Stellus Capital Investment Corporation

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

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

For the fiscal year ended  December 31, 2023

OR

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

COMMISSION FILE NUMBER:  001-35730

STELLUS CAPITAL INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

4400 Post Oak Parkway, Suite 2200, Houston, TX
(Address of principal executive offices)

46-0937320
(I.R.S. Employer
Identification Number)

77027
(Zip Code)

Registrant’s telephone number, including area code:  (713) 292-5400

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class 
Common Stock, par value $0.001 per share

Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).    Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an

emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer

☐
☒

    Accelerated filer

Smaller reporting company
Emerging growth company

☐
☐
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any

new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. Yes ☐    No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the

filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation

received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

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

The aggregate market value of the Registrant’s common stock held by non-affiliates of the registrant as of June 30, 2023 was: $291,372,749.

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of March 4, 2024 was 24,125,642.

Documents Incorporated by Reference

Portions of the registrant’s definitive Proxy Statement relating to the registrant’s 2024 Annual Meeting of Stockholders, to be filed with the Securities

and Exchange Commission within 120 days following the end of the Company’s fiscal year, are incorporated by reference in Part III of this Annual Report on
Form 10-K as indicated herein.

    
    
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PART I.

STELLUS CAPITAL INVESTMENT CORPORATION

FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2023
TABLE OF CONTENTS

BUSINESS

ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1C. CYBERSECURITY
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES

PROPERTIES
LEGAL PROCEEDINGS

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES
[RESERVED]

ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

ITEM 7A. QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.

EXECUTIVE COMPENSATION

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15.
SIGNATURES

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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69

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96

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Item 1.    Business

PART I

Except as otherwise indicated, the terms “we,” “us,” “our,” and the “Company” refer to Stellus Capital Investment
Corporation; and “Stellus Capital Management,” the “Advisor” or the “Administrator” refer to our investment adviser and
administrator, Stellus Capital Management, LLC.

General

We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as

a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We were
organized as a Maryland corporation on May 8, 2012, and formally commenced operations on November 7, 2012. We originate and
invest primarily in private middle-market companies (typically those with $5 million to $50 million of EBITDA (earnings before
interest, taxes, depreciation and amortization)) through first lien (including unitranche), second lien, and unsecured debt financing,
often with corresponding equity co-investments. Unitranche structures may combine characteristics of first lien senior secured as well
as second lien and/or subordinated loans, and our unitranche loans will expose us to the risks associated with second lien and
subordinated loans to the extent we invest in the “last-out” tranche. Unsecured debt includes senior unsecured and subordinated loans.

Our investment activities are managed by our investment adviser, Stellus Capital Management, an investment advisory firm led
by Robert T. Ladd and its other senior investment professionals. We source investments primarily through the extensive network of
relationships that the senior investment professionals of Stellus Capital Management have developed with financial sponsor firms,
financial institutions, middle-market companies, management teams and other professional intermediaries. The companies in which
we invest are typically highly leveraged, and in most cases, our investments in such companies will not be rated by national rating
agencies. If such investments were rated, we believe that they would likely receive a rating that is often referred to as “junk.”

Our investment objective is to maximize the total return to our stockholders in the form of current income and capital

appreciation. We seek to achieve our investment objective by:

●

●

●

●

●

●

accessing the extensive origination channels established and developed by the Stellus Capital Management senior
investment professionals which include long-standing relationships with private equity firms, commercial banks, investment
banks and other financial services firms;

investing in what we believe to be companies with strong business fundamentals, generally within our core middle-market
company focus;

focusing on a variety of industry sectors, including business services, energy, general industrial, government services,
healthcare, software and specialty finance;

focusing primarily on directly originated transactions;

applying the disciplined underwriting standards that the Stellus Capital Management senior investment professionals have
developed over their extensive investing careers; and

capitalizing upon the experience and resources of the Stellus Capital Management investment team to monitor our
investments.

On May 9, 2022, we and certain of our affiliates received an exemptive order (the “Order”) from the Securities and Exchange

Commission (“SEC”) that superseded the prior co-investment exemptive relief orders granted to us by the SEC that permits us to co-
invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus Capital
Management or an adviser that is controlled, controlling, or under common

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control with Stellus Capital Management, subject to the conditions included therein. Pursuant to the Order, a “required majority” (as
defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must make certain conclusions in connection with a
co-investment transaction, including (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable
and fair to the Company and its stockholders and do not involve overreaching of the Company or its stockholders on the part of any
person concerned and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with its
investment objectives and strategies. We co-invest, subject to the conditions in the Order, with an affiliated private BDC and other
private credit funds managed by Stellus Capital Management that have an investment strategy that is similar or identical to our
investment strategy, and we may co-invest with other BDCs and registered investment companies managed by Stellus Capital
Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management in the future.
We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater
diversification.

As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any
assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total
assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules,
the term “eligible portfolio company” includes all private operating companies, operating companies whose securities are not listed on
a national securities exchange, and certain public operating companies that have listed their securities on a national securities
exchange and have a market capitalization of less than $250 million, in each case organized and with their principal of business in the
United States.

We have elected, qualified, and intend to continue to qualify annually to be treated for U.S. federal income tax purposes as a
regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To
maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification
requirements. As of December 31, 2023, we were in compliance with the RIC requirements. As a RIC, we generally will not be
subject to U.S. federal income tax on any income we timely distribute to our stockholders.

Under the provisions of the 1940 Act, we are permitted, as a BDC that has satisfied certain requirements, to issue senior securities

in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of our gross assets, less all liabilities
and indebtedness not represented by senior securities, after each issuance of senior securities. As of December 31, 2023, our asset
coverage ratio was 223%. The amount of leverage that we employ at any time depends on our assessment of the market and other
factors at the time of any proposed borrowing.

Our principal executive office is currently located at 4400 Post Oak Parkway, Suite 2200, Houston, TX 77027, and our telephone

number is (713) 292-5400. We maintain a website on the Internet at www.stelluscapital.com (under the “Public Investors” section).
Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and you should not
consider information contained on our website to be part of this Annual Report on Form 10-K.

SBIC Licenses

Two of our wholly owned subsidiaries, Stellus Capital SBIC LP and Stellus Capital SBIC II LP (together, the “SBIC

subsidiaries” and individually, the “SBIC I subsidiary” and “SBIC II subsidiary,” respectively), hold a license to operate as small
business investment companies (“SBICs”). Current U.S. Small Business Administration (“SBA”) regulations allow a single SBIC to
obtain leverage by issuing debentures guaranteed by the SBA up to a maximum of $175 million, subject to required capitalization of
the SBIC subsidiary, SBA approval, and other requirements. The maximum leverage available to a “family” of SBIC funds is $350.0
million, subject to SBA approval. SBA-guaranteed debentures have fixed interest rates that equal prevailing 10-year Treasury
Note rates plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the
debentures is not required to be paid before maturity but may be pre-paid at any time with no prepayment penalty. We believe that the
SBA-guaranteed debentures are an attractive source of debt capital.

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We have obtained exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiaries guaranteed by the
SBA from our asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the asset
coverage test by permitting us to borrow up to $325.0 million more than we would otherwise be able to absent the receipt of this
exemptive relief.

Summary Risk Factors

Investing in our securities involves a high degree of risk. You should carefully consider the information in “Item 1A. Risk

Factors”, including, but not limited to, the following risks:

●

The capital markets may experience periods of disruption and instability. Such market conditions may materially and
adversely affect debt and equity capital markets, which may have a negative impact on our business and operations.

● We are dependent upon key personnel of Stellus Capital Management for our future success. If Stellus Capital Management

were to lose any of its key personnel, our ability to achieve our investment objective could be significantly harmed.

● Our business model depends to a significant extent upon strong referral relationships. Any inability of Stellus Capital
Management to maintain or develop these relationships, or the failure of these relationships to generate investment
opportunities, could adversely affect our business.

● Our incentive fee may induce Stellus Capital Management to make speculative investments.

● We may be obligated to pay Stellus Capital Management incentive compensation even if we incur a loss and may pay more

than 20.0% of our net capital gains because we cannot recover payments made in previous years.

● We will be subject to U.S. federal income tax at corporate rates and may default under our revolving credit facility if we are

unable to maintain our tax treatment as a RIC under Subchapter M of the Code.

● We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash

representing such income.

● Because we finance our investments with borrowed money, the potential for gain or loss on amounts invested in us is

magnified and may increase the risk of investing in us.

●

Substantially all of our assets are subject to security interests under the Credit Facility (as defined below) or claims of the
SBA with respect to SBA-guaranteed debentures we may issue and, if we default on our obligations thereunder, we may
suffer adverse consequences, including foreclosure on our assets.

● Most of our portfolio investments are recorded at fair value as determined in good faith by our board of directors (the

“Board”) and, as a result, there may be uncertainty as to the value of our portfolio investments.

●

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of our common stock.

● Any failure to comply with SBA regulations could have an adverse effect on our SBIC subsidiaries’ operations.

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● Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a

RIC, we will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on
favorable terms, our ability to grow may be impaired.

●

●

●

The time and resources that the investment professionals of Stellus Capital Management devote to us may be diverted, and
we may face additional competition due to the fact that Stellus Capital Management and its affiliates are not prohibited
from raising money for, or managing, another entity that makes the same types of investments that we target.

If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable
to BDCs or be precluded from investing according to our current business strategy.

The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and
management continuity planning, could impair our ability to conduct business effectively.

● Our investments in private and middle-market portfolio companies are risky, and we could lose all or part of our investment.

●

Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments,
reducing our net asset value through increased net unrealized depreciation.

● Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise

control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease
the value of our investments.

●

The interest rates of our floating-rate loans to our portfolio companies might be subject to change based on recent regulatory
changes.

Portfolio Composition

Our investments generally range in size from $5 million to $30 million, and we may also selectively invest in larger positions.
We generally expect that the size of our positions will increase in proportion to the size of our capital base. Pending such investments,
we may reduce our outstanding indebtedness or invest in cash, cash equivalents, U.S. government securities and other high-quality
debt investments with a maturity of one year or less. In the future, we may adjust opportunistically the percentage of our assets held in
various types of loans, our principal loan sources and the industries to which we have greatest exposure, based on market conditions,
the credit cycle, available financing and our desired risk/return profile.

The following table provides a summary of our portfolio investments as of December 31, 2023:

Number of investments in portfolio companies
Fair value(a)
Cost
% of portfolio at fair value – first lien debt(b)
% of portfolio at fair value – second lien debt
% of portfolio at fair value – unsecured debt
% of portfolio at fair value – equity
Weighted-average annual yield(c)

As of
December 31, 2023  
($ in millions)

$
$

 93
 874.5
 902.1

 88.6 %
 2.5 %
 0.7 %
 8.2 %
 11.1 %

(a) As of December 31, 2023, $784.6 million of our debt investments at fair value were at floating interest rates, which represented

approximately 98% of our total portfolio of debt investments at fair value. As of December 31, 2023,

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$18.1 million of our debt investments at fair value were at fixed interest rates, which represented approximately 2% of our total
portfolio of debt investments at fair value.
Includes unitranche investments, which account for 4.5% of our portfolio at fair value.

(b)
(c) The weighted average yield on all of our debt investments as of December 31, 2023 was approximately 11.9%, of which

approximately 11.0% was current cash interest. The weighted average yield on all of our investments, including non-income
producing equity positions, as of December 31, 2023 was approximately 11.1%. The weighted average yield of our debt
investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment
portfolio and is calculated before the payment of all of our and our subsidiaries’ fees and expenses. The weighted average yield
was computed using the effective interest rates for all of our debt investments, which represents the interest rate on our debt
investments restated as an interest rate payable annually in arrears and is computed including cash and payment in kind, or
Payment-In-Kind (“PIK”) interest, as well as accretion of original issue discount. There can be no assurance that the weighted
average yield will remain at its current level.

Stellus Capital Management

Stellus Capital Management manages our investment activities and is responsible for analyzing investment opportunities,
conducting research and performing due diligence on potential investments, negotiating and structuring our investments, originating
prospective investments and monitoring our investments and portfolio companies on an ongoing basis.

The senior investment professionals of Stellus Capital Management have an average of over 35 years of investing, corporate
finance, restructuring, consulting and accounting experience and have worked together at several companies. The Stellus Capital
Management senior investment professionals have a wide range of experience in middle-market investing, including originating,
structuring and managing loans and debt securities through market cycles. The Stellus Capital Management senior investment
professionals continue to provide investment sub-advisory services to the D. E. Shaw & Co., L.P. and its associated investment funds
(the “D.E. Shaw group”).

In addition to serving as our investment adviser and the sub-advisor to the D. E. Shaw group as noted above, Stellus Capital
Management currently manages private credit funds, some of which have an investment strategy that is similar or identical to our
investment strategy. We received the Order from the SEC, which permits us to co-invest with investment funds managed by Stellus
Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management, where
doing so is consistent with our investment strategy as well as applicable law (including the terms and conditions of the Order). We
believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification. In
addition, we will not co-invest with D.E. Shaw group funds.

Stellus Capital Management is headquartered in Houston, Texas, and also maintains offices in the Washington, D.C. area and

Charlotte, North Carolina.

Market Opportunity

We originate and invest primarily in private middle-market companies through first lien (including unitranche), second lien and

unsecured debt financing, often with corresponding equity co-investments. We believe the environment for investing in middle-
market companies is attractive for several reasons, including:

Robust Demand for Debt Capital

We believe that private equity firms have significant committed but uncalled capital, a large portion of which is still available for

investment in the United States. We expect the large amount of uninvested capital commitments will drive buyout activity over the
next several years, which should, in turn, create lending opportunities for us.

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Attractive Environment to Lend To Middle-Market Companies

The current strength of the U.S. economy provides an attractive environment to lend to middle-market companies. The U.S.
services, healthcare, technology and consumer products sectors continue to show strong growth and profitability, allowing middle-
market companies to continue to service their debt and prudently borrow to support growth initiatives and mergers and acquisitions
activity. This dynamism, coupled with ample capital from private equity firms to support middle-market companies, is creating a
large population of credit worthy companies looking for debt capital.

Attractive Deal Pricing and Structures

We believe that the pricing of middle-market debt investments is higher, and the terms of such investments are more
conservative, compared to larger liquid, public debt financings, due to the more limited universe of lenders as well as the highly
negotiated nature of these financings. These transactions tend to offer stronger covenant packages, higher interest rates, lower
leverage levels and better call protection compared to larger financings. In addition, middle-market loans typically offer other
investor protections such as default penalties, lien protection, change of control provisions and information rights for lenders.

Specialized Lending Requirements

Lending to middle-market companies requires in-depth diligence, credit expertise, restructuring experience and active portfolio
management. We believe that several factors render many U.S. financial institutions ill-suited to lend to middle-market companies.
For example, based on the experience of Stellus Capital Management’s senior investment professionals, lending to middle-market
companies in the United States (a) is generally more labor intensive than lending to larger companies due to the smaller size of each
investment and the fragmented nature of the information available with respect to such companies, (b) requires specialized due
diligence and underwriting capabilities, and (c) may also require more extensive ongoing monitoring by the lender. We believe that,
through Stellus Capital Management, we have the experience and expertise to meet these specialized lending requirements.

Competitive Strengths

We believe that the following competitive strengths will allow us to achieve positive returns for our investors:

Experienced Investment Team

Through our investment adviser, Stellus Capital Management, we have access to the experience and expertise of the Stellus
Capital Management senior investment professionals, including its senior investment professionals who have an average of over
35 years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several
companies. The Stellus Capital Management investment professionals have a wide range of experience in middle-market investing,
including originating, structuring and managing debt and equity securities through market cycles. We believe the members of Stellus
Capital Management’s senior investment team are proven and experienced, with extensive capabilities in credit investing, having
participated in these markets for the predominant portion of their careers. We believe that these characteristics enhance the quantity
and quality of investment opportunities available to us.

Established, Rigorous Investment and Monitoring Process

The Stellus Capital Management investment professionals have developed an extensive review and credit analysis process. Each
investment that is reviewed by Stellus Capital Management is brought through a structured, multi-stage approval process. In addition,
Stellus Capital Management takes an active approach in monitoring all investments, including reviews of financial performance on at
least a quarterly basis and regular discussions with management. Stellus Capital Management’s investment and monitoring process
and the depth and experience of its investment professionals should allow it to conduct the type of due diligence and monitoring that
enables it to identify and evaluate risks and opportunities.

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Demonstrated Ability to Structure Investments Creatively

Stellus Capital Management has the expertise and ability to structure investments across all levels of a company’s capital
structure. Furthermore, we believe that current market conditions will allow us to structure attractively priced debt investments and
may allow us to incorporate other return-enhancing mechanisms such as commitment fees, original issue discounts, early redemption
premiums, PIK, interest and various forms of equity securities.

Resources of Stellus Capital Management Platform

We have access to the resources and capabilities of Stellus Capital Management, which has 17 investment professionals,

including Robert T. Ladd, Dean D’Angelo, and Joshua T. Davis, who are supported by five managing directors, four vice presidents
and four analysts. These individuals have developed long-term relationships with middle-market companies, management teams,
financial sponsors, lending institutions and deal intermediaries by providing flexible financing throughout the capital structure. We
believe that these relationships provide us with a competitive advantage in identifying investment opportunities in our target market.
We also expect to benefit from Stellus Capital Management’s due diligence, credit analysis, origination and transaction execution
experience and capabilities, including the support provided with respect to those functions by W. Todd Huskinson, who serves as our
Chief Financial Officer and Chief Compliance Officer, and his staff of nine finance and operations professionals.

Investment Strategy

The Stellus Capital Management senior investment professionals employ an opportunistic and flexible investing approach,

combined with strong risk management processes, which we believe yields a highly diversified portfolio across companies,
geographies, industries, and investment types. We seek direct origination opportunities of first lien (including unitranche), second
lien, and unsecured debt financing, often with corresponding equity co-investments, in middle-market companies. We believe that
businesses in this size range often have limited access to public financial markets, and will benefit from Stellus Capital Management’s
reliable lending approach. Many financing providers have chosen to focus on large corporate clients and managing capital markets
transactions rather than lending to middle-market businesses. Further, many financial institutions and traditional lenders are faced
with constrained balance sheets and are requiring existing borrowers to reduce leverage.

With an average of over 35 years of investing, corporate finance, restructuring, consulting and accounting experience, the senior
investment professionals of Stellus Capital Management have demonstrated investment expertise throughout the balance sheet and in
a variety of situations, including financial sponsor buyouts, growth capital, debt refinancing, balance sheet recapitalizations, rescue
financings, distressed opportunities, and acquisition financings. Our investment philosophy emphasizes capital preservation through
superior credit selection and risk mitigation. We expect our portfolio to provide downside protection through conservative cash flow
and asset coverage requirements, priority in the capital structure and information requirements. We also anticipate benefiting from
equity participation through equity co-investments. This flexible approach enables Stellus Capital Management to respond to market
conditions and offer customized lending solutions.

Stellus Capital Management invests across a wide range of industries with deep expertise in select verticals including, but not
limited to, business services, retail, general industrial, government services, healthcare, software and specialty finance. Our typical
transactions include providing financing for leveraged buyouts, acquisitions, recapitalizations and growth opportunities. We seek to
maintain a diversified portfolio of investments as a method to manage risk and capitalize on specific sector trends. In addition, we co-
invest with private credit funds and a private BDC managed by Stellus Capital Management or its affiliates that have a similar,
overlapping or identical investment strategy as us and where doing so is consistent with conditions of the Order, and we may co-
invest with other BDCs and registered investment companies managed by Stellus Capital Management or an adviser that is
controlled, controlling, or under common control with Stellus Capital Management in the future.

Our objective is to act as the lead or largest investor in transactions, generally investing between $5 million and $30 million per
transaction. We expect the average investment holding period to be between two and four years, depending upon portfolio company
objectives and conditions in the capital markets.

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We focus on middle-market companies with between $5 million and $50 million of EBITDA in a variety of industry sectors with
positive long-term dynamics and dependable cash flows. We seek businesses with management teams with demonstrated track records
and economic incentives in strong franchises and sustainable competitive advantages with dependable and predictable cash flows.

We employ leverage prudently and within the limitations of the applicable laws and regulations for BDCs. Any decision on our
part to use leverage will depend upon our assessment of the attractiveness of available investment opportunities in relation to the costs
and perceived risks of such leverage.

Transaction Sourcing

As access to investment opportunities is highly relationship-driven, the senior investment team and other investment

professionals of Stellus Capital Management spend considerable time developing and maintaining contacts with key deal sources,
including private equity firms, investment banks and senior lenders. The senior investment team and other investment professionals of
Stellus Capital Management have been actively investing in the middle-market for more than a decade and have focused on extensive
calling and marketing efforts via speaking engagements, sponsorships, industry events and referrals to broaden their relationship
network. Existing relationships are constantly cultivated through transactional work and other personal contacts.

In addition to financial sponsors, Stellus Capital Management has developed a network of other deal sources, including:

● management teams and entrepreneurs;

●

●

●

●

●

portfolio companies of private equity firms;

other investment firms that have similar strategies to Stellus Capital Management and are seeking co-investors;

placement agents and investment banks representing financial sponsors and issuers;

corporate operating advisers and other financial advisers; and

consultants, attorneys and other service providers to middle-market companies and financial sponsors.

We believe that Stellus Capital Management’s broad network of deal origination contacts will afford us with a continuous source

of investment opportunities.

These origination relationships provide access not only to potential investment opportunities but also to market intelligence on
trends across the credit markets. Since inception, Stellus Capital Management has completed financing transactions with more than
190 equity sponsors and completed multiple financing transactions with more than 35 of those equity sponsors.

We believe that, over the past decade, the senior investment team and other investment professionals of Stellus Capital

Management have built a reputation as a thoughtful and disciplined provider of capital to middle-market companies and a preferred
financing source for private equity sponsors and management teams. We believe these factors give Stellus Capital Management a
competitive advantage in sourcing investment opportunities, which are put to use for our benefit.

Investment Structuring

Stellus Capital Management believes that each investment has unique characteristics that must be considered, understood and

analyzed. Stellus Capital Management structures investment terms based on the business, the credit profile, the outlook for the
industry in which a potential portfolio company operates, the competitive landscape, the

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products or services which the company sells and the management team and ownership of the company, among other factors. Stellus
Capital Management relies upon the analysis conducted and information gathered through the investment process to evaluate the
appropriate structure for our investments.

We invest primarily in the debt securities of middle-market companies. Our investments typically carry a high level of cash pay

interest and may incorporate other return-enhancing mechanisms such as commitment fees, original issue discounts, early redemption
premiums, PIK interest and some form of equity participation, including preferred stock, common stock, warrants and other forms of
equity participation. We expect that a typical debt investment in which we invest will have a term at origination of between five and
seven years. 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.

Stellus Capital Management negotiates covenants in connection with debt investments that provide protection for us but allow
appropriate flexibility for the portfolio company. Such covenants may include affirmative and negative covenants, default penalties,
lien protection and change of control provisions. Stellus Capital Management requires comprehensive information rights including
access to management, financial statements and budgets and, in some cases, membership on the portfolio company’s board of
directors or board observation rights. Additionally, Stellus Capital Management generally requires financial covenants and terms that
restrict an issuer’s use of leverage and limitations on asset sales and capital expenditures.

Secured Debt

Secured debt, including first lien (including unitranche) and second lien financing, has liens on the assets of the borrower that

serve as collateral in support of the repayment of such loans.

First Lien Debt First lien debt is structured with first-priority liens on the assets of the borrower that serve as collateral in
support of the repayment of such loans. First lien loans may provide for moderate loan amortization in the early years of the loan,
with the majority of the amortization deferred until loan maturity.

Unitranche Debt Unitranche debt typically is structured as first lien loans that combine both senior and junior debt, with
lenders agreeing separately to an order of priority among them. To the extent that we invest in the “last out” tranche of a unitranche
facility, our unitranche investments will have certain risk characteristics of second lien debt. Unitranche debt typically provides for
moderate loan amortization in the initial years of the debt, with the majority of the principal payment deferred until loan maturity.
Since unitranche debt generally allows the borrower to make a large lump sum payment of principal at the end of the loan term, there
is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. In some cases, we will be the
sole lender, or we, together with our affiliates, will be the sole lender, of unitranche debt, which can provide us with more influence
interacting with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.

Second Lien Debt Second lien debt is structured as junior, secured loans with second priority liens on an issuer’s assets. These
loans typically provide for moderate loan amortization in the initial years of the loan, with the majority of the amortization deferred
until loan maturity.

Unsecured Debt

Unsecured debt, including senior unsecured and subordinated loans, is not secured by any collateral and is effectively

subordinated to the borrower’s secured indebtedness (to the extent of the collateral securing such indebtedness), including pursuant to
one or more intercreditor agreements that we enter into with holders of a borrower’s senior debt.

Senior Unsecured Loans Senior unsecured loans are structured as loans that rank senior in right of payment to any of the
borrower’s unsecured indebtedness that is contractually subordinated to such loans. These loans generally provide for fixed interest
rates and amortize evenly over the term of the loan. Senior unsecured loans are generally less volatile than subordinated loans due to
their priority over subordinated loans.

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Subordinated Loans Subordinated loans are structured as unsecured, subordinated loans that provide for relatively high, fixed

interest rates that provide us with significant current interest income. These loans typically have interest-only payments (often
representing a combination of cash pay and PIK interest) in the early years, with amortization of principal deferred to maturity.
Subordinated 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 the borrower is unable to pay the lump sum or refinance the amount owed at maturity. Subordinated loans are
generally more volatile than secured loans and senior unsecured loans and may involve a greater risk of loss of principal as compared
to other types of loans. Subordinated loans often include a PIK feature, which effectively operates as negative amortization of loan
principal, thereby increasing credit risk exposure over the life of the loan.

Equity Securities

In connection with some of our debt investments, we may also invest in preferred or common stock or receive nominally priced

warrants or options to buy an equity interest in the portfolio company. As a result, as a portfolio company appreciates in value, we
may achieve additional investment return from this equity interest. We may structure such equity investments and warrants to include
provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon
the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity
interests, which may include demand and “piggyback” registration rights.

Investment Process

Through the resources of Stellus Capital Management, we have access to significant research resources, experienced investment
professionals, internal information systems and a credit analysis framework and investment process. Stellus Capital Management has
designed a highly involved and interactive investment management process, which is the core of its culture and the basis for what we
believe is a strong track record of investment returns. The investment process seeks to select only those investments that it believes
have the most attractive risk/reward characteristics. The process involves several levels of review and is coordinated in an effort to
identify risks in potential investments. Stellus Capital Management applies its expertise to screen our investment opportunities as
described below. This rigorous process, combined with its broad origination capabilities, has allowed the Stellus Capital Management
team to be prudent in selecting opportunities in which to make an investment.

All potential investment opportunities undergo an initial informal review by Stellus Capital Management’s investment

professionals. Each potential investment opportunity that an investment professional determines merits consideration is presented and
evaluated at a weekly meeting during which Stellus Capital Management’s senior investment professionals discuss the merits and
risks of the potential investment opportunity as well as the due diligence process and the pricing and structure. If Stellus Capital
Management’s senior investment professionals believe an investment opportunity merits further review, the investment opportunity is
assigned a deal team and the deal team prepares and presents to the investment committee for initial review a prescreen memorandum
that generally describes the potential transaction and includes a description of the risks, due diligence process and proposed structure
and pricing for the proposed investment opportunity.

Prior to making an investment, Stellus Capital Management conducts rigorous diligence on each investment opportunity. In

connection with its due diligence on a potential investment opportunity, Stellus Capital Management utilizes its internal diligence
resources, which include its internally developed credit analytical framework, subscriptions to third party research resources,
discussions with industry experts, internal information sharing systems and the analytical expertise of its investment professionals.
Stellus Capital Management typically reviews the company’s historical financials; industry drivers and outlook, competitive threats,
customer concentration, asset coverage, projected financials and credit metrics; management background checks; and, if applicable,
the track record and funding capabilities of the private equity sponsor.

Upon review of the prescreen memorandum, if the investment committee determines to proceed with the review of an investment

opportunity, the deal team continues its diligence and deal structuring plans and prepares a credit approval memorandum for review
by the investment committee. The credit approval memorandum updates the prescreen

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memorandum with more deal-specific detail, including an update to the diligence process and any changes in the structure and pricing
of the proposed investment.

Investment Committee

Each new investment opportunity must be unanimously approved by Stellus Capital Management’s investment committee.
Follow-on investments in existing portfolio companies also require the investment committee’s unanimous approval. Stellus Capital
Management’s Chief Investment Officer, Robert T. Ladd, reviews any amendments before finalizing and closing negotiations with
the prospective portfolio company. The purpose of Stellus Capital Management’s investment committee is to evaluate and approve all
of our investments, subject at all times to the oversight of our Board. The investment committee process is intended to bring the
diverse experience and perspectives of the committee’s members to the analysis and consideration of each investment. The investment
committee consists of Robert T. Ladd, Dean D’Angelo, Joshua T. Davis and W. Todd Huskinson. The investment committee serves to
provide investment consistency and adherence to our core investment philosophy and policies. The investment committee also
determines appropriate investment sizing and suggests ongoing monitoring requirements.

In addition to reviewing investments, investment committee meetings serve as a forum to discuss credit views and outlooks.

Potential transactions and deal flow are reviewed on a regular basis. Members of the investment team are encouraged to share
information and views on credits with the investment committee early in their analysis. We believe this process improves the quality
of the analysis and assists the deal team members to work more efficiently.

Each member of the investment committee performs a similar role for other accounts managed by Stellus Capital Management.
In certain instances, including in connection with co-investments under the Order, approval by our Board may also be required prior
to the making of an investment.

Monitoring Investments

In most cases, we do not have board influence over our portfolio companies. In some instances, Stellus Capital Management’s
senior investment professionals may obtain board representation or observation rights in conjunction with our investments. Stellus
Capital Management takes an active approach in monitoring all investments, including reviews of financial performance on at least a
quarterly basis and regular discussions with management. The monitoring process begins with structuring terms and conditions, which
require the timely delivery and access to critical financial and business information on portfolio companies.

Specifically, Stellus Capital Management’s monitoring system consists of the following activities:

Regular Investment Committee Updates Key portfolio company developments are discussed each week as part of the standard

investment committee meeting agenda.

Written Reports The deal teams provide periodic written updates as appropriate for key events that impact portfolio company

performance or valuation. In addition, deal teams provide written updates following each portfolio company board meeting.

Quarterly Full Portfolio Review Stellus Capital Management’s Chief Investment Officer and our Chief Compliance Officer

perform a quarterly comprehensive review of every portfolio company with the deal teams. This process includes a written
performance and valuation update, and credit-specific discussion on each of our portfolio companies. In addition, pursuant to our
valuation policy, the valuation of each portfolio investment for which a market quotation is not readily available is reviewed by our
independent third-party valuation firm at least twice annually. In addition, portfolio investments that are not publicly traded or whose
market price is not readily available are valued at fair value as determined in good faith by our Board based on the input of Stellus
Capital Management’s investment professionals and our Board’s audit committee.

As part of the monitoring process, Stellus Capital Management also tracks developments in the broader marketplace. Stellus

Capital Management’s investment professionals have a wealth of information on the competitive

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landscape, industry trends, relative valuation metrics, and analyses that assist in the execution of our investment strategy. In addition,
Stellus Capital Management’s extensive communications with brokers and dealers allows its investment professionals to monitor
market and industry trends that could affect portfolio investments. Stellus Capital Management may provide ongoing strategic,
financial and operational guidance to some portfolio companies either directly or by recommending its investment professionals or
other experienced representatives to participate on the portfolio company’s board of directors. Stellus Capital Management maintains
an extensive network of strategic and operational advisers to call upon for industry expertise or to supplement existing management
teams.

Asset Quality

In addition to various risk management and monitoring tools, Stellus Capital Management uses an investment ranking system to
characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment ranking
system uses a five-level numeric scale. The following is a description of the conditions associated with each investment category:

Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable

compared to the expected risk at the time of the original investment.

Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral compared

to the expected risk at the time of the original investment. All new loans are initially rated 2.

Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but

where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial
covenants.

Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have

increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4 are those
for which some loss of contractual return but no loss of principal is expected.

Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have

increased substantially since the original investment. These investments are almost always in work out. Investments with a rating of 5
are those for which some loss of return and principal is expected.

In the event that Stellus Capital Management determines that an investment is underperforming, or circumstances suggest that
the risk associated with a particular investment has significantly increased, Stellus Capital Management will increase its monitoring
intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending
events and suggesting recommended actions. While the investment ranking system identifies the relative risk for each investment, the
ranking alone does not dictate the scope and/or frequency of any monitoring that is performed. The frequency of Stellus Capital
Management’s monitoring of an investment is determined by a number of factors, including, but not limited to, the trends in the
financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.

Determination of Net Asset Value and Portfolio Valuation Process

The net asset value per share of our outstanding shares of common stock is determined quarterly by dividing the value of total

assets minus liabilities by the total number of shares outstanding.

Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes requirements for determining fair value in good faith for purposes of the

1940 Act. Rule 2a-5 permits boards, subject to board oversight and certain other conditions, to designate certain parties to perform
fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the
threshold for determining whether a fund must determine the fair value of a security. Rule 31a-4 under the 1940 Act (“Rule 31a-4”)
regulates recordkeeping associated with fair value determinations. While our Board has not elected to designate Stellus Capital
Management as the valuation designee, we

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have adopted certain revisions to our valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5
and Rule 31a-4.

As a BDC, we will generally invest in illiquid loans and securities, including debt and equity securities of private middle-market
companies. Section 2(a)(41) of the 1940 Act requires that a BDC value its assets as follows: (i) the third party price for securities for
which a quotation is readily available; and (ii) for all other securities and assets, fair value, as determined in good faith by a BDC's
board.

In calculating the value of our total assets, investment transactions will be recorded on the trade date. Realized gains or losses will

be computed using the specific identification method.

Under procedures established by our Board, we intend to value investments for which market quotations are readily available at
such market quotations. The Company will obtain these market values from an independent pricing service or at the midpoint of the
bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary
market dealer). Debt and equity securities that are not publicly traded or whose market prices are not readily available will be valued
at fair value as determined in good faith by our Board. Such determination of fair values may involve subjective judgments and
estimates. We also engage independent valuation providers to review the valuation of each portfolio investment that does not have a
readily available market quotation at least twice annually.

Debt and equity investments purchased within approximately 90 days of the valuation date will be valued at cost, plus accreted
discount, or minus amortized premium, which approximates fair value. With respect to unquoted securities, our Board will value each
investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that
are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs,
the Board will use the pricing indicated by the external event to corroborate and/or assist in determining the valuation. Because we
expect that there will not be a readily available market quotation for many of the investments in our portfolio, the Company expects to
value most of its portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and
a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have
a readily available market value, the fair value of our investments may differ significantly from the values that would have been used
had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the
market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized
on these investments to be different from the valuations currently assigned.

We have adopted Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements and

Disclosures (“ASC 820”). This accounting statement requires us to assume that the portfolio investment is assumed to be sold in the
principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a
hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are
independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the market in which we can exit portfolio
investments with the greatest volume and level activity is considered our principal market.

With respect to investments for which market quotations are not readily available, our Board undertakes a multi-step valuation

process each quarter, as described below:

●

●

our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment
professionals of Stellus Capital Management responsible for the portfolio investment;

preliminary valuation conclusions are then documented and discussed with Stellus Capital Management’s senior investment
professionals;

●

at least twice annually, the valuation for each portfolio investment is reviewed by an independent valuation firm;

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●

●

the audit committee of our Board then reviews these preliminary valuations; and

the Board then discusses the valuations and determines the fair value of each investment in our portfolio in good faith, based
on the input of Stellus Capital Management’s investment professionals, the independent valuation firm and the audit
committee of the Board.

In following these approaches, the types of factors that are taken into account in fair value pricing our investments include, as

relevant, but are not limited to:

●

●

●

●

●

●

●

●

●

●

available current market data, including relevant and applicable market trading and transaction comparables;

applicable market yields and multiples;

financial covenants;

call protection provisions;

information rights;

the nature and realizable value of any collateral;

the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does
business;

comparisons to financial ratios of peer companies that are public;

comparable merger and acquisition transactions; and

the principal market and enterprise values.

Realization of Investments

The potential exit scenarios of a portfolio company play an important role in evaluating investment decisions. Our debt
orientation provides for increased potential exit opportunities, including (a) the sale of investments in the private markets, (b) the
refinancing of investments held, often due to maturity or recapitalizations, and (c) other liquidity events, including the sale or merger
of the portfolio company. Since we seek to maintain a debt orientation in our investments, we expect to receive interest income over
the course of the investment period, resulting in a return on invested capital well in advance of final exit.

Derivatives

We may utilize hedging techniques such as interest rate swaps to mitigate potential interest rate risk on our indebtedness. Such
interest rate swaps would principally be used to protect us against higher costs on our indebtedness resulting from increases in both
short-term and long-term interest rates. We also may use various hedging and other risk management strategies to seek to manage
various risks, including changes in currency exchange rates and market interest rates. Such hedging strategies would be utilized to
seek to protect the value of our portfolio investments, for example, against possible adverse changes in the market value of securities
held in our portfolio.

Rule 18f-4 requires BDCs that use derivatives to, among other things, comply with a value-at-risk leverage limit, adopt a

derivatives risk management program, and implement certain testing and board reporting procedures. Rule 18f-4 exempts BDCs that
qualify as “limited derivatives users” from the aforementioned requirements, provided that these BDCs adopt written policies and
procedures that are reasonably designed to manage the BDC’s derivatives risks and comply with certain recordkeeping requirements.
We currently qualify as a “limited derivatives user” and expect to

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continue to do so. We adopted a derivatives policy by Rule 18f-4’s August 2022 compliance date, and comply with the recordkeeping
requirements.

Managerial Assistance

As a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could
involve monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and
advising officers of portfolio companies and providing other organizational and financial guidance. Stellus Capital Management or an
affiliate of Stellus Capital Management provides such managerial assistance on our behalf to portfolio companies that request this
assistance. We may receive fees for these services and will reimburse Stellus Capital Management or an affiliate of Stellus Capital
Management, as applicable, for its allocated costs in providing such assistance, subject to the review by our Board, including our
independent directors.

Competition

Our primary competitors in providing financing to middle-market companies include public and private funds, other BDCs,
commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing,
private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical
and marketing resources than we do. For example, we believe some competitors may have access to funding sources that are not
available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow
them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are
not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we
must satisfy to maintain our qualification as a RIC.

We use the expertise of the investment professionals of Stellus Capital Management to which we have access to assess
investment risks and determine appropriate pricing for our investments in portfolio companies. In addition, we believe that the
relationships of the investment professionals of Stellus Capital Management enable us to learn about, and compete effectively for,
financing opportunities with attractive middle-market companies in the industries in which we invest.

Employees

We do not have any direct employees, and our day-to-day investment operations are managed by Stellus Capital Management.
We have a Chief Executive Officer and President and a Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary.
To the extent necessary, we may hire additional personnel going forward. Our officers are employees of Stellus Capital Management
and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and his staff is paid by us pursuant
to the Administration Agreement that we have entered into with Stellus Capital Management (the “Administration Agreement”).

Management Agreements

Stellus Capital Management serves as our investment adviser and is registered as an investment adviser under the Investment

Advisers Act of 1940, as amended (the “Advisers Act”). In addition, Stellus Capital Management serves as our administrator.

Investment Advisory Agreement

Subject to the overall supervision of our Board and in accordance with the 1940 Act, Stellus Capital Management manages our
day-to-day operations and provides investment advisory services to us. Under the terms of the Investment Advisory Agreement (the
“Investment Advisory Agreement”), Stellus Capital Management:

●

determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of
implementing such changes;

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●

●

●

●

●

identifies, evaluates and negotiates the structure of the investments we make;

executes, closes, services and monitors the investments we make;

determines the securities and other assets that we purchase, retain or sell;

performs due diligence on prospective portfolio companies; and

provides us with such other investment advisory, research and related services as we may, from time to time, reasonably
require for the investment of our funds.

Pursuant to the Investment Advisory Agreement, we have agreed to pay Stellus Capital Management a fee for investment

advisory and management services consisting of two components — a base management fee and an incentive fee. The cost of both the
base management fee and the incentive fee is borne by our stockholders.

Management Fee

The base management fee is calculated at an annual rate of 1.75% of our gross assets, including assets purchased with borrowed

funds or other forms of leverage (including preferred stock, public and private debt issuances, derivative instruments, repurchase
agreements and other similar instruments or arrangements) and excluding cash and cash equivalents. For services rendered under the
Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated
based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed
calendar quarters. Base management fees for any partial month or quarter are appropriately pro-rated.

Incentive Fee

The incentive fee, which provides Stellus Capital Management with a share of the income that it generates for us, has two

components, ordinary income and capital gains, calculated as follows:

The ordinary income component is calculated and payable quarterly in arrears based on our pre-incentive fee net investment
income for the immediately preceding calendar quarter, subject to a total return requirement, and deferral of non-cash amounts, and is
20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our
net assets attributable to our common stock, for the immediately preceding calendar quarter, exceeds a 2.0% (which is 8.0%
annualized) hurdle rate and a “catch-up” provision, for the benefit of Stellus Capital Management, measured as of the end of each
calendar quarter. Under this provision, in any calendar quarter, Stellus Capital Management receives no incentive fee until our pre-
incentive fee net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our pre-incentive fee
net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate
but is less than 2.5%.

The effect of the “catch-up” provision is that, subject to the total return provision discussed below, if pre-incentive fee net
investment income exceeds 2.5% in any calendar quarter, Stellus Capital Management receives 20.0% of our pre-incentive fee net
investment income as if a hurdle rate did not apply. 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, structuring, diligence, managerial
assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our
operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and
any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-
incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue
discount (“OID”), debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in
cash. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the
Company’s pre-incentive fee net investment income will be payable except to the extent 20.0% of the cumulative net

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increase in net assets resulting from operations over the then current and 11 preceding quarters exceeds the cumulative incentive fees
accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar
quarter will be limited to the lesser of (i) 20.0% of the amount by which our pre-incentive fee net investment income for such calendar
quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20.0% of the cumulative net increase in net assets
resulting from operations for the then current and 11 preceding calendar quarters minus (y) the cumulative incentive fees accrued
and/or paid for the 11 preceding calendar quarters.

For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the

sum of pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation of the
Company for the then current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to
deferred interest (such as PIK interest or OID) will be paid to Stellus Capital Management, without any interest thereon, only if and to
the extent we actually receive such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is
reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any
reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the
reversal of incentive fees payable) and would result in a reduction and possible elimination of the incentive fees for such quarter.
There is no accumulation of amounts on the hurdle rate from quarter to quarter, and accordingly there is no clawback of amounts
previously paid if subsequent quarters are below the quarterly hurdle, and there is no delay of payment if prior quarters are below the
quarterly hurdle. Stellus Capital Management has agreed to permanently waive any interest accrued on the portion of the incentive fee
attributable to deferred interest (such as PIK interest or OID).

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 we may pay an incentive fee in a quarter
where we incur a loss, subject to the total return requirement. For example, if we receive pre-incentive fee net investment income in
excess of the quarterly minimum hurdle rate, we will pay the applicable incentive fee even if we have incurred a loss in that quarter
due to realized and unrealized capital losses. Our net investment income used to calculate this component of the incentive fee is also
included in the amount of our gross assets used to calculate the 1.75% base management fee. These calculations are appropriately
prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current 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 Income
Pre-Incentive Fee Net Investment Income
(expressed as a percentage of the value of net assets)

Percentage of Pre-incentive Fee Net Investment Income
Allocated to Income-Related Portion of Incentive Fee

The capital gains component of the incentive 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 equal to 20.0% of our cumulative
aggregate realized capital gains from inception through the end of that calendar year, computed net of our aggregate cumulative
realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate
amount of any previously paid capital gains incentive fees. If such amount is negative, then no capital gains incentive fee will be
payable for such year. Additionally, if the Investment

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Advisory Agreement is terminated as of a date that is not a calendar year end, the termination date will be treated as though it were a
calendar year end for purposes of calculating and paying the capital gains incentive fee.

Examples of Quarterly Incentive Fee Calculation

Example 1: Income Related Portion of Incentive Fee before Total Return Requirement Calculation:

Alternative 1

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%
Hurdle rate(1) = 2.0%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income — (management fee + other expenses)) = 0.6125%

Pre-incentive fee net investment income does not exceed hurdle rate, therefore there is no income-related incentive fee.

Alternative 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.9%
Hurdle rate(1) = 2.0%
Management fee(2) = 0.4375% 
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income — (management fee + other expenses)) = 2.2625%

Incentive fee = 100% × Pre-incentive fee net investment income (subject to “catch-

up”)(3)
= 100% × (2.2625% — 2.0%)
= 0.2625%

Pre-incentive fee net investment income exceeds the hurdle rate, but does not fully satisfy the “catch-up” provision, therefore the

income related portion of the incentive fee is 0.2625%.

Alternative 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.5%
Hurdle rate(1) = 2.0%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income — (management fee + other expenses)) = 2.8625%
Incentive fee = 100% × Pre-incentive fee net investment income (subject to “catch-up”)(3)
Incentive fee = 100% × “catch-up” + (20.0% × (Pre-Incentive Fee Net Investment Income — 2.5%))

“Catch-up”

= 2.5% — 2.0%
= 0.5%

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Incentive fee = (100% × 0.5%) + (20.0% × (2.8625% — 

2.5%))
= 0.5% + (20.0% × 0.3625%)
= 0.5% + 0.0725%
= 0.5725%

Pre-incentive fee net investment income exceeds the hurdle rate, and fully satisfies the “catch-up” provision, therefore the

income related portion of the incentive fee is 0.5725%.

(1) Represents 8.0% annualized hurdle rate.
(2) Represents 1.75% annualized base management fee.
(3) The “catch-up” provision is intended to provide Stellus Capital Management with an incentive fee of 20.0% on all pre-incentive
fee net investment income as if a hurdle rate did not apply when our net investment income exceeds 2.5% in any fiscal quarter.

Example 2: Income Portion of Incentive Fee with Total Return Requirement Calculation:

Alternative 1:

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.5%
Hurdle rate(1) = 2.0%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income — (management fee + other expenses) = 2.8625%
Cumulative incentive compensation accrued and/or paid for preceding 11 calendar quarters = $9,000,000
20.0% of cumulative net increase in net assets resulting from operations over current and preceding 11 calendar quarters =
$8,000,000

Although our pre-incentive fee net investment income exceeds the hurdle rate of 2.0% (as shown in Alternative 3 of Example 1
above), no incentive fee is payable because 20.0% of the cumulative net increase in net assets resulting from operations over the then
current and 11 preceding calendar quarters did not exceed the cumulative income and capital gains incentive fees accrued and/or paid
for the preceding 11 calendar quarters.

Alternative 2:

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.5%
Hurdle rate(1) = 2.0%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income — (management fee + other expenses) = 2.8625%
Cumulative incentive compensation accrued and/or paid for preceding 11 calendar quarters = $9,000,000
20.0% of cumulative net increase in net assets resulting from operations over current and preceding
11 calendar quarters = $10,000,000

Because our pre-incentive fee net investment income exceeds the hurdle rate of 2.0% and because 20.0% of the cumulative net

increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative
income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters, an incentive fee would be payable,
as shown in Alternative 3 of Example 1 above.

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(1) Represents 8.0% annualized hurdle rate.
(2) Represents 1.75% annualized base management fee.

Example 3: Capital Gains Portion of Incentive Fee(*):

Alternative 1:

Assumptions

Year 1: $2.0 million investment made in Company A (“Investment A”), and $3.0 million investment made in Company B
(“Investment B”)

Year 2: Investment A sold for $5.0 million and fair market value (“FMV”) of Investment B determined to be $3.5 million

Year 3: FMV of Investment B determined to be $2.0 million

Year 4: Investment B sold for $3.25 million

The capital gains portion of the incentive fee would be:

Year 1: None

Year 2: Capital gains incentive fee of $0.6 million — ($3.0 million realized capital gains on sale of Investment A multiplied by
20.0%)

Year 3: None — $0.4 million (20.0% multiplied by ($3.0 million cumulative capital gains less $1.0 million cumulative capital
depreciation)) less $0.6 million (previous capital gains fee paid in Year 2)

Year 4: Capital gains incentive fee of $50,000 — $0.65 million ($3.25 million cumulative realized capital gains multiplied by
20.0%) less $0.6 million (capital gains incentive fee taken in Year 2)

Alternative 2

Assumptions

Year 1: $2.0 million investment made in Company A (“Investment A”), $5.25 million investment made in Company B
(“Investment B”) and $4.5 million investment made in Company C (“Investment C”)

Year 2: Investment A sold for $4.5 million, FMV of Investment B determined to be $4.75 million and FMV of Investment C
determined to be $4.5 million

Year 3: FMV of Investment B determined to be $5.0 million and Investment C sold for $5.5 million

Year 4: FMV of Investment B determined to be $6.0 million

Year 5: Investment B sold for $4.0 million

The capital gains incentive fee, if any, would be:

Year 1: None

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Year 2: $0.4 million capital gains incentive fee — 20.0% multiplied by $2.0 million ($2.5 million realized capital gains on
Investment A less $0.5 million unrealized capital depreciation on Investment B)

Year 3: $0.25 million capital gains incentive fee(1) — $0.65 million (20.0% multiplied by $3.25 million ($3.5 million cumulative
realized capital gains less $0.25 million unrealized capital depreciation)) less $0.4 million capital gains incentive fee received
in Year 2

Year 4: $0.05 million capital gains incentive fee — $0.7 million ($3.50 million cumulative realized capital gains multiplied by
20.0%) less $0.65 million cumulative capital gains incentive fee paid in Year 2 and Year 3

Year 5: None — $0.45 million (20.0% multiplied by $2.25 million (cumulative realized capital gains of $3.5 million less realized
capital losses of $1.25 million)) less $0.7 million cumulative capital gains incentive fee paid in Year 2, Year 3 and Year 4(2)

*

The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage. There is no
guarantee that positive returns will be realized and actual returns may vary from those shown in this example.

(1) As illustrated in Year 3 of Alternative 1 above, if a portfolio company were to be wound up on a date other than its fiscal year

end of any year, it may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would be
payable if such portfolio company had been wound up on its fiscal year end of such year.

(2) As noted above, it is possible that the cumulative aggregate capital gains fee received by Stellus Capital Management

($0.70 million) is effectively greater than $0.45 million (20.0% of cumulative aggregate realized capital gains less net realized
capital losses or net unrealized depreciation ($2.25 million)).

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Payment of Our Expenses

All investment professionals of Stellus Capital Management, when and to the extent engaged in providing investment advisory
and management services to us, and the compensation and routine overhead expenses of personnel allocable to these services to us,
are provided and paid for by Stellus Capital Management and not by us. We bear all other out-of-pocket costs and expenses of our
operations and transactions, including, without limitation, those relating to:

●

●

●

●

●

●

●

organization and offering;

calculating our net asset value (including the cost and expenses of any independent valuation firm);

fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal
affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or
otherwise relating to, or associated with, evaluating and making investments;

interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio
acquisition efforts;

offerings of our common stock and other securities;

base management and incentive fees;

administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of
Stellus Capital Management’s overhead in performing its obligations under the Administration Agreement, including rent
and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and his staff);

●

transfer agent, dividend agent and custodial fees and expenses;

● U.S. federal and state registration fees;

●

all costs of registration and listing our shares on any securities exchange;

● U.S. federal, state and local taxes;

●

●

●

●

●

●

●

independent directors’ fees and expenses;

costs of preparing and filing reports or other documents required by the SEC or other regulators;

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

costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any
other insurance premiums;

direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and
other staff, independent auditors and outside legal costs;

proxy voting expenses; and

all other expenses incurred by us or Stellus Capital Management in connection with administering our business.

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Duration and Termination

Unless terminated earlier as described below, the Investment Advisory Agreement will continue in effect from year to year if
approved annually by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities, and, in
either case, if also approved by a majority of the independent directors. The Investment Advisory Agreement automatically terminates
in the event of its assignment, as defined in the 1940 Act, by Stellus Capital Management and may be terminated by either party
without penalty upon 60 days’ written notice to the other. The holders of a majority of our outstanding voting securities may also
terminate the Investment Advisory Agreement without penalty upon 60 days’ written notice. See Item 1A. “Risk Factors — Risks
Related to our Operations” in this Annual Report on Form 10-K. We are dependent upon key personnel of Stellus Capital
Management for our future success. If Stellus Capital Management were to lose any of its key personnel, our ability to achieve our
investment objective could be significantly harmed.

Indemnification

The Investment Advisory Agreement provides that Stellus Capital Management and its officers, managers, partners, agents,
employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us
for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement)
arising from the rendering of Stellus Capital Management’s services under the Investment Advisory Agreement or otherwise as our
investment adviser. Our obligation to provide indemnification under the Investment Advisory Agreement, however, is limited by the
1940 Act and Investment Company Act Release No. 11330, which, among other things, prohibit us from indemnifying any director,
officer or other individual from any liability resulting directly from the willful misconduct, bad faith, gross negligence in the
performance of duties or reckless disregard of applicable obligations and duties of the directors, officers or other individuals and
require us to set forth reasonable and fair means for determining whether indemnification shall be made.

Board Approval of the Investment Advisory Agreement

Our Board, including a majority of our independent directors, approved the Investment Advisory Agreement at its first meeting,
held on September 24, 2012, and approved the annual continuation of the Investment Advisory Agreement on January 10, 2024 by
virtual means in reliance on relief provided by the SEC in response to the COVID-19 pandemic. As a condition of the SEC's COVID-
19 relief, our Board will be required to ratify the re-approval of the Investment Advisory Agreement at its next in-person meeting. In
its consideration of the Investment Advisory Agreement, the Board focused on information it had received relating to, among other
things: (a) the nature, quality and extent of the advisory and other services to be provided to us by our investment adviser;
(b) comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; (c) our
projected operating expenses and expense ratio compared to BDCs with similar investment objectives; (d) any existing and potential
sources of indirect income to our investment adviser from its relationships with us and the profitability of those relationships;
(e) information about the services to be performed and the personnel performing such services under the Investment Advisory
Agreement; (f) the organizational capability and financial condition of our investment adviser; and (g) various other factors.

