFS Fund), or has access to such recommendations that are nonpublic; and (b) all directors, officers and partners of OFSAdviser.5 For purposes of the Code, all Supervised Persons are generally considered to be Access Persons of OFS Adviser, and allAccess Persons of OFS Adviser are considered to be Access Persons of each OFS Fund. OFS Fund Directors are also consideredAccess Persons of each OFS Fund but are generally exempt from Recordkeeping, Reporting and Statement of Restrictionsrequirements of Access Persons included in this Code, except as described in Section II.D below.“Affiliate Account” means: (i) the personal Securities account of an Access Person or the account of any Related Person inwhich Reportable Securities may be held or transacted; (ii) any such Securities account for which any Access Person serves ascustodian, trustee, or otherwise acts in a fiduciary capacity or with respect to which an Access Person either has authority to makeinvestment decisions or from time to time makes investment recommendations, except with respect to Advisory Clients; (iii) any suchSecurities account of any person, partnership, joint venture, trust or other entity in which an Access Person or his or her Related Personhas Beneficial Ownership or other Beneficial Interest; and (iv) and accounts containing Reportable Funds of which an Access Personor his or her Related Person has Beneficial Ownership or Beneficial Interest.5 The Chief Compliance Officer or his/her designee may consider any director, officer, principal, member or employee, including, but not limited to, intern and temporaryemployees, of an Affiliate of OFS Adviser to be a Supervised Person, and Access Person if appropriate, of OFS Adviser if the Chief Compliance Officer determines that such personperforms services for OFS Adviser, through any staffing or similar agreement, such that the person would constitute a Supervised Person or Access Person if such person was adirector, officer, member, principal or employee, including an intern or temporary employee, of OFS Adviser. The Compliance Department will maintain a list of all such persons andwhether each person is (1) a Supervised Person and (2) an Access Person and will notify each person of relevant requirements. The majority of OFS Adviser’s personnel are employeesof Orchard First Source Capital, Inc., an Affiliate of OFS Adviser.“Beneficial Interest” means an interest whereby a person can, directly or indirectly, control the disposition of a Security or aReportable Fund or derive a monetary, pecuniary or other right or benefit from the purchase, sale or ownership of a Security or aReportable Fund (e.g., interest payments or dividends).“Beneficial Ownership” of a Security, Reportable Fund or account means, consistent with Section 16 of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) and Rule 16a-1(a)(2) thereunder, ownership of Securities, Securitiesaccounts, or Reportable Funds by or for the benefit of a person or his or her Related Person. Beneficial Ownership specificallyincludes any Security or account in which the Access Person or any Related Persons holds a direct or indirect Beneficial Interest orretains voting power (or the ability to direct such a vote) or investment power (which includes the power to acquire or dispose of, orthe ability to direct the acquisition or disposition of, a Security, Securities accounts or Reportable Funds), directly or indirectly (e.g., byexercising a power of attorney or otherwise).“Exempt Security” is any Security that falls into any of the following categories: (i) shares issued by open-end mutual funds(excluding exchange traded funds (“ETFs”), except Reportable Funds, if any; (ii) shares issued by money market funds; (iii) Securitypurchases or sales that are part of an automatic dividend reinvestment plan (e.g., DRIP accounts, etc.); (iv) College Direct SavingsPlans (e.g., 529 College Savings Program, etc.); (v) shares issued by unit investment trusts that are invested exclusively in one or moreopen-end funds (so long as such funds are not Reportable Funds); (vi) bankers’ acceptances, bank certificates of deposit or timedeposits, commercial paper and other short term high quality debt instruments with one year or less to maturity; and (vii) treasuryobligations (e.g., T-bills, notes and bonds) or other Securities issued/guaranteed by the U.S. Government, its agencies, orinstrumentalities (e.g., FNMA, GNMA).“Related Person” means the spouse, domestic partner, child or stepchild, parent or stepparent, grandchild, grandparent, sibling,mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law (including adoptive relationships) of an AccessPerson, who either resides with, or is financially dependent upon, the Access Person, or whose investments are controlled by theAccess Person.“Reportable Fund” means any Fund for which OFS Advisor or any Affiliate acts as investment adviser, sub-adviser orunderwriter.“Reportable Security” means every Security and Reportable Fund in which an Access Person or a Related Person has aBeneficial Ownership or other Beneficial Interest, except for an Exempt Security.“Security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness6, certificate of interest orparticipation in any profit-sharing agreement, collateral-trust certificate, reorganization certificate or subscription, transferable share,investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineralrights, any put, call, straddle, option or privilege on any security (including a certificate of deposit) or on any group or index ofsecurities (including any interest therein or based on the value thereof), or a put, call, straddle, option or privilege, entered into on anational securities exchange relating to foreign currency, or in general, any interest or instrument commonly known as a “security,” orany certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right tosubscribe to or purchase, any of the foregoing.6 Note that, for most purposes, evidences of indebtedness are treated as “Securities” for securities law purposes; insider trading prohibitions are an exception to this generalrule.Note that Security has a different definition for purposes of the Inside Information Policy of the Code.B.RECORDKEEPING AND REPORTING REQUIREMENTSUnder the Advisers Act and the Company Act, OFS Adviser and each OFS Fund are required to keep records of transactionsin Reportable Securities in which Access Persons have Beneficial Ownership or a direct or indirect Beneficial Interest.1.ReportsThe following personal Securities holdings and transaction reporting requirements have been adopted to enable each of OFSAdviser and each OFS Fund to satisfy their legal and regulatory requirements:In all cases, within ten (10) calendar days from the date of commencement of employment (or other engagementor arrangement) with the Firm, every new Access Person shall submit to the Compliance Department, through theFirm’s automated compliance system, the required information about any Affiliated Accounts (such information mustbe current as of a date no more than forty-five (45) calendar days prior to the date the person becomes an AccessPerson);Within sixty (60) calendar days of becoming an Access Person, every new Access Person must transfer allAffiliated Accounts in which the Access Person or his or her Related Persons have direct influence or control in theinvestment decisions (“Non-Managed Accounts”) and in which Reportable Securities are held or are capable of beingheld to a broker-dealer to which the Compliance Department has access via the Firm’s automated compliance system(an “Approved Broker”). Subsequently, any new Non-Managed Accounts opened on behalf of such Access Person orhis or her Related Person in which Reportable Securities will be held or transacted must be established with anApproved Broker. The Compliance Department maintains a list of Approved Brokers, which can be found on theFirm’s Sharepoint site. Holdings and transactions in Reportable Securities in these accounts are electronically reportedto the Compliance Department by the Approved Brokers through the automated compliance system.Any exception to the Approved Broker policy above must be approved in writing by a Compliance Officer.By the Compliance Due Date and no later than thirty (30) calendar days after each quarter end, every AccessPerson is required to certify all Affiliated Accounts via the Firm’s automated compliance system. Any updates to anAccess Person’s accounts must be reported via the Firm’s automated compliance system within thirty (30) calendardays of opening or closing of such Affiliated Account.By the Compliance Due Date and no later than thirty (30) calendar days after each quarter end, every AccessPerson is required to certify via the Firm’s automated compliance system, all transactions in Reportable Securities inNon-Managed Accounts, as recorded by the system during the quarter. Any transactions in Reportable Securities in aNon-Managed Account not included within the Firm’s automated compliance system should be reported separately bythe Access Person.