In voting to approve the Investment Advisory Agreement, our Board, including all of the directors who are not “interested

persons,” of the Company, made the following conclusions:

● Nature, Extent and Quality of Services. Our Board considered the nature, extent and quality of the advisory and other
services to be provided by Stellus Capital Management, including the investment performance of Stellus Capital
Management’s investment team. Our Board also considered the investment selection process expected to be employed by
Stellus Capital Management, including the flow of transaction opportunities resulting from its investment team’s significant
experience in originating, structuring and managing loans and debt securities through market cycles, and the employment of
Stellus Capital Management’s investment strategy, rigorous due diligence process, investment structuring, and ongoing
relationships with and monitoring of portfolio companies, in light of our investment objective. Our Board also considered
Stellus Capital Management’s personnel and their prior experience in connection with the types of investments made by us,
including such

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personnel’s corporate relationships and relationships with private equity firms, investment banks, restructuring advisors, law
firms, boutique advisory firms and distressed/specialty lenders. In addition, our Board considered the other terms and
conditions of the Investment Advisory Agreement, including the fact that we have the ability to terminate the Investment
Advisory Agreement without penalty upon 60 days’ notice to Stellus Capital Management. As a result, our Board
determined that the substantive terms of the Investment Advisory Agreement (other than the fees payable thereunder, which
our Board reviewed separately), including the services to be provided, are similar to those of comparable externally
managed BDCs described in the available market data and in the best interests of our stockholders. Moreover, our Board
concluded that although the substantive terms of the Investment Advisory Agreement, including the services to be provided,
are generally the same as those of comparable externally managed BDCs described in the market data then available, it
would be difficult to obtain similar services from other third-party service providers in light of the nature, quality and extent
of the advisory and other services provided to us by Stellus Capital Management.

Projected Costs of the Services Provided to the Company. Our Board considered (i) comparative data based on publicly
available information with respect to services rendered and the advisory fees (including the base management fee and
incentive fees) of other externally managed BDCs that invest in similar securities, our total expenses, and expense ratios
compared to other externally managed BDCs of similar size and with similar investment objectives and (ii) the
administrative services that Stellus Capital Management will provide to us at cost pursuant to the Administration
Agreement. Based upon its review, our Board concluded that the fees to be paid under the Investment Advisory Agreement
are generally comparable to or more favorable than those payable under agreements of comparable externally managed
BDCs and reasonable in relation to the services expected to be provided by Stellus Capital Management.

Projected Profitability of Stellus Capital Management. Our Board considered information about Stellus Capital
Management, including the anticipated costs of the services to be provided by Stellus Capital Management and the
anticipated profits to be realized by it, including as a result of our investment performance, which would generally be equal
or similar to the profitability of investment advisers managing comparable BDCs. Our Board reviewed our investment
performance, as well as comparative data with respect to the investment performance of other externally managed BDCs, as
it relates to the management and incentive fees we pay Stellus Capital Management. As a result of this review, our Board
determined that our investment performance supported the renewal of the Investment Advisory Agreement.

Economies of Scale. Our Board considered the extent to which economies of scale would be realized as we grow, and
whether the fees payable under the Investment Advisory Agreement reflect these economies of scale for the benefit of our
stockholders. Taking into account such information, our Board determined that the advisory fee structure under the
Investment Advisory Agreement was reasonable with respect to any economies of scale that may be realized as we grow.

Limited Potential for Additional Benefits Derived by Stellus Capital Management. Our Board considered existing and
potential sources of indirect income Stellus Capital Management would receive as a result of the relationship with us, and
whether there would be potential for additional benefits to be derived by Stellus Capital Management as a result of our
relationship, and was advised any such potential would be limited.

●

●

●

●

● Conclusions. In view of the wide variety of factors that our Board considered in connection with its evaluation of the

Investment Advisory Agreement, it is not practical to quantify, rank or otherwise assign relative weights to the specific
factors it considered in reaching its decision. The Board did not rank or otherwise assign relative weights to the specific
factors it considered in connection with its evaluation of the Investment Advisory Agreement, nor did it undertake to make
any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or
unfavorable to the ultimate decision made by our Board. Rather, the Board based its approval of the Investment Advisory
Agreement on the totality of information presented to it. In considering the factors discussed above, individual directors
may have given different weights to different factors.

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Based on the information reviewed and the discussions, the Board, including a majority of the independent directors, concluded

that the investment management fee rates and terms are reasonable in relation to the services to be provided and approved the
Investment Advisory Agreement as being in the best interests of our stockholders.

Administration Agreement

Under the Administration Agreement, Stellus Capital Management furnishes us with office facilities and equipment and will
provide us with clerical, bookkeeping, recordkeeping and other administrative services at such facilities. Stellus Capital Management
also performs, or oversees the performance of, our required administrative services, which include being responsible for the financial
and other records that we are required to maintain and preparing reports to our stockholders and reports and other materials filed with
the SEC. In addition, Stellus Capital Management assists us in determining and publishing our net asset value, oversees the
preparation and filing of our tax returns and the printing and dissemination of reports and other materials to our stockholders, and
generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by
others. Under the Administration Agreement, Stellus Capital Management also provides managerial assistance on our behalf to those
portfolio companies that have accepted our offer to provide such assistance.

Payments under the Administration Agreement are equal to an amount based upon our allocable portion (subject to the review of

our Board) of Stellus Capital Management’s overhead in performing its obligations under the Administration Agreement, including
rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our Chief
Financial Officer and Chief Compliance Officer and his staff. In addition, if requested to provide significant managerial assistance to
our portfolio companies, Stellus Capital Management will be paid an additional amount based on the services provided, which shall
not exceed the amount we receive from such portfolio companies for providing this assistance. The Administration Agreement has an
initial term of two years and may be renewed with the approval of our Board. The Administration Agreement may be terminated by
either party without penalty upon 60 days’ written notice to the other party. To the extent that Stellus Capital Management outsources
any of its functions, we will pay the fees associated with such functions on a direct basis without any incremental profit to Stellus
Capital Management. Stockholder approval is not required to amend the Administration Agreement.

Indemnification

The Administration Agreement provides that Stellus Capital Management, its affiliates and their respective, officers, managers,

partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to
indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably
paid in settlement) arising from the rendering of Stellus Capital Management’s services under the Administration Agreement or
otherwise as our administrator. Our obligation to provide indemnification under the Administration Agreement, however, is limited
by the 1940 Act and Investment Company Act Release No. 11330, which, among other things, prohibit us from indemnifying any
director, officer or other individual from any liability resulting directly from the willful misconduct, bad faith, gross negligence in the
performance of duties or reckless disregard of applicable obligations and duties of the directors, officers or other individuals and
require us to set forth reasonable and fair means for determining whether indemnification shall be made.

License Agreement

We have entered into a license agreement with Stellus Capital Management under which Stellus Capital Management has agreed

to grant us a non-exclusive, royalty-free license to use the name “Stellus Capital.” Under this agreement, we have a right to use the
“Stellus Capital” name for so long as Stellus Capital Management or one of its affiliates remains our investment adviser. Other than
with respect to this limited license, we have no legal right to the “Stellus Capital” name. This license agreement will remain in effect
for so long as the Investment Advisory Agreement with Stellus Capital Management is in effect.

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Exchange Act Reports

We maintain a website at www.stelluscapital.com (under the public investors section). The information on our website is not

incorporated by reference in this Annual Report on Form 10-K.

We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the

SEC in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These include our annual reports on
Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We make this information available on our
website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.

Regulation as a Business Development Company

We are a BDC under the 1940 Act that has elected to be treated as a RIC under the Code. The 1940 Act contains prohibitions and
restrictions relating to transactions between BDCs and their affiliates (including any investment advisers), principal underwriters and
affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as
that term is defined in Section 2(a)(19) of the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our
business so as to cease to be, or to withdraw our election as, a BDC unless approved by the holders of a majority of our outstanding
voting securities.

We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With

respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter,” as that term is defined in the
Securities Act of 1933, as amended (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 hedging transactions to
manage the risks associated with interest rate fluctuations. However, we may purchase or otherwise receive warrants to purchase the
common stock of our portfolio companies in connection with acquisition financing or other investments. Similarly, in connection with
an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain
circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the
1940 Act. Under these limits, we generally 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 the securities 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. With regard to that portion of our portfolio invested in
securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional
expenses. None of these policies is fundamental and may be changed without stockholder approval upon 60 days’ prior written notice
to stockholders.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which

are referred to as “qualifying assets,” unless, at the time the acquisition is made, qualifying assets represent at least 70% of the
company’s total assets. The principal categories of qualifying assets relevant to our business are the following:

(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer

(subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the
preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such
rules as may be prescribed by the SEC. Under the 1940 Act and the rules thereunder, “eligible portfolio companies” include
(1) private domestic operating companies, (2) public domestic operating companies whose securities are not listed on a
national securities exchange (e.g., the New York Stock Exchange, or “NYSE”), and (3) public domestic operating
companies having a market capitalization of less than $250 million. Public domestic operating companies whose securities
are quoted on the over-the-counter bulletin board or through Pink Sheets LLC are not listed on a national securities
exchange and therefore are eligible portfolio companies.

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(2) Securities of any eligible portfolio company which we control.

(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated
person of the issuer, or in transactions incident to such a private transaction, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they
came due without material assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for

such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise

of warrants or rights relating to such securities.

(6) Cash, cash equivalents, U.S. government securities or high-quality debt securities that mature in one year or less from the

date of investment.

The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with

and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.

Managerial Assistance to Portfolio Companies

In order to count portfolio securities as qualifying assets for the purpose of the 70% test, a BDC must either control the issuer of

the securities or must offer to make available to the issuer of the securities significant managerial assistance. However, when the BDC
purchases securities in conjunction with one or more other persons acting together, one of the other persons in the group may make
available such managerial assistance. Making available managerial assistance means any arrangement whereby the BDC, through its
directors, officers, employees or agents, 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 an SBIC, making
available managerial assistance means the making of loans to a portfolio company. Stellus Capital Management will provide such
managerial assistance on our behalf to portfolio companies that request this assistance.

Temporary Investments

Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash

equivalents, U.S. government securities, 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 are qualifying assets
or temporary investments. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, so long as the agreements are
fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase
by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon
future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is
no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than
25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in
order to maintain our qualification as a RIC for U.S. federal income tax purposes. Accordingly, we do not intend to enter into
repurchase agreements with a single counterparty in excess of this limit. Stellus Capital Management will monitor the
creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Warrants and Options

Under the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase
shares of capital stock that 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 within ten years, (ii) the exercise or conversion price is

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not less than the current market value at the date of issuance, (iii) our stockholders authorize the proposal to issue such warrants, and
our Board approves such issuance on the basis that the issuance is in the best interests of us and our stockholders and (iv) if the
warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the
securities accompanying them have been publicly distributed. The 1940 Act also provides that the amount of our voting securities that
would result from the exercise of all outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25%
of our outstanding voting securities. In particular, the amount of capital stock that would result from the conversion or exercise of all
outstanding warrants, options or rights to purchase capital stock cannot exceed 25% of the BDC’s total outstanding shares of capital
stock.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our
common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. We
may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset
coverage. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors — Risks Relating to our Business and
Structure — Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As
a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage” in this
Annual Report on Form 10-K.

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 at a price below the current net asset value of the common stock if our Board determines that such sale is in our
and our stockholders’ best interests, and our stockholders approve such sale. In any such case, the price at which our securities are to
be issued and sold may not be less than a price which, in the determination of our Board, closely approximates the market value of
such securities (less any distributing commission or discount). We would need approval from our stockholders to issue shares below
the then current net asset value per share any time after the expiration of the current approval. We may also make rights offerings to
our stockholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act.

Codes of Ethics

We and Stellus Capital Management have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that

establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each such
code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long
as such investments are made in accordance with such code’s requirements. In addition, each code of ethics is available on the
EDGAR database on the SEC’s website at www.sec.gov. You may also obtain copies of each code of ethics, after paying a
duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.

Proxy Voting Policies and Procedures

We have delegated our proxy voting responsibility to Stellus Capital Management. The proxy voting policies and procedures of
Stellus Capital Management are set out below. The guidelines will be reviewed periodically by Stellus Capital Management and our
independent directors and, accordingly, are subject to change.

Introduction. As an investment adviser registered under the Advisers Act, Stellus Capital Management has a fiduciary duty to
act solely in our best interests. As part of this duty, Stellus Capital Management recognizes that it must vote our securities in a timely
manner free of conflicts of interest and in our best interests.

Stellus Capital Management’s policies and procedures for voting proxies for its investment advisory clients are intended to

comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

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Proxy Policies. Stellus Capital Management votes proxies relating to our portfolio securities in what it perceives to be the best

interest of our stockholders. Stellus Capital Management reviews on a case-by-case basis each proposal submitted to a stockholder
vote to determine its effect on the portfolio securities we hold. In most cases, Stellus Capital Management will vote in favor of
proposals that Stellus Capital Management believes are likely to increase the value of the portfolio securities we hold. Although
Stellus Capital Management will generally vote against proposals that may have a negative effect on our portfolio securities, Stellus
Capital Management may vote for such a proposal if there exist compelling long-term reasons to do so.

Stellus Capital Management has established a proxy voting committee and adopted proxy voting guidelines and related
procedures. The proxy voting committee establishes proxy voting guidelines and procedures, oversees the internal proxy voting
process, and reviews proxy voting issues. To ensure that Stellus Capital Management’s vote is not the product of a conflict of
interest, Stellus Capital Management requires that anyone involved in the decision-making process disclose to our Chief Compliance
Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a
proxy vote. Where conflicts of interest may be present, Stellus Capital Management will disclose such conflicts to us, including our
independent directors, and may request guidance from us on how to vote such proxies.

Proxy Voting Records. You may obtain information about how Stellus Capital Management voted proxies by making a written

request for proxy voting information to: Stellus Capital Investment Corporation, Attention: Investor Relations, 4400 Post Oak
Parkway, Suite 2200, Houston, TX 77027, or by calling us collect at (713) 292-5414. The SEC also maintains a website at
www.sec.gov that contains this information.

Privacy Principles

We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The
following information is provided to help you understand what personal information we collect, how we protect that information and
why, in certain cases, we may share information with select other parties.

Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public
personal information of our stockholders may become available to us. We do not disclose any non-public personal information about
our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder
accounts (for example, to a transfer agent or third-party administrator).

We restrict access to non-public personal information about our stockholders to employees of Stellus Capital Management and its

affiliates with a legitimate business need for the information. We intend to maintain physical, electronic and procedural safeguards
designed to protect the non-public personal information of our stockholders.

Other

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny
and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our
stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct
of such person’s office.

We and Stellus Capital Management are each required to adopt and implement written policies and procedures reasonably
designed to prevent violation of relevant federal securities laws, review these policies and procedures annually for their adequacy and
the effectiveness of their implementation, and designate a Chief Compliance Officer to be responsible for administering the policies
and procedures.

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Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly held

companies and their insiders. Many of these requirements affect us. For example:

●

●

●

●

pursuant to Rule 13a-14 under the Exchange Act, our principal executive officer and principal financial officer must certify
the accuracy of the financial statements contained in our periodic reports;

pursuant to Item 307 under Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of
our disclosure controls and procedures;

pursuant to Rule 13a-15 under the Exchange Act, our management must prepare an annual report regarding its assessment
of our internal control over financial reporting; and

pursuant to Item 308 of Regulation S-K and Rule 13a-15 under the Exchange Act, our periodic reports must disclose
whether there were significant changes in our internal controls over financial reporting or in other factors that could
significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Taxation as a Regulated Investment Company

As a BDC, we have elected, qualified, and intend to continue to qualify annually to be treated as a RIC under Subchapter M of
the Code. As a RIC, we generally will not be subject to U.S. federal income tax on any net ordinary income or capital gains that we
timely distribute to our stockholders as dividends. To continue to maintain our qualification as a RIC, we must, among other things,
meet certain source-of-income and asset diversification requirements (as described below). In addition, to maintain our RIC treatment,
we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is
generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital
losses (the “Annual Distribution Requirement”).

For any taxable year in which we:

●

●

qualify as a RIC; and

satisfy the Annual Distribution Requirement;

we will not be subject to U.S. federal income tax on the portion of our income we timely distribute to stockholders. We will be
subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed)
to our stockholders.

We will be subject to a 4% nondeductible U.S. federal excise tax on our undistributed income unless we distribute in a timely
manner an amount at least equal to the sum of (a) 98% of our net ordinary income for each calendar year, (b) 98.2% of our capital
gain net income for the one-year period ending December 31, and (c) any income and capital gain net income that we recognized in
preceding years, but were not distributed during such years and on which we paid no U.S. federal income tax (the “Excise Tax
Avoidance Requirement”). For this purpose, however, any net ordinary income or capital gain net income retained by us that is
subject to U.S. federal income tax for the tax year ending in that calendar year will be considered to have been distributed by year end
(or earlier if estimated taxes are paid). In order to qualify 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 year;

derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of stock or other securities, or other income derived with respect to

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our business of investing in such stock or securities, and net income derived from interests in “qualified publicly traded
partnerships” (which generally are partnerships that are traded on an established securities market or tradable on a secondary
market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income)
(the “90% Income Test”); and

●

diversify our holdings so that at the end of each quarter of the taxable year:

o

o

at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of
other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the
value of our assets or more than 10% of the outstanding voting securities of the issuer; and

no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. government securities
or securities of other RICs, of one issuer, (ii) the securities, other than securities of other RICs, of two or more
issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or
similar or related trades or businesses, or (iii) the securities of one or more qualified publicly traded partnerships
(the “Diversification Tests”).

We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state,

local or foreign income, franchise or withholding tax liabilities.

We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt

obligations that are treated under applicable tax rules as having OID (such as debt instruments with PIK interest or, in certain cases,
with increasing interest rates or issued with warrants), we must include in income each year a portion of the OID that accrues over the
life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any
OID accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a
distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any
corresponding cash amount. If we are not able to obtain sufficient cash from other sources to satisfy the Annual Distribution
Requirement, we may fail to maintain our tax treatment as a RIC and become subject to corporate-level U.S. federal income taxes on
all of our taxable income without the benefit of the dividends-paid deduction.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy (i) the
Annual Distribution Requirement and to otherwise eliminate our liability for U.S. federal income and excise taxes and/or (ii) the
Diversification Tests. However, under the 1940 Act, we are not permitted in certain circumstances to make distributions to our
stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See
“Item 1. Business Regulation as a Business Development Company — Senior Securities” in this Annual Report on Form 10-K.
Moreover, our ability to dispose of assets to meet the Annual Distribution Requirement, the Excise Tax Avoidance Requirement or
the Diversification Tests may be limited by (a) the illiquid nature of our portfolio and/or (b) other requirements relating to our
qualifications as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution
Requirement, the Excise Tax Avoidance Requirement or the Diversification Tests, we may make such dispositions at times that, from
an investment standpoint, are not advantageous.

In addition, we have formed and operate two SBIC subsidiaries, and are partially dependent on the SBIC subsidiaries for cash

distributions to enable us to meet the RIC distribution requirement. The SBIC subsidiaries may be limited by the Small Business
Investment Act of 1958, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to
maintain our tax treatment as a RIC. We may have to request a waiver of the SBA’s restrictions for the SBIC subsidiaries to make
certain distributions to maintain our RIC tax treatment. We cannot assure you that the SBA will grant such waiver. If the SBIC
subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may cause us to fail to maintain our tax treatment as
a RIC, which would result in us becoming subject to U.S. federal income tax.

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Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among

other things, (a) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (b) treat
dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment,
(c) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (d) convert lower-taxed long term capital gain
into higher-taxed short-term capital gain or ordinary income, (e) convert an ordinary loss or a deduction into a capital loss (the
deductibility of which is more limited), (f) cause us to recognize income or gain without a corresponding receipt of cash,
(g) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (h) adversely alter the
characterization of certain complex financial transactions and (i) produce income that will not be qualifying income for purposes of
the 90% Income Test. We intend to monitor our transactions and may make certain tax elections to mitigate the effect of these
provisions and prevent our disqualification as a RIC.

Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally
will be treated as capital gain or loss. Such capital gain or loss generally will be long term or short term, depending on how long we
held a particular warrant. Some of the income and fees that we may recognize will not satisfy the 90% Income Test. In order to ensure
that such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may hold assets that generate
such income and provide services that generate such fees indirectly through one or more entities treated as corporations for U.S.
federal income tax purposes. Such corporations will be required to pay U.S. federal income tax at corporate rates on their earnings,
which ultimately will reduce our return on such income and fees.

If we are unable to qualify for tax treatment as a RIC, and if certain remedial provisions are not available, we would be subject to

U.S. federal income tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to
stockholders, nor would they be required to be made. Subject to certain limitations under the Code, corporate stockholders would be
eligible to claim a dividends received deduction with respect to such distributions, non-corporate stockholders would be able to treat
such dividend income as “qualified dividend income,” which is subject to reduced rates of U.S. federal income tax. Distributions in
excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the
stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC for a
period greater than two taxable years, to requalify as a RIC in a subsequent year we may be subject to regular corporate tax on any net
built-in gains with respect to certain of our assets (i.e. the excess of the aggregate gains, including items of income, over aggregate
losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on
requalification or when recognized over the next five years.

Our Status as an Emerging Growth Company

We ceased to qualify as an “emerging growth company” beginning January 1, 2017.

NYSE Corporate Governance Regulations

NYSE has adopted corporate governance regulations that listed companies must comply with. We are in compliance with such

corporate governance listing standards applicable to BDCs.

Regulation as a Small Business Investment Company

Our wholly owned subsidiaries’ SBIC licenses allow them to incur leverage by issuing SBA-guaranteed debentures, subject to
customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and
a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be
prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-
driven spread over U.S. Treasury Notes with ten-year maturities.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs
may make loans to eligible small businesses and invest in the equity securities of small businesses. Under present SBA regulations,
eligible small businesses (together with their affiliates) include businesses that have a

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tangible net worth not exceeding $24.0 million and have average annual net income after U.S federal income taxes not exceeding
$8.0 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In
addition, an SBIC must devote 25% of its investment activity to “smaller enterprises,” as defined by the SBA. A smaller enterprise is
a business (together with its affiliates) that has a net worth not exceeding $6 million and has average annual net income after U.S.
federal income taxes not exceeding $2 million (average net income to be computed without benefit of any carryover loss) for the two
most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility of a small business or a
smaller enterprise, which depend on the industry in which the business is engaged and are based on such factors as the number of
employees and gross sales of the business and its affiliates. According to SBA regulations, SBICs may make long-term loans to small
businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.

The SBA generally prohibits an SBIC from providing financing to small businesses with certain characteristics, such as relending

or businesses with the majority of their employees located outside the United States, and business engaged in certain prohibited
industries, such as project finance, real estate, farmland, financial intermediaries or “passive” (i.e. non-operating) businesses. Without
prior SBA approval, an SBIC may not provide financing or a commitment to a small business in an amount equal to more than
approximately 30.0% of the SBIC’s regulatory capital in any one company and its affiliates.

SBA regulations currently limit the amount that an SBIC subsidiary may borrow to a maximum of $175.0 million with at least

$87.5 million in regulatory capital (as defined in the SBA regulations), subject to SBA approval. The maximum leverage available to
a “family” of SBIC funds is $350.0 million, subject to SBA approval. As of December 31, 2023, our SBIC I subsidiary had
$75.0 million in regulatory capital and $150.0 million in SBA-guaranteed debentures outstanding, which approximated their fair
value. As of December 31, 2023, our SBIC II subsidiary had $87.5 million in regulatory capital and $175.0 million in SBA-
guaranteed debentures outstanding. As of December 31, 2023, the estimated fair values of the SBA-guaranteed debentures as
prepared for disclosure purposes was $293.2 million.

We have received exemptive relief from the SEC to permit us to exclude the debt of our SBIC subsidiaries guaranteed by the
SBA from the definition of senior securities in the 150% asset coverage test under the 1940 Act. This allows us increased flexibility
under the 150% asset coverage test by permitting us to borrow up to $325.0 million more (subject to SBA approval) than we would
otherwise be able to absent the receipt of this exemptive relief.

The SBA restricts the ability of SBICs to repurchase their capital stock. The SBA restricts the ability of an SBIC to provide
financing to an “associate,” as defined in the SBA regulations, without prior written approval from the SBA. SBA regulations also
prohibit, without prior SBA approval, a “change of control” or “change in ownership” of an SBIC (as such terms are defined in the
SBA regulations) and require that SBICs invest idle funds in accordance with SBA regulations. In addition, our SBIC subsidiaries
may be limited in their ability to make distributions to us if they do not have sufficient capital, in accordance with SBA regulations.

Our SBIC subsidiaries are subject to regulation and oversight by the SBA, including, among other things, requirements with

respect to maintaining certain minimum financial ratios and other covenants, a periodic examination by an SBA examiner, and the
performance of a financial audit by an independent auditor. Receipt of an SBIC license does not assure that our SBIC subsidiaries
will receive SBA-guaranteed debenture funding, which is dependent upon our SBIC subsidiaries continuing to be in compliance with
SBA regulations and policies. The SBA, as a creditor, will have a superior claim to our SBIC subsidiaries’ assets over our
stockholders in the event we liquidate one or both of our SBIC subsidiaries or the SBA exercises its remedies under the SBA-
guaranteed debentures issued by our SBIC subsidiaries upon an event of default.

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Item 1A.    Risk Factors

RISK FACTORS

Investing in our securities involves a number of significant risks. Before you invest in our securities, you should be aware of

various risks, including those described below. You should carefully consider these risk factors, together with all of the other
information included in this Annual Report on Form 10-K, before you decide whether to make an investment in our securities. The
risks set out below are the principal risks with respect to an investment in our securities generally and with respect to a BDC with
investment objectives, investment policies, capital structures or trading markets similar to ours. However, they may not be the only
risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair
our operations and performance. If any of the following events occur, our business, financial condition, results of operations and
cash flows could be materially and adversely affected. In such case, our net asset value and the trading price of our securities could
decline, and you may lose all or part of your investment.

Risks Relating to our Business and Structure

The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely
affect debt and equity capital markets, which may have a negative impact on our business and operations.

From time to time, capital markets may experience periods of disruption and instability, including during portions of the past four

fiscal years. In addition, between 2008 and 2009, the global capital markets were unstable, as evidenced by periodic disruptions in
liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly
syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and foreign
governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader
financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services
firms in particular. There can be no assurance these market conditions will not continue or worsen in the future, including as a result
of inflation and rising interest rates, the wars in Ukraine and Russia and the Middle East, and health epidemics and pandemics.

Equity capital may be difficult to raise during such periods of adverse or volatile market conditions because, subject to some
limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset
value without first obtaining approval for such issuance from our stockholders and our independent directors.

Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital.

The reappearance of market conditions similar to those experienced during portions of the past three fiscal years and from 2008
through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness
or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt
capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what
we have historically experienced, including the current rising interest rate environment. If we are unable to raise or refinance debt,
then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be
limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.

Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments.
While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation
process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through
its maturity).

Significant changes in the capital markets may adversely affect the pace of our investment activity and economic activity

generally. The illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a
result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them
for liquidity purposes. An inability to raise or access capital, and any required sale of all or a portion of our investments as a result,
could have a material adverse effect on our business, financial condition or results of operations.

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Any public health emergency, including the COVID-19 pandemic and any outbreak of other existing or new epidemic diseases, or
the threat thereof, and the resulting financial and economic market uncertainty, could have a significant adverse impact on us
and the fair value of our investments and our portfolio companies. 

The extent of the impact of any public health emergency, such as the COVID-19 pandemic, on our and our portfolio companies’

operational and financial performance will depend on many factors, including the duration and scope of such public health
emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related
travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and
services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global,
regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted. In addition, our
and our portfolio companies’ operations may be significantly impacted, or even temporarily or permanently halted, as a result of
government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to a public
health emergency, including its potential adverse impact on the health of any of our or our portfolio companies’ personnel. This could
create widespread business continuity issues for us and our portfolio companies. These factors may also cause the valuation of our
investments to differ materially from the values that we may ultimately realize. Our valuations, and particularly valuations of private
investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on
estimates, comparisons and qualitative evaluations of private information.

Any public health emergency, pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the

resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our
investments and our portfolio companies.

We are exposed to risks associated with changes in interest rates.

General interest rate fluctuations may have a negative impact on our investments and our investment returns and, accordingly,

may have a material adverse effect on our investment objective and our net investment income.

Because we borrow money to make investments and may in the future issue additional senior securities, including preferred stock

and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds
and the rate at which we invest those funds. As a result, we can offer no assurance that rising interest rates would not have a material
adverse effect on our net investment income in the event we use debt to finance our investments. In the most recent period of rising
interest rates, our cost of funds has increased, which may reduce our net investment income. Conversely, if interest rates decrease, we
may earn less interest income from investments and our cost of funds will also decrease, to a lesser extent, resulting in lower net
investment income. From time to time, we may also enter into certain hedging transactions to mitigate our exposure to changes in
interest rates. In the past, we have entered into certain hedging transactions to mitigate our exposure to adverse fluctuations in interest
rates, and we may do so again in the future. However, we cannot assure you that such transactions will be successful in mitigating our
exposure to interest rate risk. There can be no assurance that a significant change in market interest rates will not have a material
adverse effect on our net investment income.

Rising interest rates may increase the cost of debt for our underlying portfolio companies, which could adversely impact their
financial performance and ability to meet ongoing obligations to us. Also, an increase in interest rates available to investors could
make an investment in our common stock less attractive if we are not able to pay dividends at a level that provides a similar return,
which could reduce the value of our common stock.

Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of
our portfolio companies.

Certain of our portfolio companies are in industries that have been impacted by inflation. Recent inflationary pressures have
increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our
portfolio companies’ operations. If such portfolio companies are unable to pass any increases in their costs of operations along to their
customers, it could adversely affect their operating results and impact their ability to pay interest and principal on our loans,
particularly if interest rates rise in response to inflation. In addition, any

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projected future decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those
investments. Any decreases in the fair value of our investments could result in future realized or unrealized losses and therefore reduce
our net assets resulting from operations. Additionally, the Federal Reserve has raised, and has indicated its intent to continue raising,
certain benchmark interest rates in an effort to combat inflation. See “—We are exposed to risks associated with changes in interest
rates.”

We are subject to risks related to corporate social responsibility.

Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk
damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate
governance and transparency and considering ESG factors in our investment processes. Adverse incidents with respect to ESG
activities could impact the value of our brand and relationships with investors, all of which could adversely affect our business and
results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect us and our portfolio companies.

We are dependent upon key personnel of Stellus Capital Management for our future success. If Stellus Capital Management were
to lose any of its key personnel, our ability to achieve our investment objective could be significantly harmed. 

We depend on the diligence, skill and network of business contacts of the senior investment professionals of Stellus Capital

Management to achieve our investment objective. Stellus Capital Management’s team of investment professionals evaluates,
negotiates, structures, closes and monitors our investments in accordance with the terms of our Investment Advisory Agreement. We
can offer no assurance, however, that Stellus Capital Management’s investment professionals will continue to provide investment
advice to us.

Stellus Capital Management’s investment committee, which provides oversight over our investment activities, is provided to us

by Stellus Capital Management under the Investment Advisory Agreement. Stellus Capital Management’s investment committee
consists of four members, including Messrs. Ladd, and D’Angelo, each a member of our Board, Mr. Huskinson, Chief Fnancial
Officer and Chief Compliance Officer for us and Stellus Capital Management, and Mr. Davis, a senior investment professional of
Stellus Capital Management. The loss of one or more of the members of Stellus Capital Management’s investment committee may
limit our ability to achieve our investment objective and operate our business. This could have a material adverse effect on our
financial condition, results of operations and cash flows.

Our business model depends to a significant extent upon strong referral relationships. Any inability of Stellus Capital
Management to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities,
could adversely affect our business. 

We depend upon the investment professionals of Stellus Capital Management to maintain their relationships with private equity

sponsors, placement agents, investment banks, management groups and other financial institutions, and we rely to a significant extent
upon these relationships to provide us with potential investment opportunities. If the investment professionals of Stellus Capital
Management fail 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, individuals with whom the investment professionals of Stellus Capital
Management have relationships are not obligated to provide us with investment opportunities, and we can offer no assurance that
these relationships will generate investment opportunities for us in the future.

Our financial condition, results of operations and cash flows will depend on our ability to manage our business effectively. 

Our ability to achieve our investment objective will depend on our ability to manage our business and to grow our investments
and earnings. This will depend, in turn, on Stellus Capital Management’s ability to identify, invest in and monitor portfolio companies
that meet our investment criteria. The achievement of our investment objective on a cost-effective basis will depend upon Stellus
Capital Management’s execution of our investment process, its ability to provide

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competent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms. Stellus Capital
Management’s senior investment professionals will have substantial responsibilities in connection with the management of other
investment funds, accounts and investment vehicles. The personnel of Stellus Capital Management may be called upon to provide
managerial assistance to our portfolio companies. These activities may distract them from sourcing new investment opportunities for
us 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, results of operations and cash flows.

There are significant potential conflicts of interest that could negatively affect our investment returns. 

The members of Stellus Capital Management’s investment committee serve, or may serve, as officers, directors, members, or
principals of entities that operate in the same or a related line of business as we do, or of investment funds, accounts, or investment
vehicles managed by Stellus Capital Management. Similarly, Stellus Capital Management and its affiliates may have other clients
with similar, different or competing investment objectives. In serving in these multiple capacities, they may have obligations to other
clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders. For example,
Stellus Capital Management and its affiliates currently manage private credit funds and another BDC that have investment strategies
that are similar to, overlapping with or identical to our investment strategy, and with which we co-invest. Stellus Capital Management
also provides sub-advisory services to the D. E. Shaw group with respect to a private investment fund and a strategy of a private
multi-strategy investment fund to which the D. E. Shaw group serves as investment adviser that have an investment strategy similar to
our investment strategy.

In addition, there may be times when Stellus Capital Management, members of its investment committee or its other investment

professionals have interests that differ from those of our stockholders, giving rise to a conflict of interest. Although our investment
adviser will endeavor to handle these investment and other decisions in a fair and equitable manner, we and the holders of the shares
of our common stock could be adversely affected by these decisions. Moreover, given the subjective nature of the investment and
other decisions made by our investment adviser on our behalf, we are unable to monitor these potential conflicts of interest between
us and our investment adviser; however, our Board, including the independent directors, reviews conflicts of interest in connection
with its review of the performance of our investment adviser. As a BDC, we may also be prohibited under the 1940 Act from
knowingly participating in certain transactions with our affiliates, including our officers, directors, Stellus Capital Management,
principal underwriters and certain of their affiliates, without the prior approval of the members of our Board who are not interested
persons and, in some cases, prior approval by the SEC through an exemptive order (other than pursuant to current regulatory
guidance).

The senior investment professionals and other investment team members of Stellus Capital Management may, from time to time,
possess material non-public information, limiting our investment discretion. 

The senior investment professionals and other investment team members of Stellus Capital Management, including members of
Stellus Capital Management’s investment committee, may serve as directors of, or in a similar capacity with, portfolio companies in
which we invest, the securities of which are purchased or sold on our behalf. In the event that material non-public information is
obtained with respect to such companies, 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 us.

Our management and incentive fees may induce Stellus Capital Management to incur additional leverage. 

Generally, the management and incentive fees payable by us to Stellus Capital Management may create an incentive for Stellus

Capital Management to use any additional available leverage. For example, the fact that the base management fee that we pay to
Stellus Capital Management is payable based upon our gross assets (which includes any borrowings for investment purposes) may
encourage Stellus Capital Management to use leverage to make additional investments. Such a practice could result in our investing in
more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during
cyclical economic downturns. Under certain circumstances,

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the use of additional leverage may increase the likelihood of our default on our borrowings, which would disfavor holders of our
common stock.

In addition, because the incentive fee on net investment income is calculated as a percentage of our net assets subject to a hurdle,

having additional leverage available may encourage Stellus Capital Management to use leverage to increase the leveraged return on
our investment portfolio. To the extent additional leverage is available at favorable rates, Stellus Capital Management could use
leverage to increase the size of our investment portfolio to generate additional income, which may make it easier to meet the incentive
fee hurdle. As a result, the incentives for Stellus Capital Management to cause us to use additional leverage may be greater.

Our Board is charged with protecting our interests by monitoring how Stellus Capital Management addresses these and other

conflicts of interests associated with its management services and compensation. While our Board is not expected to review or
approve each investment decision, borrowing or incurrence of leverage, our independent directors will periodically review Stellus
Capital Management’s services and fees as well as its portfolio management decisions and portfolio performance. In connection with
these reviews, our independent directors will consider whether our fees and expenses (including those related to leverage) remain
appropriate.

Our incentive fee may induce Stellus Capital Management to make speculative investments. 

We pay Stellus Capital Management an incentive fee based, in part, upon net capital gains realized on our investments. Unlike
that portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net
capital gains. Additionally, under the incentive fee structure, Stellus Capital Management may benefit when capital gains are
recognized and, because Stellus Capital Management will determine when to sell a holding, Stellus Capital Management will control
the timing of the recognition of such capital gains. As a result, Stellus Capital Management may have a tendency to invest more
capital in investments that are likely to result in capital gains as compared to income-producing securities. Such a practice could result
in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses,
particularly during economic downturns.

We may be obligated to pay Stellus Capital Management incentive compensation even if we incur a loss and may pay more than
20.0% of our net capital gains because we cannot recover payments made in previous years. 

Stellus Capital Management is entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the

excess of our investment income for that quarter (before deducting incentive compensation) above a threshold return for that quarter
and subject to a total return requirement. The general effect of this total return requirement is to prevent payment of the foregoing
incentive compensation except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then
current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar
quarters. Consequently, we may pay an incentive fee if we incurred losses more than three years prior to the current calendar quarter
even if such losses have not yet been recovered in full. Thus, we may be required to pay Stellus Capital Management incentive
compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. If we pay
an incentive fee of 20.0% of our realized capital gains (net of all realized capital losses and unrealized capital depreciation on a
cumulative basis) and thereafter experience additional realized capital losses or unrealized capital depreciation, we will not be able to
recover any portion of the incentive fee previously paid.

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 make. We compete with public and private funds,

commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing,
private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical
and marketing resources than we do. For example, we believe 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 risk tolerances or different risk assessments, which could
allow them to consider a wider variety of

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investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory
restrictions that the 1940 Act imposes on us as a BDC or the source-of-income, asset diversification and distribution requirements we
must satisfy to maintain our RIC qualification. The competitive pressures we face may have a material adverse effect on our business,
financial condition, results of operations and cash flows. 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 be able to identify and make investments that are consistent
with our investment objective.

With respect to the investments we make, we do not seek to compete based primarily on the interest rates we offer, and we

believe that some of our competitors may make loans with interest rates that are lower than the rates we offer. With respect to all
investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However,
if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and
increased risk of credit loss. We may also compete for investment opportunities with investment funds, accounts and investment
vehicles managed by Stellus Capital Management. Although Stellus Capital Management will allocate opportunities in accordance
with its policies and procedures, allocations to such investment funds, accounts and investment vehicles will reduce the amount and
frequency of opportunities available to us and may not be in the best interests of us and our stockholders.

Our investments in the business services industry are subject to unique risks relating to technological developments, regulatory
changes and changes in customer preferences. 

Our investments in portfolio companies that operate in the business services industry represent 23.78% of our total portfolio as of
December 31, 2023. Our investments in portfolio companies in the business services sector include those that provide services related
to data and information, building, cleaning and maintenance services, and energy efficiency services. Portfolio companies in the
business services sector are subject to many risks, including the negative impact of regulation, changing technology, a competitive
marketplace and difficulty in obtaining financing. Portfolio companies in the business services industry must respond quickly to
technological changes and understand the impact of these changes on customers’ preferences. Adverse economic, business, or
regulatory developments affecting the business services sector could have a negative impact on the value of our investments in
portfolio companies operating in this industry, and therefore could negatively impact our business and results of operations.

We may be subject to risks associated with our investments in the healthcare industry. 

Our investments in portfolio companies that operate in the healthcare & pharmaceuticals industry represent 11.77% of our total
portfolio as of December 31, 2023. Any of our portfolio companies operating in the healthcare information and services industry are
subject to extensive government regulation and certain other risks particular to that industry. As part of our investment strategy, we
plan to invest in companies in the healthcare information and services industry. Such portfolio companies provide technology to
companies that are subject to extensive regulation, including Medicare and Medicaid payment rules and regulation, the False Claims
Act and federal and state laws regarding the collection, use and disclosure of patient health information and the storage handling and
administration of pharmaceuticals. If any of our portfolio companies or the companies to which they provide such technology fail to
comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect
their operations. Portfolio companies in the healthcare information or services industry are also subject to the risk that changes in
applicable regulations will render their technology obsolete or less desirable in the marketplace.

Portfolio companies in the healthcare information and services industry may also have a limited number of suppliers of necessary

components or a limited number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing
process if they are unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the
operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments
owed to us.

We may be subject to risks associated with our investments in the high tech industry. 

Our investments in portfolio companies that operate in the high tech industry represent 10.52% of our total portfolio as of

December 31, 2023. Any of our portfolio companies operating in the high tech industry are subject to substantial

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risks. The market prices and values of companies operating in the technology industry - including software and consumer and
business services companies - tend to exhibit a greater degree of risk and volatility than other types of investments. These companies
may fall in and out of favor with the public and investors rapidly, which may cause sudden selling and dramatically lower market
prices. These companies also may be affected adversely by changes in technology, consumer and business purchasing patterns, short
product cycles, falling prices and profits, government regulation, lack of standardization or compatibility with existing technologies,
intense competition, aggressive pricing, advances in artificial intelligence and machine learning, dependence on copyright and/or
patent protection and/or obsolete products or services. Certain technology-related companies may face special risks that their products
or services may not prove to be commercially successful. Technology-related companies are also strongly affected by worldwide
scientific or technological developments. As a result, their products may rapidly become obsolete.

Companies in the application software industry, in particular, may also be negatively affected by the decline or fluctuation of
subscription renewal rates for their products and services, which may have an adverse effect on profit margins. Companies in the
systems software industry may be adversely affected by, among other things, actual or perceived security vulnerabilities in their
products and services, which may result in individual or class action lawsuits, state or federal enforcement actions and other
remediation costs.

Such companies are also often subject to governmental regulation and may, therefore, be adversely affected by governmental
policies. In addition, a rising interest rate environment tends to negatively affect technology and technology-related companies. Those
technology or technology-related companies seeking to finance their expansion would have increased borrowing costs, which may
negatively impact their earnings. Technology-related companies are often smaller and less experienced companies and may be
subject to greater risks than larger companies, such as limited product lines, markets and financial and managerial resources. These
risks may be heightened for technology companies in foreign markets.

We will be subject to U.S. federal income tax and may default under our revolving Credit Facility if we are unable to maintain our
tax treatment as a RIC under Subchapter M of the Code. 

To maintain our tax treatment as a RIC under Subchapter M of the Code, we must meet certain source-of-income, asset

diversification and distribution requirements. The distribution requirement for a RIC generally is satisfied if we 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 our stockholders on an
annual basis. Because we incur debt, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial
covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to
maintain our tax treatment as a RIC. If we are unable to obtain cash from other sources, we may fail to maintain our tax treatment as a
RIC and, thus, may be subject to corporate-level income tax. To maintain our tax treatment 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 our tax treatment as a RIC. Because most of our investments are in private
or thinly-traded public companies, any such dispositions may be made at disadvantageous prices and may result in substantial losses.
No certainty can be provided, that we will satisfy the asset diversification requirements or the other requirements necessary to
maintain our tax treatment as a RIC. If we fail to maintain our tax treatment as a RIC for any reason and become subject to U.S.
federal income tax, the resulting taxes could substantially reduce our net assets, the amount of income available for distributions to
our stockholders and the amount of funds available for new investments. Furthermore, if we fail to maintain our tax treatment as a
RIC, we may be in default under the terms of our amended and restated senior secured revolving credit agreement with certain
lenders party thereto and Zions Bancorporation, N.A. dba Amegy Bank, as administrative agent (as amended from time to time, the
“Credit Facility”). Such a failure could have a material adverse effect on us and our stockholders.

Legislative or regulatory tax changes could have an adverse impact on us and our stockholders.

At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may
be amended. The Biden Administration has announced a number of tax law proposals, including American Families Plan and Made in
America Tax Plan, which include increases in the corporate and individual tax rates, and impose a minimum tax on book income and
profits of certain multinational corporations. Any new laws,

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regulations or interpretations may take effect retroactively and could adversely affect the taxation of us or our stockholders.
Therefore, changes in tax laws, regulations or administrative interpretations or any amendments thereto could diminish the value of an
investment in our shares or the value or the resale potential of our investments.

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 include in income certain amounts that we have not yet received in cash, such as the
accrual of OID. This may arise if we receive warrants in connection with the making of a loan and in other circumstances, or through
contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such OID,
which could be significant relative to our overall investment activities, and increases in loan balances as a result of contracted PIK
arrangements are included in income before we receive any corresponding cash payments. We also may be required to include in
income certain other amounts that we will not receive in cash.

Since in certain cases we may recognize income before or without receiving cash representing such income, we may have
difficulty meeting the requirement 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 maintain our tax treatment as a RIC. In such a case, we may have to sell some of our
investments at times we would not consider advantageous or raise additional debt or equity capital or reduce new investment
originations to meet these distribution requirements. If we are not able to obtain such cash from other sources, we may fail to maintain
our tax treatment as a RIC and thus be subject to income tax.

We may in the future choose to pay dividends in our own common stock, in which case you may be required to pay tax in excess of
the cash you receive. 

We currently expect to be treated as a publicly offered RIC, although there can be no assurance that we will in fact so qualify for

any of our taxable years, and we may distribute taxable dividends that are payable in part in our common stock. In accordance with
certain applicable Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may
treat a distribution of its own stock as fulfilling the RIC distribution requirements if each stockholder may elect to receive his or her
entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all
stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash
available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid
in stock). In no event will any stockholder, electing to receive cash, receive less than the lesser of (a) the portion of the distribution
such stockholder has elected to receive in cash or (b) an amount equal to his or her entire distribution times the percentage limitation
on cash available for distribution. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of
the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. Taxable stockholders
receiving such dividends will be required to include the amount of the dividends as ordinary income (or as long-term capital gain to
the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and
profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends
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, the sales proceeds
may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at
the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such
dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant
number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put
downward pressure on the trading price of our common stock.

PIK interest payments we receive will increase our assets under management and, as a result, will increase the amount of base
management fees and incentive fees payable by us to Stellus Capital Management. 

Certain of our debt investments may contain provisions providing for the payment of PIK interest. Because PIK interest results in

an increase in the size of the loan balance of the underlying loan, the receipt by us of PIK interest will have the effect of increasing
our assets under management. As a result, because the base management fee that we pay to

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Stellus Capital Management is based on the value of our gross assets, the receipt by us of PIK interest will result in an increase in the
amount of the base management fee payable by us. In addition, any such increase in a loan balance due to the receipt of PIK interest
will cause such loan to accrue interest on the higher loan balance, which will result in an increase in our pre-incentive fee net
investment income and, as a result, an increase in incentive fees that are payable by us to Stellus Capital Management.

Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC,
the necessity of raising additional capital may 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 that has satisfied certain requirements to issue senior securities in amounts such that our asset coverage ratio,
as defined in the 1940 Act, equals at least 150% of our gross assets less all liabilities and indebtedness not represented by senior
securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that
happens, we would not be able to borrow additional funds until we were able to comply with the 150% asset coverage ratio applicable
to us under the 1940 Act. Also, any amounts that we use to service our indebtedness would not be available for distributions to our
common stockholders. If we issue senior securities, we will be exposed to typical risks associated with leverage, including an
increased risk of loss.

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 then-current net asset value per share
of our common stock if our Board determines that such sale is in our best interests, and if our stockholders approve such sale. A
proposal, approved by our stockholders at our 2023 annual stockholders meeting, authorizes us to sell shares equal to up to 25% of
our outstanding common stock below the then current net asset value per share of our common stock in one or more offerings. This
approval will expire on the earlier of our 2024 annual stockholder meeting or June 22, 2024, the one-year anniversary of our 2023
annual stockholders meeting. The proposal approved by our stockholders did not specify a maximum discount below net asset value
at which we are able to issue our common stock, although the number of shares sold in each offering may not exceed 25% of our
outstanding common stock immediately prior to such sale. We would need similar future approval from our stockholders to issue
shares below the then current net asset value per share any time after the expiration of the current approval. In addition, we intend to
distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs
under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments, to make additional
investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In
addition, 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 these investments, we may realize significantly less than their recorded value. In addition, we cannot issue shares of
our common stock below net asset value unless our Board determines that it would be in our and our stockholders’ best interests to do
so. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of
reducing our net asset value per share and may reduce our market price per share. In addition, continuous sales of common stock
below net asset value may have a negative impact on total returns and could have a negative impact on the market price of our shares
of common stock. If we raise additional funds by issuing common stock, then the percentage ownership of our stockholders at that
time will decrease, and you may experience dilution.

Because we finance our investments with borrowed money, the potential for gain or loss on amounts invested in us is magnified
and may increase the risk of investing in us. 

The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a

speculative investment technique and increases the risks associated with investing in our securities. If we continue to use leverage to
partially finance our investments through banks, insurance companies and other lenders, you will experience increased risks of
investing in our common stock. Lenders of these funds have fixed dollar claims on our assets that are superior to the claims of our
common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. We, through
our SBIC subsidiaries, intend to issue debt securities guaranteed

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by the SBA and sold in the capital markets. Upon any such issuance of debt securities and as a result of its guarantee of the debt
securities, if any, the SBA would also have fixed dollar claims on the assets of our SBIC subsidiaries that are superior to the claims of
our common stockholders.

If we are unable to meet the financial obligations under our 4.875% notes due 2026 or (the “2026 Notes”), as issued on January

14, 2021, or the Credit Facility, the SBA, as a creditor, has a superior claim to the assets of our SBIC subsidiaries over our
stockholders in the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us. In
addition, under the terms of the Credit Facility and any borrowing facility or other debt instrument we may enter into, we are likely to
be required 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 applying such net proceeds to any other uses. If the value of our assets decreases, leveraging would cause net asset
value to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our stake
in a leveraged investment. 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 distributions with respect to our
common stock. Our ability to service any debt depends largely on our financial performance and is subject to prevailing economic
conditions and competitive pressures. Moreover, as the base management fee payable to Stellus Capital Management is payable
based on the value of our gross assets, including those assets acquired through the use of leverage, Stellus Capital Management will
have a financial incentive to incur leverage, which may not be consistent with our stockholders’ interests. In addition, our common
stockholders bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any
increase in the base management fee payable to Stellus Capital Management.

As a BDC that has satisfied certain requirements under the 1940 Act, we generally are required to meet a coverage ratio of total
assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue
in the future, of at least 150%. If this ratio declines below 150%, we will not be able to incur additional debt until we are able to
comply with the 150% asset coverage ratio applicable to us under the 1940 Act. This could have a material adverse effect on our
operations, and we may not be able to make distributions. The amount of leverage that we employ will depend on Stellus Capital
Management’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you
that we will be able to obtain credit at all or on terms acceptable to us.

We have received exemptive relief from the SEC to permit us to exclude the debt of our SBIC subsidiaries guaranteed by the
SBA from the definition of senior securities in the 150% asset coverage ratio that we are required to maintain under the 1940 Act.
This relief allows us increased flexibility under the 150% asset coverage test by allowing us to borrow up to $325 million more
through our SBIC subsidiaries than we would otherwise be able to borrow absent the receipt of this exemptive relief.

In addition, our debt facilities may impose financial and operating covenants that restrict our business activities, including
limitations that hinder our ability to finance additional loans and investments or to make the distributions required to maintain our
qualification as a RIC under the Code.

Substantially all of our assets are subject to security interests under the Credit Facility or claims of the SBA with respect to SBA-
guaranteed debentures we issue and, if we default on our obligations thereunder, we may suffer adverse consequences, including
foreclosure on our assets. 

As of December 31, 2023, substantially all of our assets were pledged as collateral under the Credit Facility or are subject to a
superior claim over the holders of our common stock by the SBA pursuant to the SBA-guaranteed debentures. If we default on our
obligations under the Credit Facility or the SBA-guaranteed debentures, the lenders and/or the SBA may have the right to foreclose
upon and sell, or otherwise transfer, the collateral subject to their security interests or their superior claim. In such event, we may be
forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure, and these forced sales
may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of our company could significantly
impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be
forced to

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curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid to our stockholders.

In addition, if the lenders exercise their right to sell the assets pledged under the Credit Facility, such sales may be completed at
distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts
outstanding under the Credit Facility.

Provisions in the Credit Facility or any other future borrowing facility may limit our discretion in operating our business. 

The Credit Facility is, and any future borrowing facility may be, backed by all or a portion of our loans and securities on which

the lenders will or, in the case of a future facility, may have a security interest. We may pledge up to 100% of our assets and may
grant a security interest in all of our assets under the terms of any debt instrument we enter into with lenders. We expect that any
security interests we grant will be set forth in a guarantee and security agreement and evidenced by the filing of financing statements
by the agent for the lenders. In addition, we expect that the custodian for our securities serving as collateral for such loan would
include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an
event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the
lender or its designee. If we were to default under the terms of any debt instrument, the agent for the applicable lenders would be able
to assume control of the timing of disposition of any or all of our assets securing such debt, which would have a material adverse
effect on our business, financial condition, results of operations and cash flows.

In addition, any security interests as well as negative covenants under the Credit Facility or any other borrowing facility may
limit our ability to incur additional liens or debt and may make it difficult for us to restructure or refinance indebtedness at or prior to
maturity or obtain additional debt or equity financing. For example, under the terms of the Credit Facility, we have generally agreed
to not incur any additional secured indebtedness, other than certain indebtedness that we may incur, in accordance with the Credit
Facility, to allow us to purchase investments in U.S. Treasury Bills. In addition, we have agreed not to incur any additional
indebtedness that has a maturity date prior to the maturity date of the Credit Facility. Further, if our borrowing base under the Credit
Facility or any other borrowing facility were to decrease, we would be required to secure additional assets in an amount equal to any
borrowing base deficiency. In the event that all of our assets are secured at the time of such a borrowing base deficiency, we could be
required to repay advances under the Credit Facility or any other borrowing facility or make deposits to a collection account, either of
which could have a material adverse impact on our ability to fund future investments and to make stockholder distributions.

In addition, under the Credit Facility or any other borrowing facility, we may be subject to limitations as to how borrowed funds

may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status,
average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of
funding that may be obtained. There may also be certain requirements relating to portfolio performance, including required minimum
portfolio yield and limitations on delinquencies and charge-offs, a violation of which could limit further advances and, in some cases,
result in an event of default. Furthermore, we expect that the terms of the Credit Facility will contain a covenant requiring us to
maintain compliance with RIC provisions at all times, subject to certain remedial provisions. Thus, a failure to maintain compliance
with RIC provisions could result in an event of default under the Credit Facility. An event of default under the Credit Facility or any
other borrowing facility could result in an accelerated maturity date for all amounts outstanding thereunder, which could have a
material adverse effect on our business and financial condition. This could reduce our revenues and, by delaying any cash payment
allowed to us under the Credit Facility or any other borrowing facility until the lenders have been paid in full, reduce our liquidity and
cash flow and impair our ability to grow our business and maintain our qualification as a RIC.

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Because we use debt to finance our investments and may in the future issue senior securities including preferred stock and debt
securities, if market interest rates were to increase, our cost of capital could increase, which could reduce our net investment
income.

Because we borrow money to make investments and may in the future issue additional senior securities including preferred stock

and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds
and the rate at which we invests those funds. As a result, we can offer no assurance that a significant change in market interest rates
would not have a material adverse effect on our net investment income in the event we use debt to finance our investments. In periods
of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We may use interest rate risk
management techniques in an effort to limit our exposure to interest rate fluctuations. We may utilize instruments such as forward
contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values
of our portfolio positions from changes in currency exchange rates and market interest rates to the extent permitted by the 1940 Act.

Adverse developments in the credit markets may impair our ability to enter into any other future borrowing facility. 

In past economic downturns, such as the financial crisis in the United States that began in mid-2007 and during other times
of extreme market volatility, many commercial banks and other financial institutions stopped lending or significantly curtailed their
lending activity. In addition, in an effort to stem losses and reduce their exposure to segments of the economy deemed to be high risk,
some financial institutions limited routine refinancing and loan modification transactions and even reviewed the terms of existing
facilities to identify bases for accelerating the maturity of existing lending facilities. If these conditions recur, for example as a result
of the COVID-19 pandemic, it may be difficult for us to obtain desired financing to finance the growth of our investments on
acceptable economic terms, or at all.

If we are unable to consummate credit facilities on commercially reasonable terms, our liquidity may be reduced
significantly. If we are unable to repay 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 would limit our ability to initiate significant originations or to operate our business in
the normal course. These situations may arise due to circumstances that we may 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 an operational problem that affects
third parties or us, and could materially damage our business. Moreover, we are unable to predict when economic and market
conditions may become more favorable. Even if such conditions improve broadly and significantly over the long term, adverse
conditions in particular sectors of the financial markets could adversely impact our business.

Most of our portfolio investments are recorded at fair value as determined in good faith by our Board and, as a result, there may
be uncertainty as to the value of our portfolio investments. 

Most of our portfolio investments will take the form of securities that are not publicly traded. The fair value of loans, securities
and other investments that are not publicly traded may not be readily determinable, and we value these investments at fair value as
determined in good faith by our Board, including to reflect significant events affecting the value of our investments. Most, if not all, of
our investments (other than cash and cash equivalents) are classified as Level 3 under ASC Topic 820. This means that our portfolio
valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability
in question. Inputs into the determination of fair value of our portfolio investments require significant management judgment or
estimation. Even if observable market data is available, such information may be the result of consensus pricing information or broker
quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature
of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We have
retained the services of independent service providers to review the valuation of these loans and securities. The types of factors that
Board may take into account in determining the fair value of our investments generally include, as appropriate, comparison to
publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio
company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and
discounted cash flow, the markets in which the portfolio company does business and

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other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently
uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ
materially from the values that would have been used if a ready market for these loans and securities existed. Our net asset value
could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values
that we ultimately realize upon the disposal of such loans and securities.

We adjust quarterly the valuation of our portfolio to reflect our Board’s determination of the fair value of each investment in our

portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized appreciation or
depreciation.

We may expose ourselves to risks if we engage in hedging transactions. 

We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to
hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest
rates. Use of these hedging instruments may expose us to counter-party credit risk. Hedging against a decline in the values of our
portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of
such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby
offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the
values of the portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate
fluctuation that is generally anticipated at an acceptable price.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our
financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting,
which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with

adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any
testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act may reveal deficiencies in our internal controls
over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our
consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also
cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our
common stock.

We incur significant costs as a result of being a publicly traded company. 

As a publicly traded company, we incur legal, accounting, investor relations and other expenses, including costs associated with
corporate governance requirements, such as those under the Sarbanes-Oxley Act, other rules implemented by the SEC and the listing
standards of the NYSE. These costs may be significant, and thus may reduce the amount of funds we have available to deploy as
investments, reducing our efficiency and potentially hampering our business, financial condition, and results of operations.

We are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis of
our internal control over financial reporting in a timely manner, or our internal controls may not be determined to be effective,
which may adversely affect investor confidence in our company and, as a result, the value of our securities. 

Complying with Section 404 of the Sarbanes-Oxley Act requires a rigorous compliance program as well as adequate time and

resources. We may not be able to complete our internal control evaluation, testing and any required remediation in a timely fashion.
Additionally, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to
assert that our internal controls are effective. If we

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are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy
and completeness of our financial reports, which would have a material adverse effect on the price of our securities.

We are required to disclose changes made in our internal control and procedures on a quarterly basis and our management is
required to assess the effectiveness of these controls annually. Undetected material weaknesses in our internal controls could lead to
financial statement restatements and require us to incur the expense of remediation.

As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act. 

We are a non-accelerated filer under the Exchange Act and, therefore, we are not required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act. Therefore, our internal controls over financial reporting will not receive
the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to
the auditor attestation requirements. In addition, we cannot predict if investors will find our common stock less attractive because we
are not required to comply with the auditor attestation requirements. If some investors find our common stock less attractive as a
result, there may be a less active trading market for our common stock and trading price for our common stock may be negatively
affected.

We and our portfolio companies may be subjected to potential adverse effects of new or modified laws or regulations.

We and our portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws
and regulations, as well as their interpretation, are likely to change from time to time, and new laws and regulations may be enacted.
Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any
failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of the our or our
portfolio companies’ business practices, negatively impact our or our portfolio companies’ operations, cash flows or financial
condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our
portfolio companies. In addition to the legal, tax and regulatory changes that are expected to occur, there may be unanticipated
changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including
derivative instruments) is continuously evolving.

Over the last several years, there also 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 regulation.
While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of
non-bank credit extension could negatively impact the our operations, cash flows or financial condition, impose additional costs on 
us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.  

Legislative or other actions relating to taxes could have a negative effect on us. 

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process

and by the IRS and the U.S. Treasury Department. New legislation and any U.S. Treasury regulations, administrative interpretations
or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a
RIC or the U.S. federal income tax consequences to us and our investors of such qualification, or could have other adverse
consequences. Investors are urged to consult with their tax advisor regarding tax legislative, regulatory or administrative
developments and proposals and their potential effect on an investment in our securities.

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Any failure to comply with SBA regulations could have an adverse effect on our SBIC subsidiaries’ operations. 

On June 20, 2014 and August 14, 2019, our wholly owned subsidiaries, SBIC I and SBIC II, respectively, received licenses from

the SBA to operate as SBICs. The SBA places certain limitations on the financing terms of investments by SBICs in portfolio
companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance
with SBIC requirements may cause our SBIC subsidiaries to forgo attractive investment opportunities that are not permitted under
SBA regulations.

Further, SBA regulations require that an SBIC be examined by the SBA to determine its compliance with the relevant SBA
regulations at least every two years. The SBA prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers
that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of an SBIC. If
either of our SBIC subsidiaries fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the
violation, limit or prohibit its use of debentures, declare outstanding debentures immediately due and payable, and/or limit it from
making new investments. In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or
repeated failure to observe, any provision 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 our SBIC subsidiaries are our wholly owned
subsidiaries.

Risks Related to Our Operations

Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a RIC, we
will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on favorable
terms, our ability to grow may be impaired. 

We will need additional capital to fund new investments and grow our portfolio of investments. We intend to access the capital
markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital.
Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by
lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition, we are
required 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 our stockholders to maintain our qualification as a RIC. As a result, these earnings will not be available to fund new
investments. An inability on our part to access the capital markets successfully could limit our ability to grow our business and
execute our business strategy fully and could decrease our earnings, if any, which would have an adverse effect on the value of our
shares of common stock.

As a BDC that has satisfied certain conditions under the 1940 Act, we are required to meet a coverage ratio of total assets, less
liabilities and indebtedness not represented by senior securities and excluding SBA-guaranteed debentures as permitted by exemptive
relief obtained from the SEC, to total senior securities, which includes all of our borrowings with the exception of SBA-guaranteed
debentures, of at least 150%. This requirement limits the amount that we may borrow. Since we continue to need capital to grow our
investment portfolio, these limitations may prevent us from incurring debt and require us to raise additional equity at a time when it
may be disadvantageous to do so. While we expect that we will be able to borrow and to issue additional debt securities and expect
that we will be able to issue additional equity securities, which would in turn increase the equity capital available to us, we cannot
assure you that debt and equity financing will be available to us on favorable terms, or at all. In addition, as a BDC, we generally are
not permitted to issue equity securities priced below net asset value without stockholder approval. If additional funds are not available
us, we may be forced to curtail or cease new investment activities, and our net asset value could decline.

Our wholly owned SBIC subsidiaries may be unable to make distributions to us that will enable us to maintain RIC tax treatment,
which could result in the imposition of U.S. federal income tax. 

In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level taxes, we are required to distribute

substantially all of our net ordinary income and net capital gain income, including income

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from certain of our subsidiaries, which includes the income from our SBIC subsidiaries. We are partially dependent on our SBIC
subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Our SBIC subsidiaries may be limited by the
Small Business Investment Act of 1958, and SBA regulations governing SBICs, from making certain distributions to us that may be
necessary to maintain our tax treatment as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC
subsidiaries to make certain distributions to maintain our RIC tax treatment. We cannot assure you that the SBA will grant such
waiver and if our SBIC subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC tax
treatment and a consequent imposition of U.S. federal income on our income.

Our ability to enter into certain transactions with our affiliates is restricted, which may limit the scope of investments available to
us. 

We are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of
our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding
voting securities will be our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security
from or to such affiliate without the prior approval of our independent directors. The 1940 Act also prohibits certain “joint”
transactions with certain of our affiliates, which could include concurrent investments in the same portfolio company, without prior
approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or
to any person that controls us or who owns more than 25% of our voting securities or certain of that person’s affiliates, or entering
into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be
prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company
of a private fund managed by Stellus Capital Management or its affiliates without the prior approval of the SEC, which may limit the
scope of investment opportunities that would otherwise be available to us.

The involvement of our interested directors in the valuation process may create conflicts of interest. 

We make many of our portfolio investments in the form of loans and securities that are not publicly traded and for which no
market-based price quotation is available. As a result, our Board determines the fair value of these loans and securities in good faith as
described elsewhere in this Annual Report on Form 10-K. In connection with that determination, investment professionals from
Stellus Capital Management provide our Board with valuations based upon the most recent portfolio company financial statements
available and projected financial results of each portfolio company. While the valuation for each portfolio investment is reviewed by
an independent valuation firm at least twice annually, the ultimate determination of fair value is made by our Board, including our
interested directors, and not by such third-party valuation firm. In addition, Messrs. Ladd and D’Angelo, each an interested member
of our Board, has a direct pecuniary interest in Stellus Capital Management. The participation of Stellus Capital Management’s
investment professionals in our valuation process, and the pecuniary interest in Stellus Capital Management by certain members of
our Board, could result in a conflict of interest as Stellus Capital Management’s management fee is based, in part, on the value of our
gross assets, and incentive fees are based, in part, on realized gains and realized and unrealized losses.

There are conflicts related to other arrangements with Stellus Capital Management. 

We have entered into a license agreement with Stellus Capital Management under which Stellus Capital Management has agreed
to grant us a non-exclusive, royalty-free license to use the name “Stellus Capital.” In addition, we have entered into an Administration
Agreement with Stellus Capital Management, pursuant to which we are required to pay to Stellus Capital Management our allocable
portion of overhead and other expenses incurred by Stellus Capital Management in performing its obligations under such
Administration Agreement, such as rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance
Officer and his staff. This will create conflicts of interest that our Board will monitor. For example, under the terms of the license
agreement, we will be unable to preclude Stellus Capital Management from licensing or transferring the ownership of the “Stellus
Capital” name to third parties, some of whom may compete against us. Consequently, we will be unable to prevent any damage to
goodwill that may occur as a result of the activities of Stellus Capital

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Management or others. Furthermore, in the event the license agreement is terminated, we will be required to change our name and
cease using “Stellus Capital” as part of our name. Any of these events could disrupt our recognition in the marketplace, damage any
goodwill we may have generated and otherwise harm our business.

The Investment Advisory Agreement and the Administration Agreement with Stellus Capital Management were not negotiated on
an arm’s length basis 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 Stellus Capital Management, may not be as favorable to us as if they had been negotiated with
an unaffiliated third party. In addition, we may choose not to enforce, or to enforce less vigorously, our rights and remedies under
these agreements because of our desire to maintain our ongoing relationship with Stellus Capital Management and its affiliates. Any
such decision, however, would breach our fiduciary obligations to our stockholders.

The time and resources that Stellus Capital Management devote to us may be diverted, and we may face additional competition
due to the fact that Stellus Capital Management and its affiliates are not prohibited from raising money for, or managing, another
entity that makes the same types of investments that we target. 

Stellus Capital Management and some of its affiliates, including our officers and our interested directors, are not prohibited from
raising money for, or managing, another investment entity that makes the same types of investments as those we target. For example,
Stellus Capital Management and/or its affiliates currently manage a private BDC and other private credit funds that have investment
strategies that are similar, overlapping or identical to our investment strategy and with which we co-invest. In addition, pursuant to
sub-advisory arrangements, Stellus Capital Management provides non-discretionary advisory services to the D. E. Shaw group related
to a private investment fund and a strategy of a private multi-strategy investment fund to which the D. E. Shaw group serves as
investment adviser. As a result, the time and resources they could devote to us may be diverted. In addition, we may compete with any
such investment entity for the same investors and investment opportunities.

Our incentive fee arrangements with Stellus Capital Management may vary from those of other investment funds, account or
investment vehicles managed by Stellus Capital Management, which may create an incentive for Stellus Capital Management to
devote time and resources to a higher fee-paying fund. 

If Stellus Capital Management is paid a higher performance-based fee from any of its other funds, it may have an incentive to

devote more research and development or other activities, and/or recommend the allocation of investment opportunities, to such
higher fee-paying fund. For example, to the extent Stellus Capital Management’s incentive compensation is not subject to a hurdle or
total return requirement with respect to another fund, it may have an incentive to devote time and resources to such other fund. Any
such diversion of Stellus Capital Management's time and resources could negatively impact our business, financial condition, or
results.

Stellus Capital Management’s liability is limited under the Investment Advisory Agreement and we have agreed to indemnify
Stellus Capital Management against certain liabilities, which may lead Stellus Capital Management to act in a riskier manner on
our behalf than it would when acting for its own account. 

Under the Investment Advisory Agreement, Stellus Capital Management has not assumed any responsibility to us other than to
render the services called for under that agreement. It will not be responsible for any action of our Board in following or declining to
follow Stellus Capital Management’s advice or recommendations. Under the Investment Advisory Agreement, Stellus Capital
Management, its officers, members and personnel, and any person controlling or controlled by Stellus Capital Management will not
be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or
omissions performed in accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts
constituting gross negligence, willful misfeasance, bad faith or reckless disregard of the duties that Stellus Capital Management owes
to us under the Investment Advisory Agreement. In addition, as part of the Investment Advisory Agreement, we have agreed to
indemnify Stellus Capital Management and each of its officers, directors, members, managers

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and employees 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 taken or omitted on our behalf pursuant to authority
granted by the Investment Advisory Agreement, except where attributable to gross negligence, willful misfeasance, bad faith or
reckless disregard of such person’s duties under the Investment Advisory Agreement. These protections may lead Stellus Capital
Management to act in a riskier manner when acting on our behalf than it would when acting for its own account.

Stellus Capital Management can resign as our investment adviser or administrator upon 60 days’ notice and we may not be able to
find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our
financial condition, business and results of operations. 

Stellus Capital Management has the right under the Investment Advisory Agreement to resign as our investment adviser at any
time upon 60 days’ written notice, whether we have found a replacement or not. Similarly, Stellus Capital Management has the right
under the Administration Agreement to resign at any time upon 60 days’ written notice, whether we have found a replacement or not.
If Stellus Capital Management was to resign, we may not be able to find a new investment adviser or administrator or hire internal
management with similar expertise 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 operations are likely to experience a disruption, our financial condition, business and results of
operations as well as our ability to pay distributions to our stockholders are likely to be adversely affected and the market price of our
shares may decline. In addition, the coordination of our internal management and investment or administrative activities, as
applicable, is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives
having the expertise possessed by Stellus Capital Management. Even if we are able to retain comparable management, whether
internal or external, the integration of such management and their lack of familiarity with our investment objective may result in
additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.

If we fail to maintain our status as a BDC, our business and operating flexibility could be significantly reduced. 

We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of
BDCs. For example, BDCs are required to invest at least 70% of their total assets in specified types of securities, primarily in private
companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt
investments that mature in one year or less. Failure to comply with the requirements imposed on BDCs by the 1940 Act could cause
the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a
majority of our stockholders, we may elect to withdraw their respective election as a BDC. If we decide to withdraw our election, we
may be required to register as an investment company under the 1940 Act and be subject to the substantially greater regulation under
the 1940 Act as a closed-end investment company. Compliance with these regulations would significantly decrease our operating
flexibility and could significantly increase our cost of doing business.

If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to
BDCs or be precluded from investing according 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 total assets 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 from investing in what we believe to be attractive investments if such investments are not qualifying assets for purposes of
the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions
applicable to BDCs. As a result of such violation, specific rules under the 1940 Act could prevent us, for example, from making
follow-on investments in existing portfolio companies (which could result in the dilution of our position).

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If we do not maintain our election to be regulated as a BDC, we would be subject to regulation as a registered closed-end

investment company under the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more
regulatory restrictions under the 1940 Act which would significantly decrease our operating flexibility.

We may experience fluctuations in our annual and quarterly operating results. 

We could experience fluctuations in our annual and quarterly operating results due to a number of factors, including the interest

rate payable on the loans and debt securities we acquire, the default rate on such loans and securities, the level of our expenses,
variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter
competition in our markets and general economic conditions. In light of these factors, results for any period should not be relied upon
as being indicative of performance in future periods.

Our Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval. 

Our Board has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of our operating policies
and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the
nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our
current operating policies and strategies would have on our business, operating results and the market price of our common stock.
Nevertheless, any such changes could adversely affect our business and impair our ability to make distributions to our stockholders.

Our Board is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which
could convey special rights and privileges to its owners. 

Under Maryland General Corporation Law and our charter, our Board is authorized to classify and reclassify any authorized but

unissued shares of stock into one or more classes of stock, including preferred stock. Prior to issuance of shares of each class or series,
the Board will be required by Maryland law and our charter to set the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to stockholder distributions, qualifications and terms or conditions of redemption for each class or series.
Thus, the Board could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common
stock or that otherwise might be in their best interest. The cost of any such reclassification would be borne by our common
stockholders. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred
stock. For example, the 1940 Act provides that holders of preferred stock are entitled to vote separately from holders of common
stock to elect two preferred stock directors. We currently have no plans to issue preferred stock. The issuance of preferred shares
convertible into shares of common stock may also reduce the net income and net asset value per share of our common stock upon
conversion, provided, that we will only be permitted to issue such convertible preferred stock to the extent we comply with the
requirements of Section 61 of the 1940 Act, including obtaining common stockholder approval. These effects, among others, could
have an adverse effect on your investment in our common stock.

Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an
adverse impact on the price of our common stock. 

The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more
difficult a change in control of Stellus Capital Investment Corporation or the removal of our directors. We are subject to the Maryland
Business Combination Act, subject to any applicable requirements of the 1940 Act. Our Board has adopted a resolution exempting
from the Business Combination Act any business combination between us and any other person, subject to prior approval of such
business combination by our Board, including approval by a majority of our independent directors. If the resolution exempting
business combinations is repealed or our Board does not approve a business combination, the Business Combination Act

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may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our
bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our stock by any person. If we amend our bylaws to
repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a
third party to obtain control of us and increase the difficulty of consummating such a transaction.

We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our
charter classifying our Board in three classes serving staggered three-year terms, and authorizing our Board to classify or reclassify
shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, to amend our charter
without stockholder approval and to increase or decrease the number of shares of stock that we have authority to issue. These
provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that
might otherwise be in the best interests of our stockholders.

We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in
turn, negatively affect the market price of our common stock and our ability to make distributions to our stockholders. 

Our business is highly dependent on the communications and information systems of Stellus Capital Management. In addition,
certain of these systems are provided to Stellus Capital Management by third party service providers. Any failure or interruption of
such systems, including as a result of the termination of an agreement with any such third-party service provider, could cause delays
or other problems in our activities. This, in turn, could have a material adverse effect on our operating results and negatively affect the
market price of our common stock and our ability to make distributions to our stockholders.

The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and
management continuity planning could impair our ability to conduct business effectively. 

The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a
natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an
adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This
adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval
systems, or impact the availability, integrity, or confidentiality of our data.

We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of

security measures, our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and
unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering,
malware and computer virus attacks, or system failures and disruptions. If one or more of these events occurs, it could potentially
jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through our computer systems
and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result in financial losses,
litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of
damages and remediation.

Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain

functions and these relationships allow for the storage and processing of our information, as well as customer, counterparty, employee
and borrower information. Cybersecurity failures or breaches by Stellus Capital Management and other service providers (including,
but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also
have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our
ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or
additional compliance costs. While we engage in actions to reduce our exposure

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resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other
cybersecurity incidents, with increased costs and other consequences, including those described above. In addition, substantial costs
may be incurred in order to prevent any cyber incidents in the future.

Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases
due to system changes and the development of new administrative processes. In addition, we may be required to expend significant
additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising
from operational and security risks. We currently do not maintain insurance coverage relating to cybersecurity risks, and we may be
required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities
or other exposures, and we may be subject to litigation and financial losses that are not fully insured.

We, Stellus Capital Management and our portfolio companies are subject to risks associated with “phishing” and other cyber-
attacks.

Our business and the business of our portfolio companies relies upon secure information technology systems for data processing,

storage and reporting. Despite careful security and controls design, implementation and updating, our and our portfolio companies’
information technology systems could become subject to cyber-attacks. Cyber-attacks include, but are not limited to, gaining
unauthorized access to digital systems (e.g., through “hacking”, malicious software coding, social engineering or “phishing”
attempts) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-
attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of service
attacks on websites (i.e., efforts to make network services unavailable to intended users). Stellus Capital Management’s employees
have been and expect to continue to be the target of fraudulent calls, emails and other forms of activities. The result of these incidents
may include disrupted operations, misstated or unreliable financial data, liability for stolen information, misappropriation of assets,
increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, regulatory fines or
penalties, or other adverse effects on our business, financial condition or results of operations. In addition, we may be required to
expend significant additional resources to modify its protective measures and to investigate and remediate vulnerabilities or other
exposures arising from operational and security risks related to cyber-attacks.

Stellus Capital Management’s and other service providers’ increased use of mobile and cloud technologies could heighten the

risk of a cyber-attack as well as other operational risks, as certain aspects of the security of such technologies may be complex,
unpredictable or beyond their control. These service providers’ reliance on mobile or cloud technology or any failure by mobile
technology and cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt their operations
and result in misappropriation, corruption or loss of personal, confidential or proprietary information. In addition, there is a risk that
encryption and other protective measures against cyber-attacks may be circumvented, particularly to the extent that new computing
technologies increase the speed and computing power available.

Risks Related to Economic Conditions

Global economic, political and market conditions may adversely affect our business, financial condition and results of operations,
including our revenue growth and profitability.

The U.S. debt ceiling and budget deficit concerns have raised the possibility of additional credit-rating downgrades and economic

slowdowns in the United States and globally. Legislation passed in June 2023 suspends the debt ceiling through early 2025, unless
Congress takes further legislative action to extend it. Downgrades by rating agencies to the U.S. government’s credit rating or
concerns about its credit and deficit levels in general could cause interest rates and borrowing costs to rise, which may negatively
impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable
terms. In addition, a decreased U.S. government credit rating could create broader financial turmoil and uncertainty, which may
weigh heavily on our financial performance and the value of our common stock.

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Deterioration in the economic conditions in the Eurozone and other regions or countries globally and the resulting instability in

global financial markets may pose a risk to our business. Financial markets have been affected at times by a number of global
macroeconomic events, including the following: large sovereign debts and fiscal deficits of several countries in Europe and in
emerging markets jurisdictions, levels of non-performing loans on the balance sheets of European banks, the effect of the United
Kingdom (the “U.K.”) leaving the European Union (the “EU”), instability in the Chinese capital markets and the COVID-19
pandemic. Global market and economic disruptions have affected, and may in the future affect, the U.S. capital markets, which could
adversely affect our business, financial condition or results of operations. We cannot assure you that market disruptions in Europe
and other regions or countries, including the increased cost of funding for certain governments and financial institutions, will not
impact the global economy, and we cannot assure you that assistance packages will be available, or if available, be sufficient to
stabilize countries and markets in Europe or elsewhere affected by a financial crisis. To the extent uncertainty regarding any
economic recovery in Europe negatively impacts consumer confidence and consumer credit factors, our business, financial condition
and results of operations could be significantly and adversely affected. Moreover, there is a risk of both sector-specific and broad-
based corrections and/or downturns in the equity and credit markets. Any of the foregoing could have a significant impact on the
markets in which we operate and could have a material adverse impact on our business prospects and financial condition.

Various social and political circumstances in the U.S. and around the world (including wars and other forms of conflict,
including rising trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in
the U.S. and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events
such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may also contribute to increased market
volatility and economic uncertainties or deterioration in the U.S. and worldwide. Specifically, the ongoing conflict between Russia
and Ukraine, and the resulting market volatility, could adversely affect our business, financial condition or results of operations. In
response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions
against Russia. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions,
could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the
market value of our common shares and/or debt securities to decline. These market and economic disruptions could also negatively
impact the operating results of our portfolio companies.

Additionally, the Federal Reserve may further raise, or may announce its intention to further raise, the Federal Funds Rate in
2023. These developments, along with the United States government’s credit and deficit concerns, global economic uncertainties and
market volatility and the impacts of COVID-19, could cause interest rates to be volatile, which may negatively impact our ability to
access the debt markets and capital markets on favorable terms.

Increased geopolitical unrest, terrorist attacks, or acts of war may impact the businesses in which we invests, and harm our
business, operating results, and financial conditions.

Terrorist activity and the continued threat of terrorism and acts of civil or international hostility, both within the United States and

abroad, as well as ongoing military and other actions and heightened security measures in response to these types of threats, may
cause significant volatility and declines in the global markets, loss of life, property damage, disruptions to commerce and reduced
economic activity, which may negatively impact the businesses in which we invests directly or indirectly and, in turn, could have a
material adverse impact on the our business, operating results, and financial condition. Losses from terrorist attacks are generally
uninsurable.

Risks Related to our Investments

Our business and our portfolio companies may be susceptible to economic slowdowns or recessions which would harm our
operating results.

Many of the portfolio companies in which we have invested or expect to make investments are likely to be susceptible to
economic slowdowns or recessions, including those resulting from the COVID-19 pandemic, and may be unable to repay our loans
during such periods. Therefore, the number of our non-performing assets is likely to increase, and the value of our portfolio is likely
to decrease during such periods. Adverse economic conditions may decrease the

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value of collateral securing some of our loans and debt securities and the value of our equity investments. Economic slowdowns or
recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic
conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend
credit to us. These events could prevent us from increasing our investments 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 other agreements and
jeopardize our portfolio company’s ability to meet its obligations under the loans and debt securities that we hold. We may incur
expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In
addition, lenders in certain cases can be subject to lender 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 possible that we could become subject to a lender’s 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, a bankruptcy court might re-characterize
our debt holding and subordinate all or a portion of our claim to claims of other creditors, even though we may have structured our
investment as senior secured debt. The likelihood of such a re-characterization would depend on the facts and circumstances,
including the extent to which we provided managerial assistance to that portfolio company.

Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a
decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm business,
financial condition, operating results and prospects.

We may be subject to risks related to bank impairments or failures either directly or through our portfolio companies, which, in
turn, could indirectly impact our performance and results of operations.

In March 2023, the U.S. Federal Deposit Insurance Corporation (“FDIC”) took control of Silicon Valley Bank and Signature
Bank, and in May 2023, the FDIC took control of First Republic Bank due to liquidity concerns. The impairment or failure of one or
more banks with whom we or any of our portfolio companies transact may inhibit our ability or the ability of our portfolio companies
to access depository accounts, including cash and cash equivalents, as well as investment accounts, which, in turn, may directly or
indirectly impact our performance and results of operations. In the event of a bank impairment or failure we may be forced to delay or
forgo investments, and affected portfolio companies may default on their debt obligations to us, either of which would impact our
performance. In the event of such a failure of a banking institution where one or more of our portfolio companies holds depository
accounts, access to such accounts could be restricted and FDIC protection may not be available for balances in excess of amounts
insured by the FDIC. In such instances, we or our affected portfolio companies would not recover such excess, uninsured amounts,
and they may not be able to cure any defaults. Additionally, unfavorable economic conditions also could increase our funding costs,
limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from
increasing our investments and harm business, financial condition, operating results and prospects. We closely monitor activity in the
banking sector as it relates to any of our borrowers and continually assess any potential direct or indirect impact to us as a result of the
same.

Our investments in leveraged portfolio companies may be risky, and we could lose all or part of our investment. 

Investment in leveraged companies involves a number of significant risks. Leveraged companies in which we invest may have

limited financial resources and may be unable to meet their obligations under their loans and debt securities that we hold. Such
developments may be accompanied by a deterioration in the value of any collateralsecuring the investment and/or equity co-
investments we hold and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with
our investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional
capital to support their operations, finance their expansion or maintain their competitive position.

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We may hold the loans and debt securities of leveraged companies that may, due to the significant operating volatility typical of
such companies, enter into bankruptcy proceedings. 

Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of
significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary proceedings
and are beyond the control of the creditors. A bankruptcy filing by a portfolio company may adversely and permanently affect that
company. If the proceeding is converted to a liquidation, the value of the portfolio company may not equal the liquidation value that
was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and a
creditor’s return on investment can be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes
effective. The administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid out of the
debtor’s estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, our
influence with respect 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 different classification and treatment. In the early stages of the bankruptcy process, it is often difficult
to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority
by law (for example, claims for taxes) may be substantial.

Our investments in private and middle-market portfolio companies are risky, and we could lose all or part of our investment. 

Investment in private and middle-market companies involves a number of significant risks. Generally, little public information
exists about these companies, and we rely on the ability of Stellus Capital Management’s investment professionals to obtain adequate
information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information
about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Middle-
market companies may have limited financial resources and may be unable to meet their obligations under their loans and debt
securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood
of our realizing any guarantees we may have obtained in connection with our investment. In addition, such companies typically have
shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more
vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, middle-market
companies are more likely to depend on the management talents and efforts of a small group of persons. Therefore, the death,
disability, resignation or termination of one or more of these persons could have a material adverse impact on one or more of the
portfolio companies we invest in and, in turn, on us. Middle-market companies also may be parties to litigation and may be engaged
in rapidly changing businesses with products subject to a substantial risk of obsolescence. In addition, our executive officers, directors
and Stellus Capital Management may, in the ordinary course of business, be named as defendants in litigation arising from our
investments in portfolio companies, the commencement and duration of which could distract from their roles or service to us and
negatively impact our business.

The lack of liquidity in our investments may adversely affect our business. 

Most of our assets are invested in illiquid loans and securities, and a substantial portion of our investments in leveraged

companies are subject to legal and other restrictions on resale or are otherwise less liquid than more broadly traded public securities.
The illiquidity of these investments may make it difficult for us to sell such investments if the need arises. In addition, if we are
required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have
previously recorded our investments. Also, as noted above, we may be limited or prohibited in our ability to sell or otherwise exit
certain positions in our portfolio, as such a transaction could be considered a joint transaction prohibited by the 1940 Act.

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Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments,
reducing our net asset value through 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 by our Board. As part of the valuation process, our Board may take into account the following types of
factors, if relevant, in determining the fair value of our investments:

●

●

●

●

●

●

●

●

●

●

available current market data, including relevant and applicable market trading and transaction comparables;

applicable market yields and multiples;

security covenants;

call protection provisions;

information rights;

the nature and realizable value of any collateral;

the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does
business;

comparisons of financial ratios of peer companies that are public;

comparable merger and acquisition transactions; and

the principal market and enterprise values.

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing

indicated by the external event to corroborate our valuation. We 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 these factors on our portfolio may reduce our net asset value by increasing
net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may
suffer additional unrealized losses in future periods, which could have a material adverse effect on our business, financial condition,
results of operations and cash flows.

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore, we are not limited with respect
to the proportion of our assets that may be invested in securities of a single issuer.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not
limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. Beyond the
asset diversification requirements associated with our qualification as a RIC under the Code, we do not have fixed guidelines for
diversification. To the extent that we assume large positions in the securities of a small number of issuers or our investments are
concentrated in relatively few industries, our net asset value may fluctuate to a greater extent than that of a diversified investment
company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible
to any single economic or regulatory occurrence than a diversified investment company.

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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 generally have discretion to make follow-on investments, subject to the availability of capital resources. Failure on our part
to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial
investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have
sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want
to increase our level of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements
of the 1940 Act or the desire to maintain our qualification as a RIC. Our ability to make follow-on investments may also be limited by
our compliance with the conditions under the Order we received from the SEC related to co-investments with investment funds
managed by Stellus Capital Management (or an affiliate thereof) or Stellus Capital Management’s allocation policy.

Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control
over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of
our investments.

We do not hold controlling equity positions in any of the portfolio companies included in our portfolio and, although we may do
so in the future, we do not currently intend to hold controlling equity positions in our portfolio companies (including those included in
our portfolio). As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree,
and that the management and/or stockholders 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 and equity investments that we hold in our portfolio companies, we may not be able
to dispose of our investments in the event we disagree with the actions 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 ability to meet its obligations under the loans or debt or equity securities that we hold. We may
incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of
certain financial covenants, with a defaulting portfolio company.

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and ability to
make stockholder distributions and result in a decline in the market price of our shares.

We are subject to the risk that the debt investments we make in our portfolio companies may be repaid prior to maturity. We
expect that our investments will generally allow for repayment at any time subject to certain penalties. When this occurs, we intend to
generally reinvest these proceeds in temporary investments, pending their future investment in accordance with our investment
strategy. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we could
experience significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was
repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elects to
prepay amounts owed to us.

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Additionally, prepayments could negatively impact our ability to make, or the amount of, stockholder distributions with respect to our
common stock, which could result in a decline in the market price of our shares.

The phase-out and replacement of LIBOR may adversely affect the value of our portfolio securities.

As of June 30, 2023, no settings of the London Interbank Offered Rate (“LIBOR”) continue to be published on a representative
basis, and publication of many non-U.S. Dollar LIBOR settings have been entirely discontinued. On July 29, 2021, the U.S. Federal
Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial
institutions, recommended replacing U.S. dollar LIBOR with alternative reference rates based on the Secured Overnight Financing
Rate (“SOFR”). SOFR significantly differs from LIBOR, both in the actual rate and how it is calculated. Further, on March 15, 2022,
the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act (“LIBOR Act”), was signed
into law in the United States. This legislation established a uniform benchmark replacement process for certain financial contracts that
mature after June 30, 2023 that do not contain clearly defined or practicable LIBOR fallback provisions. The legislation also created a
safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of
the U.S. Federal Reserve. In addition, the U.K. Financial Conduct Authority, which regulates the publisher of LIBOR (ICR
Benchmark Administration) has announced that it will require the continued publication of one, three and six month tenors of U.S.
dollar LIBOR on a non-representative synthetic basis until the end of September 2024, which may result in certain non-U.S. law-
governed contracts and U.S. law-governed contracts not being covered by the federal legislation remaining on synthetic U.S. dollar
LIBOR until the end of this period. The transition from LIBOR or the use of synthetic LIBOR in floating-rate debt securities in our
portfolio or issued by us could have a material and adverse impact on the value or liquidity of those instruments. The transition away
from LIBOR to alternative reference rates is complex and could have a material adverse effect on our business, financial condition
and results of operations, including as a result of any changes in the pricing of our investments, changes to the documentation for
certain of our investments and the pace of such changes, disputes and other actions regarding the interpretation of current and
prospective loan documentation or modifications to processes and systems.

The effect of global climate change may impact the operations of our portfolio companies. 

Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate
change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity.
To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and
magnitude of 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 or services 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
system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We invest a portion of our capital in second lien and subordinated loans issued by our portfolio companies. The portfolio
companies usually have, or may be permitted to incur, other debt that ranks equally with, or senior to, the loans in which we invest.
By their 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 are entitled to receive payments in respect of the loans in which we invest. Also, in the event of insolvency,
liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our
investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in
respect of our investment. After repaying senior creditors, a portfolio company may not have any remaining assets to use for
repaying its obligation to us. In the case of debt ranking equally with loans in which we invest, we would have to share any
distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation,
dissolution, reorganization or bankruptcy of the relevant portfolio company.

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Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral

securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s
obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the
portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the
collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay
their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and
economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all
of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all
obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under
the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the
collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

We may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in
collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations
under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under
its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled
to receive proceeds from, any realization of such collateral to repay their obligations in full 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 and other factors.
There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan
obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured
loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the
portfolio company’s remaining assets, if any.

The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt

outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of
such senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens
are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the
obligations secured by the first priority liens:

●

●

●

●

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 be exposed to special risks associated with bankruptcy cases.

One or more of our portfolio companies may be involved in bankruptcy or other reorganization or liquidation proceedings. Many

of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are
afforded an opportunity to object to significant actions, we cannot assure you that a bankruptcy court would not approve actions that
may be contrary to our interests. There also are instances where creditors can lose their ranking and priority if they are considered to
have taken over management of a borrower.

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To the extent that portfolio companies in which we have invested through a unitranche facility are involved in bankruptcy

proceedings, the outcome of such proceedings may be uncertain. For example, it is unclear whether a bankruptcy court would enforce
an agreement among lenders which sets the priority of payments among unitranche lenders. In such a case, the “first out” lenders in
the unitranche facility may not receive the same degree of protection as they would if the agreement among lenders was enforced.

The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the
borrower. Bankruptcy and reorganization proceedings are frequently subject to unpredictable and lengthy delays, and during the
process, the debtor company’s competitive position may erode, key management may depart and the debtor company may not be able
to invest adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The
debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during
reorganization and may be adversely affected by an erosion of the issuer’s fundamental value.

In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the
borrower’s business or exercise control over the borrower. For example, we could become subject to a lender liability claim (alleging
that we misused our influence on the borrower for the benefit of its lenders), if, among other things, the borrower requests significant
managerial assistance from us and we provide that assistance. To the extent we and an affiliate both hold investments in the same
portfolio company that are of a different character, we may also face restrictions on our ability to become actively involved in the
event that portfolio company becomes distressed as a result of the restrictions imposed on transactions involving affiliates under the
1940 Act. In such cases, we may be unable to exercise rights we may otherwise have to protect our interests as security holders in
such portfolio company.

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 may make subordinated investments that rank below other obligations of the obligor in right of payment. Subordinated
investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the
obligor or economic conditions in general. If we make a subordinated investment in a portfolio company, the portfolio company may
be highly leveraged, and its relatively high debt-to-equity ratio may create 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.

Substantially all of our investments involve loans and private securities. In connection with the disposition of an investment in

loans and private securities, we may be required to make representations about the business and financial affairs of the portfolio
company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of
such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These
arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through our return
of distributions previously made to us.

We may not realize gains from our equity investments.

When we invest in loans and debt securities, we may acquire warrants or other equity securities of portfolio companies as well.

We may also invest in equity securities directly. To the extent we hold equity investments, we will attempt to dispose of them and
realize gains upon our disposition of them. However, the equity interests we receive may not appreciate in value and, may decline in
value. 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 interests may not be sufficient to offset any other losses we experience.

Our ability to enter transactions involving derivatives and financial commitment transactions may be limited.

Pursuant to SEC rules, BDCs that use derivatives are subject to a value-at-risk (“VaR”) leverage limit, certain other derivatives

risk management program and testing requirements and requirements related to board reporting. These

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requirements apply unless the BDC qualified as a “limited derivatives user,” as defined in the SEC’s adopted rules. A BDC that enters
into reverse repurchase agreements or similar financing transactions may either comply with the asset coverage requirements of
Section 18 when engaging in reverse repurchase agreements or (ii) chose to treat such agreements as derivatives transactions under the
adopted rule. A BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to
provide financing to a portfolio company, if the BDC has a reasonable belief, at the time it enters into such an agreement, that it will
have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each
case as it becomes due. If the BDC cannot meet this test, it is required to treat unfunded commitments as a derivatives transaction
subject to the requirements of the SEC rules. Collectively, these requirements may limit our ability to use derivatives and/or enter into
certain other financial contracts.

Risks Relating to Our Common Stock

There is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our
distributions may be a return of capital.

We intend to make distributions on a monthly basis to our stockholders out of assets legally available for distribution (i.e., not

subject to any legal restrictions under Maryland law on the distribution thereof). We cannot assure you that 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. All
distributions will be made at the discretion of our Board and will depend on our earnings, financial condition, maintenance of RIC
status, compliance with applicable BDC requirements and SBA regulations and such other factors as our Board may deem relative
from time to time. We cannot assure you that we will make distributions to our stockholders in the future.

Our ability 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 to the asset coverage test applicable to us under the 1940 Act as a BDC, we may be limited in our
ability to make distributions. In addition, restrictions and provisions in our Credit Facility, the 2026 Notes and any future credit
facilities, as well as in the terms of any debt securities we issue, may limit our ability to make distributions in certain circumstances.

When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or
accumulated earnings and 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 an investor’s basis in our stock and, assuming that an investor holds our stock as a capital
asset, thereafter as a capital gain.

Stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan.

All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally
automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment
plan may experience dilution over time. Stockholders who receive distributions in shares of common stock may experience accretion
to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The
level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the
plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.

Our shares might trade at premiums that are unsustainable or at discounts from net asset value.

Shares of BDCs like us may, during some periods, trade at prices higher than their net asset value per share and, during other
periods, as frequently occurs with closed-end investment companies, trade at prices lower than their net asset value per share. The
perceived value of our investment portfolio may be affected by a number of factors including perceived prospects for individual
companies we invest in, market conditions for common stock generally, for initial public offerings and other exit events for venture
capital backed companies, and the mix of companies in our investment

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portfolio over time. Negative or unforeseen developments affecting the perceived value of companies in our investment portfolio
could result in a decline in the trading price of our common stock relative to our net asset value per share.

The possibility that our shares will trade at a discount from net asset value or at premiums that are unsustainable are risks
separate and distinct from the risk that our net asset value per share will decrease. The risk of purchasing shares of a BDC that might
trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period
of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in
premium or discount levels than upon increases or decreases in net asset value per share.

Investing in our securities may involve an above average degree of risk.

The investments we make in accordance with our investment objective may result in a higher amount of risk, and higher volatility
or loss of principal, than alternative investment options. Our investments in portfolio companies may be speculative and, therefore, an
investment in our securities may not be suitable for someone with lower risk tolerance.

The market price of our securities may fluctuate significantly.

The market price and liquidity of the market for our securities may be significantly affected by numerous factors, some of which

are beyond our control and may not 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 related to the operating performance of these companies;

changes in regulatory policies or tax guidelines, particularly with respect to RICs, BDCs and SBICs;

loss of our qualification as a RIC or BDC or the status of either of our SBIC subsidiaries as a SBIC;

changes in earnings or variations in operating results;

changes in the value of our portfolio of investments;

changes in accounting guidelines governing valuation of our investments;

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

departure of Stellus Capital Management’s key personnel;

operating performance of companies comparable to us; and

​general economic trends and other external factors.

Risks Relating to Our Debt Securities

The 2026 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred
or may incur in the future and rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by and
us and our general liabilities (total liabilities, less debt).

The 2026 Notes are not and will not be secured by any of our assets or any of the assets of any of our subsidiaries. As a result,
the 2026 Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have incurred and may incur in the
future (or any indebtedness that is initially unsecured as to which we subsequently grant security) to

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the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar
proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may
assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the
assets may be used to pay other creditors, including the holders of the 2026 Notes. In addition, the 2026 Notes  rank pari passu with,
or equal to, all outstanding and future unsecured, unsubordinated indebtedness issued by us and our general liabilities (total liabilities,
less debt). As of December 31, 2023 we had $160.1 million in outstanding indebtedness under our Credit Facility. The indebtedness
under the Credit Facility is effectively senior to the 2026 Notes to the extent of the value of the assets securing such indebtedness.

The 2026 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The 2026 Notes are obligations exclusively of Stellus Capital Investment Corporation, and not of any of our subsidiaries. None

of our subsidiaries are or will be a guarantor of the 2026 Notes, and the 2026 Notes are not required to be guaranteed by any
subsidiary we may acquire or create in the future. Any assets of our subsidiaries are not directly available to satisfy the claims of our
creditors, including holders of the 2026 Notes. Except to the extent we are a creditor 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 2026 Notes) with respect to the assets of such entities. Even if we are recognized as a creditor 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 any indebtedness or other liabilities of any such entity senior to our claims. Consequently, the 2026 Notes are
structurally subordinated to all indebtedness and other liabilities, including trade payables, of any of our existing or future
subsidiaries, including the SBIC subsidiaries. As of December 31, 2023, our subsidiaries had total indebtedness outstanding of 
$325.0 million. Certain of these entities (excluding our SBIC subsidiaries) currently serve as guarantors under our Credit Facility, and
in the future our subsidiaries may incur substantial additional indebtedness, all of which is and would be structurally senior to the
2026 Notes.

The indenture under which the 2026 Notes are issued contains limited protection for holders of the 2026 Notes.

The indenture under which the 2026 Notes are issued offers limited protection to holders of the 2026 Notes. The terms of the
indenture and the 2026 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 an investment in the 2026 Notes. In
particular, the terms of the indenture and the 2026 Notes do 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 be equal in right of payment to the 2026 Notes, (2) any indebtedness or other obligations that would
be secured and therefore rank effectively senior in right of payment to the 2026 Notes to the extent of the values of the assets
securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is
structurally senior to the 2026 Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries
that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the 2026 Notes with
respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would
cause a violation of Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor
provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to
any exemptive relief granted to us by the SEC, which generally prohibit us from incurring additional indebtedness,
including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at
least 150% after such incurrence or issuance;

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 to the 2026 Notes, including subordinated indebtedness, except that we have agreed that, for the period
of time during which the 2026 Notes are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified
by (i) Section 61(a)(2) of the 1940 Act, or any successor provisions and after giving effect to any exemptive relief granted to
us by the SEC and (ii) the following two exceptions: (A) we will be permitted to declare a cash dividend or distribution
notwithstanding the prohibition

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contained in Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor
provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under Subchapter M of the
Code; and (B) this restriction will not be triggered unless and until such time as our asset coverage has not been in
compliance with the minimum asset coverage required by Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)
(2) of the 1940 Act, or any successor provisions (after giving effect to any exemptive relief granted to us by the SEC) for
more than six consecutive months. If Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act,
were currently applicable to us in connection with this offering, these provisions would generally prohibit us from declaring
any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset
coverage, as defined in the 1940 Act, were below 150% at the time of 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.

Furthermore, the terms of the indenture and the 2026 Notes do not protect holders of the 2026 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 our subsidiaries 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 2026 Notes)
and take a number of other actions that are not limited by the terms of the 2026 Notes may have important consequences for holders
of the 2026 Notes, including making it more difficult for us to satisfy our obligations with respect to the 2026 Notes or negatively
affecting the market value of the 2026 Notes.

Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the 2026 Notes,

including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could
affect the market for, trading levels, and prices of the 2026 Notes.

There is no active trading market for the 2026 Notes. If an active trading market does not develop for the 2026 Notes, you may not
be able to sell them.

The 2026 Notes are debt securities for which there currently is no trading market. We do not intend to list the 2026 Notes on any

securities exchange or for quotation of the 2026 Notes on any automated dealer quotation system. If the 2026 Notes are traded after
their initial issuance, they may trade at a discount to their initial offering price depending on prevailing interest rates, the market for
similar securities, our credit ratings, our financial condition, performance and prospects, general economic conditions, or other
relevant factors. Although the underwriter has informed us that it intends to make a market in the 2026 Notes, it is not obligated to do
so, and the underwriter may discontinue any market-making in the 2026 Notes at any time at its sole discretion. Accordingly, we
cannot assure you that a liquid trading market will develop or be maintained for the 2026 Notes, that you will be able to sell your
2026 Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market
does not develop, the liquidity and trading price for the 2026 Notes may be harmed. Accordingly, you may be required to bear the
financial risk of an investment in the 2026 Notes for an indefinite period of time.

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If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2026 Notes.

Any default under the agreements governing our indebtedness, including a default under the Credit Facility or other indebtedness

to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the lenders or holders
of such indebtedness could make us unable to pay principal, premium, if any, and interest on the 2026 Notes and substantially
decrease the market value of the 2026 Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain
funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to
comply with the various covenants, including financial and operating covenants, as applicable, in the instruments governing our
indebtedness (including the Credit Facility), we could be in default under the terms of the agreements governing such indebtedness,
including the 2026 Notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed
thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Credit Facility or other debt we
may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings
against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future
need to refinance or restructure our debt, including the 2026 Notes, sell assets, reduce or delay capital investments, seek to raise
additional capital or seek to obtain waivers from the required lenders under the Credit Facility or other debt that we may incur in the
future to avoid being in default. If we are unable to implement one or more of these alternatives, we may not be able to meet our
payment obligations under the 2026 Notes or our other debt. If we breach our covenants under the Credit Facility or our other debt
and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders thereof. If this occurs, we would be in
default under the Credit Facility or other debt, the lenders or holders could exercise their rights as described above, and we could be
forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including the lenders under
the Credit Facility, could proceed against the collateral securing the debt. Because the Credit Facility has, the indenture governing the
2026 Notes has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the 2026
Notes, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

We may choose to redeem the 2026 Notes when prevailing interest rates are relatively low.

The 2026 Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option. We
may choose to redeem the 2026 Notes from time to time, especially if prevailing interest rates are lower than the rate borne by the
2026 Notes. If prevailing rates are lower at the time of redemption, and we redeem the 2026 Notes, you likely would not be able to
reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the 2026
Notes being redeemed.

We may not be able to repurchase the 2026 Notes upon a Change of Control Repurchase Event.

We may not be able to repurchase the 2026 Notes upon a Change of Control Repurchase Event (as defined in the supplemental

indenture governing the 2026 Notes) because we may not have sufficient funds. We would not be able to borrow under our Credit
Facility to finance such a repurchase of the 2026 Notes, and we expect that any future credit facility would have similar limitations.
Upon a Change of Control Repurchase Event, holders of the 2026 Notes may require us to repurchase for cash some or all of the 2026
Notes at a repurchase price equal to 100% of the aggregate principal amount of the 2026 Notes being repurchased, plus accrued and
unpaid interest to, but not including, the repurchase date. The terms of our Credit Facility provide that certain change of control
events will constitute an event of default thereunder entitling the lenders to accelerate any indebtedness outstanding under our Credit
Facility at that time and to terminate our Credit Facility. In addition, the occurrence of a Change of Control Repurchase Event
enabling the holders of the 2026 Notes to require the mandatory purchase of the 2026 Notes will constitute an event of default under
our Credit Facility, entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to
terminate our Credit Facility. Our and our subsidiaries’ future financing facilities may contain similar restrictions and provisions. Our
failure to purchase such tendered Notes upon the occurrence of such Change of Control Repurchase Event would cause an event of
default under the indenture governing the 2026 Notes and a cross-default under the agreements governing the Credit Facility, which
may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately. If the holders of the 2026
Notes exercise their right to require us to repurchase

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Notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our current and
future debt instruments, and we may not have sufficient funds to repay any such accelerated indebtedness.

A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the 2026 Notes or change in the

debt markets could cause the liquidity or market value of the 2026 Notes to decline significantly.

Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or

anticipated changes in our credit ratings will generally affect the market value of the 2026 Notes. These credit ratings may not reflect
the potential impact of risks relating to the structure or marketing of the 2026 Notes. Credit ratings are not a recommendation to buy,
sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we
nor the underwriter undertakes any obligation to maintain our credit ratings or to advise holders of Notes of any changes in our credit
ratings. There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not
be lowered or withdrawn entirely by the rating agencies if in their judgment future circumstances relating to the basis of the credit
ratings, such as adverse changes in our Company, so warrant. The conditions of the financial markets and prevailing interest rates
have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the
2026 Notes.

Item 1B.    Unresolved Staff Comments

Not applicable.

Item 1C.    Cybersecurity

Risk Management and Strategy

We  have  processes  in  place  for  assessing,  identifying,  and  managing  material  risks  from  potential  unauthorized  occurrences  on  or
through  our  electronic  information  systems  that  could  negatively  impact  the  confidentiality,  integrity,  or  availability  of  our
information systems or the information held on such systems. These processes include controls, procedures, systems and tools that are
designed  to  prevent,  detect,  or  mitigate  data  loss,  theft,  misuse,  unauthorized  access,  or  other  security  incidents  or  vulnerabilities
affecting the data. Such processes are set forth in our joint Cybersecurity Policy, Written Information Security Policy and Incident
Response Plan with Stellus Capital Management (collectively, the “Cybersecurity Policy”). The Cybersecurity Policy also sets forth
the role of our Chief Compliance Officer and our Information Security Team in preparing, implementing, and maintaining incident
response procedures.

Our Chief Compliance Officer and Information Security Team are responsible for the development and implementation of policies
and technical measures to reasonably prevent security incidents. At times we may also engage assessors, consultants, auditors or other
third  parties  to  assist  with  assessing,  identifying  and  managing  cybersecurity  risk.  As  part  of  our  risk  management  process,  we
conduct assessment and penetration testing, including regular trainings completed by employees of Stellus Capital Management who
provide services to us pursuant to the Administration Agreement.

Material Impact of Cybersecurity Risks

As of the date of this Annual Report on Form 10-K, we are not aware of any material risks from cybersecurity threats that have

materially affected, or are reasonably likely to materially affect, us, including our business strategy, results of operations, or financial
condition. However, future incidents could have a material impact on our business. Additional information about the cybersecurity
risks that we face is discussed in Item 1A of Part I, “Risk Factors,” in this Annual Report on Form 10-K under the heading “We,
Stellus Capital Management and our portfolio companies are subject to risks associated with “phishing” and other cyber-attacks.”

Oversight of Cybersecurity Risks

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Our cybersecurity risks and associated mitigation strategies are evaluated by our management and the Information Security Team

as needed, but no less frequently than annually. On at least a quarterly basis, the Information Security Team reports to our Board on
developments to cybersecurity risks we face. Such reports include, among other things, an overview of the controls and procedures
related to assessing, identifying, and managing risks related to cybersecurity threats, oversight of third-party service providers and
related cybersecurity threats, and Information Security Team's evaluation of cybersecurity risks that are material to us.