•By the Compliance Due Date and no later than forty-five (45) calendar days following the end of each calendar year(i.e., February 14), every Access Person is required to certify, via the Firm’s automated compliance system, suchAccess Person’s Affiliated Accounts and Reportable Securities holdings in all Non-Managed Accounts as of year-end.Any holdings in Reportable Securities in a Non-Managed Account not included within the Firm’s automatedcompliance system should be reported separately by the Access Person.2.Determining Whether an Account is an Affiliated AccountIn most cases, determining whether an Access Person or his or her Related Person has Beneficial Ownership of or a BeneficialInterest in the Reportable Securities held in an account (which would make such account an Affiliated Account for purposes hereof) isa straight-forward process. It is, however, important to note that, in some cases, an owner of an equity interest in an entity may beconsidered to have Beneficial Ownership of the assets of that entity. In general, equity holders are not deemed to have BeneficialOwnership of Securities held by an entity that is not “controlled” by the equity holders or in which the equity holders do not have orshare investment control over the entity’s portfolio. Because the determination of whether an equity holder controls an entity or itsinvestment decisions can be complicated, Access Persons are encouraged to seek guidance from a Compliance Officer. To the extentsuch guidance is not sought, any failure by an Access Person to properly identify all Affiliated Accounts will be treated as a violationof the Code.3.Managed AccountsThe Firm recognizes that it may be impossible or impractical for accounts that are controlled or invested by a third party, suchas an investment adviser or broker (“Managed Accounts”), to comply with the Reporting and Restricted List procedures of the Code.Therefore, Managed Accounts are exempted from such procedures, provided that the Access Person cedes any and all control overinvestment decisions for the account (other than general asset class and objectives guidelines) to such third party and does notcommunicate with such person with respect to individual transactions for the account. Special rules apply with respect to whether anAccess Person “controls” the investment decisions of an entity in which he or she invests; guidance from a Compliance Officer shouldbe sought in such instances.The Firm requires that general information regarding Managed Accounts, including broker, account title, account number, andthe status of the account, be reported through the Firm’s automated compliance system. In order to properly establish a ManagedAccount, the Access Persons is required to provide to the Compliance Department evidence that full investment discretion has beenprovided to the third-party investment adviser or broker (e.g., provide the investment management agreement). Upon establishing aManaged Account in the Firm’s automated compliance system and quarterly thereafter, the Access Person is required to certify withinthe Firm’s automated compliance system that he or she does not participate, directly or indirectly in individual investment decisions inthe Managed Account or be made aware of such decisions before transactions are executed.4.Non-Transferable AccountsThe Firm recognizes that it may be impossible or impracticable for certain types of Non-Managed Accounts (e.g. 401(k)accounts) of Access Persons or their Related Persons with other employers, an account pledged to secure a personal loan, etc. to betransferred to an Approved Broker. A Compliance Officer may exempt any such Non-Managed Account from the Approved Brokerprocedures set forth above provided that the Access Person shall be responsible for reporting transactions and holdings of ReportableSecurities(e.g. employer shares) in such account as set forth above and complying with the Restricted List procedures with respect to such Non-Managed Accounts.The Firm requires that all such “non-transferable” Non-Managed Accounts be reported to the Compliance Department so thatan exemption may properly be granted. General information regarding such accounts must be reported through the Firm’s automatedcompliance system. A Compliance Officer may, as a condition to exempting such Affiliated Accounts, require, initially andperiodically thereafter, copies of account statements, a certification from the Access Person, or such other information as suchCompliance Officer deems prudent.5.Transactions Subject to ReviewTransactions and holding information reported via the Firm’s automated compliance system will be reviewed by a ComplianceOfficer and compared against the investments made or considered by each of the Advisory Clients. Such review and comparison aredesigned to evaluate compliance with the Code and further, to determine whether there have been any violations of applicable law.Reporting made by a Compliance Officer is reviewed by a different Compliance Officer so that no Compliance Officer is reviewinghis or her own reporting.C.STATEMENT OF RESTRICTIONS1.Restricted ListNo Access Person or Related Person may make a trade Personal Securities Trade in the Securities of an issuer listed onthe Firm’s Restricted List. Before an Access Person or his/her Related Person makes a Personal Securities Trade, the Access Personmust review the Restricted List and confirm that neither the Security to be traded nor the relevant issuer are listed thereon. Theinformation that a particular issuer or Security has been placed on the Restricted List is itself sensitive and confidential. The contents ofthe Restricted List should never be communicated to persons outside of the Firm except in the limited circumstances in which aCompliance Officer has determined that it is necessary and appropriate to disclose such information for bona fide business purposes.The Firm may place an issuer on the Restricted List at any time without prior notice to Access Persons. Therefore, Access Personswho obtain Securities of an issuer that is later placed on the Restricted List may be “frozen in,” or prohibited from disposing of suchSecurities, until the issuer has been removed from the Restricted List. Because Access Persons are already required to obtain pre-approval for the purchase or sale of any Private Placement (see below), the Restricted List is limited to the Securities of issuers with aclass of publicly-traded Securities.(a)SecuritiesThe name of an issuer or Security could be placed on the Restricted List for many reasons, including when:•the Firm, any investment adviser Affiliate, or an Advisory Client purchases a Security of a particular issuer or suchSecurity is Being Considered for Purchase or Sale;•the Firm or any investment adviser Affiliate executes a confidentiality agreement with or relating to an issuer;•the Firm, any investment adviser Affiliate, or an Advisory Client has declared itself “Private” with respect to anissuer in an electronic workspace;•the Firm becomes bound by a fiduciary obligation or other duty (for example, because an Access Person hasbecome a board member of an issuer);•an Access Person becomes a member of an issuer’s board on behalf of the Firm or a Portfolio Company;•an Access Person becomes aware of (or is likely to become aware of) MNPI about a Security or issuer; or•the Firm, as determined by a Compliance Officer, has determined to include an issuer to avoid the appearance ofimpropriety and protect the Firm’s reputation for integrity and ethical conduct.(b)ProceduresThe Compliance Department maintains and updates the Firm’s Restricted List. It is the responsibility of Access Persons,however, to ensure that the Firm’s Restricted List is accurate. Please refer to the Confidentiality Policy for further information on therelevant procedures.•Additions: Access Persons who become aware of any of the circumstances set forth in subsection 1.a) above, orwho for any other reason believe an issuer or Security should be added to the Restricted List, should immediatelynotify a Compliance Officer in order to ensure that the Restricted List is updated.•Deletions: When the circumstances set forth in subsection 1.a) above no longer exist, or the Firm is no longerbound by the obligations giving rise to the inclusion of an issuer or Security on the Restricted List, Access Personsshould notify a Compliance Officer so that the proposed removal can be assessed and the name of the issuer orSecurity can be promptly removed, as necessary, from the Restricted List.•Changes: From time to time, the Compliance Department will update the Restricted List as contemplated by thisPersonal Investment Policy and the Confidentiality Policy. Access Persons are responsible for checking theRestricted List in all cases before engaging in any Personal Securities Trade.Generally, Securities that are on the Restricted List because OFS Adviser or an investment adviser Affiliate has entered into aconfidentiality agreement, declared itself “private” or otherwise accessed MNPI with respect to an issuer, must stay on the list for atleast one hundred eighty (180) calendar days after the applicable Advisory Client(s) have liquidated the holding or last accessed MNPIon the relevant Security or issuer of such Security. A Compliance Officer may determine that a longer or shorter “stay” period isappropriate for issuers or Securities in such Compliance Officer’s sole discretion.2.Private Placements and Initial Public OfferingsNo IPO may be purchased and no Private Placement of Securities may be purchased or sold for any Affiliated Account, exceptwith the prior, express written approval of (i) the CCO or designee; or (ii) where such Access Person is the CCO, the prior writtenapproval of a member of Senior Management. Requests to make such investments shall be made through the Firm’s automatedcompliance system. A record of such approval (or denial), and a brief description of the reasoning supporting such decision will bemaintained in accordance with the recordkeeping requirements of the Advisers Act and the Company Act.3.Trades by OFS Fund DirectorsOFS Fund Directors are prohibited from trading any OFS Fund Portfolio Security.4.Trades of OFS Fund Securities or CMCTAll Access Persons are prohibited from buying or selling shares issued by any OFS Fund or either CIM Commercial TrustCorporation (“CMCT”), an Affiliate of OFS Adviser, except during an open trading