Item 2.     Properties

We do not own any real estate or other physical properties materially important to our operation. Our headquarters are located at

4400 Post Oak Parkway, Suite 2200, Houston, Texas. We also maintain offices in Charlotte, North Carolina and in the Washington,
D.C. area. All locations are provided to us by Stellus Capital Management pursuant to the Administration Agreement. We believe that
our office facilities are suitable and adequate for our business as we contemplate conducting it.

Item 3.    Legal Proceedings

We, Stellus Capital Management or our subsidiaries are not currently subject to any material legal proceedings, nor, to our

knowledge, is any material legal proceeding threatened against us, Stellus Capital Management or our subsidiaries. From time to
time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the
enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be
predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of
operations.

Item 4.    Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NYSE under the symbol “SCM.” As of March 4, 2024, we had nine stockholders of record,

which did not include stockholders for whom shares are held in nominee or street name.

We generally intend to pay distributions to our stockholders out of assets legally available for distribution. Our distributions and

their frequency, if any, will be determined by our Board. From January 2014 through March 2020, we paid aggregate monthly
distributions of $0.1133 per share on our common shares. For the period April 2020 through December 2020, we paid quarterly
distributions of $0.25 per share on our common shares. For the period January 2021 through June 2021, we paid monthly
distributions of $0.0833 per share on our common shares. For the period July 2021 through September 2021, we paid monthly
distributions of $0.1000 per share on our common shares. For the period October 2021 through December 2021, we paid monthly
distributions of $0.0933 per share on our common shares. For the period January 2022 through March 2022, we paid monthly
distributions of $0.0933 per share on our common shares. For the period April 2022 through December 2023, we paid monthly
distributions of $0.1133 per share on our common shares. Payment of dividends on our common shares is within the discretion of the
Board, and depends on, among other factors, net earnings, capital requirements and our financial condition. However, we intend to
continue to pay comparable dividends to stockholders in the future.

Recent Sales of Unregistered Securities

None.

Use of Proceeds from Recent Sales of Registered Securities

On November 16, 2021, the Company entered into an equity distribution agreement, as amended and restated on August 29,

2022 (the “2021 Equity Distribution Agreement”) with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as
sales agents and/or principals thereunder. Under the 2021 Equity Distribution Agreement, the Company may issue and sell, from time
to time, up to $50,000,000 in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to
use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in
portfolio companies in accordance with our investment objective and strategies.

On August 11, 2023, we entered into an equity distribution agreement (the “2023 Equity Distribution Agreement” and together

with the 2021 Equity Distribution Agreement, the "Equity Distribution Agreements") with Keefe Bruyette & Woods, Inc. and
Raymond James & Associates, Inc., as sales agents and/or principals thereunder. Under the Equity Distribution Agreement, we may
issue and sell, from time to time, up to $100,000,000 in aggregate offering price of shares of our common stock, par value $0.001 per
share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and
make investments in portfolio companies in accordance with our investment objective and strategies. Upon execution of the 2023
Equity Distribution Agreement, we no longer sold any shares under the 2021 Equity Distribution Agreement. We refers to the
issuance and sale of shares under the Equity Distribution Agreements as the "ATM Program".

In November 2021, we sold 31,592 shares of common stock through the ATM Program for net proceeds of $442,770, which was

used to repay borrowings under the Credit Facility.

In March 2022, we sold 14,924 shares of common stock through the ATM Program for net proceeds of $205,870, which was

used to repay borrowings under the Credit Facility.

In April 2022, we sold 13,416 shares of common stock through the ATM Program for net proceeds of $185,144, which was used

to repay borrowings under the Credit Facility.

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In November 2022, we sold 120,834 shares of common stock through the ATM Program for net proceeds of $1,648,854, which

was used to repay borrowings under the Credit Facility.

In January 2023, we sold 33,812 shares of common stock through the ATM Program for net proceeds of $459,187, which was

used to repay borrowings under the Credit Facility.

In March 2023, we sold 547,802 shares of common stock through the ATM Program for net proceeds of $7,832,670, which was

used to repay borrowings under the Credit Facility.

In April 2023, we sold 587,363 shares of common stock through the ATM Program for net proceeds of $8,027,626, which was

used to repay borrowings under the Credit Facility.

In May 2023, we sold 730,424 shares of common stock through the ATM Program for net proceeds of $10,471,012, which was

used to repay borrowings under the Credit Facility.

In June 2023, we sold 991,734 shares of common stock through the ATM Program for net proceeds of $13,566,642, which was

used to repay borrowings under the Credit Facility.

In August 2023, we sold 294,993 shares of common stock through the ATM Program for net proceeds of $4,092,986, which was

used to repay borrowings under the Credit Facility.

In September 2023, we sold 1,272,745 shares of common stock through the ATM Program for net proceeds of $17,477,976,

which was used to repay borrowings under the Credit Facility.

Purchases of Equity Securities

Dividend Reinvestment Plan

During the year ended December 31, 2023, as a part of our distribution reinvestment plan ("DRIP"), we purchased 152,097
shares of our common stock for an average price per share of $13.84 in the open market in order to satisfy the reinvestment portion of
our dividends. The following chart outlines such purchases of our common stock during the year ended December 31, 2023:

Period
January 1, 2023 – January 31, 2023
February 1, 2023 – February 28, 2023
March 1, 2023 – March 31, 2023
April 1, 2023 – April 30, 2023
May 1, 2023 – May 31, 2023
June 1, 2023 – June 30, 2023
July 1, 2023 – July 31, 2023
August 1, 2023 – August 31, 2023
September 1, 2023 – September 30, 2023
October 1, 2023 – October 31, 2023
November 1, 2023 – November 30, 2023
December 1, 2023 – December 31, 2023
Total

71

     Total Number      Average Price

of Shares
Purchased
 9,770
 9,956
 11,093
 11,986
 9,865
 10,586
 11,978
 16,490
 12,563
 15,894
 16,249
 15,667
 152,097

$

$

Paid Per
Share

 13.28
 15.61
 13.88
 13.73
 15.03
 13.93
 14.57
 14.29
 13.91
 13.34
 12.88
 12.77
 13.84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Price Range of Common Stock

Our shares of common stock are traded on the NYSE under the symbol “SCM.” In connection with our initial public offering,
our shares of common stock began trading on November 8, 2012, and before that date, there was no established trading market for
shares of our common stock.

The following table sets forth, for each fiscal quarter of the three most recent fiscal years, the range of high and low closing

prices of our common stock as reported on the NYSE and the sales price as a percentage of our net asset value (“NAV”).

Fiscal Year Ended
December 31, 2023
Fourth quarter
Third quarter
Second quarter
First quarter

December 31, 2022
Fourth quarter
Third quarter
Second quarter
First quarter

December 31, 2021
Fourth quarter
Third quarter
Second quarter
First quarter

NAV Per
Share(1)

Closing Sales Price(2)
Low

     High

     Premium or      Premium or  
Discount of  
Low Sales  
NAV(3)

Discount of
High Sales

     NAV(3)

$  13.26
$  13.19
$  13.67
$  13.87

$  14.02
$  14.15
$  14.07
$  14.03

$  14.03
$  13.17
$  13.34
$  11.55

$  13.73
$  15.27
$  15.00
$  15.97

$  13.96
$  14.08
$  14.20
$  14.15

$  14.65
$  13.61
$  13.66
$  12.70

$  12.34  
$  13.60  
$  13.64  
$  13.14  

$  11.98  
$  11.44  
$  11.13  
$  13.08  

$  12.38  
$  12.45  
$  12.40  
$  10.18  

 3.54 %  
 15.77 %  
 9.73 %  
 15.14 %  

 (0.43)%  
 (0.49)%  
 0.92 %  
 0.86 %  

 4.42 %  
 3.34 %  
 2.40 %  
 9.96 %  

 (6.94)%
 3.11 %
 (0.22)%
 (5.26)%

 (14.55)%
 (19.15)%
 (20.90)%
 (6.77)%

 (11.76)%
 (5.47)%
 (7.05)%
 (11.86)%

(1) NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share on the date of the

high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.

(2) Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for

dividends.

(3) Calculated as of the respective high or low sales price divided by the quarter-end NAV.

Shares of BDCs’ common stock may trade at a market price that is less than the value of the net assets attributable to those
shares of common stock. The possibility that our shares of common stock will trade at a discount from NAV or at premiums that are
unsustainable over the long term are separate and distinct from the risk that our NAV will decrease. Since our shares of common
stock began trading on November 8, 2012, in connection with our initial public offering, our shares of common stock have traded at
times at a discount to the net assets attributable to those shares of common stock.

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Stock Performance Graph

This graph compares the return on our shares of common stock with that of the Standard & Poor’s 500 Stock Index, the Russell
2000 Financial Services Index, and the Raymond James BDC Index, for the period from inception through December 31, 2023. The
graph assumes that, at inception, a person invested $100 in each share of our common stock, the S&P 500 Index, the Russell 2000
Financial Services Index, and the Raymond James BDC Index. The graph measures total stockholder return, which takes into account
both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.

The graph and other information furnished under this Part II, Item 5 of this Annual Report on Form 10-K shall not be deemed to

be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the
Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock price
performance.

Item 6. [Reserved]

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Some of the statements in this Annual Report on Form 10-K constitute forward-looking statements, which relate to future events

or our future performance or financial condition. The forward-looking statements contained in this Annual Report on Form 10-K
involve risks and uncertainties, including statements as to:

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

our future operating results;

our business prospects and the prospects of our portfolio companies;

the effect of investments that we expect to make;

our contractual arrangements and relationships with third parties;

actual and potential conflicts of interest with Stellus Capital Management;

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

the impact of interest rate volatility, including the decommissioning of LIBOR and rising interest rates, on our business and
our portfolio companies;

the ability of our portfolio companies to achieve their objectives;

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

the adequacy of our financing sources and working capital;

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

the ability of Stellus Capital Management to locate suitable investments for us and to monitor and administer our
investments;

the ability of Stellus Capital Management to attract and retain highly talented professionals;

our ability to maintain our qualification as a RIC and as a BDC; and

the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory
authorities) and conditions in our operating areas, particularly with respect to BDCs or RICs.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,”

“might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,”
“plan” or similar words.

We have based the forward-looking statements included in this Annual Report on Form 10-K on information available to us on

the date of this Annual Report on Form 10-K. Actual results could differ materially from those anticipated in our forward-looking
statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or
regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the
future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-
K.

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Overview

We were organized as a Maryland corporation on May 18, 2012 and formally commenced operations on November 7, 2012. Our
investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through
debt and related equity investments in middle-market companies.

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under

the 1940 Act. Our investment activities are managed by our investment adviser, Stellus Capital Management.

As a BDC, we are required to comply with certain regulatory requirements. For instance, 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 least 70% of our total
assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companies” (as defined in the 1940 Act).
Under the relevant SEC rules, the term “eligible portfolio company” includes all private operating companies, operating companies
whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their
securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized and with
their principal place of business in the United States.

We have elected, qualified, and intend to continue to qualify annually to be treated for tax purposes as a RIC under Subchapter M

of the Code. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset
diversification requirements. As of December 31, 2023, we were in compliance with the RIC requirements. As a RIC, we generally
will not have to pay corporate-level U.S. federal income tax on any income we distribute to our stockholders.

Under the 1940 Act, we are allowed to incur a maximum asset coverage ratio of 150% if certain requirements are met, including

the approval of a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) of Board and the approval of our
stockholders.

On April 4, 2018, the Board, including a “required majority” of the Board, approved the application of the modified asset
coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At our 2018 annual meeting of stockholders, our stockholders
also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result,
the asset coverage ratio applicable to us was decreased from 200% to 150%, effective June 29, 2018, which effectively increased the
amount of leverage we may incur. As of December 31, 2023, our asset coverage ratio was 223%. The amount of leverage that we
employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

Economic Developments

Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe

supply chain interruptions, labor resource shortages, commodity inflation, rising interest rates, bank impairments and failures,
economic sanctions in response to international conflicts and instances of geopolitical, economic and financial market instability in
the United States and abroad. One or more of these factors may contribute to increased market volatility and may have long- and
short-term effects in the United States and worldwide financial markets.

Portfolio Composition and Investment Activity

Portfolio Composition

We originate and invest primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of
EBITDA) through first lien (including unitranche), second lien, and unsecured debt financing, oftentimes with a corresponding equity
investment.

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As of December 31, 2023, we had $874.5 million (at fair value) invested in 93 companies. As of December 31, 2023, our
portfolio included approximately 89% of first lien debt (including unitranche investments), 2% of second lien debt, 1% of unsecured
debt and 8% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2023
was as follows:

Senior Secured – First Lien(1)
Senior Secured – Second Lien
Unsecured Debt
Equity
Total Investments

Cost
$  793,819,152
 42,269,568
 6,138,183
 59,916,647
$  902,143,550

Fair Value
$  774,789,320
 21,957,500
 5,956,280
 71,757,583
$  874,460,683

(1)

Includes unitranche investments, which account for 4.5% of our portfolio at fair value. Unitranche structures may combine
characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche loans will expose us to
the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.

As of December 31, 2022, we had $844.7 million (at fair value) invested in 85 companies. As of December 31, 2022, our
portfolio included approximately 87% of first lien debt (including unitranche investments), 5% of second lien debt, 1% of unsecured
debt and 7% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2022
was as follows:

Senior Secured – First Lien(1)
Senior Secured – Second Lien
Unsecured Debt
Equity
Total Investments

Cost
$  750,527,999
 69,989,477
 5,657,964
 49,647,737
$  875,823,177

Fair Value
$  735,555,508
 45,304,300
 4,823,898
 59,049,932
$  844,733,638

(1)

Includes unitranche investments, which account for 3.1% of our portfolio at fair value. Unitranche structures may combine
characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche loans will expose us to
the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to

provide funding when requested by portfolio companies in accordance with the terms and conditions of the underlying loan
agreements. As of December 31, 2023 and December 31, 2022, we had unfunded commitments of $37.0 million and $27.8 million,
respectively, to provide debt financing for 57 and 52 portfolio companies, respectively. As of December 31, 2023, we had sufficient
liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the
need arise.

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The following is a summary of geographical concentration of our investment portfolio as of December 31, 2023:

Texas
California
Florida
Pennsylvania
Illinois
Arizona
Ohio
Colorado
Wisconsin
Washington
Georgia
Maryland
New York
Indiana
North Carolina
District of Columbia
New Jersey
Michigan
Massachusetts
Tennessee
Missouri
Canada
Idaho
Minnesota
Louisiana
South Carolina
United Kingdom

Cost

Fair Value

 $  182,531,256  $  175,311,724  
 167,713,589  
 92,297,574  
 50,188,102  
 49,834,429  
 44,558,279  
 34,370,277  
 30,971,079  
 26,190,771  
 24,540,695  
 18,885,409  
 16,718,728  
 14,931,263  
 14,488,700  
 14,532,532  
 14,006,563  
 11,191,295  
 10,736,783  
 10,515,487  
 9,379,311  
 8,850,162  
 8,813,132  
 8,470,065  
 5,907,639  
 5,536,231  
 5,083,862  
 437,002  
$  902,143,550 $  874,460,683  

 175,207,692  
 93,155,844  
 49,939,315  
 58,633,617  
 42,136,322  
 31,805,370  
 31,525,420  
 27,452,444  
 24,321,085  
 9,100,050  
 16,676,194  
 14,692,043  
 14,235,403  
 13,891,930  
 13,030,899  
 10,461,226  
 10,664,100  
 10,151,621  
 9,390,657  
 8,862,512  
 8,700,383  
 8,405,946  
 5,976,818  
 5,538,823  
 4,946,375  
 20,710,205  

% of Total
Investments at  
Fair Value

 20.04 %
 19.18 %
 10.55 %
 5.74 %
 5.70 %
 5.10 %
 3.93 %
 3.54 %
 3.00 %
 2.81 %
 2.16 %
 1.91 %
 1.71 %
 1.66 %
 1.66 %
 1.60 %
 1.28 %
 1.23 %
 1.20 %
 1.07 %
 1.01 %
 1.01 %
 0.97 %
 0.68 %
 0.63 %
 0.58 %
 0.05 %
 100.00 %

77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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The following is a summary of geographical concentration of our investment portfolio as of December 31, 2022:

Texas
California
Florida
Illinois
Arizona
Pennsylvania
Ohio
Washington
New Jersey
Wisconsin
District of Columbia
Georgia
South Carolina
Maryland
Minnesota
United Kingdom
Colorado
Indiana
Canada
North Carolina
Massachusetts
Idaho
Missouri
New York
Michigan

     % of Total

Cost
$  191,422,143
 167,833,384
 60,593,839
 64,421,998
 43,129,283
 42,899,504
 34,223,452
 28,978,375
 25,395,054
 27,533,402
 17,236,556
 10,919,642
 19,089,373
 16,824,077
 16,972,086
 20,530,087
 15,204,934
 14,346,082
 13,333,737
 10,461,551
 10,215,356
 9,873,093
 9,142,111
 5,096,152
 147,906
$  875,823,177

Fair Value
$  171,165,597  
 165,340,017  
 59,421,775  
 53,218,615  
 44,277,625  
 41,889,344  
 37,333,236  
 28,480,471  
 25,140,343  
 24,271,761  
 21,124,347  
 19,692,757  
 18,654,782  
 16,576,554  
 15,952,072  
 14,445,481  
 14,295,470  
 14,245,432  
 13,266,669  
 10,649,232  
 10,527,659  
 9,863,103  
 9,656,287  
 5,096,008  
 149,001  
$  844,733,638  

Investments at  
Fair Value

 20.26 %
 19.57 %
 7.03 %
 6.30 %
 5.24 %
 4.96 %
 4.42 %
 3.37 %
 2.98 %
 2.87 %
 2.50 %
 2.33 %
 2.21 %
 1.96 %
 1.89 %
 1.71 %
 1.69 %
 1.69 %
 1.57 %
 1.26 %
 1.25 %
 1.17 %
 1.14 %
 0.61 %
 0.02 %
 100.00 %

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The following is a summary of industry concentration of our investment portfolio as of December 31, 2023:

% of Total
Investments at  

     Fair Value

Services: Business
Healthcare & Pharmaceuticals
High Tech Industries
Media: Advertising, Printing & Publishing
Consumer Goods: Non-Durable
Beverage, Food, & Tobacco
Consumer Goods: Durable
Capital Equipment
Services: Consumer
Construction & Building
Aerospace & Defense
Environmental Industries
Media: Broadcasting & Subscription
Transportation & Logistics
Chemicals, Plastics, & Rubber
Metals & Mining
Containers, Packaging, & Glass
Utilities: Oil & Gas
Education
FIRE: Real Estate
Media: Diversified & Production
Finance
Hotel, Gaming, & Leisure
Energy: Oil & Gas
Total

Cost
$  198,018,290
 100,724,952
 90,795,799
 57,640,321
 63,145,301
 42,554,582
 49,046,730
 32,517,673
 33,976,976
 30,319,119
 46,745,104
 24,219,811
 17,952,103
 17,235,150
 18,338,366
 16,580,562
 17,432,252
 9,943,041
 10,251,179
 17,285,138
 5,662,174
 569,039
 —
 1,189,888
$  902,143,550

79

Fair Value
$  207,963,749  
 102,915,887  
 91,992,012  
 58,741,061  
 52,938,611  
 45,074,817  
 43,725,324  
 33,879,801  
 33,260,111  
 30,486,411  
 24,541,921  
 22,997,844  
 20,760,920  
 17,661,859  
 17,569,176  
 16,625,000  
 15,539,555  
 10,000,000  
 8,367,469  
 6,175,994  
 5,763,247  
 5,736,868  
 890,968  
 852,078  
$  874,460,683  

 23.78 %
 11.77 %
 10.52 %
 6.72 %
 6.05 %
 5.15 %
 5.00 %
 3.87 %
 3.80 %
 3.49 %
 2.81 %
 2.63 %
 2.37 %
 2.02 %
 2.01 %
 1.90 %
 1.78 %
 1.14 %
 0.96 %
 0.71 %
 0.66 %
 0.66 %
 0.10 %
 0.10 %
 100.00 %

 
    
    
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The following is a summary of industry concentration of our investment portfolio as of December 31, 2022:

     % of Total

Services: Business
Healthcare & Pharmaceuticals
Media: Advertising, Printing & Publishing
Consumer Goods: Non-Durable
Consumer Goods: Durable
Aerospace & Defense
Software
Capital Equipment
Beverage, Food, & Tobacco
Construction & Building
Environmental Industries
Services: Consumer
Media: Broadcasting & Subscription
Chemicals, Plastics, & Rubber
Transportation & Logistics
Metals & Mining
Containers, Packaging, & Glass
Retail
High Tech Industries
Automotive
Education
Utilities: Oil & Gas
Energy: Oil & Gas
FIRE: Real Estate
Media: Diversified & Production
Finance
Hotel, Gaming, & Leisure

Cost
$  207,234,534
 86,469,854
 52,830,447
 54,683,102
 45,601,928
 48,137,394
 37,582,855
 33,538,647
 34,000,918
 26,948,135
 27,771,798
 43,302,101
 18,615,052
 18,487,206
 16,768,763
 16,708,750
 17,436,600
 13,303,536
 14,126,954
 11,252,581
 11,057,921
 9,921,469
 7,314,230
 15,642,093
 5,517,409
 1,568,900

 —  

$  875,823,177

Fair Value
$  218,866,572  
 88,103,319  
 52,525,839  
 51,280,593  
 44,529,176  
 39,526,086  
 37,975,255  
 33,801,951  
 32,755,054  
 26,406,849  
 26,247,936  
 24,616,706  
 21,445,307  
 17,903,999  
 17,161,972  
 16,464,001  
 13,977,250  
 13,217,256  
 12,648,347  
 11,342,751  
 10,498,760  
 9,800,000  
 7,355,074  
 5,866,397  
 5,534,710  
 4,082,579  
 799,899  
$  844,733,638  

Investments at  
Fair Value

 25.91 %
 10.43 %
 6.22 %
 6.07 %
 5.27 %
 4.68 %
 4.50 %
 4.00 %
 3.88 %
 3.13 %
 3.11 %
 2.92 %
 2.54 %
 2.12 %
 2.03 %
 1.95 %
 1.65 %
 1.56 %
 1.50 %
 1.34 %
 1.24 %
 1.16 %
 0.87 %
 0.69 %
 0.66 %
 0.48 %
 0.09 %
 100.00 %

At December 31, 2023, our average portfolio company investment at amortized cost and fair value was approximately
$9.7 million and $9.4 million, respectively, and our largest portfolio company investment at amortized cost and fair value was
approximately $21.7 million and $18.9 million, respectively. At December 31, 2022, our average portfolio company investment at
amortized cost and fair value was approximately $10.3 million and $9.9 million, respectively, and our largest portfolio company
investment at amortized cost and fair value was approximately $20.4 million and $21.1 million, respectively.

At December 31, 2023, 98% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as
SOFR, and 2% bore interest at fixed rates. At December 31, 2022, 97% of our debt investments bore interest based on floating rates
(subject to interest rate floors), such as LIBOR, and 3% bore interest at fixed rates.

The weighted average yield on all of our debt investments as of December 31, 2023 and December 31, 2022 was approximately

11.9% and 11.1%, respectively. The weighted average yield on all of our investments, including non-income producing equity
positions, as of December 31, 2023 and December 31, 2022 was approximately 11.1% and 10.4%, respectively. The weighted
average yield was computed using the effective interest rates for all of our debt investments, including accretion of OID. The
weighted average yield of our debt investments is not the same as a return on investment for our stockholders, but rather relates to a
portion of our investment portfolio and is calculated before the payment of all of our subsidiaries’ fees and expenses.

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As of December 31, 2023 and December 31, 2022, we had cash and cash equivalents of $26.1 million and $48.0 million,

respectively, the majority of which was held in our SBIC subsidiaries.

Investment Activity

During the year ended December 31, 2023, we made $190.9 million of investments in 18 new portfolio companies and 28
existing portfolio companies. During the year ended December 31, 2023, we received an aggregate of $141.3 million in proceeds
from repayments of our investments.

During the year ended December 31, 2022, we made $211.0 million of investments in 22 new portfolio companies and 28
existing portfolio companies. During the year ended December 31, 2022, we received an aggregate of $127.5 million in proceeds
from repayments of our investments.

Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of

debt and equity capital to middle-market companies, the level of merger and acquisition activity, the general economic environment
and the competitive environment for the types of investments we make.

Asset Quality

In addition to various risk management and monitoring tools, Stellus Capital Management uses an investment rating system to
characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating
system uses a five-level numeric scale. The following is a description of the conditions associated with each investment category:

●

●

●

●

●

Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable
compared to the expected risk at the time of the original investment.

Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral
compared to the expected risk at the time of the original investment. All new loans are initially rated 2.

Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring,
but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with
financial covenants.

Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have
increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4
are those for which some loss of return but no loss of principal is expected.

Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have
increased substantially since the original investment. These investments are almost always in work out. Investments with a
rating of 5 are those for which some loss of return and principal is expected.

The following is a summary of asset quality ratings of our investment portfolio as of December 31, 2023 and December 31,

2022:

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Investment Category
1
2
3
4
5
Total

As of December 31, 2023
(dollars in millions)

As of December 31, 2022
(dollars in millions)

Fair Value

% of Total
Portfolio

Fair Value

% of Total
Portfolio

     Number of     
Portfolio
Companies(1)
 22
 54
 11
 1
 6
 94

 24 %  
 62 %  
 12 %  
 1 %  
 1 %  
 100 %  

$

$

 146.6  
 553.2  
 120.7  
 18.3  
 5.9  
 844.7  

     Number of
Portfolio
Companies
 17
 52
 13
 2
 1
 85

 17 %  
 66 %  
 14 %  
 2 %  
 1 %  
 100 %  

$

$

 214.1  
 535.3  
 107.2  
 11.1  
 6.8  
 874.5  

(1) One portfolio company appears in two categories as of December 31, 2023.

Loans and Debt Securities on Non-Accrual Status

We will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As of
December 31, 2023, we had loans to four portfolio companies that were on non-accrual status, which represented approximately 4.2%
of our loan portfolio at cost and 1.3% at fair value. As of December 31, 2022, we had loans to three portfolio companies that were on
non-accrual status, which represented approximately 5.2% of our loan portfolio at cost and 2.3% at fair value. As of December 31,
2023 and December 31, 2022, $7.5 million and $4.8 million of income from investments on non-accrual had not been accrued,
respectively.

Results of Operations

An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which
includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income
(loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses
including interest on borrowed funds. Net realized gain (loss) on investments is the difference between the proceeds received from
dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net
change in the fair value of our investment portfolio.

Comparison of the Years Ended December 31, 2023, 2022, and 2021

Revenues

We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment

securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear
interest at primarily floating rates. Interest on our debt securities is generally payable quarterly. Payments of principal on our debt
investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some
cases, our debt investments may pay PIK interest. Any outstanding principal amount of our debt securities and any accrued but
unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the
balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar
amount of interest and any dividend income that we earn will increase as the size of our investment portfolio increases. In addition,
we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for
providing significant managerial assistance and consulting fees.

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The following shows the breakdown of investment income for the years ended December 31, 2023, 2022, and 2021 (in millions).

Interest income(1)
PIK interest
Miscellaneous fees(1)
Total

$

     December 31, 2023
 96.9
 3.8
 5.1  

$

 105.8

For the year ended
December 31, 2022
 70.8
$
 1.4
 2.9  
 75.1

$

December 31, 2021
 60.7
$
 0.9
 2.1
 63.7

$

(1) For the years ended December 31, 2023, 2022, and 2021, we recognized $2.7 million, $1.2 million and $2.8 million of non-

recurring income, respectively. Non-recurring income was related to early repayments, the recognition of previously reserved
income from a prior period, and amendments to specific loan positions.

The increase in interest income from the year ended December 31, 2022 to the year ended December 31, 2023 was due primarily
to growth in the overall investment portfolio and rising interest rates. The increase in interest income from the year ended December
31, 2021 to the year ended December 31, 2022 was due primarily to growth in the overall investment portfolio and rising interest
rates.

Expenses

Our primary operating expenses include the payment of fees to Stellus Capital Management under the Investment Advisory
Agreement, our allocable portion of overhead expenses under the Administration Agreement and other operating costs described
below. We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include:

●

●

●

●

●

●

●

organization and offering costs;

valuing our assets and calculating our net asset value (including the cost and expenses of any independent valuation firm);

fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal
affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or
otherwise relating to, or associated with, evaluating and making investments;

interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio
acquisition efforts;

base management and incentive fees;

offerings of our common stock and other securities;

administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of
Stellus Capital Management’s overhead in performing its obligations under the Administration Agreement, including rent
and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and his respective staffs);

●

transfer agent, dividend agent and custodial fees and expenses;

● U.S. federal and state registration fees;

●

all costs of registration and listing our securities on any securities exchange;

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● U.S. federal, state and local taxes;

●

●

●

●

●

●

●

independent directors’ fees and expenses;

costs of preparing and filing reports or other documents required by the SEC or other regulators;

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

costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any
other insurance premiums;

direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying,
secretarial and other staff, independent auditors and outside legal costs;

proxy voting expenses; and

all other expenses incurred by us or Stellus Capital Management in connection with administering our business.

The following shows the breakdown of operating expenses for the years ended December 31, 2023, 2022, and 2021 (in millions).

Operating Expenses
Management fees
Valuation fees
Administrative services expenses
Income incentive fees
Capital gains incentive (reversal) fee
Professional fees
Directors’ fees
Insurance expense
Interest expense and other fees
Income tax expense
Other general and administrative expenses

Total Operating Expenses

Income incentive fee waiver

Total Operating Expenses, net of fee waivers

For the year ended
December 31, 2023   December 31, 2022   December 31, 2022  

   $

$

$

 15.5 $
 0.4
 1.9
 10.2
 (0.6)
 1.4
 0.4
 0.5
 32.0
 1.3
 0.9
 63.9 $
 (0.3)
 63.6 $

 14.8 $
 0.3
 1.8
 3.8
 (2.8)
 1.1
 0.3
 0.5
 24.5
 1.2
 1.0
 46.5 $
 —
 46.5 $

 13.2
 0.3
 1.8
 3.0
 2.9
 1.1
 0.3
 0.5
 18.7
 1.1
 1.0
 43.9
 —
 43.9

The increase in operating expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was

due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures, as well as rising
interest rates, (2) higher management fees due to a larger investment portfolio and (3) higher incentive fees due to portfolio
performance. The increase in operating expenses for the year ended December 31, 2022 as compared to the year ended December 31,
2021 was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures, as well as
rising interest rates, (2) higher management fees due to a larger investment portfolio and (3) higher incentive fees due to portfolio
performance.

Net Investment Income

For the year ended December 31, 2023, net investment income was $42.2 million, or $1.92 per common share based on
22,004,648 weighted-average common shares outstanding. For the year ended December 31, 2022, net investment income was
$28.6 million, or $1.46 per common share based on 19,552,931 weighted-average common shares

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outstanding. For the year ended December 31, 2021, net investment income was $19.8 million, or $1.01 per common share based on
19,489,750 weighted-average common shares outstanding.

Net investment income for the year ended December 31, 2023 increased compared to the year ended December 31, 2022 as a
result of growth in the overall investment portfolio and rising interest rates, offset by higher operating expenses as explained in the
“Expenses” section above.

Net investment income for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 as a
result of growth in the overall investment portfolio and rising interest rates, offset by higher operating expenses as explained in the
“Expenses” section above.

Net Realized Gains and Losses

We measure realized gains or losses by the difference between the net proceeds from the repayment, sale or other disposition and

the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or
depreciation previously recognized.

Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2023

totaled $141.3 million and net realized losses totaled $30.3 million. Net realized losses during the year ended December 31, 2023
resulted primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains
from the realization of our equity investments. Proceeds from repayments of investments and amortization of certain other
investments for the year ended December 31, 2022 totaled $127.5 million resulting in net realized gains totaling $3.7 million,
primarily from gains from the realization of our equity investments in certain portfolio companies, offset by dispositions of loans in
our portfolio. Proceeds from repayments of investments and amortization of certain other investments for the year ended December
31, 2021 totaled $287.6 million resulting in net realized gains totaling $23.7 million, primarily from gains from the realization of our
equity investments in certain portfolio companies.

Net Change in Unrealized Appreciation (Depreciation) of Investments

Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the

reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

Net change in unrealized appreciation (depreciation) on investments and cash equivalents, including foreign currency
translations, for the year ended December 31, 2023, 2022, and 2021 totaled $2.8 million, ($17.5) million, and ($6.9) million,
respectively.

The change in unrealized appreciation in 2023 was primarily due to realizations on investments previously written down. The

change in unrealized depreciation in 2022 was primarily due to write downs on specific investments. The change in unrealized
depreciation in 2021 was primarily due to realizations on equity investments previously written up.

(Provision) Benefit for Taxes on Unrealized (Appreciation) Depreciation on Investments

We have direct wholly owned subsidiaries that have elected to be treated as corporations for U.S. federal income tax purposes
(the “Taxable Subsidiaries”), and as a result, the income of the Taxable Subsidiaries is subject to U.S. federal income tax at corporate
rates. The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are “pass through” entities for U.S.
federal income tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the
Code. The Taxable Subsidiaries are not consolidated with us for U.S. federal income tax purposes and may generate U.S. federal
income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments.
The U.S. federal income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our Consolidated
Financial Statements.

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For the years ended December 31, 2023, 2022 and 2021, we recognized a deferred tax (provision) benefit related to unrealized

appreciation on certain equity investments for income tax at our Taxable Subsidiaries of approximately ($127.0) thousand,
($213.2) thousand, and $510.9 thousand, respectively.

For the years ended December 31, 2023 and 2021, we recognized tax benefit (expense) related to losses (gains) realized on
certain debt (equity) investments held at our Taxable Subsidiaries of $3.0 million and ($3.0) million, respectively. There was no such
tax expense for the year ended December 31, 2022. As of December 31, 2023, a tax receivable related to the tax benefit on realized
losses of $1.6 million was included on the Consolidated Statement of Assets and Liabilities. As of December 31, 2023 and 2022, a
deferred tax liability of $188.9 thousand and $61.9 thousand, respectively, was included in Consolidated Statement of Assets and
Liabilities.

Net Increase in Net Assets Resulting from Operations

Net increase in net assets resulting from operations totaled $17.5 million, or $0.80 per common share based on weighted-average

common shares of 22,004,648 outstanding for the year ended December 31, 2023, $14.5 million, or $0.74 per common share based
on weighted-average common shares of 19,552,931 outstanding for the year ended December 31, 2022, and $33.6 million, or $1.72
per common share based on weighted-average common hares of 19,489,750 outstanding for the year ended December 31, 2021.

The net increase in net assets resulting from operations for the year ended December 31, 2023 as compared to the year ended
December 31, 2022 was primarily due to an increase in net investment income, offset by realized losses. The net decrease in net assets
resulting from operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due
to unrealized losses, offset by realized gains.

Financial Condition, Liquidity and Capital Resources

Cash Flows from Operating and Financing Activities

Our operating activities used net cash of $17.3 million for the year ended December 31, 2023, primarily in connection with the
purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended
December 31, 2023 used cash of $4.7 million primarily from stockholder distibutions and net payments on our Credit Facility, offset
by proceeds from our ATM Program.

Our operating activities used net cash of $56.3 million for the year ended December 31, 2022, primarily in connection with the
purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended
December 31, 2022 provided cash of $60.2 million primarily from proceeds from SBA-guaranteed debentures and net borrowings on
our Credit Facility.

Our operating activities used net cash of $76.1 million for the year ended December 31, 2021, primarily in connection with the
purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended
December 31, 2021 provided cash of $101.8 million primarily from proceeds from the 2026 Notes issuance, SBA-guaranteed
debentures, and net borrowings on our Credit Facility.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from the Credit Facility, 2026 Notes, offerings of our common stock, SBA-
guaranteed debentures and cash flows from operations, including investment sales and repayments, and income earned. Our primary
use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the
payment of dividends to the holders of our common stock. We used, and expect to continue to use, these capital resources as well as
proceeds from turnover within our portfolio and from public and private offerings of securities to finance our investment activities.
Although we expect to fund the growth of our investment portfolio through the net proceeds from future public and private equity
offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may
not be successful. In this regard, if our common stock trades at a price below our then-current net asset value per share, we may be
limited

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in our ability to raise equity capital given that we cannot sell our common stock at a price below net asset value per share unless our
stockholders approve such a sale and our Board makes certain determinations in connection therewith. A proposal, approved by our
stockholders at our 2023 annual stockholders meeting, authorizes us to sell up to 25% of our outstanding common shares at a price
equal to or below the then current net asset value per share in one or more offerings. This authorization will expire on the earlier of
June 22, 2024, the one-year anniversary of our 2023 annual stockholders meeting, or our 2024 annual stockholders meeting. We
would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time
after the expiration of the current approval. In addition, we intend to distribute between 90% and 100% of our taxable income to our
stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have
the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded
commitments to portfolio companies or to repay borrowings. In addition, 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 these investments, we may realize significantly
less than their recorded value.

Also, as a BDC, we generally are required to meet an asset coverage coverage ratio of total assets, less liabilities and
indebtedness not represented by senior securities, over the aggregate amount of our senior securities, which includes all of our
borrowings and any outstanding preferred stock, of at least 150% effective June 29, 2018 (at least 200% prior to June 29, 2018). This
requirement limits the amount that we may borrow. We have received exemptive relief from the SEC to permit us to exclude the debt
of the SBIC subsidiaries guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act.
We were in compliance with the asset coverage ratio requirements at all times. As of December 31, 2023 and December 31, 2022, our
asset coverage ratio was 223% and 192%, respectively. The amount of leverage that we employ will depend on our assessment of
market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure
of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such
borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from
borrowing to make investments will exceed the cost of such borrowing. As of December 31, 2023 and December 31, 2022, we had
cash and cash equivalents of $26.1 million and $48.0 million, respectively.

Credit Facility

On October 11, 2017, we entered into a senior secured revolving credit agreement, as amended, dated as of October 10, 2017,

that was amended and restated on December 21, 2021, February 28, 2022, May 13, 2022 and November 21, 2023, with Zions
Bancorporation, N.A., dba Amegy Bank and various other lenders.

The Credit Facility provides for borrowings up to a maximum of $260.0 million on a committed basis with an accordion feature
that allows us to increase the aggregate commitments up to $350.0 million, subject to new or existing lenders agreeing to participate in
the increase and other customary conditions.

Pursuant to the Third Amendment and Commitment Increase to the Amended and Restated Senior Secured Revolving Credit
Agreement, the Credit Facility will bear interest, subject to our election, on a per annum basis equal to (i) term SOFR plus 2.50% (or
2.75% during certain periods in which our asset coverage ratio is equal to or below 1.90 to 1.00) plus a SOFR credit spread
adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR floor, or (ii) 1.50% (or
1.75% during certain periods in which the our asset coverage ratio is equal to or below 1.90 to 1.00) plus an alternate base rate based
on the highest of the prime rate (subject to a 3% floor), Federal Funds Rate plus 0.50% and one-month term SOFR plus 1.00%. We
pay unused commitment fees of 0.50% per annum on the unused lender commitments under the Credit Facility. Interest is
payable monthly or quarterly in arrears. The commitment to fund the revolver expires on November 21, 2027, after which we may no
longer borrow under the Credit Facility and must begin repaying principal equal to 1/12 of the aggregate amount outstanding under
the Credit Facility each month. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest
thereunder will be due and payable, on November 21, 2028.

Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the
SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to:
(i) maintaining a minimum liquidity test of at least $10.0 million, including cash, liquid

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investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a minimum
stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of December 31, 2023, we
were in compliance with these covenants.

As of December 31, 2023 and December 31, 2022, the outstanding balance under the Credit Facility was $160.1 million and
$199.2 million, respectively. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value.
The fair value of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that
would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current
market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or
entities with similar credit risk, adjusted for nonperformance risk, if any. We have incurred costs of $6.6 million in connection with
the current Credit Facility, which were capitalized and are being amortized over the life of the facility. Additionally, $0.3 million of
costs from a prior credit facility will continue to be amortized over the life of the Credit Facility. As of December 31, 2023 and 2022,
$3.5 million and $1.5 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These
prepaid loan fees are presented on our Consolidated Statement of Assets and Liabilities as a deduction from the debt liability
attributable to the Credit Facility.

Interest is paid monthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on

the Credit Facility for the years ended December 31, 2023, 2022, and 2021 (dollars in millions):

Interest expense
Loan fee amortization
Total interest and financing expenses
Weighted average interest rate
Effective interest rate (including fee amortization)
Average debt outstanding
Cash paid for interest and unused fees

SBA-guaranteed debentures

$

December 31, 2023
 14.7
$
 0.7  
 15.4
$
 7.9 %    
 8.3 %    
$
$

 186.1
 14.5

$
$

For the year ended
December 31, 2022
 9.2
$
 0.6  
 9.8
$
 4.4 %    
 4.8 %    
$
$

 204.3
 9.0

December 31, 2021
 5.2
$
 0.6  
 5.8
 2.8 %  
 3.3 %  

 176.9
 5.3

Due to the SBIC subsidiaries’ status as licensed SBICs, we can issue debentures guaranteed by the SBA at favorable interest
rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding SBA-guaranteed debentures, subject to a
regulatory leverage limit, up to two times the amount of regulatory capital. As of both December 31, 2023 and 2022, the SBIC I
subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA. As of both December 31, 2023 and 2022, the
SBIC II subsidiary had $87.5 million in regulatory capital.

On August 12, 2014, we obtained exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures from
our asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the asset coverage test by
permitting us to borrow up to $325.0 million more than we would otherwise be able to absent the receipt of this exemptive relief.

On a stand-alone basis, the SBIC subsidiaries held $485.2 million and $470.7 million in assets at December 31, 2023 and 2022,
respectively, which accounted for approximately 53.4% and 52.4% of our total consolidated assets at December 31, 2023 and 2022,
respectively.

SBA-guaranteed debentures have fixed interest rates that equal prevailing 10-year Treasury Note rates plus a market spread and

have a maturity of ten years with interest payable semi-annually. The principal amount of the SBA-guaranteed debentures is not
required to be paid before maturity but may be pre-paid at any time with no prepayment penalty. As of December 31, 2023 and 2022,
the SBIC subsidiaries had $325.0 million and $250.0 of the SBA-guaranteed debentures outstanding, respectively. SBA-guaranteed
debentures drawn before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425%
issuance discount, which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after
October 1, 2019

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incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over
the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-
guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

As of December 31, 2023, the carrying amount of the SBA-guaranteed debentures was $320.3 million. At the measurement date,

the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $293.2 million. As of December
31, 2022, the carrying amount of the SBA-guaranteed debentures approximated their fair value. The fair value of the SBA-guaranteed
debentures is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a
liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value
of the SBA-guaranteed debentures is estimated based upon market interest rates for our own borrowings or entities with similar credit
risk, adjusted for nonperformance risk, if any. At December 31, 2023 and 2022, the SBA-guaranteed debentures would be deemed to
be Level 3, as defined in Note 6 to our Consolidated Financial Statements.

As of December 31, 2023 and 2022, we have incurred $11.1 million and $10.9 million in financing costs related to the SBA-
guaranteed debentures since the SBIC subsidiaries have received their licenses, respectively, which were recorded as prepaid loan
fees. As of December 31, 2023 and 2022, $4.7 million and $5.7 million of prepaid financing costs had yet to be amortized,
respectively. These prepaid loan fees are presented on the Consolidated Statement of Assets and Liabilities as a deduction from the
debt liability.

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the years ended

December 31, 2023, 2022, and 2021 (dollars in millions):

Interest expense
Debenture fee amortization
Total interest and financing expenses
Weighted average interest rate
Effective interest rate (including fee amortization)
Average debt outstanding
Cash paid for interest

Notes Offering

$

December 31, 2023
 10.0
$
 1.3  
 11.3
$
 3.2 %    
 3.5 %    
$
$

 318.8
 9.6

$
$

For the year ended
December 31, 2022
 8.2
$
 1.2  
 9.4
$
 2.8 %    
 3.3 %    
$
$

 288.2
 7.4

December 31, 2021
 6.4
$
 1.1  
 7.5
 2.8 %  
 3.3 %  

 227.8
 5.9

On August 21, 2017, we issued $42.5 million in aggregate principal amount of 5.75% fixed-rate notes due September 15, 2022

(the “2022 Notes”). On September 8, 2017, we issued an additional $6.4 million in aggregate principal amount of the 2022
Notes pursuant to a full exercise of the underwriters’ overallotment option. On January 13, 2021, we caused notices to be issued to the
holders of our 2022 Notes regarding our exercise of our option to redeem all of the issued and outstanding 2022 Notes, pursuant to the
Second Supplemental Indenture dated as of August 21, 2017, between us and U.S. Bank National Association, as trustee. We
redeemed all $48.9 million in aggregate principal amount of the 2022 Notes on February 12, 2021. The 2022 Notes were redeemed at
100% of their principal amount, plus the accrued and unpaid interest thereon through the redemption date. As a result of the
redemption, we recognized a loss on debt extinguishment of $0.5 million due to the write off of the remaining deferred financing costs
on the 2022 Notes. This loss is included in the Consolidated Statement of Operations for the year ended December 31, 2021.

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The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the year ended

December 31, 2021 (in millions):

Interest expense
Deferred financing costs
Total interest and financing expenses
Loss on extinguishment of debt(1)
Weighted average interest rate(2)
Effective interest rate (including fee amortization)(2)
Average debt outstanding(3)
Cash paid for interest

For the year ended
December 31, 2021

$

$

$
$

 0.3
 0.1
 0.4
 0.5
 5.7 %
 6.4 %
 48.9
 0.5

(1) The loss on debt extinguishment is not included in interest expense or net investment income.
(2) Excludes the loss on debt extinguishment.
(3) For the year ended December 31, 2021, the average is calculated for the period January 1, 2021 through February 12, 2021, the

repayment date of the 2022 Notes.

On January 14, 2021, we issued $100.0 million in aggregate principal amount of the 2026 Notes. The 2026 Notes will mature on

March 30, 2026 and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31,
2025 at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest on the 2026 Notes is
payable semi-annually beginning September 30, 2021.

We used the net proceeds from the 2026 Notes offering to fully redeem the 2022 Notes and repay a portion of the amount

outstanding under the Credit Facility.

Prior to their redemption on February 12, 2021, the 2022 Notes were listed on New York Stock Exchange under the trading

symbol “SCA”. The 2026 Notes are institutional, non-traded notes. As of December 31, 2023, the carrying amount of the 2026
Notes was $99.0 million. At the measurement date, the estimated fair value of the 2026 Notes as prepared for disclosure purposes was
$93.0 million.

In connection with the issuance and maintenance of the 2026 Notes, we incurred $2.3 million of fees, which are being amortized

over the term of the 2026 Notes. As of December 31, 2023 and December 31, 2022, $1.0 million and $1.5 million remained to be
amortized, respectively. These financing costs are presented on the Consolidated Statement of Assets and Liabilities as a deduction
from the debt liability.

The following table summarizes the interest expense and deferred financing costs on the 2026 Notes for the years ended

December 31, 2023, 2022, and 2021 (in millions):

Interest expense
Deferred financing costs
Total interest and financing expenses
Weighted average interest rate
Effective interest rate (including fee amortization)
Average debt outstanding
Cash paid for interest

$

December 31, 2023
 4.9
$
 0.4  
 5.3
$
 4.9 %    
 5.3 %    
$
$

 100.0
 4.9

$
$

$

For the years ended
December 31, 2022
 4.9
$
 0.4  
 5.3
$
 4.9 %    
 5.3 %    
$
$

 100.0
 4.9

December 31, 2021
 4.7
 0.4
 5.1
 4.9 %(1)
 5.3 %(1)

 100.0 (1)
 3.5

(1) Calculated for the period from January 14, 2021, the date of the 2026 Notes offering, through December 31, 2021.

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Contractual Obligations

Credit Facility payable
2026 Notes payable
SBA-guaranteed debentures

Total

Off-Balance Sheet Arrangements

     Total

2024

2025

2026
(in millions)

2027

2028

2029 and
     thereafter

$  160.1   $
 100.0  
 325.0  

$  585.1

$

 — $
 —  
 26.0  

 —   $
 —  
 —  
 — $  26.0

 100.0
 39.0
$  139.0

 — $  13.3   $  146.7   $

 —
 —
$  13.3

 —  

 82.5
$  229.2

 —
 —
 177.5
$  177.5

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial

needs of our portfolio companies. As of December 31, 2023, our only off-balance sheet arrangements consisted of $36.7 million of
unfunded commitments to provide debt financing to 56 existing portfolio companies and $0.3 million in unfunded equity
commitments to one existing portfolio company. As of December 31, 2022, our only off-balance sheet arrangements consisted of
$27.5 million of unfunded commitments to provide debt financing to 52 existing portfolio companies and $0.3 million in unfunded
equity commitments to one existing portfolio company. As of December 31, 2023, we had sufficient liquidity (through cash on hand
and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.

RIC Status and Dividends

We have elected, qualified, and intend to continue to qualify annually to be treated for U.S. federal income tax purposes as a RIC
under Subchapter M of the Code. So long as we maintain our qualification as a RIC, we will not be subject to U.S. federal income tax
on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are
distributed, or deemed to be distributed, to stockholders as dividends on a timely basis.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences

in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized.
Distributions declared and paid by us in a year may differ from taxable income for that year as such dividends may include the
distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the
current year. Distributions also may include returns of capital.

To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our

investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of
realized net long-term capital losses, if any). If we maintain our qualification as a RIC, we must also satisfy certain distribution
requirements each calendar year to avoid a U.S. federal excise tax on our undistributed earnings of a RIC. As of December 31, 2023,
we had $37.0 million of undistributed taxable income that will be carried forward toward distributions paid during the year ending
December 31, 2024. As of December 31, 2022, we had $28.6 million of undistributed taxable income that was carried forward
toward distributions paid during the year ending December 31, 2023.

We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable
interest and fee income). However, the covenants contained in the Credit Facility may prohibit us from making distributions to our
stockholders, and, as a result, could hinder our ability to satisfy the Annual Distribution Requirement. In addition, we may retain for
investment some or all our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term
capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if
they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in shares of our
common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their
allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal
taxable year fall

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below the total amount of our dividends for that fiscal year, a portion of those dividend distributions may be deemed a return of
capital to our stockholders.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the
amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset
coverage test for borrowings applicable to us as a BDC under the 1940 Act and due to provisions in the Credit Facility. We cannot
assure stockholders that they will receive any distributions or distributions at a particular level.

In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service

(the “IRS”), a publicly offered RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each
stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the
aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many
stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance
of the distribution paid in shares of our common stock). In no event will any stockholder, electing to receive cash, receive less than
20% of his or her entire distribution in cash, except as described below.

If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in shares
of our common stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention
of paying dividends in shares of our common stock in accordance with these U.S. Treasury regulations or private letter rulings.
However, we continue to monitor the Company’s liquidity position and the overall economy and will continue to assess whether it
would be in our and our stockholders’ best interest to take advantage of the IRS rulings.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements contained herein for a description of recent accounting pronouncements, if

any, including the expected dates of adoption and the anticipated impact on the financial statements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial
Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation
of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used
in determining such estimates could cause actual results to differ materially.

For a description of our critical accounting policies, see Note 1, “Summary of Significant Accounting Policies” to our

Consolidated Financial Statements included in this report. We consider the most significant accounting policies to be those related to
our Valuation of Portfolio Investments and Revenue Recognition.

Investment Portfolio Valuation

The most significant determination inherent in the preparation of our Consolidated Financial Statements is the valuation of our

investment portfolio and the related amounts of unrealized appreciation and depreciation. We consider this determination to be a
critical accounting estimate, given the significant judgments and subjective measurements required. As of December 31, 2023 and
2022, our investment portfolio valued at fair value represented approximately 96% and 94% of our total assets, respectively. We are
required to report our investments at fair value. We follow the provisions of ASC 820. ASC 820 defines fair value, establishes a
framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and
enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to be
sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined
as buyers and

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sellers in the principal market that are independent, knowledgeable and willing and able to transact. See Note 1 to the Consolidated
Financial Statements contained herein for a detailed discussion of our investment portfolio valuation process and procedures.

Due to the inherent uncertainty in the valuation process, our determination of fair value for our investment portfolio may differ
materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the
market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the
gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine
the fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.

We believe our investment portfolio as of December 31, 2023 and 2022 approximates fair value as of those dates based on the

markets in which we operate and other conditions in existence on those reporting dates.

Subsequent Events

Investment Portfolio

We invested in the following portfolio companies subsequent to December 31, 2023:

Activity Type     
Add-On
Investment
Add-On
Investment

Add-On
Investment
Add-On
Investment
Add-On
Investment
Add-On
Investment
Add-On
Investment

Date

Company Name
January 5, 2024 Whisps Holdings LP*

Company Description

Manufacturer of cheese-based snacks

January 8, 2024

EH Real Estate Services,
LLC*

January 9, 2024 Morgan Electrical Group

Offers residential property brokerage, title & settlement,
and property and casualty insurance brokerage services
to home buyers and sellers
Provider of commercial electrical services

January 31, 2024

January 12, 2024

Intermediate Holdings, Inc.*
Impact Home Services
LLC*
Impact Home Services
LLC*
Unicat Catalyst Holdings,
LLC*
February 28, 2024 Monitorus Holding, LLC*

February 7, 2024

Residential garage door, electrical, and plumbing
services provider
Residential garage door, electrical, and plumbing
services provider
Manufacturer and distributor of catalysts and other
industrial products
Provider of media monitoring and evaluation services

Investment
Amount

Instrument
Type

$

 75,192 Equity

$  475,233

Senior
Secured – 
First Lien

$

$

$

$

$

 23,531 Equity

 50,914 Equity

 22,331 Equity

 7,032

Equity

 13,290 Equity

*

Existing portfolio company

We realized an investment in following portfolio company subsequent to December 31, 2023:

Activity Type   
Full Repayment

Date
January 8, 2024

Company Name
Peltram Plumbing Holdings,
LLC*

Company Description

Proceeds Received

Provider of plumbing
solutions.

$

 16,160,003

 Instrument Type
Senior Secured – First
Lien

*

Existing portfolio company

Credit Facility

The outstanding balance of our the Credit Facility as of March 4, 2024 was $148.5 million.

SBA-guaranteed Debentures

The outstanding balance under SBA-guaranteed debentures as of March 4, 2024 was $325.0 million.

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Dividend Declared

On January 13, 2024, our Board declared a regular monthly distribution for each of January, February and March 2024 as

follows:

Declared
1/13/2024
1/13/2024
1/13/2024

Ex-Dividend
Date
1/30/2024
2/28/2024
3/28/2024

Record
Date
1/31/2024
2/29/2024
3/29/2024

Payment
Date
2/15/2024
3/15/2024
4/15/2024

Amount per
Share

$
$
$

 0.1333
 0.1333
 0.1333

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. In connection with the COVID-19 pandemic, the U.S.

Federal Reserve (the “Federal Reserve”) and other central banks had reduced certain interest rates. However, in March 2022, the
Federal Reserve raised interest rates for the first time since December 2018, and subsequently raised interest rates several times, most
recently in July 2023, bringing the target for the federal funds rate to 5.25% - 5.50%, the highest since January 2001. As of December
31, 2023 and December 31, 2022, 98% and 97% of the loans in our portfolio bore interest at floating rates, respectively. These
floating rate loans typically bear interest in reference to SOFR, which is indexed to 30-day or 90-day SOFR rates, subject to an
interest rate floor. As of December 31, 2023 and December 31, 2022, the weighted average interest rate floor on our floating rate
loans was 1.26% and 1.07%, respectively.

On July 1, 2023, the publication of all LIBOR settings as representative rates has ceased. As of December 31, 2023, we have

facilitated an orderly transition of our LIBOR-based investments to SOFR.

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Assuming that the Consolidated Statement of Assets and Liabilities as of December 31, 2023 were to remain constant and no
actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes
in interest rates:

Change in Basis Points(2)
Up 200 basis points
Up 150 basis points
Up 100 basis points
Up 50 basis points
Down 50 basis points
Down 100 basis points
Down 150 basis points
Down 200 basis points

Interest
Income

($ in millions)
Interest
Expense(3)

Net Interest
Income(1)

$

$

 15.9
 11.9
 8.0
 4.0
 (4.0)
 (8.0)
 (11.9)
 (15.9)

$

 (3.2)
 (2.4) 
 (1.6) 
 (0.8) 
 0.8
 1.6
 2.4
 3.2

 12.7
 9.5
 6.4
 3.2
 (3.2)
 (6.4)
 (9.5)
 (12.7)

(1) Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note 2 to the Consolidated

Financial Statements contained herein for more information on the incentive fee.

(2) At December 31, 2023, the three-month SOFR rate was 533 basis points. This table assumes floating rates would not fall below

zero.
Includes the impact of the 25 bps SOFR floor in place on the Credit Facility.

(3)

Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential
changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect
net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ
materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard
hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging
activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of
lower interest rates with respect to our portfolio of investments. For the years ended December 31, 2023 and 2022, we did not engage
in interest rate hedging activities.

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Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

Report of Independent Registered Public Accounting Firm (Grant Thornton LLP, Dallas, Texas, PCAOB ID Number 248)
Statements of Assets and Liabilities as of December 31, 2023 and December 31, 2022
Statements of Operations for the years ended December 31, 2023, 2022, and 2021
Statements of Changes in Net Assets for the years ended December 31, 2023, 2022, and 2021
Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Schedule of Investments as of December 31, 2023 and December 31, 2022
Notes to Financial Statements

Page

97
99
100
101
102
103
128

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders 
Stellus Capital Investment Corporation

Opinion on the financial statements

We have audited the accompanying consolidated statements of assets and liabilities of Stellus Capital Investment Corporation (a

Maryland corporation) and subsidiaries (the “Company”), including the consolidated schedule of investments, as of December 31,
2023 and 2022, the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in
the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity
with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on

the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our procedures included verification by confirmation of securities
as of December 31, 2023 and 2022, by correspondence with portfolio companies or agents, or by other appropriate auditing
procedures where replies were not received. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.

Fair value of investments

As described further in Note 6 to the financial statements, the Company had investments in portfolio companies with a fair value

of $874,460,683. Investment values are based on prices or valuation techniques that require inputs that are significant and
unobservable. The determination of fair value also requires management judgement. As such, we identified fair value of investments
as a critical audit matter.

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The principal considerations for our determination that the fair value of investments is a critical audit matter are that the assets are

valued using unobservable inputs, which are considered level 3 in nature under the valuation hierarchy of US GAAP. In addition,
investments at fair value is material to the financial statements, and there is a high level of judgement in determining the fair value. As
a result, obtaining sufficient appropriate audit evidence related to the fair value measurement required significant auditor judgement.

Our audit procedures related to the fair value of investments included the following, among others.

●

Testing the design and operating effectiveness of certain relevant controls over management’s process relating to the fair
value measurement of investments.

● With the assistance of internal valuation specialists to evaluate and test management’s process to develop valuation

estimates, we performed audit procedures to determine that the data, methods, and assumptions used to determine
investment fair value was reasonable for a selection of investments. We also tested the mathematical accuracy of investment
valuations for a selection of investments. Certain key inputs/assumptions tested by us included one or more of the following,
among others:

● Discount rate

● Credit yields

● Market multiples

● Revenue and EBITDA multiples

● Weighting between valuation techniques,

In testing the inputs/assumptions above, we considered available third-party market information, current economic conditions,
and client specific source information.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2012.

Dallas, Texas 
March 4, 2024

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PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

ASSETS

Control investments at fair value (amortized cost of $17,285,138 and $0, respectively)
Non-controlled, non-affiliated investments, at fair value (amortized cost of $884,858,412
and $875,823,177, respectively)
Cash and cash equivalents
Receivable for sales and repayments of investments
Interest receivable
Income tax receivable
Other receivables
Deferred offering costs
Prepaid expenses
Total Assets
LIABILITIES

2026 Notes payable
Credit Facility payable
SBA-guaranteed debentures
Management fees payable
Income incentive fees payable
Capital gains incentive fees payable
Interest payable
Related party payable
Unearned revenue
Administrative services payable
Income tax payable
Deferred tax liability
Other accrued expenses and liabilities

Total Liabilities

Commitments and contingencies (Note 7)
Net Assets
NET ASSETS

Common stock, par value $0.001 per share (100,000,000 shares authorized; 24,125,642
and 19,666,769 issued and outstanding, respectively)
Paid-in capital
Total distributable (loss) earnings

Net Assets

Total Liabilities and Net Assets
Net Asset Value Per Share

99

December 31, 2023      December 31, 2022

$

6,175,994

$

—

868,284,689
26,125,741
371,877
4,882,338
1,588,708
42,995
7,312
606,674
908,086,328

98,996,412
156,564,776
320,273,358
2,918,536
2,885,180

$

$

—  

5,241,164

—  

397,725
402,151

—  

188,893
278,345
588,146,540

319,939,788

24,125
335,918,984
(16,003,321)
319,939,788
908,086,328
13.26

$

$

$

$
$
$

$

$

$

$

$

$
$
$

844,733,638
48,043,329
718,794
3,984,409
—
34,245
1,100
667,267
898,182,782

98,549,692
197,685,281
307,895,195
7,150,407
2,464,408
569,528
4,640,841
1,060,321
320,675
356,919
1,175,373
61,936
475,593
622,406,169

275,776,613

19,667
275,114,720
642,226
275,776,613
898,182,782
14.02

   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

INVESTMENT INCOME
From control investments:

Interest income

From non-controlled, non-affiliated investments

Interest income
Other income

Total Investment Income

OPERATING EXPENSES

Management fees
Valuation fees
Administrative services expenses
Income incentive fees
Capital gains incentive (reversal) fee
Professional fees
Directors’ fees
Insurance expense
Interest expense and other fees
Income tax expense
Other general and administrative expenses

Total Operating Expenses
Income incentive fee waiver
Total Operating Expenses, net of fee waivers
Net Investment Income
Net realized loss on non-controlled, non-affiliated investments
Net realized loss on foreign currency translation
Loss on debt extinguishment
Net change in unrealized depreciation on control investments
Net change in unrealized appreciation (depreciation) on non-controlled, non-
affiliated investments
Net change in unrealized (depreciation) appreciation on foreign currency
translation
(Provision) benefit for taxes on net unrealized (appreciation) depreciation on
investments
Benefit (provision) for taxes on net realized loss (gain) on investments
Net Increase in Net Assets Resulting from Operations
Net Investment Income Per Share—basic and diluted
Net Increase in Net Assets Resulting from Operations Per Share – basic and
diluted
Weighted Average Shares of Common Stock Outstanding—basic and
diluted
Distributions Per Share—basic and diluted

100

For the years ended
December 31, 2023 December 31, 2022 December 31, 2021

$

$

$

$

$
$
$

$
$

$

$

37,897 $

— $

—

101,978,891
3,830,780
105,847,568 $

15,452,347 $
373,628
1,908,191
10,189,888
(569,528)
1,455,372
406,000
492,596
32,011,317
1,333,452
891,170
63,944,433 $
(307,442)
63,636,991 $
42,210,577 $
(30,211,467) $
(112,481)
—
(430,577)

72,964,999
2,147,577
75,112,576 $

14,848,174 $
351,752
1,810,576
3,782,151
(2,818,623)
1,103,693
329,000
503,907
24,469,285
1,161,668
984,309
46,525,892 $

—

46,525,892 $
28,586,684 $
3,660,595 $
(6,091)
—
—

61,536,686
2,142,308
63,678,994

13,169,606
313,437
1,798,966
3,043,470
2,867,131
1,082,917
315,000
482,140
18,721,058
1,102,374
1,006,428
43,902,527
—
43,902,527
19,776,467
23,710,167
—
(539,250)
—

3,222,729

(17,542,230)

(6,928,160)

(6,504)

6,040

—

(126,957)
2,987,847
17,533,167

(213,214)
—
14,491,784

1.92 $

0.80 $

1.46 $

0.74 $

510,868
(2,957,220)
33,572,872
1.01

1.72

22,004,648  
1.61 $

19,552,931  
1.30 $

19,489,750
1.14

   
   
  
 
 
    
    
  
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

Balances as of December 31, 2020
Net investment income
Net realized gain on investments
Loss on debt extinguishment
Net change in unrealized depreciation on investments
Benefit for taxes on unrealized depreciation on investments
Provision for taxes on realized gain on investments
Return of capital and other tax related adjustments
Distributions from net investment income
Distributions from net realized capital gains
Issuance of common stock, net of offering costs(1)
Balances at December 31, 2021
Net investment income
Net realized gain on investments
Net realized loss on foreign currency translation
Net change in unrealized depreciation on investments
Net change in unrealized appreciation on foreign currency translations
Provision for taxes on unrealized appreciation on investments
Return of capital and other tax related adjustments
Distributions from net investment income
Distributions from net realized capital gains
Issuance of common stock, net of offering costs(1)
Balances at December 31, 2022
Net investment income
Net realized loss on investments
Net realized loss on foreign currency translation
Net change in unrealized appreciation on investments
Net change in unrealized depreciation on foreign currency translations
Provision for taxes on unrealized appreciation on investments
Benefit for taxes on realized loss on investments
Return of capital and other tax related adjustments
Distributions from net investment income
Distributions from net realized capital gains
Issuance of common stock, net of offering costs(1)
Balances at December 31, 2023

Common Stock

Number 

Par 

     of shares      value     

19,486,003

$ 19,486

Paid-in 
capital
$ 276,026,667

Total
distributable

     (loss) earnings      Net Assets

—  
—  
—
—

—  
—  
—
—

$
—  
—  
—  
—  

—  
—  
—  
—  

31,592
19,517,595
—
—
—
—
—
—
—
—
—  

—  
—  
—  
—  
32
$ 19,518
—
—
—
—
—
—
—
—
—  

—
(1,861,213)

—  
—  

$

393,667
$ 274,559,121
—
—
—
—
—
—
(1,040,884)
—
—  

$

149,174
19,666,769
—
—
—
—
—
—
—  
—
—
—  

149
$ 19,667
—
—
—
—
—
—
—  
—
—
—  

1,596,483
$ 275,114,720
—
—
—
—
—
—
—
(1,348,766)
—
—  

4,458,873
24,125,642

4,458
$ 24,125

62,153,030
$ 335,918,984

(2,685,504) $ 273,360,649
19,776,467
19,776,467
23,710,167
23,710,167
(539,250)
(539,250)
(6,928,160)
(6,928,160)
510,868
510,868
(2,957,220)
(2,957,220)
—
1,861,213
(21,201,567)
(21,201,567)
(1,014,420)
(1,014,420)
393,699
—
$ 285,111,233
10,532,594
28,586,684
28,586,684
3,660,595
3,660,595
(6,091)
(6,091)
(17,542,230)
(17,542,230)
6,040
6,040
(213,214)
(213,214)
—
1,040,884
(21,633,343)
(21,633,343)
(3,789,693)
(3,789,693)
1,596,632
$ 275,776,613
42,210,577
(30,211,467)
(112,481)
2,792,152
(6,504)
(126,957)
2,987,847
—
(35,080,734)
(446,746)
62,157,488
$ 319,939,788

642,226
42,210,577
(30,211,467)
(112,481)
2,792,152
(6,504)
(126,957)
2,987,847
1,348,766
(35,080,734)
(446,746)

—  

—  

$ (16,003,321)

(1) See Note 4 to the Consolidated Financial Statements contained herein for more information on offering costs.

101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities
Net increase in net assets resulting from operations

Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:

Purchases of investments
Proceeds from sales and repayments of investments
Net change in unrealized (appreciation) depreciation on investments
Net change in unrealized depreciation (appreciation) on foreign currency translations
Increase in investments due to PIK
Amortization of premium and accretion of discount, net
Deferred tax provision (benefit)
Amortization of loan structure fees
Amortization of deferred financing costs
Amortization of loan fees on SBA-guaranteed debentures
Net realized loss (gain) on investments
Loss on debt extinguishment

Changes in other assets and liabilities

Increase in interest receivable
Increase in income tax receivable
(Increase) decrease in other receivables
Decrease (increase) in prepaid expenses
(Decrease) increase in management fees payable
Increase in income incentive fees payable
(Decrease) increase in capital gains incentive fees payable
Increase (decrease) in administrative services payable
Increase in interest payable
(Decrease) increase in related party payable
Increase (decrease) in unearned revenue
(Decrease) increase in income tax payable
(Decrease) increase in other accrued expenses and liabilities

Net Cash Used in Operating Activities
Cash flows from Financing Activities

Proceeds from the issuance of common stock
Sales load for common stock issued
Offering costs paid for common stock issued
Stockholder distributions paid
Repayment of Notes
Proceeds from issuance of Notes
Financing costs paid on Notes
Proceeds from SBA-guaranteed debentures
Financing costs paid on SBA-guaranteed debentures
Financing costs paid on Credit facility
Borrowings under Credit Facility
Repayments of Credit Facility
Partial share redemption

Net Cash (Used) Provided by Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents Balance at Beginning of Period
Cash and Cash Equivalents Balance at End of Period
Supplemental and Non-Cash Activities

Cash paid for interest expense
Income and excise tax paid
(Decrease) increase in distributions payable
Increase (decrease) in deferred offering costs
Gain on conversion of equity investment
Exchange of investments

102

For the years ended
December 31, 2023 December 31, 2022 December 31, 2021

$

17,533,167 $

14,491,784 $

33,572,872

(183,858,762)
134,223,224
(2,792,152)
6,360
(3,799,843)
(2,749,543)
126,957
657,323
446,720
1,255,753
30,211,467
—

(897,929)
(1,588,708)
(8,750)
60,593
(4,231,871)
420,772
(569,528)
45,232
600,323
(1,060,321)
77,050
(1,175,373)
(197,248)
(17,265,087) $

63,348,436 $
(943,248)
(253,913)
(35,527,480)
—
—
—
11,400,000
(277,590)
(2,663,106)
108,400,000
(148,135,600)
—

(4,652,501) $
(21,917,588) $
48,043,329
26,125,741 $

29,051,198 $
2,508,825
—
6,212
—
3,610,846

(211,010,869)
127,548,194
17,542,230
(5,897)
(1,357,177)
(2,519,462)
213,214
567,375
446,719
1,227,952
(3,660,595)
—

(1,039,810)
—
20,507
(155,053)
3,696,182
715,278
(2,818,623)
(29,449)
947,179
1,060,321
(209,051)
(2,094,141)
136,635
(56,286,557) $

2,158,540 $
(31,066)
(517,054)
(26,594,095)
—
—
—
63,600,000
(1,548,660)
(193,635)
149,888,800
(126,607,800)
—

60,155,030 $
3,868,473 $

44,174,856
48,043,329 $

21,280,060 $
3,255,809
(1,171,059)
(13,788)
—
—

(387,281,160)
287,639,512
6,928,160
—
(939,030)
(2,412,991)
(510,868)
518,930
444,153
1,088,132
(23,703,499)
539,250

(755,151)
—
(29,257)
(25,026)
628,903
1,067,470
2,867,130
(5,123)
1,549,577
—
6,302
2,544,749
164,227
(76,102,738)

449,515
(2,489)
(53,327)
(21,044,928)
(48,875,000)
100,000,000
(2,237,835)
73,500,000
(3,139,725)
(136,219)
268,700,000
(265,360,000)
—
101,799,992
25,697,254
18,477,602
44,174,856

15,099,656
1,445,000
1,171,059
(75,112)
6,668
—

$

$

$
$

$

$

   
   
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
    
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
    
  
 
 
 
 
 
Table of Contents

Investments
Control investments (23)
EH Real Estate Services, LLC
Term Loan A-1 (SBIC)
Term Loan A-2 (SBIC)
Term Loan A-2
Term Loan A-3 (SBIC)
Term Loan A-3
Term Loan A-4 (SBIC)
Term Loan A-4
Revolver
EH Holdco, LLC Common Units
EH Holdco, LLC Series A Preferred Units
Total
Total Control investments
Non-control, non-affiliated investments
2X LLC
Term Loan
Term Loan
2X Investors LP Class A Units
Total
Ad.Net Acquisition, LLC
Term Loan (SBIC II)
Revolver
Ad.Net Holdings, Inc. Series A Common Stock
(SBIC II)
Ad.Net Holdings, Inc. Series A Preferred Stock
(SBIC II)
Total
AdCellerant LLC

Footnotes
(4)(5)
(22)
(4)(16)
(4)(16)
(16)
(4)(16)
(16)
(4)(16)
(16)
(16)

(4)(5)
(9)
(11)
(11)

(9)
(5)(11)
(11)

(5)

(5)

(9)

AdCellerant Holdings, LLC Series A Units
Total
ADS Group Opco, LLC
Term Loan (SBIC II)
Revolver
ADS Group Topco, LLC Class A Units
ADS Group Topco, LLC Class B Units
ADS Group Topco, LLC Class Y Units
ADS Group Topco, LLC Class Z Units
Total
Advanced Barrier Extrusions, LLC

(5)(11)
(11)

Equity

1st Lien
1st Lien
Equity
Equity
Equity
Equity

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Security(2)

Coupon

Floor

Cash

PIK

   Investment   
Date

  Maturity

Headquarters/ 
Industry

1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
Equity
Equity

1st Lien
1st Lien
Equity

1st Lien
1st Lien

Equity

Equity

Skokie, IL
FIRE: Real Estate

10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%

- %
- %
- %
- %
- %
- %
- %
- %

- % 9/3/2021
- % 4/3/2023
- % 4/3/2023
- % 6/7/2023
- % 6/7/2023
- % 7/12/2023
- % 7/12/2023
- % 10/3/2023
10/3/2023
9/3/2021

9/3/2026
9/3/2026
9/3/2026
9/3/2026
9/3/2026
9/3/2026
9/3/2026
9/3/2026

3M SOFR+ 6.50 % 2.00 % 11.85 %
3M SOFR+ 6.50 % 2.00 % 11.85 %

6/5/2023
10/31/2023
6/5/2023

6/5/2028
6/5/2028

Berwyn, PA
Services: Business

3M SOFR+ 6.00 % 1.00 % 11.61 %
3M SOFR+ 6.00 % 1.00 % 11.61 %

Los Angeles, CA
Services: Business

5/7/2026
5/7/2026

5/7/2021
5/7/2021

5/7/2021

5/7/2021

Denver, CO
Media: Advertising,
Printing & Publishing

3M SOFR+ 6.75 % 2.00 % 12.20 %
3M SOFR+ 6.75 % 2.00 % 12.20 %

Lakewood, CO
Aerospace & Defense

6/4/2026
6/4/2026

12/12/2023

6/4/2021
6/4/2021
6/4/2021
6/4/2021
4/11/2023
6/15/2022

Term A Loan (SBIC II)

(5)(11)

1st Lien

1M SOFR+ 6.00 % 2.00 % 11.35 %

12/12/2023

12/12/2028

Rhinelander, WI
Containers, Packaging, &
Glass

Term Loan B (SBIC)

(4)(11)

1st Lien

1M SOFR+ 7.50 % 1.00 % 12.88 %

11/30/2020

11/30/2026

GP ABX Holdings Partnership, L.P. Partner
Interests
GP ABX Holdings Partnership, L.P. Series B
Preferred Interests
Total
American Refrigeration, LLC
Term Loan (SBIC)
AR-USA Holdings, LLC Class A Units
Total

Equity

Equity

1st Lien
Equity

(9)
(4)(11)

8/8/2018

1/5/2023

3M SOFR+ 6.25 % 1.50 % 11.60 %

3/31/2023
3/31/2023

3/31/2028

Jacksonville, FL
Services: Business

103

   Amortized

Cost

Fair 
Value(1)

% of  
Net  
Assets

Principal
Amount/
Shares(3)

$ 5,337,200
$ 1,140,558
570,279
$
392,910
$
$
196,455
$ 1,003,691
501,846
$
332,190
$
15,356
7,892

$ 5,486,458
$ 1,444,767

58,949

5,255,564
1,140,558
570,279
392,910
196,455
1,003,691
501,846
332,190
3
7,891,642
$ 17,285,138
$ 17,285,138

5,361,018
1,409,607
589,496
7,360,121

$

3,042,204
650,118
325,059
223,959
111,979
993,654
496,828
332,190
3
-
6,175,994
6,175,994

5,431,593
1,430,319
644,844
7,506,756

$
$

$

$ 15,198,529
$

649,510

15,079,548
649,510

15,198,529
649,510

7,794

7,015

77,941

58,566

701,471

527,094

$ 16,508,470

$ 16,433,699

$ 10,000,000

9,802,403

9,802,403

728,710

728,710
$ 10,531,113

728,710
$ 10,531,113

$ 14,250,000
$

100,000
77,626
56,819
23,859
72,043

14,095,019
100,000
288,691
211,309
88,733
267,929
$ 15,051,681

14,178,750
99,500
-
-
112,626
-
$ 14,390,876

$ 16,975,000

16,789,930

15,447,250

644,737

528,395

-

1,139

113,927

92,305

$ 17,432,252

$ 15,539,555

$ 8,213,610

141

8,031,788
141,261
8,173,049

$

8,213,610
220,296
8,433,906

$

0.95 %
0.20 %
0.10 %
0.07 %
0.04 %
0.31 %
0.16 %
0.10 %
0.00 %
0.00 %
1.93 %
1.93 %

1.70 %
0.45 %
0.20 %
2.35 %

4.75 %
0.20 %

0.02 %

0.16 %

5.13 %

3.06 %

0.23 %
3.29 %

4.43 %
0.03 %
0.00 %
0.00 %
0.04 %
0.00 %
4.50 %

4.83 %

0.00 %

0.03 %

4.86 %

2.57 %
0.07 %
2.64 %

  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
Table of Contents

Investments
Amika OpCo LLC

Term Loan

Term Loan
Ishtar Co-Invest-B LP Partnership Interests
Oshun Co-Invest-B LP Partnership Interests
Total
Anne Lewis Strategies, LLC
Term Loan (SBIC II)
Term Loan (SBIC II)
SG AL Investment, LLC Common Units
SG AL Investment, LLC Common-A Units
Total
APE Holdings, LLC

Class A Units

Total
Atmosphere Aggregator Holdings II, L.P.
Common Units
Stratose Aggregator Holdings, L.P. Common
Units
Total
ArborWorks, LLC
Term Loan
Revolver
ArborWorks Intermediate Holdco, LLC Class
A-1 Preferred Units
ArborWorks Intermediate Holdco, LLC Class
B-1 Preferred Units
ArborWorks Intermediate Holdco, LLC Class
A-1 Common Units
Total
Archer Systems, LLC
CF Arch Holdings LLC Class A Units
Total
Axis Portable Air, LLC
Term Loan (SBIC II)
Term Loan (SBIC II)
Delayed Draw Term Loan
Axis Air Parent, LLC Preferred Units
Total
Baker Manufacturing Company, LLC

Term Loan (SBIC II)

BSC Blue Water Holdings, LLC Series A Units
(SBIC II)
Total
BLP Buyer, Inc.
BL Products Parent, L.P. Class A Units
Total
Café Valley, Inc.

Term Loan

CF Topco LLC Units
Total
Camp Profiles LLC

Term Loan (SBIC)

CIVC VI-A 829 Blocker, LLC Units
Total

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Footnotes
(9)

(11)

(11)
(6)

(9)
(5)(11)
(5)(11)
(6)

(21)
(11)(17)
(11)(17)

(9)
(5)(11)
(5)(11)
(11)

(5)(10)
(12)

(5)

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

1st Lien

6M SOFR+ 5.25 % 0.75 % 10.87 %

7/1/2022

7/1/2029

1st Lien
Equity
Equity

1st Lien
1st Lien
Equity
Equity

Equity

Equity

Equity

1st Lien
1st Lien

Equity

Equity

Equity

Equity

1st Lien
1st Lien
1st Lien
Equity

6M SOFR+ 5.75 % 0.75 % 11.24 %

3M SOFR+ 7.00 % 2.00 % 12.35 %
3M SOFR+ 7.00 % 2.00 % 12.35 %

7/1/2029

5/9/2028
5/9/2028

12/5/2023
7/1/2022
7/1/2022

3/5/2021
4/15/2022
3/5/2021
12/22/2023

9/5/2014

1/26/2016

6/30/2015

3M SOFR+ 6.50 % 1.00 %
15.00%

- %
- %

- % 11/6/2023
- % 11/6/2023

11/6/2028
11/6/2028

11/6/2023

11/6/2023

11/6/2023

8/10/2022

3/22/2022
4/17/2023
3/22/2022
3/22/2022

3/22/2028
3/22/2028
3/22/2028

3M SOFR+ 5.75 % 2.00 % 11.25 %
3M SOFR+ 5.75 % 2.00 % 11.25 %
3M SOFR+ 5.75 % 1.00 % 11.25 %

1st Lien

3M SOFR+ 5.25 % 1.00 % 11.42 %

7/5/2022

7/5/2027

Equity

Equity

7/5/2022

2/1/2022

(11)

1st Lien

3M SOFR+ 7.24 % 2.00 % 12.59 %

8/28/2019

8/28/2025

Equity

8/28/2019

(9)

(4)(11)

1st Lien

3M SOFR+ 5.25 % 1.00 % 10.75 %

9/3/2021

9/3/2026

Equity

9/3/2021

Headquarters/ 
Industry
Brooklyn, NY
Consumer Goods: Non-
Durable

Washington, DC
Services: Business

Deer Park, TX
Chemicals, Plastics, &
Rubber

Atlanta, GA
Services: Business

Oakhurst, CA
Environmental Industries

Houston, TX
Services: Business

Phoenix, AZ
Capital Equipment

Evansville, IN
Capital Equipment

Houston, TX
Capital Equipment

Phoenix, AZ
Beverage, Food, &
Tobacco

Boston, MA
Media: Advertising,
Printing & Publishing

Principal
Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

$

94,638

93,031

93,218

$ 9,705,893

77,778
22,222

$ 9,189,074
$ 2,867,632

1,000
239

9,513,799
42,813
22,222
9,671,865

$

9,560,305
200,675
57,335
9,911,533

$

9,098,232
2,833,029
606,733
492,905
$ 13,030,899

9,005,293
2,810,279
1,205,165
985,826
$ 14,006,563

375,000

375,000

49,816

$

375,000

$

49,816

254,250

750,000

$

-

-

-

2,471,396

7,290,252

$

9,761,648

$ 3,461,538
924,871
$

16,037

16,037

1,923

3,461,538
924,871

3,610,847

3,184,615
850,881

2,695,747

-

-

-

-

$

7,997,256

$

6,731,243

100,000

100,000
100,000

$

151,447
151,447

$

$ 9,500,000
$ 1,893,610
100,000
$
4,436

9,357,284
1,859,720
99,199
443,636
$ 11,759,839

9,500,000
1,893,610
100,000
1,039,036
$ 12,532,646

$ 13,701,636

13,491,633

13,633,128

743,770

743,770

855,572

$ 14,235,403

$ 14,488,700

879,060

983,608
983,608

1,322,224
1,322,224

$

$

$ 15,548,810

15,499,968

15,548,810

9,160

916,015
$ 16,415,983

1,148,854
$ 16,697,664

$ 10,019,375

9,901,621

10,019,375

250

250,000
$ 10,151,621

496,112
$ 10,515,487

0.03 %

2.99 %
0.06 %
0.02 %
3.10 %

2.81 %
0.88 %
0.38 %
0.31 %
4.38 %

0.02 %

0.02 %

0.77 %

2.28 %

3.05 %

1.00 %
0.27 %

0.84 %

0.00 %

0.00 %

2.11 %

0.05 %
0.05 %

2.97 %
0.59 %
0.03 %
0.32 %
3.91 %

4.26 %

0.27 %

4.53 %

0.41 %
0.41 %

4.86 %

0.36 %
5.22 %

3.13 %

0.16 %
3.29 %

104

  
  
  
  
  
  
  
  
  
  
  
  
  
  
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Investments
CEATI International Inc.
Term Loan
CEATI Holdings, LP Class A Units
Total
Cerebro Buyer, LLC

Term Loan

Cerebro Holdings Partnership, L.P. Series A
Partner Interests
Cerebro Holdings Partnership, L.P. Series B
Partner Interests
Total
CF512, Inc.

Footnotes
(7)(9)
(11)

(9)

(11)

(9)

Security(2)

Coupon

Floor

Cash

PIK

1st Lien
Equity

3M SOFR+ 6.00 % 1.00 % 11.55 %

   Investment     
Date

Maturity

2/19/2021
2/19/2021

2/19/2026

1st Lien

1M SOFR+ 6.75 % 1.00 % 12.21 %

3/15/2023

3/15/2029

Equity

Equity

3/15/2023

3/15/2023

Term Loan (SBIC)

(4)(11)

1st Lien

3M SOFR+ 6.00 % 1.00 % 11.57 %

9/1/2021

9/1/2026

Delayed Draw Term Loan
StellPen Holdings, LLC Membership Interests
Total
Channel Partners Intermediateco, LLC
Term Loan (SBIC)
Term Loan (SBIC)
Revolver
Total
CompleteCase, LLC
Term Loan (SBIC II)
Revolver
CompleteCase Holdings, Inc. Class A
Common Stock (SBIC II)
CompleteCase Holdings, Inc. Series A
Preferred Stock (SBIC II)
CompleteCase Holdings, Inc. Class A
Common Stock
CompleteCase Holdings, Inc. Series C
Preferred Stock
Total
Compost 360 Acquisition, LLC
Term Loan (SBIC II)
Revolver
Compost 360 Investments, LLC Class A Units
Total
COPILOT Provider Support Services, LLC

Term Loan

Revolver
QHP Project Captivate Blocker, Inc. Common
Stock
Total
Craftable Intermediate II Inc.
Term Loan (SBIC II)
Gauge Craftable LP Partnership Interests
Total
Curion Holdings, LLC
Term Loan (SBIC II)
Revolver
SP CS Holdings LLC Class A Units
Total
Dresser Utility Solutions, LLC
Term Loan (SBIC)
Total

(11)

(9)
(4)(11)
(4)(11)
(11)

(9)
(5)(11)
(11)

(5)

(5)

(9)
(5)(11)
(11)

(9)

(11)

(11)

(9)
(5)(11)

(5)(11)
(11)

1st Lien
Equity

3M SOFR+ 6.00 % 1.00 % 11.54 %

9/1/2021
9/1/2021

9/1/2026

1st Lien
1st Lien
1st Lien

3M SOFR+ 7.00 % 2.00 % 12.66 %
3M SOFR+ 7.00 % 2.00 % 12.66 %
3M SOFR+ 7.00 % 2.00 % 12.60 %

2/24/2022
3/27/2023
2/24/2022

2/7/2027
2/7/2027
2/7/2027

3M SOFR+ 6.50 % 2.00 % 12.00 %
3M SOFR+ 6.50 % 2.00 % 12.00 %

12/21/2020
12/21/2020

12/21/2025
12/21/2025

12/21/2020

12/21/2020

4/27/2023

4/27/2023

1st Lien
1st Lien

Equity

Equity

Equity

Equity

1st Lien
1st Lien
Equity

1st Lien

3M SOFR+ 6.50 % 2.00 % 12.00 %

11/22/2022

11/22/2027

1st Lien

3M SOFR+ 6.50 % 2.00 % 12.02 %

11/22/2022

11/22/2027

Equity

1st Lien
Equity

1st Lien
1st Lien
Equity

11/22/2022

3M SOFR+ 6.50 % 1.50 % 11.85 %

6/30/2023
6/30/2023

6/30/2028

3M SOFR+ 6.75 % 1.00 % 12.25 %
3M SOFR+ 6.75 % 1.00 % 12.25 %

7/29/2022
7/29/2022
7/29/2022

7/29/2027
7/29/2027

(4)(11)

2nd Lien

1M SOFR+ 8.50 % 1.00 % 13.96 %

10/1/2018

4/1/2026

105

Headquarters/ 
Industry
Montreal, Canada
Services: Business

Columbia, SC
Healthcare &
Pharmaceuticals

Blue Bell, PA
Media: Advertising,
Printing & Publishing

Tampa Bay, FL
Services: Business

Seattle, WA
Services: Consumer

Maitland, FL
Healthcare &
Pharmaceuticals

Dallas, TX
High Tech Industries

Chicago, IL
Services: Business

Bradford, PA
Utilities: Oil & Gas

Principal
Amount/
Shares(3)

$ 8,532,718
250,000

   Amortized   
Cost

Fair 
Value(1)

8,450,383
250,000
8,700,383

$

8,532,718
280,414
8,813,132

$

$ 4,647,205

4,542,323

4,647,205

62,961

62,961

68,042

341,091

341,091

368,615

$

4,946,375

$

5,083,862

$ 13,911,253

13,747,760

13,772,140

$ 3,003,933
220,930

2,985,566
220,930
$ 16,954,256

2,973,894
209,747
$ 16,955,781

$ 13,253,232
$ 1,689,882
$

33,333

13,163,476
1,675,663
33,333
$ 14,872,472

13,054,434
1,664,534
32,833
$ 14,751,801

$ 6,676,113
$

16,667

6,616,263
16,667

6,642,732
16,584

417

522

89

111

5

4

521,734

398,991

1

1

111,408

85,199

$

7,266,078

$

7,143,511

$ 9,595,100
$

33,333
2,508

9,369,680
33,333
250,761
9,653,774

$

9,403,198
32,666
226,512
9,662,376

$

$ 4,937,500

4,855,637

4,937,500

$

20,000

4

20,000

285,714

20,000

282,009

$

5,161,351

$

5,239,509

$ 10,083,715
626,690

9,897,128
626,690
$ 10,523,818

9,982,878
727,010
$ 10,709,888

$ 12,896,751
100,000
$
739,999

12,700,039
100,000
739,999
$ 13,540,038

12,703,300
98,500
901,644
$ 13,703,444

$ 10,000,000

9,943,041
9,943,041

$

10,000,000
$ 10,000,000

% of  
Net  
Assets

2.67 %
0.09 %
2.76 %

1.45 %

0.02 %

0.12 %

1.59 %

4.30 %

0.93 %
0.07 %
5.30 %

4.08 %
0.52 %
0.01 %
4.61 %

2.08 %
0.01 %

0.00 %

0.12 %

0.00 %

0.03 %

2.24 %

2.94 %
0.01 %
0.07 %
3.02 %

1.54 %

0.01 %

0.09 %

1.64 %

3.12 %
0.23 %
3.35 %

3.97 %
0.03 %
0.28 %
4.28 %

3.13 %
3.13 %

3M SOFR+ 6.50 % 2.00 % 11.89 %
3M SOFR+ 6.50 % 2.00 % 11.89 %

8/2/2023
8/2/2023
8/2/2023

8/2/2028
8/2/2028

Tampa, FL
Environmental Industries

  
  
  
  
  
  
  
  
  
  
  
Table of Contents

Investments
DRS Holdings III, Inc.
Term Loan
Total
DTE Enterprises, LLC
DTE Holding Company, LLC Class A-2 Units
DTE Holding Company, LLC Class AA Units
Total
EHI Buyer, Inc.
Term A Loan (SBIC)
EHI Group Holdings, L.P. Class A Units
Total
Elliott Aviation, LLC
Term Loan
Term Loan
Revolver A
SP EA Holdings LLC Class A Units
Total
EOS Fitness Holdings, LLC
Class A Preferred Units
Class B Common Units
Total
Equine Network, LLC
Term A Loan (SBIC)
Revolver
Delayed Draw Term Loan
Total
evolv Consulting, LLC
Term Loan (SBIC)
evolv Holdco, LLC Preferred Units
Total
Evriholder Acquisition, Inc.
Term Loan (SBIC II)
KEJ Holdings LP Class A Units
Total
Exacta Land Surveyors, LLC
Term Loan (SBIC)
Term Loan (SBIC)
SP ELS Holdings LLC Class A Units
Total
Exigo, LLC
Term Loan
Gauge Exigo Coinvest, LLC Common Units
Total
Florachem Corporation

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Footnotes
(9)
(11)

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

1st Lien

1M SOFR+ 6.25 % 1.00 % 11.71 %

11/1/2019

11/1/2025

3M SOFR+ 6.50 % 1.50 % 11.85 %

4/13/2018
4/13/2018

7/31/2023
7/31/2023

1M SOFR+ 8.00 % 2.00 % 11.51 % 2.00 % 1/31/2020
- % 15.00 % 10/26/2023
1M SOFR+ 8.00 % 2.00 % 11.51 % 2.00 % 1/31/2020
1/31/2020

15.00%

- %

Headquarters/ 
Industry
St. Louis, MO
Consumer Goods: Durable

Roselle, IL
Energy: Oil & Gas

7/31/2029

Grand Prarie, TX
Environmental Industries

Moline, IL
Aerospace & Defense

6/30/2025
1/31/2026
6/30/2025

12/30/2014
12/30/2014

Phoenix, AZ
Hotel, Gaming, & Leisure

1st Lien
1st Lien
1st Lien

3M SOFR+ 6.50 % 1.00 % 12.11 %
3M SOFR+ 6.50 % 1.00 % 12.11 %
3M SOFR+ 6.50 % 1.00 % 12.11 %

5/22/2023
5/22/2023
5/22/2023

5/22/2028
5/22/2028
5/22/2028

3M SOFR+ 6.75 % 2.00 % 12.13 %

12/7/2023
12/7/2023

12/7/2028

3M SOFR+ 6.75 % 1.50 % 12.25 %

1/23/2023
1/23/2023

1/24/2028

Anaheim, CA
Consumer Goods: Durable

1st Lien
1st Lien
Equity

3M SOFR+ 6.75 % 1.50 % 11.25 % 1.00 % 2/8/2019
3M SOFR+ 6.75 % 1.50 % 11.25 % 1.00 % 7/15/2022
2/8/2019

2/8/2024
2/8/2024

1st Lien
Equity

1M SOFR+ 6.00 % 1.00 % 11.46 %

3/16/2022
3/16/2022

3/16/2027

Boulder, CO
Services: Consumer

Dallas, TX
Services: Business

Cleveland, OH
Services: Business

Dallas, TX
High Tech Industries

Jacksonville, FL
Chemicals, Plastics, &
Rubber

Equity
Equity

1st Lien
Equity

1st Lien
Unsecured
1st Lien
Equity

Equity
Equity

1st Lien
Equity

1st Lien
Equity

(9)
(4)(11)

(9)
(11)

(11)

(9)
(4)(11)
(11)
(11)

(9)
(4)(11)

(9)
(5)(11)

(19)
(4)(11)
(4)(11)

(9)
(11)

(9)

Term Loan (SBIC)

(4)(11)

1st Lien

3M SOFR+ 6.50 % 1.00 % 12.00 %

4/29/2022

4/29/2028

Revolver
Delayed Draw Term Loan
SK FC Holdings, L.P. Class A Units
Total

(11)
(11)

1st Lien
1st Lien
Equity

3M SOFR+ 6.50 % 1.00 % 12.00 %
3M SOFR+ 6.50 % 1.00 % 12.00 %

4/29/2022
4/29/2022
4/29/2022

4/29/2028
4/29/2028

106

   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

Principal
Amount/
Shares(3)

$ 8,894,635

776,316
723,684

$ 6,096,064

618

56,794

$ 8,536,150
$
$ 1,410,357
1,048,896

118
3,017

$ 5,936,305
$
$

83,333
59,850

8,862,512
8,862,512

466,204
723,684
1,189,888

5,950,980
617,801
6,568,781

$

$

$

8,495,851
56,794
1,410,357
901,489
$ 10,864,491

-
-
-

5,799,443
83,333
59,850
5,942,626

$

$

8,850,162
8,850,162

-
852,078
852,078

5,974,143
630,082
6,604,225

8,023,981
42,596
1,325,736
-
9,392,313

-
890,968
890,968

5,906,623
82,916
59,551
6,049,090

$

$

$

$

$

$

$ 10,000,000
473,485

9,802,352
473,485
$ 10,275,837

9,802,352
473,485
$ 10,275,837

$ 12,756,250
873,333

12,482,481
873,333
$ 13,355,814

12,756,250
1,070,891
$ 13,827,141

$ 16,316,361
991,806
$
1,122,250

16,303,438
989,698
1,122,250
$ 18,415,386

15,174,216
922,380
172,674
$ 16,269,270

$ 8,811,898
377,535

8,720,761
377,535
9,098,296

$

8,811,898
377,535
9,189,433

$

$ 9,850,000

9,698,462

9,751,500

$
$

23,333
53,750
362

23,333
53,750
362,434
$ 10,137,979

23,100
53,213
465,212
$ 10,293,025

2.77 %
2.77 %

0.00 %
0.27 %
0.27 %

1.87 %
0.20 %
2.07 %

2.51 %
0.01 %
0.41 %
0.00 %
2.93 %

0.00 %
0.28 %
0.28 %

1.85 %
0.03 %
0.02 %
1.90 %

3.06 %
0.15 %
3.21 %

3.99 %
0.33 %
4.32 %

4.74 %
0.29 %
0.05 %
5.08 %

2.75 %
0.12 %
2.87 %

3.05 %

0.01 %
0.02 %
0.15 %
3.23 %

  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
Table of Contents

Investments
General LED OPCO, LLC
Term Loan
Total
Green Intermediateco II, Inc.
Term Loan
Delayed Draw Term Loan
Green Topco Holdings, LLC Class A Units
Total
GS HVAM Intermediate, LLC

Term Loan

Revolver
HV GS Acquisition, LP Class A Interests
Total
Health Monitor Holdings, LLC

Series A Preferred Units

Total
Heartland Business Systems, LLC
Term Loan (SBIC II)
Delayed Draw Term Loan
AMCO HBS Holdings, LP Class A Units
Total
HV Watterson Holdings, LLC
Term Loan
Revolver
Delayed Draw Term Loan
HV Watterson Parent, LLC Class A Units
Total
I2P Holdings, LLC
Series A Preferred Units
Total
ICD Holdings, LLC
Class A Units
Total
Impact Home Services LLC
Term Loan (SBIC)
Term Loan (SBIC)
Term Loan (SBIC)
Revolver
Impact Holdings Georgia LLC Class A Units
Total
Infolinks Media Buyco, LLC

Term Loan (SBIC II)

Delayed Draw Term Loan
Tower Arch Infolinks Media, LP LP Interests
Total
Informativ, LLC
Term Loan (SBIC II)
Term Loan (SBIC II)
Credit Connection Holdings, LLC Series A
Units
Total

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Footnotes

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

(11)

2nd Lien

3M SOFR+ 9.00 % 1.50 % 14.45 %

5/1/2018

3/31/2026

(11)
(11)

(9)

(11)

(11)

(9)
(5)(11)
(11)
(6)

(9)
(11)
(11)
(11)

(7)
(6)

(9)
(4)(11)
(4)(11)
(4)(11)
(11)

(5)(11)

(11)
(6)(15)

(9)
(5)(11)
(5)(11)

1st Lien
1st Lien
Equity

1M SOFR+ 6.75 % 2.00 % 12.11 %
1M SOFR+ 6.75 % 2.00 % 12.11 %

8/8/2023
8/8/2023
8/8/2023

8/8/2028
8/8/2028

1st Lien

1M SOFR+ 6.50 % 1.00 % 11.96 %

10/18/2019

4/2/2025

1st Lien
Equity

Equity

1st Lien
1st Lien
Equity

1st Lien
1st Lien
1st Lien
Equity

Equity

Equity

1st Lien
1st Lien
1st Lien
1st Lien
Equity

1M SOFR+ 6.50 % 1.00 % 11.96 %

10/18/2019
10/2/2019

4/2/2025

3M SOFR+ 6.25 % 1.00 % 11.75 %
3M SOFR+ 6.25 % 1.00 % 11.75 %

3M SOFR+ 6.00 % 1.00 % 11.50 %
3M SOFR+ 6.00 % 1.00 % 11.50 %
3M SOFR+ 6.00 % 1.00 % 11.50 %

3M SOFR+ 6.50 % 2.00 % 11.85 %
3M SOFR+ 6.50 % 2.00 % 11.85 %
3M SOFR+ 6.50 % 2.00 % 11.85 %
3M SOFR+ 6.50 % 2.00 % 11.85 %

5/15/2019

8/26/2022
8/26/2022
8/26/2022

8/26/2027
8/26/2027

12/17/2021
12/17/2021
12/17/2021
12/17/2021

12/17/2026
12/17/2026
12/17/2026

1/31/2018

1/2/2018

4/28/2023
10/11/2023
6/30/2023
4/28/2023
4/28/2023

4/28/2028
4/28/2028
4/28/2028
4/28/2028

1st Lien

1M SOFR+ 5.75 % 1.00 % 11.21 %

11/1/2021

11/1/2026

1st Lien
Equity

1st Lien
1st Lien

Equity

1M SOFR+ 5.75 % 1.00 % 11.21 %

11/1/2021
10/28/2021

11/1/2026

3M SOFR+ 5.75 % 1.00 % 11.25 %
3M SOFR+ 5.75 % 1.00 % 11.25 %

7/30/2021
3/31/2022

7/30/2021

7/30/2026
7/30/2026

Headquarters/ 
Industry
San Antonio, TX
Services: Business

Irvine, CA
High Tech Industries

Carlsbad, CA
Beverage, Food, &
Tobacco

Montvale, NJ
Media: Advertising,
Printing & Publishing

Little Chute, WI
High Tech Industries

Schaumburg, IL
Services: Business

Cleveland, OH
Services: Business

San Francisco, CA
Finance

Tampa, FL
Services: Consumer

Ridgewood, NJ
Media: Advertising,
Printing & Publishing

Fresno, CA
High Tech Industries

Principal
Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

$ 4,500,000

4,472,890
4,472,890

$

4,342,500
4,342,500

$

$ 11,142,326
408,127
$
271,401

10,880,445
403,154
271,401
$ 11,555,000

10,919,479
399,964
272,055
$ 11,591,498

$ 12,394,128

12,370,361

12,394,128

$ 1,803,030

2,144

1,803,030
1,967,133
$ 16,140,524

1,803,030
4,703,284
$ 18,900,442

1,105,838

1,052,919

1,348,494

$

1,052,919

$

1,348,494

$ 9,875,000
$

49,625
2,861

9,721,122
49,197
249,873
$ 10,020,192

9,875,000
49,625
726,591
$ 10,651,216

$ 13,167,870
$
$

80,000
319,869
1,632

12,998,250
80,000
317,522
1,631,591
$ 15,027,363

13,036,191
79,200
316,670
2,154,608
$ 15,586,669

750,000

9,962

$ 5,907,215
538,369
$
268,510
$
82,500
$
324

$ 7,613,871

$ 1,477,575
451,688

-
-

449,758
449,758

5,774,440
525,461
262,321
82,500
324,242
6,968,964

3,341,856
3,341,856

1,710,337
1,710,337

5,818,607
530,293
264,482
81,263
213,311
6,907,956

$

$

$

7,519,532

7,613,871

1,464,619
424,156
9,408,307

1,477,575
751,355
9,842,801

$

$

$

$

$

$ 8,481,549
$ 6,393,699

804,384

8,386,574
6,312,673

804,384

8,396,734
6,329,762

1,044,566

$ 15,503,631

$ 15,771,062

1.36 %
1.36 %

3.41 %
0.13 %
0.09 %
3.63 %

3.87 %

0.56 %
1.47 %
5.90 %

0.42 %

0.42 %

3.09 %
0.02 %
0.23 %
3.34 %

4.07 %
0.02 %
0.10 %
0.67 %
4.86 %

1.04 %
1.04 %

0.53 %
0.53 %

1.82 %
0.17 %
0.08 %
0.03 %
0.07 %
2.17 %

2.38 %

0.46 %
0.23 %
3.07 %

2.62 %
1.98 %

0.33 %

4.93 %

107

  
  
  
  
  
  
  
  
 
 
  
  
  
STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Footnotes Security(2)

Coupon

Floor Cash

PIK

3M SONIA+ 5.75 % 1.00 % 11.12 %
1M SOFR+ 5.75 % 1.00 % 11.22 %
3M SOFR+ 5.75 % 1.00 % 11.39 %

1st Lien
1st Lien
1st Lien

Equity

   Investment     
Date

Maturity

2/15/2022
2/15/2022
2/15/2022

2/15/2022

2/15/2027
2/15/2027
2/15/2027

Headquarters/ 
Industry
Houston, TX
High Tech Industries

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

Table of Contents

Investments
Inoapps Bidco, LLC
Term Loan B
Revolver
Delayed Draw Term Loan
Inoapps Holdings, LLC Series A-1 Preferred
Units
Total
Integrated Oncology Network, LLC

Term Loan

Term Loan
Revolver
Total
Intuitive Health, LLC

Term Loan (SBIC II)

(9)
(11)
(11)
(11)

(11)

(11)
(11)

1st Lien

3M SOFR+ 6.00 % 1.00 % 11.54 %

7/17/2019

6/24/2025

1st Lien
1st Lien

3M SOFR+ 6.00 % 1.00 % 11.54 %
3M SOFR+ 6.00 % 1.00 % 11.53 %

11/1/2021
7/17/2019

6/24/2025
6/24/2025

(5)(10)(12)

1st Lien

3M SOFR+ 5.50 % 1.50 % 12.19 %

10/18/2019

10/18/2027

Term Loan
Term Loan (SBIC II)
Legacy Parent, Inc. Class A Common Stock
Total
Invincible Boat Company LLC
Term Loan
Term Loan (SBIC II)
Term Loan (SBIC II)
Revolver
Warbird Parent Holdco, LLC Class A Units
Total
J.R. Watkins, LLC

(10)(12)
(5)(10)(12)

(9)
(11)
(5)(11)
(5)(11)
(11)

1st Lien
1st Lien
Equity

1st Lien
1st Lien
1st Lien
1st Lien
Equity

3M SOFR+ 5.50 % 1.50 % 12.19 %
3M SOFR+ 5.50 % 1.50 % 12.19 %

3M SOFR+ 6.50 % 1.50 % 12.00 %
3M SOFR+ 6.50 % 1.50 % 12.00 %
3M SOFR+ 6.50 % 1.50 % 12.00 %
3M SOFR+ 6.50 % 1.50 % 12.00 %

10/18/2019
8/31/2021
10/30/2020

10/18/2027
10/18/2027

8/28/2019
8/28/2019
6/1/2021
8/28/2019
8/28/2019

8/28/2025
8/28/2025
8/28/2025
8/28/2025

Term Loan (SBIC)

(4)

1st Lien

12.00%

- % 12.00 % 12/22/2017

3/31/2024

J.R. Watkins Holdings, Inc. Class A Preferred
Stock
Total
Jurassic Acquisition Corp.
Term Loan
Total
KidKraft, Inc.

Term Loan

KidKraft Group Holdings, LLC Preferred B
Units
Total
Ledge Lounger, Inc.
Term Loan A (SBIC)
Revolver
SP L2 Holdings LLC Class A Units (SBIC)
Total
Lightning Intermediate II, LLC

(11)

1st Lien

1M SOFR+ 5.50 % 0.00 % 10.96 %

12/28/2018

11/15/2024

1st Lien

PRIME+ 6.50 % - % - %

4/3/2020

6/30/2024

Equity

1st Lien
1st Lien
Equity

4/3/2020

3M SOFR+ 6.50 % 1.00 % 12.00 %
3M SOFR+ 6.50 % 1.00 % 12.00 %

11/9/2021
11/9/2021
11/9/2021

11/9/2026
11/9/2026

(10)(12)
(18)

(9)
(4)(11)
(11)
(6)(4)

(9)

Term Loan (SBIC)

(4)(11)

1st Lien

6M SOFR+ 6.50 % 1.00 % 11.93 %

6/6/2022

6/6/2027

Revolver
Gauge Vimergy Coinvest, LLC Units
Total
MacKenzie-Childs Acquisition, Inc.
Term Loan
Revolver
MacKenzie-Childs Investment, LP Partnership
Interests
Total

(11)
(6)

(9)
(11)
(11)

1st Lien
Equity

1st Lien
1st Lien

Equity

1M SOFR+ 6.50 % 1.00 % 11.96 %

3M SOFR+ 6.00 % 1.00 % 11.50 %
3M SOFR+ 6.00 % 1.00 % 11.50 %

6/6/2022
6/6/2022

6/6/2027

9/2/2022
9/2/2022

9/2/2022

9/2/2027
9/2/2027

108

£ 9,850,000
$
$

40,000
82,292

$ 13,176,385
40,000
81,689

$ 12,352,226
39,800
81,881

739,844

783,756

928,462

$ 14,081,830

$ 13,402,369

$ 15,689,031

15,652,169

15,453,696

$ 1,086,000
554,070
$

1,081,580
554,070
$ 17,287,819

1,069,710
545,759
$ 17,069,165

$ 5,771,920

5,718,925

5,771,920

$ 8,117,989
$ 3,040,324

58

$ 5,356,627
$ 4,944,579
$ 1,099,244
531,915
$
1,362,575

8,043,856
3,009,699
-
$ 16,772,480

8,117,989
3,040,324
213,240
$ 17,143,473

5,321,375
4,911,947
1,089,662
531,915
1,299,691
$ 13,154,590

5,303,061
4,895,133
1,088,252
526,596
1,184,219
$ 12,997,261

$ 13,597,208

13,597,208

4,894,995

Newport Beach, CA
Healthcare &
Pharmaceuticals

Plano, TX
Healthcare &
Pharmaceuticals

Opa Locka, FL
Consumer Goods: Durable

San Francisco, CA
Consumer Goods: Non-
Durable

Sparks, MD
Metals & Mining

Dallas, TX
Consumer Goods: Durable

Katy, TX
Consumer Goods: Durable

Jacksonville, FL
Consumer Goods: Non-
Durable

Aurora, NY
Consumer Goods: Durable

$ 14,729,784

$

4,894,995

$ 16,625,000

16,580,562
$ 16,580,562

16,625,000
$ 16,625,000

$ 1,580,768

1,580,768

4,000,000

4,000,000

$

5,580,768

$

-

-

-

$ 7,491,842
$

75,000
375,000

7,398,788
75,000
375,000
7,848,788

$

7,491,842
75,000
242,696
7,809,538

$

$ 13,243,091

13,048,737

13,044,445

$

$
$

30,000
399

98,750
46,667

100,000

30,000
391,274
$ 13,470,011

29,550
128,766
$ 13,202,761

97,591
46,667

100,000

98,256
46,434

96,532

$

244,258

$

241,222

3.86 %
0.01 %
0.03 %

0.29 %

4.19 %

4.83 %

0.33 %
0.17 %
5.33 %

1.80 %

2.54 %
0.95 %
0.07 %
5.36 %

1.66 %
1.53 %
0.34 %
0.16 %
0.37 %
4.06 %

1.53 %

0.00 %

1.53 %

5.20 %
5.20 %

0.00 %

0.00 %

0.00 %

2.34 %
0.02 %
0.08 %
2.44 %

4.08 %

0.01 %
0.04 %
4.13 %

0.03 %
0.01 %

0.03 %

0.07 %

Equity

12/22/2017

1,133

1,132,576

-

  
  
  
  
  
  
  
  
 
 
  
  
  
  
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Investments
Madison Logic Holdings, Inc.