window announced by a Compliance Officer.Except with the express written consent of the CCO, all Access Persons are prohibited from buying or selling options on, or futures orother derivatives related to, shares issued by any OFS Fund or CMCT, and are likewise prohibited from selling short, shares of anyOFS Fund or CMCT.5.Trades by Access Persons Serving on Company BoardsCompanies for which Access Persons serve on the board of directors may permit members of its board of directors to purchaseor sell stock based on a predetermined schedule (such as a Rule 10b5-1 Plan7) that is approved by the company (“PredeterminedSchedule”). Personal Securities Trades made in accordance with a Predetermined Schedule by Access Persons who serve on the boardof directors of such companies are exempt from the restriction against trading in Securities added to the Restricted List after theadoption of the Predetermined Schedule, however such Predetermined Schedules must be disclosed to a Compliance Officer prior tomaking the trade and are subject to the reporting requirements set forth in the section above. Further, purchases and sales of Securitiesby such company’s directors during an established trading window may be permitted with prior notice to, and at the discretion of, aCompliance Officer.6.No Personal Trades Through OFS Adviser’s TradersNo Personal Securities Trades may be effected through OFS Adviser’s trading personnel.7.Use of Brokerage for Personal or Family BenefitNo Access Person may, for direct or indirect personal or a Related Person’s benefit, execute a trade with a broker by using theinfluence (actual or implied) of OFS Adviser or any Access Person’s influence (actual or implied) with OFS Adviser.8.No “Front Running”While the Code contains policies and procedures designed to promote ethical conduct with respect to Personal SecuritiesTrades, irrespective of the application of any particular trading policy or restriction, no Personal Securities Trades may be effected byany Access Person who is aware or should be aware that (i) there is a pending buy or sell order in the Securities of that same issuer forany Advisory Client of OFS Adviser, or (ii) a purchase or sale of the Securities of that same issuer can reasonably be anticipated for anOFS Adviser Advisory Client in the next five (5) calendar days. No Personal Securities Trade may be executed with a view towardmaking a profit from a change in price of such Security resulting from anticipated transactions by or for OFS Adviser’s AdvisoryClients.D.REQUIREMENTS OF DISINTERESTED DIRECTORSThe Recordkeeping, Reporting, and Statement of Restrictions provisions listed above (except those in Section II(C)(3-4) do notapply to any OFS Fund Director who is not an interested person of any OFS Fund within the meaning of Section 2(a)(19) of theCompany Act (“Disinterested Directors”) of each of the OFS Funds, except as the following describes. A Disinterested Director needonly report a transaction if, at the time of a Personal Securities Trade in a Reportable Security, the Disinterested Director knew, or, inthe ordinary course of fulfilling his or her duties as a director, should have known that during the fifteen (15)day period immediately preceding or after the date of the transaction, their OFS Fund purchased or sold the Security or the Securitywas Being Considered for Purchase or Sale by their OFS Fundor OFS Adviser.7 A Rule 10b5-1 plan is a written plan for trading Securities that is designed in accordance with Rule 105-1(c). Any person executing pre-planned transactions pursuant to aRule 10b5-1 plan that was established in good faith at a time when that person was unaware of material nonpublic information has an affirmative defense against accusations of insidertrading, even if actual trades made pursuant to the plan are executed at a time when the individual may be aware of material nonpublic information.)III.INSIDE INFORMATION POLICYA.INTRODUCTIONThe prohibitions against insider trading set forth in the federal securities laws play an essential role in maintaining the fairness,health and integrity of our markets. These laws also establish fundamental standards of business conduct that govern our daily activitiesand help to ensure that Advisory Client’s trust and confidence are not compromised in any way. Consistent with these principles, OFSAdviser forbids any Supervised Person from (i) trading Securities for the Firm, any Advisory Client or any account in which aSupervised Person has a Beneficial Interest, if that Supervised Person is “aware” of material and nonpublic information (“MNPI” or“Inside Information”) concerning an issuer; or (ii) communicating MNPI to others in violation of the law. This conduct is frequentlyreferred to as “insider trading.” This policy applies to all Supervised Persons, and extends to activities within and outside of eachSupervised Person’s duties at OFS Adviser or with any OFS Fund.The term “insider trading” is not specifically defined under the federal securities laws (most guidance in this area can be foundunder case law and related judicial decisions), but generally is used to refer to improper trading in Securities8 on the basis of MNPI(whether or not the person trading is an insider). A person is generally deemed to trade “on the basis of MNPI if that person is aware ofMNPI when making the purchase or sale, regardless of whether the person specifically relied on the information in making aninvestment decision. It is generally understood that the law prohibits trading by an insider on the basis of MNPI about the Security orissuer. To be held liable under the law, the person trading generally must violate a duty of trust or confidence owed directly, indirectlyor derivatively to the issuer of that Security or the shareholders of that issuer, or to any other person who is the source of the materialnonpublic information (e.g., an employer). The law also prohibits the communication of inside information to others and provides forpenalties and punitive damages against the “tipper” even if he or she does not gain personally from the improper trading.8 OFS Adviser often transacts in syndicated or other loan interests on the basis of information that is not available to other members of the syndicate, or to the public ingeneral; however, for the limited purpose of this policy, “Securities” (as defined in the Exchange Act) do not include such loan interests or other “evidences of indebtedness.” If youare uncertain as to whether a particular investment is a “security” for purposes of this policy, contact the Legal/Compliance Department.B.KEY TERMS1.What is a “Security”?The Exchange Act, which covers insider trading, defines “Security” very broadly to include most types of financialinstruments,9 except bank debt.10 There may be instances where Supervised Persons receive information about such investments that isnot generally known by other institutional investors - even those institutional investors who may be similarly situated (e.g., lenders thatare privy to nonpublic information and have access to bank-level information or primary lender meetings). Although trading in “non-security” investments on the basis of nonpublic information is not prohibited by federal securities laws, such trading may be prohibitedby fiduciary obligations, other federal or state statutes, or contractual obligations such as confidentiality agreements11. In situationswhere OFS Adviser has access to MNPI to which other potential investors/counterparties may not have access, Supervised Personsshould consult with a Compliance Officer or Senior Management, as appropriate, as to whether a proposed purchase or sale of aninvestment should be made, and, if made, should include the use of a “Big Boy” letter (see the Firm’s Confidentiality Policy), aconfidentiality agreement (see the Firm’s Confidentiality Policy), or, if the investment is a syndicated loan, the execution by OFSAdviser of the standard LSTA form, which includes disclosure concerning the possibility of access to such information. In addition,even if trading in a “non-security” investment is permissible because the above standards are met, Supervised Persons are stillprohibited from trading in any Securities issued by the relevant borrower, either for an Advisory Client or themselves, if theinformation obtained would be material with respect to the Securities transaction. This would also include indirect participation in sucha transaction; for example, by participating in an Investment Committee meeting in which a decision regarding such Securities wasbeing considered.2.Who is an Insider?The concept of an “insider” is broad. It includes officers, directors and employees of a company. In addition, a person can be a“temporary insider” if he or she enters into a special confidential relationship in the conduct of a company’s affairs and as a result isgiven access to information solely for the company’s purposes. A temporary insider can include, among others, a company’s attorneys,accountants, consultants, bank lending officers, investment advisers (such as OFS Adviser) and the employees of such organizations.OFS Adviser may become a temporary insider by signing a confidentiality agreement or by accessing material nonpublic informationon a private electronic workspace.9 For purposes of the Inside Information Policy, “Security” means any note, stock, treasury stock, security feature, security-based swap, bond, debenture, certificate ofinterest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription,transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, orgroup or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchangerelating to foreign currency, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receiptfor, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has amaturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.10 Note that, for most purposes, evidences of indebtedness are treated as “securities” for securities law purposes; insider trading prohibitions are an exception to this generalrule.11 The Compliance Department maintains the Private Company List and Advisory Clients may not transact in these investments unless an exception to the prohibition fromtrading a security on the Private Company List has been granted by the CCO or his or her designee. Please refer to the Confidentiality Policy for more information..3.What is Material Information?Trading on inside information is not a basis for liability unless the information is material. “Material” information generally isdefined as information with respect to which there is a substantial likelihood that a reasonable investor would consider it important inmaking his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company’sSecurities.Among other things, the following types of information are generally regarded as “material”:•dividend or earnings announcements•write-downs or write-offs of assets•additions to reserves for bad debts or contingent liabilities•expansion or curtailment of company or major division operations•merger, joint venture announcements•new product/service/marketing announcements•new supplier/manufacturing/production announcements•material charge/impairment announcements•senior management changes•changes in control•material restatement of previously issued financial statements•discovery or research developments•criminal indictments and civil and government investigations, litigations and/or settlements•pending labor disputes•debt service or liquidity problems•bankruptcy or insolvency problems•tender offers, stock repurchase plans, etc.•recapitalizationsMaterial information does not have to relate to a company’s business. For example, in Carpenter v. U.S., 18 U.S. 316 (1987),the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that wasexpected to affect the market price of a Security. In that case, a Wall Street Journal reporter was found criminally liable for disclosingto others the dates that reports on various companies would appear in the Journal and whether those reports would be favorable or not.4.What is Nonpublic Information?Information is nonpublic until it has been effectively communicated to the marketplace. One must be able to point to some factto show that the information is generally public. For example, information found in a report filed with the SEC, or appearing in DowJones, Reuters Economic Services, The Wall Street Journal, Bloomberg or other publications of general circulation would beconsidered public. Supervised Persons should seek specific guidance from a Compliance Officer in situations where informationconcerning an issuer or its affiliated entities (e.g., subsidiaries) may not have been made available to the investment communitygenerally but was made available to a group of institutional investors.5.Contacts with CompaniesFrom time to time, Supervised Persons may meet with members of senior management at publicly-traded companies associatedwith an investment, or a prospective investment. OFS Adviser may make investment decisions on the basis of the Firm’s conclusionsformed through such contacts and analysis of publicly-available information regarding foreign and U.S. companies. Difficult legalissues arise when, during these contacts, a Supervised Person becomes aware of MNPI about those companies. This could happen, forexample, if a company’s chief financial officer prematurely discloses quarterly results to a Supervised Person, a broker or a securitiesanalyst, or if an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In suchsituations, Supervised Persons should immediately contact a Compliance Officer if he or she believes that he or she may have receivedMNPI about a publicly traded company.6.Tender OffersTender offers raise heightened concerns in the law of insider trading for two reasons. First, tender offer activity often producesgyrations in the price of the target company’s Securities. Trading during this period is more likely to attract regulatory attention (andproduces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids tradingand “tipping” while in possession of MNPI regarding a tender offer received from the tender offeror, the target company or anyoneacting on behalf of either. Supervised Persons should exercise caution any time they become aware of nonpublic information relatingto a tender offer.7.Penalties for Insider TradingPenalties for trading on or inappropriately communicating MNPI are severe, both for the individuals involved and theiremployers. A person can be subject to some or all of the penalties below, even if he or she does not personally benefit from theviolations. Penalties include:•civil injunctions;•disgorgement of profits;•punitive damages (i.e., fines for the person who committed the violation of up to three (3) times the profit gained orloss avoided, irrespective of whether the person actually benefited personally);•felony convictions which include possible jail sentences; and•fines and sanctions against the employer or other controlling person.C.INSIDER TRADING PROCEDURESThe following procedures have been established to assist Supervised Persons in avoiding insider trading, and to aid OFSAdviser in preventing, detecting and imposing sanctions for insider trading. The following procedures should be read in conjunctionwith other policies set forth in this Code, and in the Compliance Policies.1.Identifying MNPIBefore trading in the Securities of a company about which they may have potential MNPI, Supervised Persons should askthemselves the following questions:•Is the information material? Is this information that an investor would consider important in making his or herinvestment decisions (e.g., whether the investor should buy, sell or hold a Security)? Is this information that wouldsubstantially affect the market price of the Securities if generally disclosed?•Is the information nonpublic? To whom has this information been provided? Has the information been effectivelycommunicated to the marketplace by being published in Reuters, The Wall Street Journal, Bloomberg or otherpublications of general circulation? Remember that information that has been communicated to a relatively largegroup of sophisticated investors does not by itself mean that the information is public (e.g., large group of potentialbank debt investors during an invitation only meeting).2.Restricting Access to MNPICare should be taken so that MNPI is secure. For example, files containing MNPI should be sealed or locked; access tocomputer files containing MNPI should be restricted. As a general matter, materials containing such information should not beremoved from the Firm’s premises and, if they are, appropriate measures should be maintained to protect the materials from loss ordisclosure. Among other things, Supervised Persons should:•distribute materials containing MNPI only on a need-to-know” basis;•take care so that telephone conversations cannot be overheard when discussing matters involving MNPI (e.g.,speaker telephones should generally be used in a way so that outsiders who might be in OFS Advisers’ offices arenot inadvertently exposed to this information);•limit access to offices and conference rooms when these rooms contain MNPI; and•not leave materials containing MNPI displayed on the computer viewing screen when they leave their computersunattended.3.Review and Dissemination of Certain Investment Related InformationAs part of its consideration of certain investments, including in certain types of “non-Securities” (e.g., bank debt instruments),the Firm may enter into confidentiality agreements with third parties (e.g., issuers, sponsors, syndicate members or other lenders) thatcould have implications for the Firm’s compliance with federal securities laws. Those agreements may sometimes contain so-called“stand-still” provisions, which specifically restrict the Firm’s activity in Securities of identified issuers, but more typically simply raisethe possibility that nonpublic information may be disclosed to the recipient and seek the receiving party’s acknowledgment of thatunderstanding and agreement not to disclose any MNPI transmitted. The procedures for executing confidentiality agreements are setforth in the Firm’s Confidentiality Policy. Many potential counterparties or their agents specifically require that potential investors signa confidentiality agreement before they will be provided access to investment-related information. Because of the importance of ourpolicies regarding access to and use of confidential information, confidentiality agreements may only be reviewed, negotiated andexecuted as set forth in the Firm’s Confidentiality Policy.4.Determination of MaterialityGiven the unique asset classes in which OFS Adviser typically invests, Supervised Persons may receive detailed informationabout a Security that may not be otherwise readily available to the investing public. The issue of “materiality” and the ultimatedetermination as to whether the information provided rises to the level of MNPI should not be made independently by a SupervisedPerson. Rather, the individualshould contact a Compliance Officer so that an analysis may be performed and an informed determination may be made. Unlessotherwise determined by a Compliance Officer, in consultation with investment staff and outside legal counsel, as appropriate,information received about a publicly-traded Security that is not readily available to the investing public shall be deemed to be andtreated as material.5.Policies and Procedures Relating to Paid Research Consultants and Expert Network Firms RegardingSecuritiesWhile it is permissible to utilize consultants who may provide information relating to Securities as part of the research process,OFS Adviser must be particularly sensitive about the information that these consultants provide. Accordingly, OFS Adviser hasadopted the following procedures with which all Supervised Persons must comply in connection with their contact and interaction withpaid consultants who provide information relating to Securities or their issuers:•The Supervised Person must obtain the prior written approval of a Compliance Officer before engaging a paidconsultant if; (1) substantive information related to a Security or its issuer will be discussed as part of the engagement;and/or (2) the consultant is either employed with an issuer of Securities at the time of the engagement or was employedwith such an issuer within six months of the engagement. The Compliance Department will maintain a log of all suchengagements.