Footnotes
(9)

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

Term Loan

(11)

1st Lien

3M SOFR+ 7.00 % 1.00 % 12.35 %

12/30/2022

12/30/2028

Headquarters/ 
Industry
New York, NY
Media: Broadcasting &
Subscription

Principal
Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

$ 4,495,248

4,381,153

4,450,296

7/7/2023

394,767

394,767

328,212

BC Partners Glengarry Co-Investment LP
Class 1 Interests
Total
Michelli, LLC
Term Loan (SBIC II)
Revolver
SP MWM Holdco LLC Class A Units
Total
Microbe Formulas LLC

Equity

1st Lien
1st Lien
Equity

(9)
(5)(11)
(11)

(9)

Term Loan (SBIC II)

Total
MOM Enterprises, LLC

Term Loan (SBIC II)

Revolver
MBliss SPC Holdings, LLC Units
Total
Monitorus Holding, LLC

Term Loan

Revolver
Delayed Draw Term Loan
Sapphire Aggregator S.a r.l. Convertible
Bonds
Sapphire Aggregator S.a r.l. Class A Shares
Sapphire Aggregator S.a r.l. Class B Shares
Sapphire Aggregator S.a r.l. Class C Shares
Sapphire Aggregator S.a r.l. Class D Shares
Sapphire Aggregator S.a r.l. Class E Shares
Sapphire Aggregator S.a r.l. Class F Shares
Sapphire Aggregator S.a r.l. Class G Shares
Sapphire Aggregator S.a r.l. Class H Shares
Sapphire Aggregator S.a r.l. Class I Shares
Total
Morgan Electrical Group Intermediate
Holdings, Inc.
Term Loan
Morgan Electrical Group Holdings, LLC Series
A-2 Preferred Units
Total
Naumann/Hobbs Material Handling
Corporation II, Inc.
Term Loan
Term Loan (SBIC II)
Naumann Hobbs Holdings, L.P. Class A-1
Units
Naumann Hobbs Holdings, L.P. Class A-2
Units
Total
NINJIO, LLC

Term Loan

Revolver
NINJIO Holdings, LLC Units
Gauge NINJIO Blocker LLC Preferred Units
Total
NS412, LLC
Term Loan
NS Group Holding Company, LLC Class A
Units
Total

New Orleans, LA
Capital Equipment

Meridian, ID
Consumer Goods: Non-
Durable

Richmond, CA
Consumer Goods: Non-
Durable

London, UK
Media: Diversified &
Production

3M SOFR+ 5.75 % 2.00 % 11.12 %
3M SOFR+ 5.75 % 2.00 % 11.12 %

12/21/2023
12/21/2023
12/21/2023

12/21/2028
12/21/2028

(5)(11)

1st Lien

1M SOFR+ 6.00 % 1.00 % 11.46 %

4/4/2022

4/3/2028

(9)

(5)(11)

1st Lien

3M SOFR+ 6.48 % 1.00 % 11.83 %

5/19/2021

5/19/2026

(11)

(7)

1st Lien
Equity

1st Lien

1st Lien
1st Lien

3M SOFR+ 6.48 % 1.00 % 11.83 %

5/19/2021
5/19/2021

5/19/2026

14.00%

10.00 % 4.00 % 5/24/2022

5/24/2027

14.00%
10.00 % 4.00 % 5/24/2022
14.00% 1.00 % 10.00 % 4.00 % 5/24/2022

5/24/2027
5/24/2027

Unsecured

8.00 %

- % 8.00 % 11/15/2023

3/31/2025

Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity

9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022

(9)

(11)

(9)

(11)
(5)(11)

(9)

(11)

(11)

1st Lien

1M SOFR+ 6.25 % 1.50 % 11.61 %

8/3/2023

8/3/2029

Fremont, CA
Construction & Building

Equity

1st Lien
1st Lien

Equity

Equity

3M SOFR+ 6.75 % 1.50 % 12.10 %
3M SOFR+ 6.75 % 1.50 % 12.10 %

8/3/2023

8/30/2019
8/30/2019

9/29/2022

9/29/2022

Phoenix, AZ
Services: Business

8/30/2024
8/30/2024

Westlake Village, CA
Media: Diversified &
Production

Dallas, TX
Services: Consumer

1st Lien

3M SOFR+ 6.50 % 1.50 % 12.10 %

10/12/2022

10/12/2027

3M SOFR+ 6.50 % 1.50 % 12.10 %

1st Lien
Equity
Equity

10/12/2027

10/12/2022
10/12/2022
9/22/2023

(11)

2nd Lien

3M SOFR+ 8.50 % 1.00 % 13.95 %

5/6/2019

11/6/2025

Equity

5/6/2019

109

$

4,775,920

$

4,778,508

$ 5,000,000
129,608
$
509,215

4,900,000
129,608
509,215
5,538,823

$

4,900,000
127,016
509,215
5,536,231

$

$ 8,470,065

8,405,946

8,470,065

$

8,405,946

$

8,470,065

$ 16,055,000

15,884,362

15,814,175

$

$

€
€

$

50,000
933,333

100,989

100,989
100,989

5,532

557,689
557,682
557,682
557,682
557,682
557,682
557,682
557,682
557,682

50,000
933,333
$ 16,867,695

49,250
595,832
$ 16,459,257

100,260

109,791
101,929

5,938

11,156
11,156
11,156
11,156
11,156
11,156
11,156
11,156
11,156
418,322

$

99,979

108,693
100,910

6,045

13,487
13,486
13,486
13,486
13,486
13,486
13,486
13,486
13,486
437,002

$

$ 4,439,439

4,344,311

4,372,847

357

356,800

351,351

$

4,701,111

$

4,724,198

$ 8,317,483
$ 5,245,036

123

123

8,291,166
5,228,576

220,379

8,275,896
5,218,811

471,147

220,379

471,147

$ 13,960,500

$ 14,437,001

$ 4,962,500

4,882,796

4,962,500

$

33,333
184
14

33,333
313,253
14,470
5,243,852

$

33,333
226,849
103,563
5,326,245

$

$ 7,615,000

7,561,754

7,615,000

782

795,002

879,589

$

8,356,756

$

8,494,589

1.39 %

0.10 %

1.49 %

1.53 %
0.04 %
0.16 %
1.73 %

2.65 %

2.65 %

4.94 %

0.02 %
0.19 %
5.15 %

0.03 %

0.03 %
0.03 %

0.00 %

0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.09 %

1.37 %

0.11 %

1.48 %

2.59 %
1.63 %

0.15 %

0.15 %

4.52 %

1.55 %

0.01 %
0.07 %
0.03 %
1.66 %

2.38 %

0.27 %

2.65 %

  
  
  
  
  
  
  
  
  
 
 
  
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Investments
NuMet Machining Techniques, LLC
Term Loan
Bromford Industries Limited Term Loan
Total
NuSource Financial, LLC
NuSource Financial Acquisition, Inc. (SBIC II)
NuSource Holdings, Inc. Warrants (SBIC II)
Total
Nutritional Medicinals, LLC

Term Loan

Term Loan
Functional Aggregator, LLC Units
Total
Onpoint Industrial Services, LLC
Term Loan (SBIC)
Spearhead TopCo, LLC Class A Units
Total
PCP MT Aggregator Holdings, L.P.
Common Units
Total
PCS Software, Inc.
Term Loan
Term Loan (SBIC)
Revolver
Delayed Draw Term Loan
PCS Software Parent, LLC Class A Common
Units
Total
Pearl Media Holdings, LLC

Footnotes
(7)
(11)(13)
(11)(13)

(5)
(5)

(9)

(11)

(11)

(4)(11)

(7)

(9)
(11)
(4)(11)
(11)
(11)

(6)

(9)

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

2nd Lien
2nd Lien

PRIME+ 8.00 %
PRIME+ 8.00 %

- %
- %

- %
- %

11/5/2019
11/5/2019

5/5/2026
5/5/2026

Unsecured
Equity

13.75%

4.00 % 9.75 % 1/29/2021
1/29/2021

7/29/2026

1st Lien

3M SOFR+ 6.21 % 1.00 % 11.56 %

11/15/2018

11/15/2025

1st Lien
Equity

1st Lien
Equity

Equity

1st Lien
1st Lien
1st Lien
1st Lien

Equity

3M SOFR+ 6.21 % 1.00 % 11.56 %

10/28/2021
11/15/2018

11/15/2025

3M SOFR+ 7.00 % 1.75 % 12.35 %

11/16/2022
11/16/2022

11/16/2027

3M SOFR+ 6.00 % 1.50 % 11.50 %
3M SOFR+ 6.00 % 1.50 % 11.50 %
3M SOFR+ 6.00 % 1.50 % 11.50 %
3M SOFR+ 6.00 % 1.50 % 11.50 %

3/29/2019

7/1/2019
7/1/2019
7/1/2019
7/1/2019

9/16/2022

7/1/2024
7/1/2024
7/1/2024
7/1/2024

Term Loan (SBIC II)

(5)(11)

1st Lien

3M SOFR+ 6.25 % 1.50 % 11.75 %

8/31/2022

8/31/2027

Revolver
Total
Peltram Plumbing Holdings, LLC
Term Loan
Revolver
Peltram Group Holdings LLC Class A Units
Total
Premiere Digital Services, Inc.

Term Loan

Premiere Digital Holdings, Inc. Common Stock
Total
Red's All Natural, LLC

Term Loan (SBIC II)

Centeotl Co-Invest B, LP Common Units
Total
RIA Advisory Borrower, LLC
Term Loan
Revolver
RIA Advisory Aggregator, LLC Class A Units
RIA Products Aggregator, LLC Class A Units

Total

(11)

(9)
(11)
(11)
(6)

(9)

(11)

(5)(10)
(12)

(9)
(11)
(11)

1st Lien

3M SOFR+ 6.25 % 1.50 % 11.75 %

8/31/2022

8/31/2027

1st Lien
1st Lien
Equity

3M SOFR+ 6.50 % 2.00 % 11.85 %
3M SOFR+ 6.50 % 2.00 % 11.85 %

12/30/2021
12/30/2021
12/30/2021

12/30/2026
12/30/2026

1st Lien

1M SOFR+ 5.25 % 1.00 % 10.72 %

11/3/2021

11/3/2026

Equity

10/18/2018

1st Lien

3M SOFR+ 6.00 % 1.50 % 12.57 %

1/31/2023

1/31/2029

Equity

1st Lien
1st Lien
Equity

Equity

3M SOFR+ 6.50 % 2.00 % 12.03 %
3M SOFR+ 6.50 % 2.00 % 12.03 %

Coral Gables, FL
High Tech Industries

8/2/2027
8/2/2027

1/31/2023

5/1/2023
5/1/2023
5/1/2023

5/1/2023

110

Headquarters/ 
Industry
Birmingham, UK
Aerospace & Defense

Eden Prairie, MN
Services: Business

Centerville, OH
Healthcare &
Pharmaceuticals

Deer Park, TX
Services: Business

Oak Brook, IL
Finance

Shenandoah, TX
Transportation & Logistics

Garland, TX
Media: Advertising,
Printing & Publishing

Auburn, WA
Construction & Building

Los Angeles, CA
Media: Broadcasting &
Subscription

Franklin, TN
Beverage, Food, &
Tobacco

Principal
Amount/
Shares(3)

$ 12,675,000
$ 7,800,000

$ 6,028,203

54,966

   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

12,563,025
7,728,858
$ 20,291,883

5,976,818
-
5,976,818

$

$

$

-
-
-

5,907,639
-
5,907,639

$ 8,793,840

8,753,238

8,793,840

$ 3,692,025

12,500

3,663,943
972,803
$ 13,389,984

3,692,025
2,273,286
$ 14,759,151

$ 12,764,326
606,742

12,552,435
606,742
$ 13,159,177

12,764,326
701,538
$ 13,465,864

825,020

119,281
119,281

4,026,531
4,026,531

$

$

$ 13,918,747
$ 1,825,410
571,195
$
962,500
$

461,216

13,880,996
1,820,459
571,195
962,500

13,918,747
1,825,410
571,195
962,500

-

384,007

$ 17,235,150

$ 17,661,859

$ 9,669,444

9,518,772

9,524,402

$

23,333

23,333
9,542,105

$

22,983
9,547,385

$

$ 16,160,003
$

60,000
508,516

15,951,839
60,000
506,119
$ 16,517,958

16,160,003
60,000
418,449
$ 16,638,452

$ 13,216,883

13,176,183

13,216,883

5,000

-
$ 13,176,183

2,765,529
$ 15,982,412

$ 8,837,476

8,680,057

8,793,289

710,600

710,600
9,390,657

$

586,022
9,379,311

$

$ 5,955,000
$

27,257
104,425

81,251

5,850,377
27,257
165,078

78,390

5,925,225
27,121
113,278

78,390

$

6,121,102

$

6,144,014

0.00 %
0.00 %
0.00 %

1.85 %
0.00 %
1.85 %

2.75 %

1.15 %
0.71 %
4.61 %

3.99 %
0.22 %
4.21 %

1.26 %
1.26 %

4.35 %
0.57 %
0.18 %
0.30 %

0.12 %

5.52 %

2.98 %

0.01 %
2.99 %

5.05 %
0.02 %
0.13 %
5.20 %

4.13 %

0.86 %
4.99 %

2.75 %

0.18 %
2.93 %

1.85 %
0.01 %
0.04 %

0.02 %

1.92 %

  
  
  
  
  
  
  
  
  
 
 
  
Table of Contents

Investments
Rogers Mechanical Contractors, LLC
Term Loan
Delayed Draw Term Loan
Total
Sales Benchmark Index, LLC
Term Loan
SBI Holdings Investments LLC Class A Units
Total
Service Minds Company, LLC
Term Loan
Revolver
Delayed Draw Term Loan
Total
TAC LifePort Holdings, LLC
Common Units
Total
The Hardenbergh Group, Inc.

Footnotes
(9)
(11)
(11)

(9)
(11)

(9)
(11)
(11)
(11)

(6)

(9)

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

1st Lien
1st Lien

6M SOFR+ 7.00 % 1.00 % 12.71 %
6M SOFR+ 7.00 % 1.00 % 12.71 %

4/28/2021
4/28/2021

9/9/2025
9/9/2025

1st Lien
Equity

3M SOFR+ 6.00 % 1.00 % 11.55 %

1/7/2020
1/7/2020

1/7/2025

1st Lien
1st Lien
1st Lien

6M SOFR+ 7.50 % 1.00 % 11.19 % 2.00 % 2/7/2022
6M SOFR+ 7.50 % 1.00 % 11.04 % 2.00 % 2/7/2022
6M SOFR+ 7.50 % 2.00 % 11.19 % 2.00 % 2/7/2022

2/7/2028
2/7/2028
2/7/2028

Headquarters/ 
Industry
Atlanta, GA
Construction & Building

Dallas, TX
Services: Business

Bradenton, FL
Services: Consumer

Equity

3/1/2021

Woodland, WA
Aerospace & Defense

546,543

Principal
Amount/
Shares(3)

$ 9,123,801
$

45,808

   Amortized   
Cost

Fair 
Value(1)

9,054,460
45,590
9,100,050

$

9,078,182
45,579
9,123,761

$

$ 12,148,958

66,573

12,088,362
665,730
$ 12,754,092

12,088,213
394,609
$ 12,482,822

$ 5,331,274
$
$

90,266
99,128

5,253,965
90,266
98,321
5,442,552

537,049
537,049

$

$

4,504,927
76,275
83,763
4,664,965

758,732
758,732

$

$

Term Loan (SBIC II)

(5)(11)

1st Lien

3M SOFR+ 6.25 % 2.00 % 11.70 %

8/7/2023

8/7/2028

BV HGI Holdings, L.P. Class A Units
Total
Tilley Distribution, Inc.

Term Loan

Total
Trade Education Acquisition, L.L.C.
Term Loan (SBIC)
Trade Education Holdings, L.L.C. Class A
Units
Total
TradePending OpCo Aggregator, LLC
Term Loan (SBIC II)
Term Loan (SBIC II)
Revolver
Delayed Draw Term Loan
TradePending Holdings, LLC Series A Units
TradePending Holdings, LLC Series A-1 Units
Total
Unicat Catalyst Holdings, LLC

Term Loan

Unicat Catalyst, LLC Class A Units
Unicat Catalyst, LLC Class A-1 Units
Total
U.S. Expediters, LLC

Term Loan

Cathay Hypnos LLC Units
Total

Equity

8/7/2023

(9)

(11)

1st Lien

3M SOFR+ 6.00 % 1.00 % 11.50 %

4/1/2022

12/31/2026

(4)(11)

1st Lien

1M SOFR+ 6.25 % 1.00 % 11.71 %

12/28/2021

12/28/2027

(9)
(5)(11)
(5)(11)
(11)
(11)
(6)

(20)

(11)

(9)

(11)

Equity

1st Lien
1st Lien
1st Lien
1st Lien
Equity
Equity

3M SOFR+ 6.25 % 2.00 % 11.75 %
3M SOFR+ 6.25 % 2.00 % 11.75 %
3M SOFR+ 6.25 % 2.00 % 11.75 %
3M SOFR+ 6.25 % 2.00 % 11.75 %

12/28/2021

3/2/2021
8/4/2023
3/2/2021
8/4/2023
3/2/2021
8/4/2023

3/2/2026
3/2/2026
3/2/2026
3/2/2026

1st Lien

1M SOFR+ 6.50 % 1.00 % 11.96 %

4/27/2021

4/27/2026

Equity
Equity

4/27/2021
12/13/2023

1st Lien

3M SOFR+ 6.25 % 1.00 % 11.80 %

12/22/2021

12/22/2026

Equity

12/22/2021

111

Livonia, MI
Healthcare &
Pharmaceuticals

Baltimore, MD
Chemicals, Plastics, &
Rubber

Austin, TX
Education

Carrboro, NC
High Tech Industries

Alvin, TX
Chemicals, Plastics, &
Rubber

Stafford, TX
Healthcare &
Pharmaceuticals

$ 10,475,643

10,229,596

10,318,508

434,504

434,504
$ 10,664,100

418,275
$ 10,736,783

$

96,627

95,632

93,728

$

95,632

$

93,728

$ 9,727,847

9,588,519

8,365,948

662,660

662,660

1,521

$ 9,626,768
$ 2,460,860
$
$

33,333
687,007
908,333
132,783

$ 10,251,179

$

8,367,469

9,532,209
2,418,287
33,333
680,733
967,114
260,254
$ 13,891,930

9,530,500
2,436,251
33,000
680,137
1,466,224
386,420
$ 14,532,532

$ 7,031,250

6,958,652

6,750,000

7,500
382

750,000
21,103
7,729,755

$

361,345
21,262
7,132,607

$

$ 15,706,527

15,504,206

15,627,994

1,372,932

1,316,740
$ 16,820,946

1,530,385
$ 17,158,379

% of  
Net  
Assets

2.84 %
0.01 %
2.85 %

3.78 %
0.12 %
3.90 %

1.41 %
0.02 %
0.03 %
1.46 %

0.24 %
0.24 %

3.23 %

0.13 %
3.36 %

0.03 %

0.03 %

2.61 %

0.00 %

2.61 %

2.98 %
0.76 %
0.01 %
0.21 %
0.46 %
0.12 %
4.54 %

2.11 %

0.11 %
0.01 %
2.23 %

4.88 %

0.48 %
5.36 %

  
  
  
  
  
  
  
  
  
 
 
   Amortized   
Cost

Fair 
Value(1)

% of  
Net  
Assets

Principal
Amount/
Shares(3)

$ 13,686,954
$
155,730
$ 2,395,666
$ 4,666,672

$

98,633

822,758

500,000

107,418

13,577,731
154,487
2,395,666
4,645,016

98,633

819,262
$ 21,690,795

500,000

107,418
607,418

$

11,976,085
136,264
2,096,208
4,083,338

-

-
18,291,895

-

97,400
97,400

$

$

3.74 %
0.04 %
0.66 %
1.28 %

0.00 %

0.00 %
5.72 %

0.00 %

0.03 %
0.03 %

3.88 %

0.03 %
0.68 %
0.32 %
4.91 %

271.39 %

273.32 %

(173.32)%

100.00 %

Table of Contents

Investments
Venbrook Buyer, LLC
Term Loan B (SBIC)
Term Loan B
Revolver
Delayed Draw Term Loan
Venbrook Holdings, LLC Convertible Term
Loan
Venbrook Holdings, LLC Common Units
Total
Whisps Holdings LP

Class A Units

Class A-1 Units
Total
Xanitos, Inc.

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Footnotes

Security(2)

Coupon

Floor

Cash

PIK

   Investment     
Date

Maturity

(4)(11)
(11)
(11)
(11)

1st Lien
1st Lien
1st Lien
1st Lien

3M SOFR+ 8.00 % 1.50 % 6.50 % 7.00 % 3/13/2020
3M SOFR+ 8.00 % 1.50 % 6.50 % 7.00 % 3/13/2020
3M SOFR+ 8.00 % 1.50 % 6.50 % 7.00 % 3/13/2020
3M SOFR+ 8.00 % 1.50 % 6.50 % 7.00 % 3/13/2020

3/13/2026
3/13/2026
3/13/2026
3/13/2026

(14)

Unsecured

10.00%

- % 10.00 % 3/31/2022

12/20/2028

Headquarters/ 
Industry
Los Angeles, CA
Services: Business

Equity

Equity

Equity

3/13/2020

4/18/2019

3/6/2023

Elgin, IL
Beverage, Food, &
Tobacco

Newtown Square, PA
Healthcare &
Pharmaceuticals

Term Loan (SBIC)

(4)(11)

1st Lien

3M SOFR+ 6.50 % 1.00 % 12.00 %

6/25/2021

6/25/2026

$ 12,480,000

12,342,824

12,417,600

Revolver
Delayed Draw Term Loan
Pure TopCo, LLC Class A Units
Total
Total Non-control, non-affiliated
investments
Net Investments
LIABILITIES IN EXCESS OF OTHER
ASSETS
NET ASSETS

(11)
(11)

1st Lien
1st Lien
Equity

3M SOFR+ 6.50 % 1.50 % 12.00 %
3M SOFR+ 6.50 % 1.00 % 12.00 %

6/25/2021
6/25/2021
6/25/2021

6/25/2026
6/25/2026

$
100,000
$ 2,198,745
442,133

100,000
2,185,595
1,053,478
$ 15,681,897

99,500
2,187,751
1,020,714
15,725,565

$

$ 884,858,412

$ 868,284,689

$ 902,143,550

$ 874,460,683

$ (554,520,895)

$ 319,939,788

(1) See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the

portfolio.

(2) Debt investments are income producing and equity securities are non-income producing, unless otherwise noted.
(3) Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount

(4)

(5)

is denominated in U.S. Dollars (“$”) unless otherwise noted, Euro (“€”), or Great British Pound (“£”).
Investments held by the SBIC subsidiary (as defined in Note 1), which include $15,388,012 of cash and $220,454,298 of investments (at
cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment
Corporation’s (the “Company”) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all
investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1).
Investments held by the SBIC II subsidiary (as defined in Note 1), which include $8,521,989 of cash and $256,172,138 of investments (at
cost), are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit
Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments
held by the SBIC subsidiaries.

(6) Security is income producing through dividends or distributions.
(7) The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any
non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets.
Qualifying assets represent approximately 97.7% of the Company’s total assets as of December 31, 2023.

(8) Represents a PIK interest security. At the option of the issuer, interest can be paid in cash or cash and PIK interest. The percentage of PIK

interest shown is the maximum PIK interest that can be elected by the issuer.

112

  
  
  
  
  
  
  
  
  
 
 
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

(9) At December 31, 2023, the Company had the following outstanding revolver and delayed draw term loan commitments:

Investments
2X LLC
Ad.Net Acquisition, LLC
AdCellerant LLC
American Refrigeration, LLC
American Refrigeration, LLC
Amika OpCo LLC
Anne Lewis Strategies, LLC
Axis Portable Air, LLC
Camp Profiles LLC
CEATI International Inc.
Cerebro Buyer, LLC
CF512, Inc.
Channel Partners Intermediateco, LLC
CompleteCase, LLC
Compost 360 Acquisition, LLC
Compost 360 Acquisition, LLC
COPILOT Provider Support Services, LLC
Craftable Intermediate II Inc.
DRS Holdings III, Inc.
EHI Buyer, Inc.
EHI Buyer, Inc.
Elliott Aviation, LLC
Equine Network, LLC
Equine Network, LLC
evolv Consulting, LLC
Evriholder Acquisition, Inc.
Exigo, LLC
Florachem Corporation
GS HVAM Intermediate, LLC
Heartland Business Systems, LLC
HV Watterson Holdings, LLC
HV Watterson Holdings, LLC
Impact Home Services LLC
Informativ, LLC
Inoapps Bidco, LLC
Invincible Boat Company LLC

$

Unfunded 
Commitment

100,000
649,510
875,995
100,000
100,000
100,000
50,000
100,000
100,000
100,000
100,000
100,000
66,667
150,000
66,667
4,096,741
80,000
100,000
909,091
100,000
3,055,671
666,667
16,667
40,000
1,363,636
100,000
100,000
76,667
848,485
50,000
20,000
2,555,354
17,500
100,000
60,000
531,915

Unused 
Commitment 
Fee
0.50%
0.50%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
1.00%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%

Maturity

June 5, 2028
May 7, 2026
December 12, 2028
March 31, 2028
March 31, 2028
July 1, 2028
May 9, 2028
March 22, 2028
September 3, 2026
February 19, 2026
March 15, 2029
September 1, 2026
February 7, 2027
December 21, 2025
August 2, 2028
August 2, 2028
November 22, 2027
June 30, 2028
November 1, 2025
July 31, 2029
July 31, 2029
June 30, 2025
May 22, 2028
May 22, 2028
December 7, 2028
January 24, 2028
March 16, 2027
April 29, 2028
April 2, 2025
August 26, 2027
December 17, 2026
December 17, 2026
April 28, 2028
July 30, 2026
February 15, 2027
August 28, 2025

Security

Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver B
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver

113

    
    
    
    
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

Investments
Ledge Lounger, Inc.
Lightning Intermediate II, LLC
MacKenzie-Childs Acquisition, Inc.
Madison Logic Holdings, Inc.
Michelli, LLC
Michelli, LLC
Microbe Formulas LLC
MOM Enterprises, LLC
Morgan Electrical Group Intermediate Holdings, Inc.
Morgan Electrical Group Intermediate Holdings, Inc.
Naumann/Hobbs Material Handling Corporation II, Inc.
NINJIO, LLC
NINJIO, LLC
Nutritional Medicinals, LLC
PCS Software, Inc.
Pearl Media Holdings, LLC
Pearl Media Holdings, LLC
Peltram Plumbing Holdings, LLC
Premiere Digital Services, Inc.
RIA Advisory Borrower, LLC
Rogers Mechanical Contractors, LLC
Sales Benchmark Index, LLC
Service Minds Company, LLC
The Hardenbergh Group, Inc.
Tilley Distribution, Inc.
TradePending OpCo Aggregator, LLC
U.S. Expediters, LLC

Unfunded 
Commitment

25,000
70,000
53,333
100,000
1,166,469
3,888,228
100,000
50,000
2,864,154
100,000
1,763,033
100,000
66,667
2,000,000
746,948
100,000
76,667
40,000
576,923
72,743
83,333
1,331,461
10,000
100,000
100,000
66,667
100,000

$

Security

Revolver
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver – Working Capital
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver

114

Unused 
Commitment 
Fee
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
1.00%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.75%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%

Maturity

November 9, 2026
June 6, 2027
September 2, 2027
December 30, 2027
December 21, 2028
December 21, 2028
April 3, 2028
May 19, 2026
August 3, 2029
August 3, 2029
August 30, 2024
October 12, 2027
October 12, 2027
November 15, 2025
July 1, 2024
August 31, 2027
August 31, 2027
December 30, 2026
November 3, 2026
August 2, 2027
September 9, 2025
January 7, 2025
February 7, 2028
August 6, 2028
December 31, 2026
March 2, 2026
December 22, 2026

    
    
    
    
Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023

(10) This loan is a unitranche investment.
(11) These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floors are not in effect.
(12) These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floors are not in effect.
(13) Investment has been on non-accrual since April 1, 2022.
(14) This loan is convertible to common units at maturity or at the election of the issuer.
(15) Excluded from the investment is an uncalled capital commitment in an amount not to exceed $298,312.
(16) Term Loan A-1, Term Loan A-2, Term Loan A-3, Term Loan A-4 and the Revolver have been on non-accrual since January 1, 2023,

April 3, 2023, June 7, 2023, July 12, 2023 and October 3, 2023, respectively.

(17) Investment has been on non-accrual since November 6, 2023.
(18) Investment has been on non-accrual since August 10, 2023.
(19) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,500,000, with an unfunded rate of

0.50% and a maturity of February 8, 2024. The Company has full discretion to fund the revolver commitment.

(20) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,000,000, with an unfunded rate of

0.50% and a maturity of April 27, 2026. The Company has full discretion to fund the revolver commitment.

(21) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,379,982, with an unfunded rate of

0.00% and a maturity of November 6, 2028. The Company has full discretion to fund the revolver commitment.

(22) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,944,089, with an unfunded rate of

0.00% and a maturity of September 3, 2026. The Company has full discretion to fund the revolver commitment.

(23) Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the

ability to nominate greater than 50% of the board representation is maintained.

Abbreviation Legend
BSBY —  Bloomberg Short-Term Bank Yield Index
PIK — Payment-In-Kind
SOFR —  Secured Overnight Financing Rate
SONIA — Sterling Overnight Index Average

115

Table of Contents

Investments
Non-controlled, non-affiliated investments
Ad.Net Acquisition, LLC
Term Loan (SBIC II)
Revolver
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)
Total
ADS Group Opco, LLC
Term Loan (SBIC II)
Revolver
ADS Group Topco, LLC Class A Units
ADS Group Topco, LLC Class B Units
ADS Group Topco, LLC Class Z Units
Total
Advanced Barrier Extrusions, LLC
Term Loan B (SBIC)
GP ABX Holdings Partnership, L.P. Partner Interests
Total
AIP ATCO Buyer, LLC
Term Loan
Revolver
Total
Anne Lewis Strategies, LLC
Term Loan (SBIC II)
Term Loan (SBIC II)
SG AL Investment, LLC Common Units
Total
APE Holdings, LLC
Class A Units
Total
Atmosphere Aggregator Holdings II, L.P.
Common Units
Stratose Aggregator Holdings, L.P. Common Units
Total
ArborWorks Acquisition LLC
Term Loan
Revolver
ArborWorks Holdings LLC Units
Total
Archer Systems, LLC
Term Loan
CF Arch Holdings LLC Class A Units
Total
Axis Portable Air, LLC
Term Loan (SBIC II)
Delayed Draw Term Loan
Axis Air Parent, LLC Preferred Units
Total
Baker Manufacturing Company, LLC
Term Loan (SBIC II)
BSC Blue Water Holdings, LLC Series A Units (SBIC II)
Total

Footnotes
(4)(5)
(9)
(5)(11)
(11)
(5)
(5)

(5)(11)
(11)

(4)(11)

(9)
(11)
(11)

(9)
(5)(11)
(5)(11)
(6)

(9)
(11)
(11)

(9)
(11)

(9)
(5)(11)
(11)

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Security(2)

Coupon

Floor

Cash

PIK

   Investment   
Date

  Maturity

Headquarters/ 
Industry

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

First Lien
First Lien
Equity
Equity

First Lien
First Lien
Equity
Equity
Equity

First Lien
Equity

3M SOFR+ 6.00 % 1.00 % 10.84 %
3M SOFR+ 6.00 % 1.00 % 10.84 %

3M LIBOR+ 6.75 % 1.00 % 11.48 %
3M LIBOR+ 6.75 % 1.00 % 11.48 %

5/7/2026
5/7/2026

6/4/2026
6/4/2026

5/7/2021
5/7/2021
5/7/2021
5/7/2021

6/4/2021
6/4/2021
6/4/2021
6/4/2021
6/15/2022

Los Angeles, CA
Services: Business

Lakewood, CO
Aerospace & Defense

3M SOFR+ 7.50 % 1.00 % 11.88 %

11/30/2020
8/8/2018

11/30/2026

Rhinelander, WI
Containers, Packaging, & Glass

First Lien
First Lien

6M SOFR+ 6.50 % 1.00 % 11.31 %
1M SOFR+ 6.50 % 1.00 % 10.93 %

5/17/2022
5/17/2022

5/17/2028
5/17/2028

First Lien
First Lien
Equity

Equity

Equity
Equity

First Lien
First Lien
Equity

First Lien
Equity

First Lien
First Lien
Equity

3M LIBOR+ 6.50 % 1.00 % 11.23 %
3M LIBOR+ 6.50 % 1.00 % 11.23 %

3M LIBOR+ 9.00 % 1.00 % 13.56 %
3M LIBOR+ 9.00 % 1.00 % 13.41 %

1M SOFR+ 6.50 % 1.00 % 10.92 %

3M SOFR+ 5.75 % 1.00 % 10.48 %
3M SOFR+ 5.75 % 1.00 % 10.48 %

3/5/2026
3/5/2026

3/5/2021
4/15/2022
3/5/2021

9/5/2014

1/26/2016
6/30/2015

11/23/2021
11/23/2021
12/29/2021

11/9/2026
11/9/2026

8/11/2022
8/10/2022

8/11/2027

3/22/2022
3/22/2022
3/22/2022

3/22/2028
3/22/2028

Sterling Heights, MI
Automotive

Washington, DC
Services: Business

Deer Park, TX
Chemicals, Plastics, & Rubber

Atlanta, GA
Services: Business

Oakhurst, CA
Environmental Industries

Houston, TX
Services: Business

Phoenix, AZ
Capital Equipment

Evansville, IN
Capital Equipment

$15,354,412
$ 1,039,216
7,794
7,015

15,190,375
1,039,216
77,941
701,471

15,124,097
1,023,628
85,488
769,393
$17,009,003 $17,002,606

$14,550,000
$ 100,000
77,626
56,819
72,043

14,337,005
100,000
288,691
211,309
267,929

13,822,500
95,000
48,571
35,552
293,847
$15,204,934 $14,295,470

$17,150,000
644,737

16,908,205
528,395

13,977,250
-
$17,436,600 $13,977,250

$ 99,750
$ 50,000

97,906
50,000

99,251
49,750

$

147,906 $

149,001

$10,493,750
$ 6,311,895
1,000

10,349,704
6,206,222
680,630

10,493,750
6,311,895
4,318,702
$17,236,556 $21,124,347

5.48 %
0.37 %
0.03 %
0.28 %
6.16 %

5.01 %
0.03 %
0.02 %
0.01 %
0.11 %
5.18 %

5.07 %
0.00 %
5.07 %

0.04 %
0.02 %
0.06 %

3.81 %
2.29 %
1.57 %
7.67 %

375,000

254,250
750,000

$

$

375,000
375,000 $

29,209
29,209

0.01 %
0.01 %

2,134,220
-
-
6,295,635
- $ 8,429,855

$14,662,500
$ 2,307,692
115

14,543,314
2,307,692
115,385

13,636,125
2,146,154
-
$16,966,391 $15,782,279

$ 1,000,000
100,000

981,305
100,000

985,000
106,221
$ 1,081,305 $ 1,091,221

$12,000,000
$ 100,000
4,436

11,784,686
99,050
443,636

11,940,000
99,500
686,447
$12,327,372 $12,725,947

$13,863,087
743,770

13,602,312
743,770

13,655,141
590,291
$14,346,082 $14,245,432

0.77 %
2.28 %
3.05 %

4.94 %
0.78 %
0.00 %
5.72 %

0.36 %
0.04 %
0.40 %

4.33 %
0.04 %
0.25 %
4.62 %

4.95 %
0.21 %
5.16 %

(5)(10)(12)
(5)

First Lien
Equity

3M SOFR+ 5.25 % 1.00 % 10.75 %

7/5/2022
7/5/2022

7/5/2027

116

  
  
  
  
  
  
  
  
  
  
  
  
  
  
Table of Contents

Investments
BDS Solutions Intermediateco, LLC
Term Loan (SBIC)
Revolver
Total
BLP Buyer, Inc.
Term Loan
Revolver
BL Products Parent, L.P. Class A Units
Total
Café Valley, Inc.
Term Loan
CF Topco LLC Units
Total
Camp Profiles LLC
Term Loan (SBIC)
CIVC VI-A 829 Blocker, LLC Units
Total
CEATI International Inc.
Term Loan
CEATI Holdings, LP Class A Units
Total
CF512, Inc.
Term Loan (SBIC)
Delayed Draw Term Loan
StellPen Holdings, LLC Membership Interests
Total
CompleteCase, LLC
Term Loan (SBIC II)
Revolver A
CompleteCase Holdings, Inc. Class A Common
Stock (SBIC II)
CompleteCase Holdings, Inc. Series A Preferred
Stock (SBIC II)
Total
COPILOT Provider Support Services, LLC
Term Loan
QHP Project Captivate Blocker, Inc. Common
Stock
Total
Credit Connection, LLC
Term Loan (SBIC II)
Term Loan (SBIC II)
Series A Units
Total
Curion Holdings, LLC
Term Loan (SBIC II)
Revolver
SP CS Holdings LLC Class A Units
Total
Data Centrum Communications, Inc.
Term Loan B
Health Monitor Holdings, LLC Series A Preferred
Units
Total

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

4.78 %
0.01 %
4.79 %

2.18 %
0.01 %
0.28 %
2.47 %

5.60 %
0.35 %
5.95 %

3.67 %
0.15 %
3.82 %

4.71 %
0.10 %
4.81 %

4.96 %
1.07 %
0.08 %
6.11 %

Footnotes
(9)
(4)(11)
(11)

Security(2)

Coupon

Floor

Cash

PIK

   Investment   
Date

  Maturity

First Lien
First Lien

3M SOFR+ 6.25 % 1.00 % 10.71 %
3M SOFR+ 6.25 % 1.00 % 10.55 %

2/24/2022
2/24/2022

2/7/2027
2/7/2027

3M SOFR+ 6.25 % 1.00 % 10.49 %
1M SOFR+ 6.25 % 1.00 % 10.67 %

2/1/2022
2/1/2022
2/1/2022

2/1/2027
2/1/2027

3M SOFR+ 7.24 % 2.00 % 11.82 %

8/28/2019
8/28/2019

8/28/2024

Phoenix, AZ
Beverage, Food, & Tobacco

Headquarters/ 
Industry
Tampa Bay, FL
Retail

Houston, TX
Capital Equipment

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

$13,388,469
$ 30,065

13,273,471
30,065

13,187,642
29,614

$13,303,536 $13,217,256

$ 6,178,740
$ 36,566
754,598

6,074,029
36,566
754,598

6,024,272
35,652
770,648
$ 6,865,193 $ 6,830,572

$15,725,000
9,160

15,606,117
916,015

15,410,501
976,521
$16,522,132 $16,387,022

3M LIBOR+ 5.25 % 1.00 % 9.98 %

9/3/2021
9/3/2021

Boston, MA
9/3/2026 Media: Advertising, Printing & Publishing $10,121,875

250

9,965,356
250,000

10,121,875
405,784
$10,215,356 $10,527,659

3M LIBOR+ 6.50 % 1.00 % 11.23 %

2/19/2021
2/19/2021

2/19/2026

Montreal, Canada
Services: Business

$13,263,750
250,000

13,083,737
250,000

12,998,475
268,194
$13,333,737 $13,266,669

3M LIBOR+ 6.00 % 1.00 % 10.76 %
3M LIBOR+ 6.00 % 1.00 % 10.73 %

9/1/2021
9/1/2021
9/1/2021

Blue Bell, PA
9/1/2026 Media: Advertising, Printing & Publishing $14,180,959
$ 3,062,093
9/1/2026
22.09%

13,961,673
3,037,434
220,930

13,684,625
2,954,920
218,292
$17,220,037 $16,857,837

First Lien
First Lien

3M LIBOR+ 6.50 % 1.00 % 11.23 %
3M LIBOR+ 6.50 % 1.00 % 11.23 %

12/21/2020
12/21/2020

12/21/2025
12/21/2025

Seattle, WA
Services: Consumer

Equity

Equity

12/21/2020

12/21/2020

First Lien

3M SOFR+ 6.50 % 2.00 % 11.23 %

11/22/2022

11/22/2027

Maitland, FL
Healthcare & Pharmaceuticals

Equity

First Lien
First Lien
Equity

First Lien
First Lien
Equity

3M LIBOR+ 5.75 % 1.00 % 10.48 %
3M LIBOR+ 5.75 % 1.00 % 10.48 %

3M SOFR+ 6.25 % 1.00 % 10.98 %
3M SOFR+ 6.25 % 1.00 % 10.98 %

7/30/2026
7/30/2026

7/29/2027
7/29/2027

Fresno, CA
Software

Chicago, IL
Services: Business

$11,248,696
$ 40,000

11,103,143
40,000

10,967,479
39,000

3.98 %
0.01 %

417

522

5

4

0.00 %

521,734

403,084

0.15 %

$11,664,882 $11,409,567

4.14 %

$ 4,987,500

4,888,742

4,888,742

1.77 %

4

285,714

285,714

0.10 %

$ 5,174,456 $ 5,174,456

1.87 %

$ 9,875,000
$ 7,443,750
804,384

9,726,674
7,317,403
804,384

9,776,250
7,369,313
961,718
$17,848,461 $18,107,281

$13,027,351
$ 70,000
739,999

12,784,145
70,000
739,999

12,701,667
68,250
590,535
$13,594,144 $13,360,452

3.54 %
2.67 %
0.35 %
6.56 %

4.61 %
0.02 %
0.21 %
4.84 %

(11)

First Lien

3M SOFR+ 8.50 % 1.00 % 13.29 %

Equity

Montvale, NJ
5/15/2024 Media: Advertising, Printing & Publishing $15,760,360

15,661,301

15,445,154

5.61 %

1,000,000

1,000,000

458,500

0.17 %

$16,661,301 $15,903,654

5.78 %

First Lien
First Lien
Equity

First Lien
Equity

First Lien
Equity

First Lien
Equity

First Lien
First Lien
Equity

(9)
(11)
(11)

(11)

(9)
(4)(11)

(7)(9)
(11)

(9)
(4)(11)
(11)

(9)
(5)(11)
(11)

(5)

(5)

(9)
(11)

(9)
(5)(11)
(5)(11)

(9)
(5)(11)
(11)

11/22/2022

7/30/2021
3/31/2022
7/30/2021

7/29/2022
7/29/2022
7/29/2022

5/15/2019

5/15/2019

117

  
  
  
  
  
  
  
  
  
Table of Contents

Investments
Douglas Products Group, LP
Partnership Interests
Total
Dresser Utility Solutions, LLC
Term Loan (SBIC)
Total
DRS Holdings III, Inc.
Term Loan
Total
DTE Enterprises, LLC
Term Loan
DTE Holding Company, LLC Class A-2 Units
DTE Holding Company, LLC Class AA Units
Total
EH Real Estate Services, LLC
Term Loan (SBIC)
EH Holdco, LLC Series A Preferred Units
Total
Elliott Aviation, LLC
Term Loan
Revolver
SP EA Holdings LLC Class A Units
Total
EOS Fitness Holdings, LLC
Class A Preferred Units
Class B Common Units
Total
Exacta Land Surveyors, LLC
Term Loan (SBIC)
Term Loan (SBIC)
SP ELS Holdings LLC Class A Units
Total
Exigo, LLC
Term Loan
Revolver
Gauge Exigo Coinvest, LLC Common Units
Total
Florachem Corporation
Term Loan (SBIC)
SK FC Holdings, L.P. Class A Units
Total
General LED OPCO, LLC
Term Loan
Total
GS HVAM Intermediate, LLC
Term Loan
Revolver
HV GS Acquisition, LP Class A Interests
Total

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Footnotes

Security(2)

Coupon

Floor

Cash

PIK

   Investment   
Date

  Maturity

(6)

Equity

12/27/2018

(4)(11)

Second Lien

1M LIBOR+ 8.50 % 1.00 % 12.88 %

10/1/2018

4/1/2026

(9)
(11)

(9)
(11)

(4)

(11)
(11)

(9)
(4)(11)
(4)(11)

(9)
(11)
(11)

(9)
(4)(11)

First Lien

1M LIBOR+ 5.75 % 1.00 % 10.13 %

11/1/2019

11/1/2025

3M LIBOR+ 7.50 % 1.50 % 12.24 %

4/13/2023

Roselle, IL
Energy: Oil & Gas

4/13/2018
4/13/2018
4/13/2018

First Lien
Equity
Equity

First Lien
Equity

10.00%

10.00 %

9/3/2021
9/3/2021

9/3/2026

First Lien
First Lien
Equity

1M LIBOR+ 8.00 % 2.00 % 10.38 % 2.00 % 1/31/2020
1M LIBOR+ 8.00 % 2.00 % 10.38 % 2.00 % 1/31/2020
1/31/2020

1/31/2025
1/31/2025

Equity
Equity

First Lien
First Lien
Equity

First Lien
First Lien
Equity

First Lien
Equity

3M LIBOR+ 5.75 % 1.50 % 10.48 %
3M LIBOR+ 5.75 % 1.00 % 10.48 %

1M LIBOR+ 5.75 % 1.00 % 10.13 %
1M LIBOR+ 5.75 % 1.00 % 10.13 %

12/30/2014
12/30/2014

2/8/2019
7/15/2022
2/8/2019

2/8/2024
2/8/2024

3/16/2022
3/16/2022
3/16/2022

3/16/2027
3/16/2027

3M LIBOR+ 6.50 % 1.00 % 11.23 %

4/29/2022
4/29/2022

4/29/2028

Headquarters/ 
Industry
Liberty, MO
Chemicals, Plastics, & Rubber

Bradford, PA
Utilities: Oil & Gas

St. Louis, MO
Consumer Goods: Durable

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

322

$

-
- $

695,072
695,072

0.25 %
0.25 %

$10,000,000

9,921,469

9,800,000
$ 9,921,469 $ 9,800,000

3.55 %
3.55 %

$ 9,190,990

9,142,111

8,961,215
$ 9,142,111 $ 8,961,215

3.25 %
3.25 %

Skokie, IL
FIRE: Real Estate

Moline, IL
Aerospace & Defense

Phoenix, AZ
Hotel, Gaming, & Leisure

Cleveland, OH
Services: Business

Dallas, TX
Software

Jacksonville, FL
Chemicals, Plastics, & Rubber

San Antonio, TX
Services: Business

Carlsbad, CA
Beverage, Food, & Tobacco

$ 6,134,219
776,316
723,684

6,124,342
466,204
723,684

6,134,219
706,459
514,396
$ 7,314,230 $ 7,355,074

$ 7,874,359
7,892

7,750,451
7,891,642

5,866,397
-
$15,642,093 $ 5,866,397

$10,010,654
$ 1,382,146
900,000

9,920,657
1,382,146
900,000

8,959,535
1,237,021
146,541
$12,202,803 $10,343,097

118
3,017

$

-
-
- $

232,320
567,579
799,899

$16,374,375
$ 995,000
1,122,250

16,286,433
980,742
1,122,250

16,128,760
980,075
969,726
$18,389,425 $18,078,561

$ 8,992,885
20,000
$
377,535

8,875,308
20,000
377,535

8,857,992
19,700
341,050
$ 9,272,843 $ 9,218,742

$ 9,950,000
362

9,768,170
362,434

9,751,000
365,198
$10,130,604 $10,116,198

2.22 %
0.26 %
0.19 %
2.67 %

2.13 %
0.00 %
2.13 %

3.25 %
0.45 %
0.05 %
3.75 %

0.08 %
0.21 %
0.29 %

5.86 %
0.36 %
0.35 %
6.57 %

3.21 %
0.01 %
0.12 %
3.34 %

3.54 %
0.13 %
3.67 %

$ 4,500,000

4,462,793

4,140,000
$ 4,462,793 $ 4,140,000

1.50 %
1.50 %

$12,523,234
$ 2,539,470
2,144

12,472,183
2,539,470
1,967,133

12,398,002
2,514,075
1,455,955
$16,978,786 $16,368,032

4.50 %
0.91 %
0.53 %
5.94 %

(11)(14)

Second Lien

3M LIBOR+ 9.00 % 1.50 % - %

5/1/2018

3/31/2026

(9)
(11)
(11)

First Lien
First Lien
Equity

3M LIBOR+ 6.50 % 1.00 % 11.24 %
3M LIBOR+ 6.50 % 1.00 % 11.24 %

10/18/2019
10/18/2019
10/2/2019

10/2/2024
10/2/2024

118

  
  
  
  
  
  
  
  
  
  
  
Table of Contents

Investments
Heartland Business Systems, LLC
Term Loan (SBIC II)
Delayed Draw Term Loan
AMCO HBS Holdings, LP Class A Units
Total
Heat Makes Sense Shared Services, LLC
Term Loan
Revolver
Ishtar Co-Invest-B LP Partnership Interests
Oshun Co-Invest-B LP Partnership Interests
Total
HV Watterson Holdings, LLC
Term Loan
Revolver
Delayed Draw Term Loan
HV Acquisition VI, LLC Class A Units
Total
I2P Holdings, LLC
Series A Preferred Units
Total
ICD Holdings, LLC
Class A Units
Total
Infolinks Media Buyco, LLC
Term Loan (SBIC II)
Tower Arch Infolinks Media, LP LP Interests
Total
Inoapps Bidco, LLC
Term Loan B
Delayed Draw Term Loan
Inoapps Holdings, LLC Series A-1 Preferred Units
Total
Integrated Oncology Network, LLC
Term Loan
Term Loan
Total
International Designs Holdings LLC
Common Units
Total
Interstate Waste Services, Inc.
Common Stock
Total
Intuitive Health, LLC
Term Loan (SBIC II)
Term Loan
Term Loan (SBIC II)
Legacy Parent, Inc. Class A Common Stock
Total

First Lien
First Lien
Equity

First Lien
First Lien
Equity
Equity

First Lien
First Lien
First Lien
Equity

Equity

Equity

First Lien
Equity

First Lien
First Lien
Equity

Footnotes
(9)
(5)(11)
(11)

(9)
(11)
(11)

(9)
(11)
(11)
(11)

(6)

(7)

(9)
(5)(11)
(6)(17)

(9)
(11)
(11)

(9)
(11)
(11)

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Security(2)

Coupon

Floor

Cash

PIK

3M SOFR+ 6.25 % 1.00 % 10.79 %
3M SOFR+ 6.25 % 1.00 % 10.91 %

6M SOFR+ 5.50 % 0.75 % 9.63 %
6M SOFR+ 5.50 % 0.75 % 10.37 %

3M LIBOR+ 6.25 % 1.00 % 10.98 %
3M LIBOR+ 6.25 % 1.00 % 10.98 %
3M LIBOR+ 6.25 % 1.00 % 10.98 %

   Investment   
Date

  Maturity

8/26/2022
8/26/2022
8/26/2022

8/26/2027
8/26/2027

7/1/2029
7/1/2028

7/1/2022
7/1/2022
7/1/2022
7/1/2022

12/17/2021
12/17/2021
12/17/2021
12/17/2021

12/17/2026
12/17/2026
12/17/2026

1/31/2018

1/1/2018

Headquarters/ 
Industry
Little Chute, WI
Services: Business

Brooklyn, NY
Consumer Goods: Non-Durable

Schaumburg, IL
Services: Business

Cleveland, OH
Services: Business

San Francisco, CA
Finance

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

$ 9,975,000
25,000
$
2,861

9,785,984
24,753
286,065

9,825,375
24,625
444,511
$10,096,802 $10,294,511

$
$

99,750
20,000
77,778
22,222

97,814
20,000
77,778
22,222
217,814 $

98,254
19,700
88,684
25,338
231,976

$

$13,302,236
$
16,000
$ 323,108
1,632

13,081,774
16,000
320,082
1,631,591

12,903,169
15,520
313,415
1,374,844
$15,049,447 $14,606,948

3.56 %
0.01 %
0.16 %
3.73 %

0.04 %
0.01 %
0.03 %
0.01 %
0.09 %

4.68 %
0.01 %
0.11 %
0.50 %
5.30 %

750,000

9,962

$

$

-
3,238,328
- $ 3,238,328

1.17 %
1.17 %

464,619
1,033,332
464,619 $ 1,033,332

0.37 %
0.37 %

3M LIBOR+ 5.50 % 1.00 % 10.23 %

11/1/2021
10/28/2021

Ridgewood, NJ
11/1/2026 Media: Advertising, Printing & Publishing $ 8,439,750
447,183