•Prior to the commencement of a phone call or meeting with a paid consultant where (i) it is anticipated that substantiveinformation related to a Security or its issuer will be discussed, and/or (ii) the consultant is either employed with anissuer of Securities at the time of the call or was employed with such an issuer within six months of the call, theSupervised Person must inform such consultant that:(i)the Firm may invest in the public and non-public Securities and private debt markets,(ii)the Firm does not wish to receive MNPI,(iii)the purpose of speaking with such consultant is to obtain his/her independent insight as it relates to a particularindustry, sector or company, and(iv)such consultant should not share any MNPI or confidential information that he/she may have a duty to keepconfidential or that he/she otherwise should not disclose.•The Supervised Person should also confirm with such consultant that he/she will not be violating any agreement, dutyor obligation such consultant may have with any employer or other institution.•Supervised Persons must keep and maintain logs of all call or conversations with such consultants, which shouldinclude the date/time of the conversation, the name of the consultant and a summary of the information discussed on thecall.•In the event that a Supervised Person learns or has reason to suspect that he or she has been provided with confidentialor MNPI relating to a Security from a consultant, the Supervised Person must immediately contact a ComplianceOfficer prior to either communicating suchconfidential or material nonpublic information to anyone else, or making any investment or trading decisions.Agreements with paid research consultants and expert network firms who provide information relating to Securities must bepre-approved by a Compliance Officer and may be signed only by (i) Bilal Rashid on behalf of Senior Management in the case ofAdvisory Clients, after consultation with, and approval by, a Compliance Officer. Depending on the facts and circumstances, the CCOmay impose other conditions on the engagement of consultants or on the conduct of the engagement, including, but not limited to, theparticipation of a Compliance Officer on any phone calls or in any correspondence between the consultant and the Firm.IV.GIFTS, ENTERTAINMENT AND POLITICAL ACTIVITIESA.INTRODUCTIONOFS Adviser attempts to minimize any activity that might give rise to a question as to whether the Firm’s objectivity as afiduciary has been compromised.B.GIFTS AND ENTERTAINMENT POLICYOne possible area of fiduciary concern relates to providing or receiving meals, gifts or entertainment from third parties withwhich OFS Adviser or its Advisory Clients, including each OFS Fund, joint business partners, service providers and current andprospective clients (collectively “Outside Parties” and each an “Outside Party”), do business.Supervised Persons are prohibited from soliciting anything of value from Outside Parties. Further, no Supervised Person maygive or receive any gift, meal or entertainment that could or is intended to influence decision-making or to make a person beholden, inany way, to another person or company that seeks to do or is currently doing business with the Firm or its Advisory Clients. Lavish orluxurious gifts and entertainment, and gifts and entertainment that are received or provided on a frequent basis, are generally deemed tomeet this standard and, unless a Compliance Officer indicates otherwise, are prohibited. In addition, depending upon a SupervisedPerson’s responsibilities, specific regulatory requirements may dictate the types and extent of gifts and entertainment that SupervisedPersons may give or receive. The Firm is committed to competing solely on the merit of its products and services, and SupervisedPersons should avoid any actions that create a perception that favorable treatment of Outside Parties by the Firm was sought, receivedor given in exchange for gifts or entertainment.1.Business MealsGenerally, Supervised Persons may share meals with Outside Parties in the ordinary course of business. Meals received bySupervised Persons from Outside Parties should not exceed $250 per person per meal. Meals provided by SupervisedPersons to Outside Parties are generally permissible and should also not exceed $250 per person per meal, subject to certainpre-approval requirements applicable to providing meals to Public Officials. A “Public Official” means any person who is employedfull- or part-time by a government, or by regional subdivisions of governments, including states, provinces, districts, counties, cities,towns and villages or by independent agencies, state-owned businesses, state-controlled businesses or public academic institutions.This would include, for example, employees of sovereign wealth funds, government-sponsored pension plans (i.e. pension plans forthe benefit of government employees), heads of state, lower level employees of state-controlled businesses and government-sponsoreduniversity endowments. “Public Official” also includes political party officials and candidates for political office.2.Providing Business GiftsAny Supervised Person who offers a gift to an Outside Party must be sure that it cannot reasonably be interpreted as an attemptto gain an unfair business advantage or otherwise reflect negatively upon the Firm. In addition, a Supervised Person may never usepersonal funds or resources to do something that cannot be done with Firm resources. A gift may include any services or merchandiseof any kind or discounts onmerchandise or services and other items of value. Supervised Persons are prohibited from giving gifts of cash, cash equivalents(such as gift cards and gift certificates) and securities to Outside Parties. This policy does not prohibit the provision of occasionalor nominal non-cash gift items, such as holiday gifts, to Outside Parties so long as the value of the gift(s) provided by a SupervisedPerson to any one recipient over a calendar year does not exceed $250. Once the aggregate amount proposed to be provided by aSupervised Person to any one recipient during one calendar year exceeds $250, that Supervised Person must obtain pre-approval from a Compliance Officer. Such request should be submitted via the Firm’s automated compliance system. Further,anything of value (e.g., meals, beverages, gifts and entertainment) to be provided to Public Officials requires pre-approvalfrom a Compliance Officer. Such requests should be submitted via the Firm’s automated compliance system.The Compliance Department shall periodically review gifts provided for compliance with this Code as part of quarterlyexpense reimbursement review process.If you are unsure of OFS Adviser’s policy with respect to providing gifts in any circumstance, you should consult with aCompliance Officer.3.Receiving GiftsNo Supervised Person should obtain any material personal benefits or favors because of his or her position with the Firm. EachSupervised Person’s decisions on behalf of the Firm must be free from undue influence. Soliciting gifts from Outside Parties is strictlyprohibited. A gift may include any services or merchandise of any kind or discounts on merchandise or services and other items ofvalue. Supervised Persons are prohibited from receiving gifts of cash, cash equivalents (such as gift cards and gift certificates) andsecurities from Outside Parties. This policy does not prohibit the receipt of occasional or nominal non-cash gift items, such as holidaygifts, so long as the value of the gift(s) received by a Supervised Person from any one source over a calendar year does not exceed$250. Any gift that will cause the total received by that Supervised Person from a single source to exceed $250 for the calendar year,and any additional gift thereafter received during the calendar year, requires pre-approval by a Compliance Officer. Such requestsshould be submitted via the Firm’s automated compliance system.Gifts in any amount received by a Supervised Person from an Outside Party, except for gifts of nominal value (such aslogo items, including pens, notepads, coffee mugs and baseball caps) must be disclosed in the Firm’s automated compliancesystem at the time of receipt.4.EntertainmentThe gift policies above are not intended to prohibit the acceptance or provision of non-extravagant entertainment that facilitatesthe handling of the Firm’s business. Thus, normal and customary entertainment (e.g., concerts, exhibitions or games featuring localsports teams, where the person providing the entertainment is present), that is not frequent or “lavish” and does not influence theselection of vendors or other Outside Parties, is acceptable. Note, entertainment provided by or to a Supervised Person where theperson providing the entertainment does not attend should be treated as a “gift.” Also, if you bring a guest to an entertainment eventhosted by an Outside Party, your guest’s ticket is considered as a “gift” for purposes of this policy. Business meals are not consideredentertainment for purposes of this Policy (see Section IV.B. 1. “Business Meals” above for additional information).No Supervised Person may provide or accept extravagant or excessive entertainment to or from an Outside Party. Anyentertainment that a Supervised Person reasonably expects to exceed $1,000 in market value per person must be pre-approved by a Compliance Officer. Such requests should besubmitted via the Firm’s automated compliance system. Further, entertainment of any value to be provided to Public Officials requirespre-approval from a Compliance Officer. Such requests should be submitted via the Firm’s automated compliance system.Entertainment in any amount received by a Supervised Person must be reported via the Firm’s automated compliancesystem within a reasonable amount of time of participating in such entertainment and no later than 30 calendar days ofparticipation in such event. Entertainment provided to Outside Parties is not required to be reported in the Firm’s automatedcompliance system, as OFS Adviser shall track all entertainment expenses in the Firm’s corporate accounting records. The ComplianceDepartment periodically reviews entertainment provided by Supervised Persons for compliance with this Code as part of its quarterlyexpense reimbursement review process.5.Travel and LodgingYou may occasionally be invited to conferences or other events by Outside Parties, which include an offer of travel and/orlodging. In the event that you receive such offers, you must obtain approval from the Compliance Department prior to accepting thetravel and/or lodging. Requests to accept travel or lodging that appear to be exorbitant in price and/or luxurious in nature will generallybe denied. All travel and lodging received from Outside Parties must be disclosed. Requests and disclosures should be submitted viathe Firm’s automated compliance system.6.Providing Meals, Gifts and Entertainment to Public Officials and Union EmployeesSpecific requirements and restrictions apply regarding the offering of meals, gifts and entertainment to Public Officials and canvary depending on the governmental branch/body, state or other jurisdiction. For example, many government pension plans placestrict limits on the value of any meal provided by a service provider, such as the Firm, to the pension plans’ employees. Certainjurisdictions even ban service providers from providing anything of value to their public employees, including promotional items ofnominal value. Penalties for violating these gift laws can range from monetary fines to disqualification from RFP participation andrescindment of existing investment mandates. Private unions are subject to Department of Labor gift rules and regulations and serviceproviders, such as the Firm, must comply with prescribed limits and reporting requirements when providing gifts and meals to unionemployees. Accordingly, it is against Firm policy to offer or give meals, gifts, entertainment or anything of value to Public Officials orunion officials or employees unless the regulations applicable to that individual permit acceptance of such items. Further, SupervisedPersons are prohibited from offering or giving anything of value, including nominal items or snacks, to Public Officials orunion officials or employees without first obtaining the approval of a Compliance Officer. Such requests for prior approvalshould be submitted via the Firm’s automated compliance system.If you are unsure of applicable laws, rules and regulations with respect to providing gifts, meals and entertainment to PublicOfficials and union employees or officials in any circumstance, you should consult with a Compliance Officer.7.Receipt of Meals, Gifts or Entertainment by Traders from Brokers/Agent Bank EmployeesTraders or other investment professionals with the ability to influence the selection of brokers/agent banks with respect totrading in Securities and broadly syndicated loans are prohibited from receiving meals, gifts or entertainment in any value from anemployee of such broker/agent bank without preapproval froma Compliance Officer. Such request for pre-approval should be submitted via the Firm’s automated compliance system.C.POLITICAL ACTIVITY POLICY1.IntroductionThe SEC, along with certain states, municipalities and public pension plans, have adopted regulations limiting or completelydisqualifying investment advisers from providing services to, or accepting placements from, a government entity if certain politicalcontributions12 are made or solicited13 by the Firm, certain of its Supervised Persons, or, in some instances, a Supervised Person’sRelated Persons. Under these “pay to play” regulations, a single prohibited political contribution to a candidate or officeholder, politicalparty, political action committee or other political organization at practically every level of government (including local, state andfederal) may preclude the Firm from providing services to, or accepting placements from, the applicable government entity and maycompel the firm to repay compensation received by the Firm in connection with such services or placements.OFS Adviser and its Affiliates (other than natural persons, as provided below) generally do not make or solicitcontributions in any amount to any federal, state, county or local political campaign, candidate or officeholder, or any politicalorganization (e.g., political party committee and political action committee (“PAC”)). As such, Supervised Persons areprohibited from making or soliciting contributions in the name of or on behalf of OFS Advisers and/or its Affiliates unlessotherwise approved by the Compliance Department and a member of Senior Management.No Supervised Person of the Firm or his/her Related Persons may engage in any Political Activity for any federal,state, county, or local political campaign, candidate or officeholder, or any political organizations (e.g., political partycommittee, political action committee), without the prior written approval of a Compliance Officer. Such requests should besubmitted via the Firm’s automated compliance system. “Political Activity” is defined as monetary or in-kind campaigncontributions to, or for the benefit of, any government official, candidate running for office, political party or legislative leadership,politically active non-profit, ballot measure committee or PAC as well as the solicitation and coordination of campaign contributions.Volunteering for a campaign that does not include solicitation or coordination of campaign contributions does not require pre-approval.12 Contributions include cash, checks, gifts, subscriptions, loans, advances, deposits of money, “in kind” contributions (e.g., the provision of free professional services) oranything else of value provided for the purpose of influencing an election for a federal, state or local office, including any payments for debts incurred in such an election.13 Solicitation of contributions encompasses any fundraising activity on behalf of a candidate, campaign or political organization, including direct solicitation, hosting ofevents and/or aggregating, coordinating or “bundling” the contributions of others.A Supervised Person must submit a Political Activity pre-approval request on behalf of the Supervised Person (or his or her RelatedPerson) through the Firm’s automated compliance system prior to engaging in Political Activity, and such submission must include allpertinent information related to the proposed activity, including, but not limited to, the individual wishing to contribute, amount of thecontribution, the name of the intended recipient, the nature of the recipient’s candidacy, whether the proposed recipient holds anexisting political office (whether local, state or federal), and whether the Supervised Person (or his or her Related Person, whereapplicable) is legally entitled to vote for the proposed recipient. Because of the serious nature of the sanctions applicable to a pay toplay violation, requests to engage in Political Activity for candidates seeking election to state and local offices will generally be limitedand/or declined, depending on whether a Supervised Person is legally entitled to vote for the candidate. As such, requests to donate tostate or local candidates and officials may be approved up to $350, where the Supervised Person is legally entitled to vote for thecandidate, and is limited to $150 or less, where a Supervised Person is not legally entitled to vote for the candidate or where therelevant jurisdiction imposes more restrictive limits.The Firm expects that every Supervised Person will explain the importance of compliance with this policy to his/her RelatedPersons, and ensure their clear understanding of the obligation to follow these requirements. Moreover, the applicable laws in this areaare complex and a trap for the unwary -- no Supervised Person should attempt to decide for himself or herself whether a PoliticalActivity is prohibited or permissible. Supervised Persons are responsible for complying with and tracking their own Political Activitylimits.2.Indirect ViolationsThe pay to play laws also prohibit actions taken indirectly that the Firm or its Supervised Persons could not take directlywithout violating the law. For example, it is improper and unlawful to provide funds to a third party (such as a consultant or attorney)with the understanding that the third party will use such funds to make an otherwise prohibited contribution. Such