8,304,246
429,507

8,439,750
796,939
$ 8,733,753 $ 9,236,689

Houston, TX
High Tech Industries

Newport Beach, CA
Healthcare & Pharmaceuticals

Farmingville, NY
Construction & Building

Amsterdam, OH
Environmental Industries

Plano, TX
Healthcare & Pharmaceuticals

3.06 %
0.29 %
3.35 %

4.28 %
0.03 %
0.28 %
4.59 %

5.58 %
0.39 %
5.97 %

£ 9,950,000 $13,260,842 $11,801,635
81,463
$
765,249
$14,126,954 $12,648,347

82,356
783,756

83,125
739,844

$15,832,478
$ 1,095,930

15,724,809
1,083,042

15,357,505
1,063,052
$16,807,851 $16,420,557

200,000

21,925

$

$

200,000
200,000 $

195,412
195,412

0.07 %
0.07 %

946,125
946,125 $

615,657
615,657

0.22 %
0.22 %

$ 5,835,000
$ 8,206,709
$ 3,073,431
58

5,769,877
8,115,519
3,035,678
-

5,835,000
8,206,709
3,073,431
191,375
$16,921,074 $17,306,515

2.12 %
2.98 %
1.11 %
0.07 %
6.28 %

3M SONIA+ 5.75 % 1.00 % 9.09 %
3M LIBOR+ 5.75 % 1.00 % 10.19 %

2/15/2022
2/15/2022
2/15/2022

2/15/2027
2/15/2027

First Lien
First Lien

3M SOFR+ 6.00 % 1.00 % 9.71 %
3M SOFR+ 6.00 % 1.00 % 9.71 %

7/17/2019
11/1/2021

6/24/2025
6/24/2025

Equity

Equity

4/1/2022

1/15/2020

(5)(11)
(11)
(5)(11)

First Lien
First Lien
First Lien
Equity

3M LIBOR+ 5.50 % 1.00 % 10.23 %
3M LIBOR+ 5.50 % 1.00 % 10.23 %
3M LIBOR+ 5.50 % 1.00 % 10.23 %

10/18/2019
10/18/2019
8/31/2021
10/30/2020

10/18/2027
10/18/2027
10/18/2027

119

  
  
  
  
  
  
  
  
  
  
  
Table of Contents

Investments
Invincible Boat Company LLC
Term Loan
Term Loan (SBIC II)
Term Loan (SBIC II)
Revolver
Warbird Parent Holdco, LLC Class A Units
Total
J.R. Watkins, LLC
Term Loan (SBIC)
J.R. Watkins Holdings, Inc. Class A Preferred Stock
Total
Jurassic Acquisition Corp.
Term Loan
Total
Kelleyamerit Holdings, Inc.
Term Loan (SBIC)
Term Loan
Total
KidKraft, Inc.
Term Loan
KidKraft Group Holdings, LLC Preferred B Units
Total
Ledge Lounger, Inc.
Term Loan A (SBIC)
Revolver
SP L2 Holdings LLC Class A Units (SBIC)
Total
Lightning Intermediate II, LLC
Term Loan (SBIC)
Gauge Vimergy Coinvest, LLC Units
Total
MacKenzie-Childs Acquisition, Inc.
Term Loan
Revolver
MacKenzie-Childs Investment, LP Partnership Interests
Total
Madison Logic Holdings, Inc.
Term Loan
Total
Microbe Formulas LLC
Term Loan (SBIC II)
Total
MOM Enterprises, LLC
Term Loan (SBIC II)
Revolver
MBliss SPC Holdings, LLC Units
Total

(9)
(4)(11)
(11)
(4)

(9)
(4)(11)

(9)
(11)
(11)

(9)
(11)

(9)
(5)(11)

(9)
(5)(11)
(11)

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Footnotes
(9)
(11)
(5)(11)
(5)(11)
(11)

Security(2)

Coupon

Floor

Cash

PIK

First Lien
First Lien
First Lien
First Lien
Equity

3M LIBOR+ 6.50 % 1.50 % 11.23 %
3M LIBOR+ 6.50 % 1.50 % 11.23 %
3M LIBOR+ 6.50 % 1.50 % 11.23 %
3M LIBOR+ 6.50 % 1.50 % 11.23 %

   Investment   
Date

  Maturity

8/28/2019
8/28/2019
6/1/2021
8/28/2019
8/28/2019

8/28/2025
8/28/2025
8/28/2025
8/28/2025

Headquarters/ 
Industry
Opa Locka, FL
Consumer Goods: Durable

(4)

First Lien
Equity

12.00%

7.00 % 5.00 % 12/22/2017
12/22/2017

3/31/2024

(11)

First Lien

1M SOFR+ 5.50 % - % 9.92 %

12/28/2018

11/15/2024

(4)(10)(12)
(10)(12)

First Lien
First Lien

1M BSBY+ 6.75 % 1.00 % 12.36 %
1M BSBY+ 6.75 % 1.00 % 12.36 %

12/24/2020
12/24/2020

12/24/2025
12/24/2025

(10)(12)

First Lien
Equity

3M LIBOR+ 6.00 % 1.00 % 10.72 %

4/3/2020
4/3/2020

6/30/2023

First Lien
First Lien
Equity

First Lien
Equity

First Lien
First Lien
Equity

3M SOFR+ 6.25 % 1.00 % 10.98 %
3M SOFR+ 6.25 % 1.00 % 10.98 %

6M SOFR+ 6.50 % 1.00 % 11.54 %

3M SOFR+ 6.00 % 1.00 % 10.73 %
3M SOFR+ 6.00 % 1.00 % 10.73 %

11/9/2021
11/9/2021
11/9/2021

11/9/2026
11/9/2026

6/6/2022
6/6/2022

6/6/2027

9/2/2022
9/2/2022
9/2/2022

9/2/2027
9/2/2027

San Francisco
Consumer Goods: Non-Durable

Sparks, MD
Metals & Mining

Walnut Creek, CA
Automotive

Dallas, TX
Consumer Goods: Durable

Katy, TX
Consumer Goods: Durable

Jacksonville, FL
Consumer Goods: Non-Durable

Aurora, NY
Consumer Goods: Durable

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

$ 5,381,042
$ 4,967,116
$ 1,104,255
$ 319,149
1,362,575

5,294,704
4,916,760
1,089,478
319,149
1,299,691

5,219,611
4,818,103
1,071,127
309,575
733,149
$12,919,782 $12,151,565

$12,764,441
1,133

12,764,441
1,132,576

11,168,886
149,640
$13,897,017 $11,318,526

1.89 %
1.75 %
0.39 %
0.11 %
0.27 %
4.41 %

4.05 %
0.05 %
4.10 %

$16,800,000

16,708,750

16,464,001
$16,708,750 $16,464,001

5.98 %
5.98 %

$ 9,750,000
$ 1,500,000

9,624,052
1,480,623

9,701,250
1,492,500
$11,104,675 $11,193,750

$ 1,580,768
4,000,000

1,580,768
4,000,000

1,580,768
4,000,000
$ 5,580,768 $ 5,580,768

$ 7,568,289
33,333
$
375,000

7,446,619
33,333
375,000

7,416,923
32,666
302,593
$ 7,854,952 $ 7,752,182

$13,587,067
399

13,340,843
398,677

13,179,455
298,376
$13,739,520 $13,477,831

$
$

99,750
86,667
100,000

98,331
86,667
100,000
284,998 $

98,254
85,367
91,659
275,280

$

3.52 %
0.54 %
4.06 %

0.57 %
1.45 %
2.02 %

2.69 %
0.01 %
0.11 %
2.81 %

4.78 %
0.11 %
4.89 %

0.04 %
0.03 %
0.03 %
0.10 %

First Lien

3M SOFR+ 7.00 % 1.00 % 11.58 %

12/30/2022

New York, NY
12/30/2028 Media: Broadcasting & Subscription $ 4,529,217

4,393,340

4,393,340
$ 4,393,340 $ 4,393,340

1.59 %
1.59 %

First Lien

1M SOFR+ 6.25 % 1.00 % 10.67 %

4/4/2022

4/3/2028

First Lien
First Lien
Equity

3M LIBOR+ 6.25 % 1.00 % 10.98 %
3M LIBOR+ 6.25 % 1.00 % 10.98 %

5/19/2021
5/19/2021
5/19/2021

5/19/2026
5/19/2026

Meridian, ID
Consumer Goods: Non-Durable

Richmond, CA
Consumer Goods: Non-Durable

$ 9,962,730

9,873,093

9,863,103
$ 9,873,093 $ 9,863,103

3.58 %
3.58 %

$16,219,667
37,500
$
933,333

15,984,825
37,500
933,333

15,651,980
36,188
700,989
$16,955,658 $16,389,157

5.69 %
0.01 %
0.25 %
5.95 %

120

   
  
  
  
  
  
  
  
  
  
  
Table of Contents

Investments
Monitorus Holding, LLC
Term Loan
Delayed Draw Term Loan
Sapphire Aggregator S.a r.l. Class A Shares
Sapphire Aggregator S.a r.l. Class B Shares
Sapphire Aggregator S.a r.l. Class C Shares
Sapphire Aggregator S.a r.l. Class D Shares
Sapphire Aggregator S.a r.l. Class E Shares
Sapphire Aggregator S.a r.l. Class F Shares
Sapphire Aggregator S.a r.l. Class G Shares
Sapphire Aggregator S.a r.l. Class H Shares
Sapphire Aggregator S.a r.l. Class I Shares
Total
Naumann/Hobbs Material Handling Corporation II,
Inc.
Term Loan
Term Loan (SBIC II)
Naumann Hobbs Holdings, L.P. Class A-1 Units
Naumann Hobbs Holdings, L.P. Class A-2 Units
Total
NINJIO, LLC
Term Loan
NINJIO Holdings, LLC Units
Total
NS412, LLC
Term Loan
NS Group Holding Company, LLC Class A Units
Total
NuMet Machining Techniques, LLC
Term Loan
Bromford Industries Limited Term Loan
Total
NuSource Financial, LLC
Term Loan (SBIC II)
NuSource Financial Acquisition, Inc. (SBIC II)
NuSource Holdings, Inc. Warrants (SBIC II)
Total
Nutritional Medicinals, LLC
Term Loan
Term Loan
Functional Aggregator, LLC Units
Total
Onpoint Industrial Services, LLC
Term Loan (SBIC)
Spearhead TopCo, LLC Class A Units
Total
PCP MT Aggregator Holdings, L.P.
Common Units
Total

Footnotes
(7)(9)
(11)
(11)

(9)

(11)
(5)(11)

(9)
(11)

(11)

(7)
(11)(15)
(11)(15)

(5)(11)
(5)
(5)

(9)
(11)
(11)

(4)(11)

(7)

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Security(2)

Coupon

Floor

Cash

PIK

   Investment   
Date

  Maturity

Headquarters/ 
Industry
London, UK
Media: Diversified & Production

5/24/2027
5/24/2027

First Lien
First Lien
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity

First Lien
First Lien
Equity
Equity

First Lien
Equity

3M LIBOR+ 7.00 % 1.00 % 11.73 %
3M LIBOR+ 7.00 % 1.00 % 11.73 %

3M SOFR+ 6.75 % 1.50 % 11.33 %
3M SOFR+ 6.75 % 1.50 % 11.33 %

3M SOFR+ 6.50 % 1.50 % 11.33 %

5/24/2022
5/24/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022
9/1/2022

8/30/2019
8/30/2019
9/29/2022
9/29/2022

10/12/2022
10/12/2022

8/30/2024
8/30/2024

Phoenix, AZ
Services: Business

10/12/2027 Media: Diversified & Production

Westlake Village, CA

Dallas, TX
Services: Consumer

Birmingham, UK
Aerospace & Defense

Eden Prairie, MN
Services: Business

Second Lien
Equity

3M LIBOR+ 8.50 % 1.00 % 13.23 %

5/6/2019
5/6/2019

11/6/2025

Second Lien
Second Lien

PRIME+ 8.00 % - % - %
PRIME+ 8.00 % - % - %

11/5/2019
11/5/2019

5/5/2026
5/5/2026

First Lien
Unsecured
Equity

First Lien
First Lien
Equity

First Lien
Equity

Equity

1M LIBOR+ 9.00 % 1.00 % 13.12 %

13.75%

1/29/2021
2.00 % 11.75 % 1/29/2021
1/29/2021

1/29/2026
7/29/2026

3M LIBOR+ 6.00 % 1.00 % 10.73 %
3M LIBOR+ 6.00 % 1.00 % 10.73 %

11/15/2018
10/28/2021
11/15/2018

11/15/2025
11/15/2025

Centerville, OH
Healthcare & Pharmaceuticals

3M SOFR+ 7.00 % 1.75 % 11.58 %

11/16/2022
11/16/2022

11/16/2027

3/29/2019

Deer Park, TX
Services: Business

Oak Brook, IL
Finance

121

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

$ 100,000
€ 100,000
557,689
557,682
557,682
557,682
557,682
557,682
557,682
557,682
557,682

99,095
100,931
11,156
11,156
11,156
11,156
11,156
11,156
11,156
11,156
11,156
300,430 $

99,000
106,132
12,511
12,511
12,511
12,511
12,511
12,511
12,511
12,511
12,511
317,731

$

$ 8,552,022
$ 5,392,937
123
123

8,487,053
5,351,968
220,379
220,379

8,423,742
5,312,043
314,486
314,486
$14,279,779 $14,364,757

$ 5,000,000
184

4,903,726
313,253

4,903,726
313,253
$ 5,216,979 $ 5,216,979

$ 7,615,000
782

7,536,527
795,002

7,386,550
536,120
$ 8,331,529 $ 7,922,670

$12,675,000
$ 7,800,000

12,524,972
7,704,685

8,745,750
5,382,000
$20,229,657 $14,127,750

$11,562,548
$ 5,638,571
54,966

11,403,406
5,568,680
-

11,215,672
4,736,400
-
$16,972,086 $15,952,072

$ 9,848,290
$ 4,180,294
12,500

9,781,484
4,133,615
972,803

9,700,566
4,117,590
1,582,534
$14,887,902 $15,400,690

$12,893,258
606,742

12,638,571
606,742

12,638,571
606,742
$13,245,313 $13,245,313

0.04 %
0.04 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.08 %

3.05 %
1.93 %
0.11 %
0.11 %
5.20 %

1.78 %
0.11 %
1.89 %

2.68 %
0.19 %
2.87 %

3.17 %
1.95 %
5.12 %

4.07 %
1.72 %
0.00 %
5.79 %

3.52 %
1.49 %
0.57 %
5.58 %

4.58 %
0.22 %
4.80 %

825,020

119,281
1,686,647
119,281 $ 1,686,647

0.61 %
0.61 %

$

  
  
  
  
  
  
  
  
Table of Contents

Investments
PCS Software, Inc.
Term Loan
Term Loan (SBIC)
Delayed Draw Term Loan
PCS Software Parent, LLC Class A Common Units
Total
Pearl Media Holdings, LLC
Term Loan (SBIC II)
Revolver
Total
Peltram Plumbing Holdings, LLC
Term Loan
Peltram Group Holdings LLC Class A Units
Total
Premiere Digital Services, Inc.
Term Loan
Premiere Digital Holdings, Inc. Common Stock
Total
Protect America, Inc.
Term Loan
Total
Rogers Mechanical Contractors, LLC
Term Loan
Delayed Draw Term Loan
Total
Sales Benchmark Index, LLC
Term Loan
SBI Holdings Investments LLC Class A Units
Total
Service Minds Company, LLC
Term Loan
Revolver
Delayed Draw Term Loan
Total
SIB Holdings, LLC
Term Loan (SBIC)
Term Loan (SBIC)
Term Loan (SBIC)
Delayed Draw Term Loan
Revolver
SIB Holdings, LLC Units
Total
TAC LifePort Holdings, LLC
Common Units
Total
Tilley Distribution, Inc.
Term Loan
Revolver
Total

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Security(2)

Coupon

Floor

Cash

PIK

First Lien
First Lien
First Lien
Equity

3M SOFR+ 6.00 % 1.50 % 10.73 %
3M SOFR+ 6.00 % 1.50 % 10.73 %
3M SOFR+ 6.00 % 1.50 % 10.73 %

   Investment   
Date

  Maturity

7/1/2019
7/1/2019
7/1/2019
9/16/2022

7/1/2024
7/1/2024
7/1/2024

First Lien
First Lien

3M SOFR+ 6.25 % 1.50 % 10.98 %
3M SOFR+ 6.25 % 1.50 % 10.93 %

8/31/2022
8/31/2022

8/31/2027
8/31/2027

3M LIBOR+ 6.25 % 1.00 % 10.98 %

12/30/2021
12/30/2021

12/30/2026

Headquarters/ 
Industry
Shenandoah, TX
Transportation & Logistics

Garland, TX
Consumer Goods: Durable

Auburn, WA
Construction & Building

Footnotes
(9)
(11)
(4)(11)
(11)

(9)
(5)(11)
(11)

(9)
(11)

(9)
(11)

First Lien
Equity

First Lien
Equity

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  
Assets

$14,064,493
$ 1,844,524
$ 972,500
461,216

13,964,812
1,831,451
972,500
-

13,923,848
1,826,079
962,775
449,270
$16,768,763 $17,161,972

$ 9,975,000
33,333
$

9,785,984
33,333

9,775,500
32,666
$ 9,819,317 $ 9,808,166

$16,579,758
508,516

16,304,977
508,516

15,999,467
311,668
$16,813,493 $16,311,135

5.05 %
0.66 %
0.35 %
0.16 %
6.22 %

3.54 %
0.01 %
3.55 %

5.81 %
0.11 %
5.92 %

5.18 %
1.01 %
6.19 %

1M LIBOR+ 5.25 % 1.00 % 9.64 %

11/3/2021
10/18/2018

Los Angeles, CA
11/3/2026 Media: Broadcasting & Subscription $14,278,846

5,000

14,221,712
-

14,278,846
2,773,121
$14,221,712 $17,051,967

(11)(13)

Second Lien

3M LIBOR+ 7.75 % 1.00 % - %

8/30/2017

9/1/2024

(9)
(11)
(11)

(9)
(11)

(9)
(11)
(11)
(11)

(9)
(4)(11)
(4)(11)
(4)(11)
(11)
(11)

(9)
(11)
(11)

First Lien
First Lien

6M SOFR+ 8.00 % 1.00 % 11.70 % 1.00 % 4/28/2021
6M SOFR+ 8.00 % 1.00 % 11.70 % 1.00 % 4/28/2021

9/9/2025
9/9/2025

First Lien
Equity

3M LIBOR+ 6.00 % 1.00 % 10.73 %

1/7/2020
1/7/2020

1/7/2025

First Lien
First Lien
First Lien

1M LIBOR+ 5.00 % 1.00 % 9.29 %
1M SOFR+ 5.00 % 1.00 % 9.44 %
1M LIBOR+ 5.00 % 1.00 % 9.29 %

2/7/2022
2/7/2022
2/7/2022

2/7/2028
2/7/2028
2/7/2028

1M LIBOR+ 6.25 % 1.00 % 11.01 %
1M LIBOR+ 6.25 % 1.00 % 11.01 %
1M LIBOR+ 6.25 % 1.00 % 11.01 %
1M LIBOR+ 6.25 % 1.00 % 11.01 %
1M LIBOR+ 6.25 % 1.00 % 11.01 %

First Lien
First Lien
First Lien
First Lien
First Lien
Equity

Equity

10/29/2026
10/29/2026
10/29/2026
10/29/2026
10/29/2026

10/29/2021
6/15/2022
7/20/2022
10/29/2021
10/29/2021
10/29/2021

3/1/2021

First Lien
First Lien

3M SOFR+ 5.50 % 1.00 % 10.14 %
3M SOFR+ 5.50 % 1.00 % 10.14 %

4/1/2022
4/1/2022

12/31/2026
12/31/2026

Austin, TX
Services: Consumer

Atlanta, GA
Construction & Building

Dallas, TX
Services: Business

Bradenton, FL
Services: Consumer

Charleston, SC
Services: Business

$17,979,749

17,979,749
$17,979,749 $

-
-

0.00 %
0.00 %

$10,001,068
50,000
$

9,884,999
49,643

9,851,052
49,250
$ 9,934,642 $ 9,900,302

$12,481,823
66,573

12,366,809
665,730

12,169,777
390,822
$13,032,539 $12,560,599

$ 5,357,887
30,000
$
32,081
$

5,264,150
30,000
31,791

5,223,940
29,250
31,279
$ 5,325,941 $ 5,284,469

$12,789,331
$ 859,747
$ 2,292,657
$ 2,865,822
70,754
$
238,095

12,584,996
842,658
2,250,559
2,840,406
70,754
500,000

12,405,651
833,955
2,223,877
2,779,847
68,631
342,821
$19,089,373 $18,654,782

3.57 %
0.02 %
3.59 %

4.41 %
0.14 %
4.55 %

1.89 %
0.01 %
0.01 %
1.91 %

4.50 %
0.30 %
0.81 %
1.01 %
0.02 %
0.12 %
6.76 %

Woodland, WA
Aerospace & Defense

500,000

Baltimore, MD
Chemicals, Plastics, & Rubber

$
$

99,245
17,391

500,000
500,000 $

759,769
759,769

0.28 %
0.28 %

97,936
17,391
115,327 $

95,771
16,782
112,553

0.03 %
0.01 %
0.04 %

$

$

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Investments
Trade Education Acquisition, L.L.C.
Term Loan (SBIC)
Revolver
Trade Education Holdings, L.L.C. Class A Units
Total
TradePending, LLC
Term Loan (SBIC II)
TradePending Holdings, LLC Series A Units
Total
Unicat Catalyst Holdings, LLC
Term Loan
Unicat Catalyst, LLC Class A Units
Total
U.S. Auto Sales, Inc. et al
USASF Blocker II LLC Units
USASF Blocker III LLC 2018 Series Units
USASF Blocker III LLC 2019 Series Units
USASF Blocker IV LLC Units
USASF Blocker IV LLC 2022 Series Units
USASF Blocker V LLC Units
USASF Blocker LLC Units
Total
U.S. Expediters, LLC
Term Loan
Cathay Hypnos LLC Units
Total
Venbrook Buyer, LLC
Term Loan B (SBIC)
Term Loan B
Revolver
Delayed Draw Term Loan
Venbrook Holdings, LLC Term Loan
Venbrook Holdings, LLC Common Units
Total
Vortex Companies, LLC
Term Loan (SBIC II)
Total
Whisps Holdings LP
Class A Units
Total
Xanitos, Inc.
Term Loan (SBIC)
Revolver
Delayed Draw Term Loan
Pure TopCo, LLC Class A Units
Total
Total Non-controlled, non-affiliated investments
Net Investments
LIABILITIES IN EXCESS OF OTHER ASSETS
NET ASSETS

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

Footnotes
(9)
(4)(11)
(11)

(9)
(5)(11)

(9)
(11)

(7)

(9)
(11)
(6)

(4)(11)
(11)
(11)
(11)
(16)

First Lien
First Lien
Equity

First Lien
Equity

First Lien
Equity

Equity
Equity
Equity
Equity
Equity
Equity
Equity

First Lien
Equity

First Lien
First Lien
First Lien
First Lien
Unsecured
Equity

Security(2)

Coupon

Floor

Cash

PIK

1M LIBOR+ 6.25 % 1.00 % 10.63 %
1M LIBOR+ 6.25 % 1.00 % 10.52 %

   Investment     
Date

Maturity

12/28/2021
12/28/2021
12/28/2021

12/28/2027
12/28/2027

3M LIBOR+ 6.25 % 1.00 % 10.98 %

3/2/2021
3/2/2021

3/2/2026

3M LIBOR+ 6.50 % 1.00 % 11.23 %

4/27/2021
4/27/2021

4/27/2026

6/8/2015
2/13/2018
12/27/2019
5/27/2020
7/28/2022
12/20/2022
6/8/2015

3M LIBOR+ 6.00 % 1.00 % 10.73 %

12/22/2021
12/22/2021

12/22/2026

3M SOFR+ 8.00 % 1.50 % 5.73 % 7.00 % 3/13/2020
3M SOFR+ 8.00 % 1.50 % 5.73 % 7.00 % 3/13/2020
3M SOFR+ 8.00 % 1.50 % 5.73 % 7.00 % 3/13/2020
3M SOFR+ 8.00 % 1.50 % 5.73 % 7.00 % 3/13/2020
- % 10.00 % 3/31/2022
3/13/2020

10.00%

3/13/2026
3/13/2026
3/13/2026
3/13/2026
12/20/2028

(5)(11)

Second Lien

3M SOFR+ 9.50 % 1.00 % 14.18 %

12/21/2020

6/21/2026

(9)
(4)(11)
(11)
(11)

Equity

First Lien
First Lien
First Lien
Equity

3M LIBOR+ 6.50 % 1.00 % 11.23 %
3M LIBOR+ 6.50 % 1.00 % 11.24 %
3M LIBOR+ 6.50 % 1.00 % 11.23 %

4/18/2019

6/25/2021
6/25/2021
6/25/2021
6/25/2021

6/25/2026
6/25/2026
6/25/2026

Principal
   Amount/
Shares(3)

   Amortized   
Cost

Fair 
Value(1)

% of  
   Net  

Assets  

Headquarters/ 
Industry
Austin, TX
Education

Carrboro, NC
Software

Alvin, TX
Chemicals, Plastics, & Rubber

Lawrenceville, GA
Finance

Stafford, TX
Healthcare & Pharmaceuticals

Los Angeles, CA
Services: Business

$10,496,533
80,000
$
662,660

10,315,261
80,000
662,660

9,919,224
75,600
503,936
$ 11,057,921 $ 10,498,760

$ 9,725,758
829,167

9,592,801
868,750

9,531,243
1,117,989
$ 10,461,551 $ 10,649,232

$ 7,218,750
7,500

7,116,275
750,000
7,866,275 $

$

6,821,719
129,248
6,950,967

441
50
75
110
100
200
9,000

441,000
50,000
75,000
110,000
100,000
200,000
9,000
985,000 $

-
53,040
79,560
330,000
300,000
600,000
-
1,362,600

$

$15,866,798
1,372,932

15,603,833
1,316,740

15,866,799
2,702,795
$ 16,920,573 $ 18,569,594

$12,872,663
$ 146,465
$ 2,231,119
$ 4,388,645
89,284
$
822,758

12,719,565
144,723
2,231,119
4,358,279
89,284
819,262

12,615,210
143,536
2,186,497
4,300,872
87,498
121,938
$ 20,362,232 $ 19,455,551

Houston, TX
Environmental Industries

$10,000,000

Elgin, IL
Beverage, Food, & Tobacco

500,000

9,859,282
9,859,282 $

9,850,000
9,850,000

500,000
500,000 $

-
-

$

$

Newtown Square, PA
Healthcare & Pharmaceuticals

$12,608,000
$
80,000
$ 2,221,181
442,133

12,421,258
80,000
2,203,262
1,053,478

12,166,720
77,200
2,143,440
844,147
$ 15,757,998 $ 15,231,507
$875,823,177 $ 844,733,638
$875,823,177 $ 844,733,638

4.41 %
0.03 %
0.78 %
0.31 %
5.53 %
306.31 %
306.31 %
$(563,881,593) (206.31)%
100.00 %
$ 275,776,613

3.60 %
0.03 %
0.18 %
3.81 %

3.46 %
0.41 %
3.87 %

2.47 %
0.05 %
2.52 %

0.00 %
0.02 %
0.03 %
0.12 %
0.11 %
0.22 %
0.00 %
0.50 %

5.76 %
0.98 %
6.74 %

4.57 %
0.05 %
0.79 %
1.56 %
0.03 %
0.04 %
7.04 %

3.57 %
3.57 %

0.00 %
0.00 %

(1) See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the

portfolio.

(2) Debt investments are income producing and equity securities are non-income producing, unless otherwise noted.

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STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

(3) Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount

(4)

(5)

is denominated in U.S. Dollars (“$”) unless otherwise noted, Euro (“€”), or Great British Pound (“£”).
Investments held by the SBIC subsidiary (as defined in Note 1), which include $19,716,893 of cash and $207,971,244 of investments (at
cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment
Corporation’s (“the Company”) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all
investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1).
Investments held by the SBIC II subsidiary (as defined in Note 1), which include $26,303,849 of cash and $224,768,652 of investments
(at cost), are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit
Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments
held by the SBIC subsidiaries.
(6) Security is non-income producing.
(7) The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any
non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets.
Qualifying assets represent approximately 95.7% of the Company’s total assets as of December 31, 2022.

(8) Represents a PIK interest security. At the option of the issuer, interest can be paid in cash or cash and PIK interest. The percentage of PIK

interest shown is the maximum PIK interest that can be elected by the issuer.

(9) At December 31, 2022, the Company had the following outstanding revolver and delayed draw term loan commitments:
(10)

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Table of Contents

Investments
Ad.Net Acquisition, LLC
AIP ATCO Buyer, LLC
Anne Lewis Strategies, LLC
ArborWorks Acquisition LLC (a)
Archer Systems, LLC
Axis Portable Air, LLC
BDS Solutions Intermediateco, LLC
BLP Buyer, Inc.
Camp Profiles LLC
Camp Profiles LLC
CEATI International Inc.
CF512, Inc.
CF512, Inc.
CompleteCase, LLC
COPILOT Provider Support Services, LLC
Credit Connection, LLC
Curion Holdings, LLC
Curion Holdings, LLC
DRS Holdings III, Inc.
DTE Enterprises, LLC
Exacta Land Surveyors, LLC
Exigo, LLC
Exigo, LLC
Florachem Corporation
Florachem Corporation
GS HVAM Intermediate, LLC
Heartland Business Systems, LLC
Heat Makes Sense Shared Services, LLC
HV Watterson Holdings, LLC
HV Watterson Holdings, LLC
Infolinks Media Buyco, LLC
Inoapps Bidco, LLC
Inoapps Bidco, LLC
Integrated Oncology Network, LLC
Invincible Boat Company LLC
Ledge Lounger, Inc.

STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

$

Unfunded 
Commitment

259,804
50,000
100,000
1,153,846
100,000
100,000
69,935
63,434
3,750,000
100,000
100,000
220,930
100,000
60,000
100,000
100,000
100,000
30,000
909,091
750,000
1,500,000
80,000
100,000
100,000
100,000
112,045
75,000
80,000
84,000
2,555,354
2,475,000
100,000
16,667
553,517
744,681
66,667

Unused 
Commitment 
Fee
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%

Maturity

May 7, 2026
May 17, 2028
March 5, 2026
November 9, 2026
August 11, 2027
March 22, 2028
February 7, 2027
February 1, 2027
September 3, 2026
September 3, 2026
February 19, 2026
September 1, 2026
September 1, 2026
December 21, 2025
November 22, 2027
July 30, 2026
July 29, 2027
July 29, 2027
November 1, 2025
April 13, 2023
February 8, 2024
March 16, 2027
March 16, 2027
April 29, 2028
April 29, 2028
October 2, 2024
August 26, 2027
July 1, 2028
December 17, 2026
December 17, 2026
November 1, 2026
February 15, 2027
February 15, 2027
June 24, 2025
August 28, 2025
November 9, 2026

Security

Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver A
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Delayed Draw Term Loan
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Delayed Draw Term Loan
Delayed Draw Term Loan
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver

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STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

$

€

Investments
Lightning Intermediate II, LLC
MacKenzie-Childs Acquisition, Inc.
Madison Logic Holdings, Inc.
Microbe Formulas LLC
MOM Enterprises, LLC
Monitorus Holding, LLC
Naumann/Hobbs Material Handling Corporation II, Inc.
NINJIO, LLC
NINJIO, LLC
Nutritional Medicinals, LLC
PCS Software, Inc.
Pearl Media Holdings, LLC
Pearl Media Holdings, LLC
Peltram Plumbing Holdings, LLC
Premiere Digital Services, Inc.
Rogers Mechanical Contractors, LLC
Rogers Mechanical Contractors, LLC
Sales Benchmark Index, LLC
Service Minds Company, LLC
Service Minds Company, LLC
SIB Holdings, LLC
Tilley Distribution, Inc.
Trade Education Acquisition, L.L.C.
TradePending, LLC
Unicat Catalyst Holdings, LLC
U.S. Expediters, LLC
Xanitos, Inc.

Security

Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver – Working Capital
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Delayed Draw Term Loan
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver
Revolver

(a) The Company has full discretion to fund this revolver commitment.

Unfunded 
Commitment

100,000
13,333
100,000
100,000
62,500
100,000
1,763,033
100,000
100,000
2,000,000
1,318,143
100,000
66,667
100,000
576,923
83,333
50,000
1,331,461
70,000
67,677
29,246
82,609
20,000
100,000
2,000,000
100,000
20,000

Unused 
Commitment 
Fee
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.75%
1.00%
0.50%
0.50%
1.00%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%

Maturity

June 6, 2027
September 2, 2027
December 30, 2027
April 3, 2028
May 19, 2026
May 24, 2027
August 30, 2024
October 12, 2027
October 12, 2027
November 15, 2025
July 1, 2024
August 31, 2027
August 31, 2027
December 30, 2026
November 3, 2026
September 9, 2025
September 9, 2025
January 7, 2025
February 7, 2028
February 7, 2028
October 29, 2026
December 31, 2026
December 28, 2027
March 2, 2026
April 27, 2026
December 22, 2026
June 25, 2026

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STELLUS CAPITAL INVESTMENT CORPORATION
CONOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022

(11) This loan is a unitranche investment.
(12) These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floor is not in effect.
(13) These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floor is not in effect.
(14) Investment has been on non-accrual since June 28, 2019.
(15) Investment has been on non-accrual since December 31, 2020.
(16) Investment has been on non-accrual since April 1, 2022.
(17) This loan is convertible to common units at maturity or at the election of the issuer.
(18) Maturity date is under ongoing negotiations with portfolio company and other lenders.
(19) Excluded from the investment is an uncalled capital commitment in an amount not to exceed $302,817.

Abbreviation Legend
BSBY —  Bloomberg Short-Term Bank Yield Index
LIBOR —  London Interbank Offered Rate
PIK — Payment-In-Kind
SOFR —  Secured Overnight Financing Rate

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NOTE 1 — NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Stellus Capital Investment Corporation (“we”, “us”, “our” and the “Company”) was formed as a Maryland corporation on
May 18, 2012 (“Inception”) and is an externally managed, closed-end, non-diversified investment management company. The
Company is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment
Companies. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company
Act of 1940, as amended (the “1940 Act”), and has elected, has qualified, and intends to qualify annually to be treated as a regulated
investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal
income tax purposes. The Company’s investment activities are managed by its investment adviser, Stellus Capital Management, LLC
(“Stellus Capital” or the “Advisor”).

As of December 31, 2023, the Company had issued a total of 24,125,642 shares and raised $352,021,617 in gross proceeds since

Inception, incurring an aggregate of $11,044,123 in offering expenses and sales load fees. Additionally, the Company has received
$672,917 in offering expenses reimbursements from the Advisor for net proceeds from offerings of $341,650,411. The Company’s
shares are currently listed on the New York Stock Exchange under the symbol “SCM”. See Note 4 for further details.

The Company has established the following wholly owned subsidiaries: SCIC — Consolidated Blocker, Inc., SCIC — ICD
Blocker 1, Inc., SCIC — Invincible Blocker 1, Inc., SCIC — SKP Blocker 1, Inc., SCIC — APE Blocker 1, Inc., SCIC — Venbrook
Blocker, Inc., SCIC — CC Blocker 1, Inc., SCIC — ERC Blocker 1, Inc., and SCIC — Hollander Blocker 1, Inc., which are structured
as Delaware entities, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or
LLCs (or other forms of pass-through entities) (collectively, the “Taxable Subsidiaries”). The Taxable Subsidiaries are consolidated
for U.S. generally accepted accounting principles (“U.S. GAAP”) reporting purposes, and the portfolio investments held by them are
included in the consolidated financial statements.

On June 14, 2013, the Company formed Stellus Capital SBIC, LP (the “SBIC I subsidiary”), a Delaware limited partnership, and

its general partner, Stellus Capital SBIC GP, LLC, a Delaware limited liability company, as wholly owned subsidiaries of the
Company. On June 20, 2014, the SBIC I subsidiary received a license from the U.S. Small Business Administration (“SBA”) to
operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of
1958, as amended (the “SBIC Act”). The SBIC I subsidiary and its general partner are consolidated for U.S. GAAP reporting
purposes, and the portfolio investments held by it are included in the consolidated financial statements.

On November 29, 2018, the Company formed Stellus Capital SBIC II, LP (the “SBIC II subsidiary”, and together with the SBIC
I subsidiary, the “SBIC subsidiaries”), a Delaware limited partnership. On August 14, 2019, the SBIC II subsidiary received a license
from the SBA to operate as an SBIC under Section 301(c) of the SBIC Act. The SBIC II subsidiary and its general partner, Stellus
Capital SBIC GP, LLC, are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in
the consolidated financial statements.

The SBIC licenses allow the SBIC subsidiaries to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance

of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only
debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is
not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed
debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a
creditor, will have a superior claim to the SBIC subsidiaries’ assets over the Company’s stockholders in the event the Company
liquidates one or both of the SBIC subsidiaries or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the
SBIC subsidiaries upon an event of default. For the SBIC I subsidiary, SBA regulations currently limit the amount that a single
licensee may borrow to a maximum of $150,000,000 when it has at least $75,000,000 in regulatory capital, as such term is defined by
the SBA, receives a capital commitment from the SBA and has been through an examination by the SBA

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subsequent to licensing. For the SBIC II subsidiary, SBA regulations limit these amounts to $175,000,000 of borrowings when it has
at least $87,500,000 of “regulatory capital”, as such term is defined by the SBA.

As of both December 31, 2023 and 2022, the SBIC I subsidiary had $75,000,000 of regulatory capital. As of both December 31,

2023 and 2022, the SBIC I subsidiary had $150,000,000 of SBA-guaranteed debentures outstanding.

As of both December 31, 2023 and 2022, the SBIC II subsidiary had $87,500,000 of regulatory capital and $175,000,000 and
$163,600,000 of SBA-guaranteed debentures outstanding, respectively. See footnotes (4) and (5) of the Consolidated Schedule of
Investments for additional information regarding the treatment of investments in the SBIC subsidiaries with respect to the Credit
Facility (as defined in Note 9).

Under the 1940 Act, the Company allowed to incur a maximum asset coverage ratio of 150% if certain requirements are met,
including the approval of a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) of the Company's Board of
Directors (the "Board") and the approval of the Company's stockholders.

On April 4, 2018, the Company’s Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940
Act) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act.
At the Company’s 2018 annual meeting of stockholders, the Company’s stockholders also approved the application of the modified
asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio test applicable to the
Company was decreased from 200% to 150%, effective June 29, 2018. The amount of leverage that the Company employs at any
time depends on the Company’s assessment of the market and other factors at the time of any proposed borrowing. As of December
31, 2023, the Company’s asset coverage ratio was 223%.

The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital
appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment
objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to
$50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche
and unsecured debt financing, with corresponding equity co-investments. It sources investments primarily through the extensive
network of relationships that the principals of Stellus Capital have developed with financial sponsor firms, financial institutions,
middle-market companies, management teams and other professional intermediaries.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with

generally accepted accounting principles in the U.S. GAAP and pursuant to the requirements for reporting on Form 10-K and
Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, certain
disclosures accompanying the annual financial statements prepared in accordance with U.S. GAAP are omitted. The consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries.

In the opinion of management, the consolidated financial results included herein contain all adjustments, consisting solely of

normal recurring accruals, considered necessary for the fair presentation of financial statements for the periods included herein.
Certain reclassifications have been made to certain prior period balances to conform with current presentation.

In accordance with Regulation S-X under the Exchange Act, the Company does not consolidate portfolio company investments.

The accounting records of the Company are maintained in U.S. dollars.

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Economic Developments

Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe

supply chain interruptions, labor resource shortages, commodity inflation, rising interest rates, economic sanctions in response to
international conflicts and instances of geopolitical, economic and financial market instability in the United States and abroad. One or
more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and
worldwide financial markets.

Portfolio Investment Classification

The Company classifies its portfolio investments with the requirements of the 1940 Act as follows: (a) “Control Investments” are
defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50%
of the board representation, (b) “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25%
of the voting securities and does not have rights to maintain greater than 50% of the board representation, and (c) “Non-controlled,
non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.

Cash and Cash Equivalents

At December 31, 2023, cash balances totaling $925,548 exceeded Federal Deposit Insurance Corporation insurance protection
levels of $250,000 by $675,548. In addition, at December 31, 2023, the Company held $25,199,894 in cash equivalents, which are
carried at cost, which approximates fair value, and held foreign currency of $299 (acquisition cost of $299). All of the Company's
cash deposits are held at large established high credit quality financial institutions and management believes that risk of loss
associated with any uninsured balances is remote.

Cash consists of bank demand deposits. We deem certain U.S. Treasury Bills and other high-quality, short-term debt securities as

cash equivalents.

Fair Value Measurements

We account for all of our financial instruments at fair value in accordance with ASC Topic 820, Fair Value Measurements and
Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires
disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the
transparency of valuation inputs. ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical
to estimate such value. We believe that the carrying amounts of our financial instruments such as cash, receivables and payables
approximate the fair value of these items due to the short maturity of these instruments. This is considered a Level 1 valuation
technique.

The Credit Facility, SBA-guaranteed debentures, and Notes Payable are carried at amortized cost in the Consolidated Statements

of Assets and Liabilities. As of December 31, 2023, the estimated fair value of the Credit Facility approximates the carrying value
because the interest rates adjust to the current market interest rate (Level 3 input). The estimated fair value of the SBA-guaranteed
debentures and Notes Payable was determined by discounting projected remaining payments using market interest rates for
borrowings of the Company and entities with similar credit risks at the measurement date. At the measurement date, the estimated fair
values of the SBA-guaranteed debentures and Notes Payable as prepared for disclosure purposes was $293,215,000 and $93,041,000,
respectively. See Note 6 to the consolidated financial statements for further discussion regarding the fair value measurements and
hierarchy.

Consolidation

As permitted under Regulation S-X under the Exchange Act and ASC Topic 946, we generally do not consolidate our investment

in a portfolio company other than an investment company subsidiary. Accordingly, we consolidated the results of the SBIC
subsidiaries and the Taxable Subsidiaries. All intercompany balances have been eliminated upon consolidation.

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Use of Estimates

The preparation of the statement of assets and liabilities in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Changes in the economic environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ materially. Additionally, as explained in Note 1 contained herein, the Consolidated
Financial Statements includes investments in the portfolio whose values have been estimated by the Company, pursuant to procedures
established by our Board, in the absence of readily ascertainable market values. Because of the inherent uncertainty of the investment
portfolio valuations, those estimated values may differ materially from the values that would have been determined had a ready
market for the securities existed.

Deferred Financing Costs

Deferred financing costs, prepaid loan fees on SBA-guaranteed debentures and prepaid loan structure fees consist of fees and
expenses paid in connection with the closing of the Company’s Credit Facility, 2022 Notes (as defined in Note 11), 2026 Notes, and
SBA-guaranteed debentures and are capitalized at the time of payment. These costs are amortized using the straight-line method over
the term of the respective instrument.

Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common
stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a
shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the
offering is consummated and shown on the Consolidated Statement of Changes in Net Assets and Liabilities as a reduction to Paid-in-
Capital. During the year ended December 31, 2023, the Company incurred $247,701 of costs related to the preparation of its shelf
registration statement, which were capitalized and treated as discussed above as part of the Company’s ATM Program (as defined in
Note 4) throughout various ATM Program offerings in 2023. As of December 31, 2023, $7,312 of costs related to the preparation of a 
registration statement were capitalized and will be treated as discussed above in the event an offering is consummated.  During 
the year ended December 31, 2022, the Company incurred $1,100 of costs related to the preparation of a registration statement, which
were capitalized until the related offering consummated during March 2023.

Investments

Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes requirements for determining fair value in good faith for purposes of the

1940 Act. Rule 2a-5 permits boards, subject to board oversight and certain other conditions, to designate certain parties to perform
fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the
threshold for determining whether a fund must determine the fair value of a security. Rule 31a-4 under the 1940 Act (“Rule 31a-4”),
provides the recordkeeping requirements associated with fair value determinations. While the Board has not elected to designate the
Advisor as the valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order
comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.

As a BDC, the Company will generally invest in illiquid loans and securities including debt and equity securities of private
middle-market companies. Section 2(a)(41) of the 1940 Act requires that a BDC value its assets as follows: (i) the third party price for
securities for which a quotation is readily available; and (ii) for all other securities and assets, fair value, as determined in good faith
by a BDC's board. Under procedures established by our Board, the Company intends to value investments for which market quotations
are readily available at such market quotations. The Company will obtain these market values from an independent pricing service or
at the median between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal
market maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market prices are not
readily available will be valued at fair value as determined in good faith by the Board. Such determination of fair values may involve
subjective

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judgments and estimates. The Company also engages independent valuation providers to review the valuation of each portfolio
investment that does not have a readily available market quotation at least twice annually.

Investments purchased within approximately 90 days of the valuation date will be valued at cost plus accreted discount, or minus

amortized premium, which approximates fair value. With respect to unquoted securities, the Board will value each investment
considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public
and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board
will use the pricing indicated by the external event to corroborate and/or assist in the valuation. Because the Company expects that
there will not be a readily available market for many of the investments in its portfolio, the Company expects to value most of its
portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently
applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily
available market value, the fair value of our investments may differ significantly from the values that would have been used had a
readily available market value existed for such investments, and the differences could be material.

In following these approaches, the types of factors that will be taken into account in fair value pricing investments will include,

as relevant, but not be limited to:

●

●

●

●

●

●

●

●

●

●

available current market data, including relevant and applicable market trading and transaction comparables;

applicable market yields and multiples;

financial covenants;

call protection provisions;

information rights;

the nature and realizable value of any collateral;

the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does
business;

comparisons of financial ratios of peer companies that are public;

comparable merger and acquisition transactions; and

the principal market and enterprise values.

Revenue Recognition

We record interest income on an accrual basis to the extent such interest is deemed collectible. Payment-in-kind (“PIK”) interest
represents contractual interest accrued and added to the loan balance that generally becomes due at maturity. We will not accrue any
form of interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees,
original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the
effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fee is
recorded as interest income. We record prepayment premiums on loans and debt securities as other income. Dividend income, if any,
will be recognized on the declaration date.

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A presentation of the interest income we have received from portfolio companies for the years ended December 31, 2023, 2022,

and 2021 is as follows:

Loan interest
PIK income
Fee amortization income(1)
Fee income acceleration(2)
Total Interest Income

For the years ended
December 31, 2023      December 31, 2022      December 31, 2021
55,780,814
$
939,030
2,785,964
2,030,878
61,536,686

93,976,863
3,801,637
2,954,512
1,283,776
102,016,788

68,026,701
1,357,177
2,782,309
798,812
72,964,999

$

$

$

$

$

Includes amortization of fees on unfunded commitments.

(1)
(2) Unamortized loan origination fees recognized upon full or partial realization of investment.

To maintain our treatment as a RIC, substantially all of this income must be paid to stockholders in the form of distributions,

even if we have not collected any cash.

Management considers portfolio company specific circumstances as well as other economic factors in determining collectability.

As of December 31, 2023, the Company had four loans on non-accrual status, which represented approximately 4.2% of the
Company’s loan portfolio at cost and 1.3% at fair value. As of December 31, 2022, the Company had three loans on non-accrual
status, which represented approximately 5.2% of the Company’s loan portfolio at cost and 2.3% at fair value. As of December 31,
2023 and 2022, $7,545,775 and $4,828,880 of income from investments on non-accrual has not been accrued, respectively. If a loan
or debt security’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, or if a loan or
debt security is sold or written off, the Company will remove it from non-accrual status.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

Realized gains or losses are measured by the difference between the net proceeds from the repayment, sale or disposition and the
amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in
unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any
reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Investment Transaction Costs

Costs that are material associated with an investment transaction, including legal expenses, are included in the cost basis of

purchases and deducted from the proceeds of sales unless such costs are reimbursed by the borrower.

Receivables and Payables for Unsettled Securities Transaction

The Company records all investments on a trade date basis.

U.S. Federal Income Taxes

The Company has elected, has qualified, and intends to be qualified annually to be treated as a RIC under Subchapter M of the

Code, and to operate in a manner to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, among
other things, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as
defined by the Code, for each year. So long as the Company maintains its status as a RIC, it generally will be subject to U.S. federal
income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax
liability related to income earned by the Company represents obligations of the Company’s investors and will not be reflected in the
Consolidated Financial Statements of the Company.

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To avoid a 4% U.S federal excise tax on undistributed 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% of its net capital gains for the one-year period ending
December 31, and (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no federal
income tax, or the “Excise Tax Avoidance Requirement”. For this purpose, however, any net ordinary income or capital gain net
income retained by us that is subject to corporate income tax for the tax year ending in that calendar year will be considered to have
been distributed by year end (or earlier if estimated taxes are paid). The Company, at its discretion, may choose not to distribute all its
taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all
other things being equal, this would increase expenses and reduce the amount of cash available to be distributed to stockholders. To
the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated
current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income
as taxable income is earned. As of December 31, 2023, the Company had approximately $36,997,829 of undistributed taxable
income that was carried forward toward distributions to be paid in 2024.

Current income tax (benefit) expense for the years ended December 31, 2023, 2022, and 2021 of ($1,654,935), $1,161,668, and

$4,059,594, respectively, is related to federal and state income taxes and federal excise taxes.

The Company evaluates tax positions taken or expected to be taken while preparing its tax returns to determine whether the tax

positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-
than-not” threshold would be recorded as a tax benefit or expense in the applicable period.

As of December 31, 2023 and 2022, the Company had not recorded a liability for any unrecognized tax positions. Management’s

evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not
limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company’s policy is to include interest and
penalties related to income taxes, if applicable, in general and administrative expenses. Any expenses for the years ended December
31, 2023, 2022, and 2021 were de minimis.

The Taxable Subsidiaries are direct wholly owned subsidiaries of the Company that have elected to be treated as corporations for

U.S. federal income tax purposes, and as a result, the income of Taxable Subsidiaries is subject to U.S. federal income tax at
corporate rates. The Taxable Subsidiaries permit the Company to hold equity investments in portfolio companies that are “pass
through” entities for tax purposes and continue to comply with the “source-of-income” requirements contained in RIC tax provisions
of the Code. The Taxable Subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax
expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income
tax expense, or benefit, if any, and related tax assets and liabilities of the Taxable Subsidiaries are reflected in the Company’s
Consolidated Financial Statements.

The Taxable Subsidiaries use the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded

for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using
statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided
against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences

in the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as
investment gains or losses are not included in taxable income until they are realized.

For the years ended December 31, 2023, 2022, and 2021, the Company recorded deferred income tax (provision) benefit of
($126,957), ($213,214), and $510,868, respectively, related to the Taxable Subsidiaries. As of December 31, 2023 and 2022, the
Company had a net deferred tax liability of $188,893, and $61,936, respectively.

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Earnings per Share

Basic per share calculations are computed utilizing the weighted average number of shares of the Company’s common stock

outstanding for the period. The Company has no common stock equivalents. As a result, there is no difference between diluted
earnings per share and basic per share amounts.

Paid In Capital

The Company records the proceeds from the sale of shares of its common stock on a net basis to (i) capital stock and (ii) paid in

capital in excess of par value, excluding all commissions and marketing support fees.

Distributable (Loss) Earnings

The components that make up distributable (loss) earnings on the Consolidated Statement of Assets and Liabilities as of

December 31, 2023 and 2022 were as follows:

Accumulated net realized (loss) gain from investments, net of cumulative dividends of
$29,808,394 and $29,361,649, respectively
Net unrealized depreciation on non-controlled, non-affiliated investments and cash equivalents,
net of deferred tax liability of $188,893 and $61,936, respectively
Net unrealized (depreciation) appreciation on foreign currency translations
Accumulated undistributed net investment income
Total distributable (loss) earnings

$

(25,107,128) $

2,675,719

(27,071,601)  

(464)

36,175,872  
(16,003,321) $

$

(29,736,797)
6,040
27,697,264
642,226

     December 31, 2023 December 31, 2022

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04,

Reference Rate Reform. The amendments in ASU 2020-04 provide optional  expedients and exceptions for applying U.S. GAAP to 
contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is 
effective as of March 12, 2020 through December 31, 2022. The Company has agreements that have LIBOR as a reference rate with 
certain portfolio companies and with certain lenders. Many of these agreements include language for choosing an alternative 
successor rate if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in 
determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The 
Company adopted this amendment in March 2020 and plans to apply the amendments in this update to account for contract 
modifications as contracts are amended to include a new reference rate or when LIBOR reference is no longer used. The Company did 
not utilize the optional expedients and exceptions provided by ASU 2020-04 during the year ended December 31, 2023.

In November 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic

848, which deferred the sunset date of ASU 2020-04 from December 31, 2022 to December 31, 2024 after which entities will no
longer be permitted to apply the relief in ASU 2020-04. The Company did not utilize the optional expedients and exceptions provided
by ASU 2020-04 and extended by ASU 2022-06 during the year ended December 31, 2023. The Company does not expect ASU
2022-06 to have a material impact to the Consolidated Financial State,emts and the notes thereto.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The amendments in this update

require more disaggregated information on income taxes paid. ASU 2023-09 is effective for years beginning after December 15,
2024. Early adoption is permitted; however, the Company has not elected to adopt this provision as of the date of the financial
statements contained in this Annual Report on Form 10-K. The Company is still assessing the impact of the new guidance. However,
it does not expect ASU 2023-09 to have a material impact on the Consolidated Financial Statements and the notes thereto.

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From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by
the Company as of the specified effective date. The Company believes the impact of the recently issued standards and any that are not
yet effective will not have a material impact on its consolidated financial statements upon adoption.

NOTE 2 — RELATED PARTY ARRANGEMENTS

Investment Advisory Agreement

The Company has entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with Stellus Capital

pursuant to which Stellus Capital serves as its investment adviser. Pursuant to this agreement, the Company has agreed to pay to
Stellus Capital an annual base management fee of 1.75% of gross assets, including assets purchased with borrowed funds or other
forms of leverage and excluding cash and cash equivalents, and an incentive fee.

For the years ended December 31, 2023, 2022, and 2021, the Company recorded an expense for base management fees of
$15,452,347, $14,848,174, $13,169,606, respectively. As of December 31, 2023 and December 31, 2022, $2,918,536 and $7,150,407,
respectively, was payable to Stellus Capital.

The incentive fee has two components, investment income and capital gains, as follows:

Investment Income Incentive Fee

The investment income component (“Income Incentive Fee”) is calculated, and payable to the Advisor, quarterly in arrears based

on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative
total return requirement and to deferral of non-cash amounts. The pre-incentive fee net investment income, which is expressed as a
rate of return on the value of the Company’s net assets attributable to the Company’s common stock, for the immediately preceding
calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as the “Hurdle”). Pre-incentive fee net
investment income means interest income, dividend income and any other income accrued during the calendar quarter, minus the
Company’s operating expenses for the quarter excluding the incentive fee. Pre-incentive fee net investment income includes, in the
case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero
coupon securities), accrued income that the Company has not yet received in cash. The Advisor receives no incentive fee for any
calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the Hurdle. Subject to the
cumulative total return requirement described below, the Advisor receives 100% of the Company’s pre-incentive fee net investment
income for any calendar quarter with respect to that portion of the pre-incentive net investment income for such quarter, if any, that
exceeds the Hurdle but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “Catch-up”) and 20.0% of
the Company’s pre-incentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net
assets.