indirect violationsmay result in a prohibition on the Firm from receiving compensation and result in other sanctions, including possible criminal penalties.If any Supervised Person learns of facts and circumstances suggesting a possible indirect violation, that Supervised Person must reportsuch facts and circumstances to a Compliance Officer immediately.3.Periodic DisclosureIn order to ensure compliance with this policy, every Supervised Person must submit via the Firm’s automated compliancesystem, a disclosure and certification setting forth all Political Activity by the Supervised Person and his/her Related Persons for theprevious two (2) years or confirming that no such contributions have been made, prior to and at commencement of employment.Supervised Persons are also required to disclose and certify all Political Activity in which they or their Related Persons have engagedon a quarterly basis.V.OUTSIDE AFFILIATIONS POLICYA.OUTSIDE BUSINESS ACTIVITIESFrom time to time, Supervised Persons may be asked and/or desire to own, work for or serve as a general partner, managingmember, principal, proprietor, consultant, agent, representative, or employees of an outside organization, all of which are considered“Outside Business Activities”. These organizations may include public or private corporations, limited and general partnerships,businesses, family trusts, endowments and foundations.Outside Business Activities may, however, create potential conflicts of interest and/or provide access to MNPI. So that theCompliance Department can address these potential issues, Supervised Persons must obtain prior approval from their supervisorand a Compliance Officer to engage in Outside Business Activities. Approval should be requested through the Firm’s automatedcompliance system.Prior approval is generally not required to assume positions with charitable and other non-profit organizations or civic andtrade associations. However, if your responsibilities include the provision of investment advice, such as participation on the investmentcommittee of a non-profit organization, or the organization is a client or business partner of the Firm or its Affiliates, you must obtainpre-approval from a Compliance Officer.B.DIRECTOR AND OFFICER POSITIONSIn other instances, Supervised Persons may be asked or desire to serve as a director, trustee or officer for organizationsunaffiliated with the Firm and its Affiliates (“Outside Director and Officer Positions”) or for organizations that are affiliated with theFirm, such as a Portfolio Company (“Affiliated Director and Officer Positions”).As a prospective board member, trustee or officer, it is critical that you coordinate with the Compliance Department to ensurethat potential conflicts of interest are addressed and special measures are taken to handle and maintain the confidentiality of anyinformation that you may obtain in your new position. As such, in the event that you wish to assume an Outside Director and OfficerPosition, you must obtain prior approval from your supervisor and a Compliance Officer. However, if you are assuming an AffiliatedDirector and Officer Position, you must only disclose your new position to the Compliance Department and in a timely manner. Suchdisclosures and requests for pre-approval should be made through the Firm’s automated compliance system.You are prohibited from engaging in any outside activity previously described, without the prior approval or disclosurerequired for such activity. Outside Director and Officer Positions will be approved only if any associated conflicts of interest andinsider trading risks, actual or apparent, can be satisfactorily mitigated or resolved. Please note, however, you are not required to seekpre-approval or provide disclosure to serve as a board member or officer of a personal residential organization, such as a homeowner’sassociation or coop board, or an entity formed for personal estate planning purposes.C.EMPLOYEE RELATIONSHIPSThe Firm needs to be aware of relationships maintained by Supervised Persons with third parties that may create the potentialfor conflicts of interest. The Firm uses this information to assess the need to prohibit certain Supervised Persons from handling matterswhere such a conflict exists or institute mitigating controls surrounding the levels of business activity or contract negotiations where arelationship posing a conflict has been identified. This may include situations where a Supervised Person’s Related Person or FamilyMember is: 1) a director, an owner of more than 5% of or a senior management executive of a public company, 2) employed orengaged by a company with which the Firm is conducting or may conduct business, and such Related Person or Family Member is ina position to make decisions with respect to such business or is directly involved with the relationship with the Firm (e.g. a law firm,real estate broker or general contractor), or 3) employed with or serving in an office of a state or local government entity (e.g., cityretirement system, state office, public university), in which the Related Person or Family Member has the authority, directly orindirectly, to affect the entity’s current or prospective relationship with the Firm. Such relationships should be disclosed using theFirm’s automated compliance system.For purposes of this Code, “Family Member” means the parents, children, brothers, sisters, aunts, uncles and in-laws of theSupervised Person regardless of residence, financial dependence or investment control.VI.ANTI-CORRUPTION POLICYThe purpose of the OFS Adviser’s Anti-Corruption Policy is to ensure compliance by the Firm and its employees withapplicable anti-bribery laws. As such, the Policy prohibits OFS Adviser employees from offering, promising, paying or providing, orauthorizing the promising, paying or providing (in each case, directly or indirectly, including through third parties) of any amount ofmoney or anything of value to any Public Official or Private Sector Counterparty (defined below), including a person actually knownto be an immediate family member of such parties, in order to improperly influence or reward any action or decision by such personfor the Firm’s benefit.Neither funds from the Firm nor funds from any other source may be used to make any such payment or gift on behalf of orfor the Firm’s benefit.(a)Requirements for Interaction with Public OfficialsThe U.S. Foreign Corrupt Practices Act (also referred to as the “FCPA”) is a U.S. federal law that generally prohibits thebribery of foreign officials (also referred to as “Public Officials”), directly or indirectly, by any individual, business entity or employeeof any such entity for the purpose of obtaining or retaining business and/or gaining an unfair advantage.“Public Official”, for purposes of this Policy, includes any person who is employed full- or part-time by a government, or byregional subdivisions of governments, including states, provinces, districts, counties, cities, towns and villages or by independentagencies, state-owned businesses, state-controlled businesses or public academic institutions. This would include, for example,employees of sovereign wealth funds, government-sponsored pension plans (i.e. pension plans for the benefit of governmentemployees), heads of state, lower level employees of state-controlled businesses and government-sponsored university endowments.“Public Official” also includes political party officials and candidates for political office. For example, a campaign contribution is theequivalent of a payment to a Public Official under the FCPA. In certain cases, providing a payment or thing of value to a personactually known to be an immediate family member of a Public Official or a charity associated with a Public Official may be theequivalent of providing a thing of value to the Public Official directly.Under the FCPA, the employees of public international organizations, such as the African and Asian Development Banks, theEuropean Union, the International Monetary Fund, the United Nations and the Organization of American States, are consideredPublic Officials.In April 2010, the United Kingdom, passed its own anti-bribery law, the Bribery Act 2010 (the “Bribery Act”). However, thelaw went further than the FCPA, prohibiting not only bribery of “foreign public officials” but also the bribery of private parties.Further, the Bribery Act, unlike the FCPA, prohibits “passive” bribery or the acceptance of bribes, in addition to “active” bribery, orgiving a bribe.The OFS Adviser Anti-Corruption Policy is applicable to all OFS Adviser employees, regardless of their country ofcitizenship or residency. Although the FCPA and the Bribery Act are the principal anti-bribery statutes applicable to OFS Adviser andits employees worldwide, OFS Adviser and its employees are also subject to the applicable anti-bribery laws of all jurisdictions inwhich they do business and any jurisdictions involved in OFS Adviser’s cross-border transactions. OFS Adviser employees who arenot U.S.or U.K. citizens or residents may also be subject to anti- bribery laws of their countries of citizenship or residency, as applicable.Prior to transacting business (including merger and acquisition transactions and the retention of certain third parties) outsidethe U.S. or U.K., you should consult with the CCO or and Legal Department or local counsel to obtain the applicable policies,requirements and procedures pertinent to complying with the applicable anti-bribery laws of such jurisdictions.(b)Requirements for Interaction with Private Sector Counterparty RepresentativesOFS employees should be sensitive to anti-corruption issues in their dealings directly or indirectly, with Private SectorCounterparty Representatives. A Private Sector Counterparty Representative is an owner, employee or representative of a privateentity, such as a partnership or corporation, with which OFS Adviser is conducting or seeking to conduct business. Individualsaffiliated with current and prospective clients, service providers and other third parties in such a capacity are all “Private SectorCounterparty Representatives”.Bribery concerns may arise in connection with your day-to-day interactions with Private Sector Counterparty Representatives,regarding, for example, the offering of investment opportunities or the solicitation of OFS Adviser business by service providers. It isimportant to be mindful of the anti-bribery laws and to avoid any action that may give the appearance of bribery in your dealings withsuch individuals. While you may engage in the exchange of gifts, meals and entertainment with Private Sector CounterpartyRepresentatives in the normal and routine course of business, it is important that you adhere to this Policy and to the Gifts, Meals andEntertainment Policy of this Code to avoid running afoul of the anti-corruption laws.(c)Requirements for Retention of Certain Third PartiesPayments by OFS Adviser to Third Parties raise special concerns under the FCPA, Bribery Act and any other applicable anti-bribery laws. A “Third Party” is defined as any consultant, investor, joint venture partner, local partner, broker, agent or other thirdparty retained or to be retained by OFS Adviser for purposes of dealing with a Public Official or a Private Sector CounterpartyRepresentative on behalf of OFS Adviser or where the contemplated services are likely to involve business-related interactions with aPublic Official or Private Sector Counterparty Representative on behalf of OFS Adviser. Because of the risk that a Third Party mayseek to secure business for OFS Adviser or its Advisory Clients through violations of the FCPA or Bribery Act and that OFS Adviseror its Advisory Client’s Portfolio Companies may be subject to liability under the FCPA or Bribery Act as a result, any agreementwith a Third Party that is engaged to do business with OFS Adviser is subject to specific due diligence and contractual requirements toassure compliance with the Firm’s Anti-Corruption Policy.(d)Pre-Approval Reporting, Due Diligence and Contractual RequirementsUnless otherwise authorized by the CCO or a Compliance Officer, you are required to adhere to the following policies andprocedures, designed to facilitate your compliance with applicable anti-bribery laws.You must obtain pre-approval for the following types of expenses, donations and contributions:•gifts, meals, entertainment, travel or lodging provided to a Public Official or a person actually known to be animmediate family member or guest of a Public Official;•charitable donations made on behalf of OFS Adviser at the request of a Private Sector Counterparty Representative;•charitable donations made in an individual capacity or on behalf of OFS Adviser at the request of or for the benefit ofa Public Official; and•political contributions made to any Public Official on behalf of OFS Adviser or at the request of an Outside Party.Pre-approval requests should be submitted via the Firm’s automated compliance system.(e) Reporting ObligationsOn a quarterly basis, you must certify to all previously approved and/or disclosed political contributions, charitable donations,items to Public Officials and all gifts and entertainment received, as specified above. Certification must be made via the Firm’sautomated compliance system.VII. CIM COMPUTER ACCEPTABLE USE POLICYThe CIM Computer Acceptable Use Policy is hereby incorporated into this Code by reference. Supervised Persons arerequired to fully comply with all policies and procedures and certification and training requirements associated with the CIM ComputerAcceptable Use Policy, and any instance of non-compliance will likely constitute a violation of this Code. The CIM ComputerAcceptable Use Policy is available to all Supervised Persons on the Firm’s public network drive and Sharepoint.VIII. PERSONAL USE OF FIRM RESOURCES AND RELATIONSHIP POLICYOFS email and other OFS-sponsored communication mediums (e.g., Skype for Business) (collectively, “OFS communicationplatforms”) should generally only be used for conducting OFS business. While occasional use of OFS email for personalcommunications is permissible, Supervised Persons are prohibited from using OFS communication platforms to conduct personaloutside business activities (including those involving political, civic or charitable solicitations), which may imply OFS’s sponsorship orendorsement of such activities. Use of OFS stationary for personal correspondence or other personal purposes is strictly prohibited. Allcommunications made via OFS communication platforms are the property of OFS and use of such platforms must comply with theOFS Computer Acceptable Use Policy.Absent an exemption granted by Human Resources or Compliance, Supervised Persons are prohibited from assigning tasksassociated with personal business activities to staff or soliciting assistance for such personal endeavors from staff in a junior role to therequestor. Further, Supervised Persons are prohibited from leveraging relationships with OFS clients, vendors and other businesscontacts (“OFS Contacts”) gained over the course of their employment for personal purposes. Personal purposes include, but are notlimited to, charitable and political activities, including solicitation of donations, and the conduct of personal business activities.OFS reserves the right to search and monitor the computer files of and OFS communication platforms used by any SupervisedPersons, without advance notice, for purposes of monitoring compliance with this policy.ATTACHMENTSWhistleblower Information.....................................................................................Attachment AThe listed attachment is also available on OFS Adviser’s public network drive and Sharepoint site, or from the ComplianceDepartment.ATTACHMENT AWhistleblower Hotline InformationAs part of our Whistleblower Policy, we have established an anonymous hotline where you will be able to report any suspectedviolation(s) of our various codes of conduct, any activity that may adversely affect the Firm’s business or reputation, or any otherinappropriate conduct of which you may become aware. Although we encourage you to report any concerns or problems you mayhave to your supervisor, there may be times where you may not feel comfortable voicing these concerns or problems to them. Due tothis, we have set up an anonymous hotline with Report It Systems. Through Report It, you can report any situations or concernswithout having any adverse ramifications for you. If you desire or need to report a violation or misconduct, you can do so by eithercalling the Report It hotline or by logging into their website. The OFS Report It username and password information is listed below.Username: OFS ManagementPassword: OFS Management1. Toll free hotline number: 1-877-778-5463 (1 -877-RPT-LINE)2. Website address: www.reportit.neta. Click on the Report It Online linkb. Click on the Report It Now buttonc. Type the Username/Password under the “Create Report” columnd. Click on the Report It Now buttonYou will be able to anonymously file a wide variety of reports from questionable accounting or auditing matters to harassment orhostile work environment through either the website or the toll free hotline number. Any report that you submit will be handledanonymously by Report It and your name will not be provided by Report It to any OFS contact. We hope that by implementing thishotline service, you will be able to keep our organization free from fraudulent and unethical accounting/auditing activity whileachieving our goal to maintain and conduct our business at the utmost level of professional standards and best practices.Exhibit 21.1LIST OF SUBSIDIARIESOFS Capital WM, LLC, a Delaware limited liability company.OFS SBIC I GP, LLC, a Delaware limited liability company.OFS SBIC I, LP, a Delaware limited liability company.Exhibit 31.1Certification of Chief Executive OfficerI, Bilal Rashid, Chief Executive Officer of OFS Capital Corporation certify that:1.I have reviewed this annual report on Form 10-K of OFS Capital Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated this 15th day of March 2019.By:/s/ Bilal Rashid Bilal Rashid Chief Executive Officer Exhibit 31.2Certification of Chief Financial OfficerI, Jeffrey A. Cerny, Chief Financial Officer of OFS Capital Corporation certify that:1. I have reviewed this annual report on Form 10-K of OFS Capital Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated this 15th day of March 2019.By:/s/ Jeffrey A. Cerny Jeffrey A. Cerny Chief Financial Officer Exhibit 32.1Certification of Chief Executive OfficerPursuant to 18 U.S.C. Section 1350, as adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”) of OFS Capital Corporation (the“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Bilal Rashid, the Chief Executive Officer of the Registrant, herebycertify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theRegistrant. /s/ Bilal Rashid Name:Bilal Rashid Date:March 15, 2019Exhibit 32.2Certification of Chief Financial OfficerPursuant to 18 U.S.C. Section 1350, as adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”) of OFS Capital Corporation (the“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Jeffrey A. Cerny, the Chief Financial Officer of the Registrant,hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theRegistrant. /s/ Jeffrey A. Cerny Name:Jeffrey A. Cerny Date:March 15, 2019

Continue reading text version or see original annual report in PDF format above