The foregoing Income Incentive Fee is subject to a total return requirement, which provides that no incentive fee in respect of the
Company’s pre-incentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets
resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued
and/or paid for the 11 preceding quarters. In other words, any Income Incentive Fee that is payable in a calendar quarter is limited to
the lesser of (i) 20% of the amount by which the Company’s pre-incentive fee net investment income for such calendar quarter
exceeds the 2.0% hurdle, subject to the Catch-up, and (ii) (x) 20% of the cumulative net increase in net assets resulting from
operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11
preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the
amount, if positive, of the sum of pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and
depreciation of the Company for the then current and 11 preceding calendar quarters. In addition, the Advisor is not paid the portion
of such incentive fee that is attributable to deferred interest until the Company actually receives such interest in cash.

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For the years ended December 31, 2023, 2022, and 2021, the Company incurred $10,189,888, $3,782,151, $3,043,470,

respectively, of Investment Income Incentive Fees. As of December 31, 2023 and 2022, $2,885,180 and $2,464,408, respectively, of
such incentive fees were payable to the Advisor, of which $2,444,865 and $2,083,928, respectively, were currently payable (as
explained below). As of December 31, 2023 and 2022, $440,313 and $380,480, respectively, of incentive fees incurred but not paid
by the Company were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable
until such amounts are received in cash. As of December 31, 2023, $307,442 of Income Incentive Fees accrued but not paid by the
Company were permanently written off due to the Cumulative Pre-Incentive Fee Net Return limitation.

Capital Gains Incentive Fee

The Company also pays the Advisor an incentive fee based on capital gains (the “Capital Gains Incentive Fee”). The Capital
Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment
management agreement, as of the termination date). The Capital Gains Incentive Fee is equal to 20.0% of the Company’s cumulative
aggregate realized capital gains from Inception through the end of that calendar year, computed net of the cumulative aggregate
realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount
of any previously paid Capital Gains Incentive Fees is subtracted from such Capital Gains Incentive Fee calculated.

U.S. GAAP requires that the incentive fee accrual considers the cumulative aggregate realized gains and losses and unrealized
capital appreciation and depreciation of investments or other financial instruments in the calculation, as an incentive fee would be
payable if such unrealized capital appreciation or depreciation were realized, even though such unrealized capital appreciation is not
permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement. There can be no
assurance that unrealized appreciation or depreciation will be realized in the future. Accordingly, such fees, as calculated and accrued,
may not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of
incentive fees in subsequent periods. For the years ended December 31, 2023, 2022, and 2021, the Company (reversed) incurred
Capital Gains Incentive Fees of ($569,528), ($2,818,623), and $2,867,131, respectively. As of December 31, 2023 and December 31,
2022, $0 and $569,528, respectively, of Capital Gains Incentive Fees were accrued but not currently payable to the Advisor.

The following tables summarize the components of the incentive fees discussed above:

Investment income incentive fees incurred
Capital gains incentive fees reversed
Income incentive fee waiver

Incentive fees expense

Investment income incentive fee currently payable
Investment income incentive fee deferred
Capital gains incentive fee deferred

Incentive fee payable

Director Fees

For the years ended
December 31, 2023      December 31, 2022      December 31, 2021
3,043,470
$
2,867,131
—
5,910,601

10,189,888
(569,528)
(307,442)
9,312,918

3,782,151
(2,818,623)
—
963,528

$

$

$

$

$

$

2,444,867
440,313

     December 31, 2023      December 31, 2022
2,083,928
380,480
569,528
3,033,936

—  
$

2,885,180

$

$

For the years ended December 31, 2023, 2022, and 2021, the Company recorded an expense relating to director fees of

$406,000, $329,000, and $315,000, respectively. As of December 31, 2023 and 2022, the Company owed its independent directors no
unpaid director fees.

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Co-Investments

On May 9, 2022, the Company received a new exemptive order (the “Order”) that superseded prior co-investment exemptive
relief orders and permits the Company to co-invest with additional types of private funds, other BDCs, and registered investment
companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital,
subject to the conditions included therein. Pursuant to the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of
the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including (1) the
terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders
and do not involve overreaching of the Company or its stockholders on the part of any person concerned and (2) the transaction is
consistent with the interests of the Company’s stockholders and is consistent with its investment objectives and strategies. The
Company co-invests, subject to the conditions in the Order, with a private BDC and private credit funds managed by Stellus Capital or
an affiliate thereof that have investment strategies that are similar or identical to the Company’s investment strategy, and the
Company may co-invest with other BDCs and registered investment companies managed by Stellus Capital or an adviser that is
controlled, controlling, or under common control with Stellus Capital in the future. The Company believes that such co-investments
may afford it additional investment opportunities and an ability to achieve greater diversification.

Administrative Agent

The Company serves as the administrative agent on certain investment transactions, including co-investments with its affiliates
under the Order. As of December 31, 2023, there was no cash due to other investment funds related to interest paid by a borrower to
the Company as administrative agent. As of December 31, 2022, there was $326,122 due to other investment funds related to interest
paid by a borrower to the Company as administrative agent, which is included in “Other accrued expenses and liabilities” on the
Consolidated Statement of Assets and Liabilities. Additionally, as of December 31, 2022, there was $1,060,321 due to related parties
related to interest paid by a borrower to the Company as administrative agent, which is included in “Related party payable” on the
Consolidated Statement of Assets and Liabilities.

License Agreement

The Company has entered into a license agreement with Stellus Capital under which Stellus Capital has agreed to grant the 
Company a non-exclusive, royalty-free license to use the name “Stellus Capital.” Under  this agreement, the Company has a right to 
use the “Stellus Capital” name for so long as Stellus Capital or one of its affiliates remains its investment adviser. Other than with 
respect to this limited license, the Company has no legal right to the “Stellus Capital” name. This license agreement will remain in 
effect for so long as the Investment Advisory Agreement with Stellus Capital is in effect.

Administration Agreement

The Company entered into an administration agreement (the "Administration Agreement") with Stellus Capital, pursuant to
which Stellus Capital will furnish the Company with office facilities and equipment and will provide the Company with the clerical,
bookkeeping, recordkeeping and other administrative services necessary to conduct day-to-day operations. Under this Administration
Agreement, Stellus Capital will perform, or oversee the performance of, its required administrative services, which includes, among
other things, being responsible for the financial records which it is required to maintain and preparing reports to its stockholders and
reports filed with the SEC.

For the years ended December 31, 2023, 2022, and 2021, the Company recorded expenses of $1,561,394, $1,506,344, and
$1,515,630, respectively, related to the Administration Agreement, which are included in administrative services expenses on our
Consolidated Statement of Operations. As of December 31, 2023 and December 31, 2022, $397,953 and $343,817, respectively,
remained payable to Stellus Capital relating to the Administration Agreement, which are included in administrative services payable
on our Consolidated Statement of Assets and Liabilities.

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Indemnification

The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance

of its duties or by reason of the reckless disregard of its duties and obligations under the Investment Advisory Agreement, Stellus
Capital and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity
affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including
reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Stellus Capital’s services under
the Investment Advisory Agreement or otherwise as our investment adviser.

The Company has also entered into indemnification agreements with its directors. The indemnification agreements are intended

to provide the Company’s directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each
indemnification agreement provides that the Company shall indemnify the director who is a party to the agreement (an “Indemnitee”),
including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be,
made a party to or a witness in any threatened, pending, or completed proceeding, other than a proceeding by or in the right of the
Company.

NOTE 3 — DISTRIBUTIONS

Distributions are generally declared by the Company’s Board each calendar quarter and recognized as distribution liabilities on
the declaration date. The stockholder distributions, if any, will be determined by the Board. Any distribution to stockholders will be
declared out of assets legally available for distribution. The Company has declared distributions of $14.95 per share on its common
stock from Inception through December 31, 2023.

The following table reflects the Company’s distributions declared and paid on its common stock since Inception:

Date Declared
Fiscal 2012
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023

January 11, 2023
January 11, 2023
January 11, 2023
April 19, 2023
April 19, 2023
April 19, 2023
July 14, 2023
July 14, 2023
July 14, 2023
October 5, 2023
October 5, 2023

October 5, 2023

Total

Record Date

Payment Date

Per Share(1)

$
    $
    $
    $
    $
$
$
$
$
$
$

$
$
$
$
$
$
$
$
$
$
$
$

$

0.18
1.36
1.42
1.36
1.36
1.36
1.36
1.36
1.15
1.14
1.30

0.1333
0.1333
0.1333
0.1333
0.1333
0.1333
0.1333
0.1333
0.1333
0.1333
0.1333
0.1333

14.95

Various

January 31, 2023
February 28, 2023
March 31, 2023
May 1, 2023
May 31, 2023
June 30, 2023
July 31, 2023
August 31, 2023
September 29, 2023
October 31, 2023
November 30, 2023
December 18, 2023

February 15, 2023
March 15, 2023
April 14, 2023
May 15, 2023
June 15, 2023
July 14, 2023
August 15, 2023
September 15, 2023
October 13, 2023
November 15, 2023
December 15, 2023
December 29, 2023

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The Company has adopted an “opt out” dividend reinvestment plan (“DRIP”) pursuant to which a stockholder whose shares are
held in their own name will receive distributions in shares of the Company’s common stock under the Company’s DRIP unless they
elect to receive distributions in cash. Stockholders whose shares are held in the name of a broker or the nominee of a broker may have
distributions reinvested only if such service is provided by the broker or the nominee, or if the broker of the nominee permits
participation in our DRIP.

Although distributions paid in the form of additional shares of the Company’s common stock will generally be subject to U.S.
federal, state and local taxes in the same manner as cash distributions, investors participating in the Company’s DRIP will not receive
any corresponding cash distributions with which to pay any such applicable taxes. Any distributions reinvested through the issuance
of shares through the Company’s DRIP will increase the Company’s gross assets on which the base management fee and the
incentive fee are determined and paid to Stellus Capital. The Company did not issue any new shares in connection with the DRIP
during the years ended December 31, 2023 and December 31, 2022.

NOTE 4 — EQUITY OFFERINGS AND RELATED EXPENSES

The table below illustrates the number of common stock shares the Company issued since inception through various equity

offerings and pursuant to the Company’s DRIP.

Number of     

     Underwriting      Offering     Fees Covered     

Net

     Average
     Offering

Issuance of Common Stock
Year ended December 31, 2012
Year ended December 31, 2013
Year ended December 31, 2014
Year ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2019
Year ended December 31, 2020
Year ended December 31, 2021
Year ended December 31, 2022
Year ended December 31, 2023
Total

Shares
12,035,023
63,998
380,936
3,465,922
7,931
3,177,936
354,257
31,592
149,174
4,458,873
24,125,642

Gross
     Proceeds(1)(2)     
$ 180,522,093
899,964
5,485,780
48,741,406
93,737
45,862,995
5,023,843
449,515
2,070,935
62,871,349
$ 352,021,617

$

$

—  

fees
4,959,720
—
75,510
1,358,880

1,015,127
5,680
6,744
31,066
943,248
8,395,975

$

     Expenses
835,500
—
29,904
307,021
—
559,261
84,592
53,327
530,842
247,701
$ 2,648,148

by Advisor      Proceeds(3)

Price

$

$

— $ 174,726,873
899,964
—
5,380,366
—  
47,075,505
—  
93,737
—  
44,326,153
4,999,994
393,699
1,596,632
62,157,488
$ 341,650,411

37,546
66,423
4,255
87,605
477,088
672,917

$

14.90
14.06
14.47
14.06
11.85
14.43
14.40
14.23
13.88
14.10

(1) Net of partial share redemptions. Such share redemptions impacted gross proceeds by $94, $757, ($1,051), ($142), ($31) and

(2)

($29) in 2020, 2019, 2018, 2017, 2016 and 2015, respectively.
Includes common shares issued under the DRIP of $228,943 and $94,788 during the years ended December 31, 2020 and 2018,
respectively; $0 for the years ended December 31, 2023, 2022, 2021, 2019, 2017, 2016 and 2015; and $390,505, $938,385,
$113,000 for the years ended December 31, 2014, 2013, and 2012, respectively.

(3) Net Proceeds per this equity table will differ from the Consolidated Statement of Assets and Liabilities as of December 31, 2023,
2022, and 2021 in the amount of $5,707,301, $3,317,652 and $1,456,439, respectively, which represents a tax reclassification of
stockholders’ equity in accordance with U.S. GAAP. This reclassification reduces paid-in capital and increases distributable
earnings (increasing accumulated undistributed net investment income).

The Company issued 4,458,873 shares during the year ended December 31, 2023 under the At-the-Market (“ATM”) Program,
for gross proceeds of $62,871,349 and underwriting fees and other expenses of $1,190,949. The average per share offering price of
shares issued in the ATM Program during 2023 was $14.10. Gross proceeds resulting from the ATM Program in 2022 and 2021
totaled $2,070,935 and $449,515, respectively, and underwriting fees and other expenses totaled $561,908 and $60,071, respectively.
The average per share offering price of shares issued in the ATM Program during 2022 and 2021 was $13.88 and $14.23,
respectively. The Advisor agreed to reimburse the Company for underwriting fees and expenses to the extent the per share price of the
shares to the public, less underwriting fees, was less then net asset value per share. For the year ended December 31, 2023, the
Advisor reimbursed the Company $477,088, which resulted in net proceeds of $62,157,488, or $14.00 per share, excluding the impact
of offering expenses.

The Company did not issue any shares of common stock through the DRIP for the years ended December 31, 2023 and 2022.

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NOTE 5 — NET INCREASE IN NET ASSETS PER COMMON SHARE

The following information sets forth the computation of net increase in net assets resulting from operations per common share

for the years ended December 31, 2023, 2022, and 2021.

Net increase in net assets resulting from operations
Weighted average common shares
Net increase in net assets resulting from operations per share

NOTE 6 — PORTFOLIO INVESTMENTS AND FAIR VALUE

For the years ended
December 31, 2023 December 31, 2022 December 31, 2021
33,572,872
$
19,489,750
1.72

17,533,167 $
22,004,648

14,491,784 $
19,552,931

0.80 $

0.74 $

$

In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company
discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the
fair value hierarchy as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;

Level 2 — Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are
observable, either directly or indirectly;

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and
identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume
and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price
quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be
required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a
market approach in those circumstances.

At December 31, 2023, the Company had investments in 93 portfolio companies. The total cost and fair value of the investments

were $902,143,550 and $874,460,683, respectively. The composition of our investments as of December 31, 2023 is as follows:

Senior Secured – First Lien(1)
Senior Secured – Second Lien
Unsecured Debt
Equity
Total Investments

Cost
$ 793,819,152
42,269,568
6,138,183
59,916,647
$ 902,143,550

Fair Value
$ 774,789,320
21,957,500
5,956,280
71,757,583
$ 874,460,683

(1)

Includes unitranche investments, which account for 4.5% of our portfolio at fair value. Unitranche structures may combine
characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche

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loans will expose us to the risks associated with the second lien and subordinated loans to the extent we invest in the “last-out”
tranche.

At December 31, 2022, the Company had investments in 85 portfolio companies. The total cost and fair value of the investments

were $875,823,177 and $844,733,638, respectively. The composition of our investments as of December 31, 2023 is as follows:

Senior Secured – First Lien(1)
Senior Secured – Second Lien
Unsecured Debt
Equity
Total Investments

Cost
$ 750,527,999
69,989,477
5,657,964
49,647,737
$ 875,823,177

Fair Value
$ 735,555,508
45,304,300
4,823,898
59,049,932
$ 844,733,638

(1)

Includes unitranche investments, which account for 1.6% of our portfolio at fair value. Unitranche structures may combine
characteristics of first lien senior secured as well as second lien and/or subordinated loans and our unitranche loans will expose
us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.

The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which
require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan
agreements. As of December 31, 2023 and December 31, 2022, the Company had 57 and 52 such investments with aggregate
unfunded commitments of $37,021,242 and $27,824,917, respectively. The Company maintains sufficient liquidity (through cash on
hand and available borrowings under the Credit Facility) to fund such unfunded loan commitments should the need arise.

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of

significant input used in the valuation as of December 31, 2023 were as follows:

Senior Secured – First Lien
Senior Secured – Second Lien
Unsecured Debt
Equity
Total Investments

     Quoted Prices     
in Active
Markets
for Identical
Securities
(Level 1)

$

$

— $
—  
—  
—  
— $

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

— $ 774,789,320
21,957,500
—  
5,956,280
—  
—  
71,757,583
— $ 874,460,683

Total
$ 774,789,320
21,957,500
5,956,280
71,757,583
$ 874,460,683

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of

significant input used in the valuation as of December 31, 2022 were as follows:

Senior Secured – First Lien
Senior Secured – Second Lien
Unsecured Debt
Equity
Total Investments

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

— $ 735,555,508
—  
—  
—  
— $ 844,733,638

45,304,300  
4,823,898  
59,049,932  

Total
$ 735,555,508
45,304,300
4,823,898
59,049,932
$ 844,733,638

Quoted Prices
in Active
Markets
for Identical
Securities
(Level 1)

$

$

— $
—  
—  
—  
— $

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The aggregate values of Level 3 portfolio investments changed during the year ended December 31, 2023 were as follows:

     Senior Secured      Senior Secured     

Fair value at beginning of period
Purchases of investments
Payment-in-kind interest
Sales and redemptions
Realized losses
Change in unrealized (depreciation)
appreciation included in earnings(1)
Change in unrealized appreciation on
foreign currency included in earnings
Amortization of premium and accretion
of discount, net
Fair value at end of period

$

Loans-First
Lien

735,555,508
174,156,432
3,185,845
(125,442,776)
(11,200,184)

Loans-Second
Lien

$

45,304,300

Unsecured
Debt
$ 4,823,898
62,086
613,998
(211,627)

—  
—  

(9,882,105)
(17,979,749)

—  

(2,280,087)
(702,093)

Equity
$ 59,049,932
13,251,090

$

—  

Total

844,733,638
187,469,608
3,799,843
(137,816,595)
(29,882,026)

(4,667,866)

4,373,111

651,997

2,434,910

2,792,152

610,523

—  

166

3,831

614,520

2,591,838
774,789,320

$

141,943
21,957,500

15,762
$ 5,956,280

$

$ 71,757,583

—  
$

2,749,543
874,460,683

(1)

Includes reversal of positions during the year ended December 31, 2023.

There were no Level 3 transfers during the year ended December 31, 2023.

The aggregate values of Level 3 portfolio investments changed during the year ended December 31, 2022 were as follows:

     Senior Secured      Senior Secured     

Fair value at beginning of  period
Purchases of investments
Payment-in-kind interest
Sales and redemptions
Realized (losses) gains
Change in unrealized depreciation
included in earnings(1)
Change in unrealized (depreciation)
appreciation on foreign currency included
in earnings
Amortization of premium and accretion
of discount, net
Fair value at end of period

Loans-First
Lien
$ 646,352,935
196,925,873
826,816
(98,160,329)
(3,929,334)

Loans-Second
Lien

$

56,733,110
4,900,000

Unsecured
Debt
$ 4,883,854
83,511
530,361

—  

$

Equity
64,903,427
9,101,485

$

—  

(10,809,276)
(4,109,525)

—  
—  

(18,873,195)
11,811,371

Total

772,873,326
211,010,869
1,357,177
(127,842,800)
3,772,512

(7,342,462)

(1,611,688)

(687,778)

(7,900,302)

(17,542,230)

(1,421,824)

—  

—  

7,146

(1,414,678)

2,303,833
$ 735,555,508

$

201,679
45,304,300

13,950
$ 4,823,898

$

—  
$

59,049,932

2,519,462
844,733,638

(1)

Includes reversal of positions during the year ended December 31, 2022.

There were no Level 3 transfers during the year ended December 31, 2022.

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The following is a summary of geographical concentration of the Company’s investment portfolio as of December 31, 2023:

Cost

Fair Value

% of Total
Investments at
Fair Value

Texas
California
Florida
Pennsylvania
Illinois
Arizona
Ohio
Colorado
Wisconsin
Washington
Georgia
Maryland
New York
Indiana
North Carolina
District of Columbia
New Jersey
Michigan
Massachusetts
Tennessee
Missouri
Canada
Idaho
Minnesota
Louisiana
South Carolina
United Kingdom

144

  $ 182,531,256   $ 175,311,724  
167,713,589  
92,297,574  
50,188,102  
49,834,429  
44,558,279  
34,370,277  
30,971,079  
26,190,771  
24,540,695  
18,885,409  
16,718,728  
14,931,263  
14,488,700  
14,532,532  
14,006,563  
11,191,295  
10,736,783  
10,515,487  
9,379,311  
8,850,162  
8,813,132  
8,470,065  
5,907,639  
5,536,231  
5,083,862  
437,002  
$ 874,460,683  

175,207,692  
93,155,844  
49,939,315  
58,633,617  
42,136,322  
31,805,370  
31,525,420  
27,452,444  
24,321,085  
9,100,050  
16,676,194  
14,692,043  
14,235,403  
13,891,930  
13,030,899  
10,461,226  
10,664,100  
10,151,621  
9,390,657  
8,862,512  
8,700,383  
8,405,946  
5,976,818  
5,538,823  
4,946,375  
20,710,205  

$ 902,143,550

20.04 %
19.18 %
10.55 %
5.74 %
5.70 %
5.10 %
3.93 %
3.54 %
3.00 %
2.81 %
2.16 %
1.91 %
1.71 %
1.66 %
1.66 %
1.60 %
1.28 %
1.23 %
1.20 %
1.07 %
1.01 %
1.01 %
0.97 %
0.68 %
0.63 %
0.58 %
0.05 %
100.00 %

 
    
    
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The following is a summary of geographical concentration of the Company’s investment portfolio as of December 31, 2022:

Cost

Fair Value

     % of Total

Investments  
at Fair Value  

Texas
California
Florida
Illinois
Arizona
Pennsylvania
Ohio
Washington
New Jersey
Wisconsin
District of Columbia
Georgia
South Carolina
Maryland
Minnesota
United Kingdom
Colorado
Indiana
Canada
North Carolina
Massachusetts
Idaho
Missouri
New York
Michigan

145

  $ 191,422,143   $ 171,165,597  
165,340,017  
59,421,775  
53,218,615  
44,277,625  
41,889,344  
37,333,236  
28,480,471  
25,140,343  
24,271,761  
21,124,347  
19,692,757  
18,654,782  
16,576,554  
15,952,072  
14,445,481  
14,295,470  
14,245,432  
13,266,669  
10,649,232  
10,527,659  
9,863,103  
9,656,287  
5,096,008  
149,001  
$ 844,733,638  

167,833,384  
60,593,839  
64,421,998  
43,129,283  
42,899,504  
34,223,452  
28,978,375  
25,395,054  
27,533,402  
17,236,556  
10,919,642  
19,089,373  
16,824,077  
16,972,086  
20,530,087  
15,204,934  
14,346,082  
13,333,737  
10,461,551  
10,215,356  
9,873,093  
9,142,111  
5,096,152  
147,906  

$ 875,823,177

20.26 %
19.57 %
7.03 %
6.30 %
5.24 %
4.96 %
4.42 %
3.37 %
2.98 %
2.87 %
2.50 %
2.33 %
2.21 %
1.96 %
1.89 %
1.71 %
1.69 %
1.69 %
1.57 %
1.26 %
1.25 %
1.17 %
1.14 %
0.61 %
0.02 %
100.00 %

    
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The following is a summary of industry concentration of the Company’s investment portfolio as of December 31, 2023:

% of Total
Investments at

     Fair Value

Services: Business
Healthcare & Pharmaceuticals
High Tech Industries
Media: Advertising, Printing & Publishing
Consumer Goods: Non-Durable
Beverage, Food, & Tobacco
Consumer Goods: Durable
Capital Equipment
Services: Consumer
Construction & Building
Aerospace & Defense
Environmental Industries
Media: Broadcasting & Subscription
Transportation & Logistics
Chemicals, Plastics, & Rubber
Metals & Mining
Containers, Packaging, & Glass
Utilities: Oil & Gas
Education
FIRE: Real Estate
Media: Diversified & Production
Finance
Hotel, Gaming, & Leisure
Energy: Oil & Gas
Total

Cost
$ 198,018,290
100,724,952
90,795,799
57,640,321
63,145,301
42,554,582
49,046,730
32,517,673
33,976,976
30,319,119
46,745,104
24,219,811
17,952,103
17,235,150
18,338,366
16,580,562
17,432,252
9,943,041
10,251,179
17,285,138
5,662,174
569,039
-
1,189,888
$ 902,143,550

146

Fair Value
$ 207,963,749  
102,915,887  
91,992,012  
58,741,061  
52,938,611  
45,074,817  
43,725,324  
33,879,801  
33,260,111  
30,486,411  
24,541,921  
22,997,844  
20,760,920  
17,661,859  
17,569,176  
16,625,000  
15,539,555  
10,000,000  
8,367,469  
6,175,994  
5,763,247  
5,736,868  
890,968  
852,078  
$ 874,460,683  

23.78 %
11.77 %
10.52 %
6.72 %
6.05 %
5.15 %
5.00 %
3.87 %
3.80 %
3.49 %
2.81 %
2.63 %
2.37 %
2.02 %
2.01 %
1.90 %
1.78 %
1.14 %
0.96 %
0.71 %
0.66 %
0.66 %
0.10 %
0.10 %
100.00 %

 
    
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

The following is a summary of industry concentration of the Company’s investment portfolio as of December 31, 2022:

Services: Business
Healthcare & Pharmaceuticals
Media: Advertising, Printing & Publishing
Consumer Goods: Non-Durable
Consumer Goods: Durable
Aerospace & Defense
Software
Capital Equipment
Beverage, Food, & Tobacco
Construction & Building
Environmental Industries
Services: Consumer
Media: Broadcasting & Subscription
Chemicals, Plastics, & Rubber
Transportation & Logistics
Metals & Mining
Containers, Packaging, & Glass
Retail
High Tech Industries
Automotive
Education
Utilities: Oil & Gas
Energy: Oil & Gas
FIRE: Real Estate
Media: Diversified & Production
Finance
Hotel, Gaming, & Leisure

     % of Total

Cost
$ 207,234,534
86,469,854
52,830,447
54,683,102
45,601,928
48,137,394
37,582,855
33,538,647
34,000,918
26,948,135
27,771,798
43,302,101
18,615,052
18,487,206
16,768,763
16,708,750
17,436,600
13,303,536
14,126,954
11,252,581
11,057,921
9,921,469
7,314,230
15,642,093
5,517,409
1,568,900
—
$ 875,823,177

Fair Value
$ 218,866,572  
88,103,319  
52,525,839  
51,280,593  
44,529,176  
39,526,086  
37,975,255  
33,801,951  
32,755,054  
26,406,849  
26,247,936  
24,616,706  
21,445,307  
17,903,999  
17,161,972  
16,464,001  
13,977,250  
13,217,256  
12,648,347  
11,342,751  
10,498,760  
9,800,000  
7,355,074  
5,866,397  
5,534,710  
4,082,579  
799,899  
$ 844,733,638  

Investments  
at Fair Value  

25.91 %
10.43 %
6.22 %
6.07 %
5.27 %
4.68 %
4.50 %
4.00 %
3.88 %
3.13 %
3.11 %
2.92 %
2.54 %
2.12 %
2.03 %
1.95 %
1.65 %
1.56 %
1.50 %
1.34 %
1.24 %
1.16 %
0.87 %
0.69 %
0.66 %
0.48 %
0.09 %
100.00 %

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The following provides quantitative information about Level 3 fair value measurements as of December 31, 2023:

Description:
First lien debt

Fair Value
$ 774,789,320  

     Valuation Technique     
Income/Market
approach(2)

Unobservable Inputs
HY credit spreads,
Risk free rates
Market multiples

Range (Average)(1)(3)
-3.00% to 8.11% (-0.23%)
-1.62% to 2.03% (0.04%)
5.2x to 22.5x (11.0x)(4)

Second lien debt

$

21,957,500

Unsecured debt

$

5,956,280

Income/Market
approach(2)

Income/Market
approach(2)

HY credit spreads,
Risk free rates
Market multiples

-0.97% to -0.33% (-0.63%)
-0.51% to 0.31% (-0.23%)
6.5x to 17.5x (10.9x)(4)

HY credit spreads,
Risk free rates
Market multiples

4.98% to 4.98% (4.98%)
4.47% to 4.47% (4.47%)
9.5x to 9.5x (9.5x)(4)

Equity investments

$

71,757,583   Market approach(5)   Underwriting multiple/

EBITDA multiple

3.5x to 23.2x (12.1x)

Total Long Term Level 3
Investments

$ 874,460,683  

(1) Weighted average based on fair value as of December 31, 2023.
(2)

Inclusive of but not limited to (a) the market approach which is used to determine sufficient enterprise value, and (b) the income
approach which is based on discounting future cash flows using an appropriate market yield.

(3) The Company calculates the price of the loan by discounting future cash flows, which include forecasted future BSB,, SOFR, or
SONIA rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation
date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on:
changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an
estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher fair value
measurement. As an example, the “Range (Average)” for a first lien debt instruments in the table above indicates that the change
in the HY spreads between the date a loan closed and the valuation date ranged from -3.00% (-300 basis points) to 8.11% (811
basis points). The average of all changes was -0.23% (-23 basis points).

(4) Median of LTM (last twelve months) EBITDA multiples of comparable companies.
(5) The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the

EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation would result in a significantly
higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current
market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer
companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional
change on other factors in determining the appropriate Multiple to use in the market approach.

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The following provides quantitative information about Level 3 fair value measurements As of December 31, 2022:

Description:
First lien debt

Fair Value
$ 735,555,508  

     Valuation Technique     
Income/Market
approach(2)

Unobservable Inputs
HY credit spreads,
Risk free rates
Market multiples

Range (Average)(1)(3)
-2.29% to 6.53% (1.52%)
-1.43% to 4.31% (2.31%)
4.5x to 19.3x (10.1x)(4)

Second lien debt

$

45,304,300

Unsecured debt

$

4,823,898

Income/Market
approach(2)

Income/Market
approach(2)

HY credit spreads,
Risk free rates
Market multiples

-0.17% to 5.18% (2.39%)
-0.02% to 3.91% (1.94%)
5.6x to 15.1x (11.4x)(4)

HY credit spreads,
Risk free rates
Market multiples

7.97% to 7.97% 7.97%)
3.63% to 3.63% (3.63%)
9.1x to 9.1x (9.1x)(4)

Equity investments

$

59,049,932   Market approach(5)   Underwriting multiple/

EBITDA multiple

1.3x to 24.8x (11.7x)

Total Long Term Level 3
Investments

$ 844,733,638  

(1) Weighted average based on fair value as of December 31, 2022.
(2)

Inclusive of but not limited to (a) the market approach which is used to determine sufficient enterprise value, and (b) the income
approach which is based on discounting future cash flows using an appropriate market yield.

(3) The Company calculates the price of the loan by discounting future cash flows, which include forecasted future LIBOR or SOFR
rates based on the published forward LIBOR or SOFR curve at the valuation date, using an appropriate yield calculated as of the
valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date
based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality
(via an estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher
fair value measurement. As an example, the “Range (Average)” for a first lien debt instruments in the table above indicates that
the change in the HY spreads between the date a loan closed and the valuation date ranged from -2.29% (-229 basis points) to
6.53% (653 basis points). The average of all changes was 1.52% (152 basis points).
(4) Median of LTM (last twelve months) EBITDA multiples of comparable companies.
(5) The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the

EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation would result in a significantly
higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current
market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer
companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional
change on other factors in determining the appropriate Multiple to use in the market approach.

149

 
 
    
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
    
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NOTE 7 — COMMITMENTS AND CONTINGENCIES

The Company is currently not subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding
threatened against us. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business,
including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of
these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material
effect upon our business, financial condition or results of operations.

As of December 31, 2023, the Company had $36,722,930 in unfunded debt commitments and $298,312 in unfunded equity

commitments to 57 existing portfolio companies. As of December 31, 2022, the Company had $27,522,100 in unfunded debt
commitments and $302,817 in unfunded equity commitments to 52 existing portfolio companies. As of both December 31, 2023 and
2022, the Company did not record any fair value adjustments that resulted in any unrealized gains (losses) on these positions. As of
December 31, 2023, the Company had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility)
to fund such unfunded loan commitments should the need arise.

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Table of Contents

NOTE 8 — FINANCIAL HIGHLIGHTS

Per Share Data:(1)
Net asset value at beginning of period
Net investment income
Change in unrealized appreciation (depreciation) on
investments
Net realized (loss) gain
Loss on debt extinguishment
Benefit (provision) for taxes on net realized losses (gains) on
investments
(Provision) benefit for taxes on net unrealized (appreciation)
depreciation on investments
Total from operations
Sales load
Offering costs
Stockholder distributions from:

Net investment income
Net realized capital gains

Accretive effect of stock offerings (issuing shares above net
asset value per share)
Other(3)
Net asset value at end of period
Per share market value at end of period
Total return based on market value (2)
Weighted average shares outstanding for the period
Ratio/Supplemental Data:(1)
Net assets at end of period
Weighted average net assets
Annualized ratio of gross operating expenses to net assets (5)
Annualized ratio of net operating expenses to net assets (5)(6)
Annualized ratio of interest expense and other fees to net
assets
Annualized ratio of net investment income before fee waiver
to net assets(5)
Annualized ratio of net investment income to net assets (5)
Portfolio turnover(3)
Notes payable
Credit Facility payable
SBA-guaranteed debentures
Asset coverage ratio(4)

December 31, 
2023

December 31, 
2022

For the years ended
December 31, 
2021

December 31, 
2020

December 31, 
2019

$

14.02
1.92

$

14.61
1.46

$

14.03
1.01

$

14.14
1.13

$

14.09  
1.23  

0.13  
(1.38) 
—  

0.14  

(0.01) 
0.80  
(0.04) 
(0.01) 

(1.59) 
(0.02) 

0.09
0.01  

(0.90) 
0.19  
—  

—  

(0.01) 
0.74  
—  
(0.03) 

(1.11) 
(0.19) 

—  
—  

(0.36) 
1.22  
(0.03) 

(0.15) 

0.03  
1.72  
—  
—  

(1.09) 
(0.05) 

—  
—  

0.44  
(0.52) 
—  

—  

(0.01) 
1.04  
—  
—  

(1.15) 
—  

—  
—  

$
$

13.26
12.85

$
$
8.72 %   

$
14.02
13.26
$
12.32 %   

$
14.61
13.02
$
30.78 %   

$
14.03
10.88
$
(13.73)%   

(0.85)
1.07
—

—

—
1.45
(0.06)
(0.03)

(0.54)
(0.82)

0.05
—
14.14
14.23
21.97 %

22,004,648

19,552,931

19,489,750

19,471,500

18,275,696

$ 319,939,788
$ 301,285,626

$ 275,776,613
$ 281,745,332

$ 285,111,233
$ 274,188,692

$ 273,360,649
$ 253,034,571

$ 270,571,173
$ 259,020,507

21.27 %   
21.16 %  

16.59 %   
16.59 %  

16.90 %    
16.90 %    

13.75 %  
13.75 %  

14.11 %  
14.11 %  

10.62 %   

8.68 %   

6.83 %    

6.29 %    

5.78 %  

13.91 %  
14.01 %   
15 %   

8.68 %  
10.15 %   
15 %   

$ 100,000,000
$ 160,085,705
$ 325,000,000

$ 100,000,000
$ 199,200,425
$ 313,600,000

$ 100,000,000
$ 177,340,000
$ 250,000,000

6.83 %  
7.21 %    
39 %    
$
48,875,000
$ 174,000,000
$ 176,500,000

6.29 %  
8.58 %    
21 %    
$
48,875,000
$ 161,550,000
$ 161,000,000

5.78 %  
8.64 %  
23 %  

2.23 x  

1.92 x  

2.03 x

2.23 x

2.29 x

151

    
    
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents

    December 31, 

2018

December 31, 
2017

For the years ended
December 31, 
2016

December 31, 
2015

December 31, 
2014

Per Share Data:(1)
Net asset value at beginning of year/period
Net investment income
Change in unrealized appreciation on investments
Net realized gain
Benefit for taxes on net unrealized depreciation on
investments
Total from investment operations
Issuance of common shares
Sales Load
Offering Costs
Stockholder distributions from:

Net investment income
Net realized capital gains

Other(3)
Net asset value at the end of year/period
Per share market value at end of year/period
Total return based on market value (2)
Weighted average shares outstanding at the end of period
Ratio/Supplemental Data:(1)
Net assets at end of period
Weighted average net assets
Annualized ratio of gross operating expenses to net assets (7)
(8)
Annualized ratio of net operating expenses to net assets (7)(8)
Annualized ratio of interest expense and other fees to net
assets
Annualized ratio of net investment income before fee
waiver to net assets(7)
Annualized ratio of net investment income to net assets (7)
Portfolio Turnover(5)
Notes Payable
Credit Facility Payable
SBA Debentures
Asset Coverage Ratio(6)

$

$
$

$

13.81
1.42
(0.11) 
0.35  

(0.02) 
1.64  

—  
—  

(1.03) 
(0.33) 
—  

$

13.69
1.21

—  
0.31  

—  
1.52  

(0.09) 
(0.02) 

(1.20) 
(0.16) 
0.07  

$

13.19
1.39
1.49  
(1.05) 

0.03  
1.86  

—  
—  

(1.36) 
—  
—  

$

13.94
1.33
(0.74) 
0.03  

(0.01) 
0.61  

—  
—  

(1.33) 
(0.03) 
—  

14.09
12.95

$
$
8.68 %   

$
13.81
13.14
$
20.29 %   

$
13.69
12.06
$
42.83 %   

$
13.19
9.64
$
(7.76)%   

14.54  
1.34  
(0.53)
0.04

(0.02)
0.83

(0.01)
—

(1.31)
(0.12)
0.01
13.94
11.78
(13.09)%

15,953,571

14,870,981

12,479,959

12,479,961

12,281,178

$ 224,845,007
$ 223,750,302

$ 220,247,242
$ 195,211,550

$ 170,881,785
$ 165,189,142

$ 164,651,104
$ 173,453,813

$ 173,949,452
$ 176,458,141

13.72 %   
13.72 %   

11.10 %   
11.10 %   

13.20 %    
13.20 %    

11.16 %    
10.78 %    

9.92 %  
9.12 %  

5.51 %   

4.02 %   

4.84 %    

3.56 %    

3.01 %  

10.09 %   
10.09 %   
32 %   

$ 48,875,000
$ 99,550,000
$ 150,000,000

$ 48,875,000
$ 40,750,000
$ 90,000,000

2.51 x  

9.21 %   
9.21 %   
48 %   
$
25,000,000
$ 116,000,000
65,000,000
$
3.46 x  

2.21 x

10.71 %    
10.71 %    
16 %    
$
25,000,000
$ 109,500,000
65,000,000
$

9.11 %    
9.49 %    
29 %    
$
25,000,000
$ 106,500,000
16,250,000
$

8.40 %  
9.19 %  
19 %  

2.22 x

2.32 x

(1) Based on weighted-average number of common shares outstanding for the period.
(2) Excludes debt extinguishment costs of  $539,250 and $416,725 for the years ended December 31, 2021 and 2017, respectively. Including these costs,

(3)

this ratio would be 7.02% and 4.24% for the years ended December 31, 2021 and 2017, respectively.
Includes the impact of different share amounts as a result of calculating certain per share data based on weighted average shares outstanding during the
period and certain per share data based on shares outstanding as of the period end.

(4) Total return on market value is based on the change in market price per share since the end of the prior quarter and includes dividends paid, which are

assumed to be reinvested. The total returns are not annualized.

(5) Calculated as the lesser of purchases or paydowns divided by average fair value of investments for the period and is not annualized.
(6) Asset coverage ratio is equal to total assets less all liabilities and indebtedness not represented by senior securities over the aggregate amount of the

senior securities. SBA-guaranteed debentures are excluded from the numerator and denominator.

(7) These ratios include the impact of the benefit (provision) for income taxes related to net unrealized depreciation (appreciation) on certain investments of

($126,957), ($213,214), $510,868, ($224,877), ($66,760),  $373,131, ($93,601) and ($288,122) for the years ended December 31, 2023, 2022, 2021,
2020, 2019, 2016, 2015, and 2014, respectively, as well as $2,987,847 and ($2,957,220) of benefit (provision) for taxes on realized gains on
investments for the year ended December 31, 2023 and 2021, respectively, which are not reflected in net investment income, gross operating expenses
or net operating expenses. The provision for income taxes related to net realized gain (loss) or unrealized depreciation (appreciation) on investments at
Taxable Subsidiaries to net assets for the years ended December 31, 2023, 2022, 2021, 2020, 2019, 2016, 2015, and 2014 is (0.04%), (0.08%), (0.89)%,
(0.09)%, (0.03)%, (0.16)%, 0.05%, and 0.17%, respectively. These ratios excludes debt extinguishment costs of  ($539,250) and ($416,275) for
the years ended December 31, 2021 and 2017, respectively.

(8) Deferred offering costs of $261,761 for the year ended December 31, 2016 are not annualized.

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NOTE 9 — CREDIT FACILITY

On October 11, 2017, the Company entered into a senior secured revolving credit agreement, as amended, dated as of

October 10, 2017, that was amended and restated on December 21, 2021, February 28, 2022, May 13, 2022, and November 21, 2023
with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (the “Credit Facility”).

The Credit Facility provides for borrowings up to a maximum of $260,000,000 on a committed basis with an accordion feature
that allows the Company to increase the aggregate commitments up to $350,000,000, subject to new or existing lenders agreeing to
participate in the increase and other customary conditions.

Pursuant to the Third Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit

Agreement, the Credit Facility will bear interest, subject to the Company’s election, on a per annum basis equal to (i) term SOFR plus
2.50% (or 2.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus a SOFR
credit spread adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR floor, or
(ii) 1.50% (or 1.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus an
alternate base rate based on the highest of the prime rate (subject to a 3% floor), Federal Funds Rate plus 0.50% and one-month term
SOFR plus 1.00%. The Company pays unused commitment fees of 0.50% per annum on the unused lender commitments under the
Credit Facility. Interest is payable monthly or quarterly in arrears. The commitment to fund the revolver expires on November 21,
2027, after which the Company may no longer borrow under the Credit Facility and must begin repaying principal equal to 1/12 of the
aggregate amount outstanding under the Credit Facility each month. Any amounts borrowed under the Credit Facility will mature,
and all accrued and unpaid interest thereunder will be due and payable, on November 21, 2028.

The Company’s obligations to the lenders are secured by a first priority security interest in its portfolio of securities and cash not
held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not
limited to: (i) maintaining a minimum liquidity test of at least $10,000,000, including cash, liquid investments and undrawn
availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a minimum stockholder’s equity, and
(iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of December 31, 2023, the Company was in
compliance with these covenants.

As of December 31, 2023 and December 31, 2022, the outstanding balance under the Credit Facility was $160,085,705 and
$199,200,425, respectively. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The
fair value of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would
be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market
conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with
similar credit risk, adjusted for nonperformance risk, if any. The Company has incurred costs of $6,630,390 in connection with the
current Credit Facility, which are being amortized over the life of the facility. Additionally, $341,979 of costs from a prior credit
facility will continue to be amortized over the life of the Credit Facility. As of December 31, 2023 and 2022, $3,520,929 and
$1,515,144 of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees
are presented on our Consolidated Statement of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the Credit Facility, net of prepaid loan structure fees:

Credit Facility payable
Prepaid loan structure fees
Credit Facility payable, net of prepaid loan structure fees

153

$

160,085,705

     December 31, 2023      December 31, 2022
199,200,425
(1,515,144)
197,685,281

156,564,776

(3,520,929) 

$

$

$

 
Table of Contents

Interest is paid monthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on

the Credit Facility for the years ended December 31, 2023, 2022, and 2021:

Interest expense
Loan fee amortization
Total interest and financing expenses
Weighted average interest rate
Effective interest rate (including fee amortization)
Average debt outstanding
Cash paid for interest and unused fees

NOTE 10 — SBA-GUARANTEED DEBENTURES

For the year ended
December 31, 2023      December 31, 2022      December 31, 2021
5,231,698
$

14,723,463

9,190,425

$

$

657,323  

567,375  

15,380,786

9,757,800

$

$
$

$
7.9 %    
8.3 %    
$
$

186,144,622
14,523,350

204,276,134
9,034,765

$
4.4 %    
4.8 %    
$
$

519,653  

5,751,351

2.8 %  
3.3 %  

176,870,712
5,271,348

Due to the SBIC subsidiaries’ status as licensed SBICs, the Company has the ability to issue debentures guaranteed by the SBA

at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding debentures
guaranteed by the SBA subject to a regulatory leverage limit, up to two times the amount of “regulatory capital”, as such term is
defined by the SBA.

As of both December 31, 2023 and 2022, the SBIC I subsidiary had $75,000,000 in regulatory capital and $150,000,000 of SBA-

guaranteed debentures outstanding. As of both December 31, 2023 and 2022, the SBIC II subsidiary had $87,500,000 in regulatory
capital and $175,000,000 and $163,600,000 of SBA-guaranteed debentures outstanding, respectively.

On August 12, 2014, the Company obtained exemptive relief from the SEC to permit it to exclude the SBA-guaranteed
debentures from its asset coverage test under the 1940 Act. The exemptive relief provides the Company with increased flexibility
under the asset coverage test by permitting it to borrow up to $325,000,000 more than it would otherwise be able to absent the receipt
of this exemptive relief.

On a stand-alone basis, the SBIC subsidiaries collectively held $485,152,670 and $470,659,123 in assets at December 31, 2023
and 2022, respectively, which accounted for approximately 53.4% and 52.4% of our total consolidated assets at December 31, 2023
and 2022, respectively.

SBA-guaranteed debentures have fixed interest rates that equal prevailing 10-year U.S. Treasury Note rates plus a market spread
and have a maturity of ten years with interest payable semi-annually. The principal amount of the SBA-guaranteed debentures is not
required to be paid before maturity but may be pre-paid at any time with no prepayment penalty. SBA-guaranteed debentures drawn
before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount,
which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 incur
upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life
of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed
debentures bear interest at a fixed rate that is set to the current 10-year U.S. Treasury Note rate plus a spread at each pooling date.

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The following table summarizes the SBIC I subsidiary’s SBA-guaranteed debentures as of December 31, 2023:

Issuance Date
October 14, 2014
October 17, 2014
December 24, 2014
June 29, 2015
October 22, 2015
October 22, 2015
November 10, 2015
November 18, 2015
November 25, 2015
December 16, 2015
December 29, 2015
November 28, 2017
April 27, 2018
July 30, 2018
September 25, 2018
Total SBIC I Subsidiary SBA-
guaranteed Debentures

    Licensee    
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I
SBIC I

SBIC II SBA-guaranteed Debentures

Maturity Date

     Debenture Amount      Interest Rate      SBA Annual Charge  

$

March 1, 2025
March 1, 2025
March 1, 2025
September 1, 2025
March 1, 2026
March 1, 2026
March 1, 2026
March 1, 2026
March 1, 2026
March 1, 2026
March 1, 2026
March 1, 2028
September 1, 2028
September 1, 2028
March 1, 2029

6,500,000  
6,500,000  
3,250,000  
9,750,000  
6,500,000  
1,500,000  
8,800,000  
1,500,000  
8,800,000  
2,200,000  
9,700,000  
25,000,000  
40,000,000  
17,500,000  
2,500,000  

   $

150,000,000  

2.52 %  
2.52 %  
2.52 %  
2.83 %  
2.51 %  
2.51 %  
2.51 %  
2.51 %  
2.51 %  
2.51 %  
2.51 %  
3.19 %  
3.55 %  
3.55 %  
3.11 %  

0.36 %
0.36 %
0.36 %
0.36 %
0.36 %
0.74 %
0.74 %
0.74 %
0.74 %
0.74 %
0.74 %
0.22 %
0.22 %
0.22 %
0.22 %

Issuance Date
October 17, 2019
November 15, 2019
December 17, 2020
December 17, 2020
February 16, 2021
February 26, 2021
March 2, 2021
April 21, 2021
May 14, 2021
May 28, 2021
July 23, 2021
February 25, 2022
March 29, 2022
April 1, 2022
April 12, 2022
April 21, 2022
June 30, 2022
July 28, 2022
September 9, 2022
November 9, 2022
August 8, 2023
September 19, 2023
Total SBIC II Subsidiary SBA-
guaranteed Debentures
Total SBA-guaranteed Debentures

     Licensee     
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
  SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II
SBIC II

Maturity Date

March 1, 2030
March 1, 2030
March 1, 2031
March 1, 2031
March 1, 2031
March 1, 2031
March 1, 2031
September 1, 2031
September 1, 2031
September 1, 2031
September 1, 2031
March 1, 2032
September 1, 2032
September 1, 2032
September 1, 2032
September 1, 2032
September 1, 2032
September 1, 2032
March 1, 2033
March 1, 2033
September 1, 2033
March 1, 2034

$

     Debenture Amount      Interest Rate     
2.08 %  
2.08 %  
1.67 %  
1.67 %  
1.67 %  
1.67 %  
1.67 %  
1.30 %  
1.30 %  
1.30 %  
1.30 %  
2.94 %  
4.26 %  
4.26 %  
4.26 %  
4.26 %  
4.26 %  
4.26 %  
5.17 %  
5.17 %  
5.69 %  
6.04 % (1)

6,000,000  
5,000,000  
9,000,000  
6,500,000  
13,500,000  
10,000,000  
10,000,000  
10,000,000  
6,700,000  
7,300,000  
16,000,000  
10,000,000
10,000,000
6,670,000
6,665,000
6,665,000
3,600,000
6,400,000
6,000,000
7,600,000
9,120,000
2,280,000

SBA Annual Charge  

0.09 %
0.09 %
0.09 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %
0.27 %

   $
   $

175,000,000  
325,000,000  

(1)

Interest rate of the SBA-guaranteed debentures will be set as determined by the SBA when pooled on March 20, 2024.

155

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
  
 
 
 
 
 
 
 
 
 
 
   
  
 
  
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The fair values of the SBA-guaranteed debentures are determined in accordance with ASC 820, which defines fair value in terms

of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date
under current market conditions. The fair values of the SBA-guaranteed debentures are estimated based upon market interest rates for
our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of December 31, 2023, the
estimated fair values of the SBA-guaranteed debentures as prepared for disclosure purposes was $293,215,000. As of December 31,
2022, the carrying amount of the SBA-guaranteed debentures approximated their fair value. At December 31, 2023 and 2022, the
SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of December 31, 2023, the Company has incurred $11,148,750, in financing costs related to the SBA-guaranteed debentures

since receiving its licenses, which were recorded as prepaid loan fees. As of December 31, 2023 and 2022, $4,726,642 and
$5,704,805 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated
Statement of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the SBA-guaranteed debentures, net of prepaid loan fees:

SBA-guaranteed Debentures payable
Prepaid loan fees
SBA-guaranteed Debentures, net of prepaid loan fees

December 31, 2023
325,000,000
$
(4,726,642)
320,273,358

$

December 31, 2022
313,600,000
$
(5,704,805)
307,895,195

$

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the years ended

December 31, 2023, 2022, and 2021:

Interest expense
Debenture fee amortization
Total interest and financing expenses
Weighted average interest rate
Effective interest rate (including fee amortization)
Average debt outstanding
Cash paid for interest

NOTE 11 — NOTES

For the year ended
December 31, 2023      December 31, 2022      December 31, 2021
6,389,513
$
1,088,132  
7,477,645

8,151,814
1,227,952  
9,379,766

1,255,753  

10,047,058

11,302,811

$

$

$

$
3.2 %    
3.5 %    
$
$

$
2.8 %    
3.3 %    
$
$

2.8 %
3.3 %

227,826,849
5,907,676

$
$

318,847,123
9,646,849

288,167,082
7,360,295

On August 21, 2017, the Company issued $42,500,000 in aggregate principal amount of 5.75% fixed-rate notes due

September 15, 2022 (the “2022 Notes”). On September 8, 2017, the Company issued an additional $6,375,000 in aggregate principal
amount of the 2022 Notes pursuant to a full exercise of the underwriters’ overallotment option. On January 13, 2021, the Company
caused notices to be issued to the holders of its 2022 Notes regarding the Company’s exercise of its option to redeem all of the issued
and outstanding 2022 Notes, pursuant to the Second Supplemental Indenture dated as of August 21, 2017, between the Company and
U.S. Bank National Association, as trustee. The Company redeemed all $48,875,000 in aggregate principal amount of the 2022
Notes on February 12, 2021. The 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest
thereon through the redemption date. As a result of the redemption, the Company recognized a loss on debt extinguishment of
$539,250 due to the write off of the remaining deferred financing costs on the 2022 Notes. This loss is included in the Consolidated
Statement of Operations for the year ended December 31, 2021.

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The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the year ended

December 31, 2021:

Interest expense
Deferred financing costs
Administration fees
Total interest and financing expenses
Loss on debt extinguishment(1)
Weighted average interest rate(2)
Effective interest rate (including fee amortization)(2)
Average debt outstanding(3)
Cash paid for interest

For the year ended
December 31, 2021

320,063
28,231  
9,000
357,294
539,250

5.7 %
6.4 %

48,875,000
453,966

$

$

$
$

(1) The loss on debt extinguishment is not included in interest expense or net investment income.
(2) Excludes the loss on debt extinguishment.
(3) For the year ended December 31, 2021, the average is calculated for the period January 1, 2021 through February 12, 2021; the

repayment date of the 2022 Notes.

On January 14, 2021, the Company issued $100,000,000 in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the
“2026 Notes”). The 2026 Notes will mature on March 30, 2026, and may be redeemed in whole or in part at any time or from time to
time at our option on or after December 31, 2025 at a redemption price equal to 100% of the outstanding principal, plus accrued and
unpaid interest. Interest on the 2026 Notes is payable semi-annually beginning September 30, 2021.

The Company used the net proceeds from the 2026 Notes offering to fully redeem the 2022 Notes and repay a portion of the

amount outstanding under the Credit Facility. As of December 31, 2023, the aggregate carrying amount of the 2026 Notes was
$98,996,412.

Prior to their redemption on February 12, 2021, the 2022 Notes were listed on New York Stock Exchange under the trading
symbol “SCA”. As of December 31, 2022, the fair value of the 2022 Notes was $49,168,250. The 2026 Notes are institutional, non-
traded notes. The 2026 Notes are carried at cost. At the measurement date, the estimated fair value of the 2026 Notes as prepared for
disclosure purposes was $93,041,000. See Note 6 to the Consolidated Financial Statements for further discussion regarding the fair
value measurements and hierarchy.

In connection with the issuance and maintenance of the 2026 Notes, the Company incurred $2,327,835 of fees, which are being
amortized over the term of the 2026 Notes, of which $1,003,588 remains to be amortized as of December 31, 2023. These financing
costs are presented on the Consolidated Statement of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the 2026 Notes Payable, net of deferred financing costs:

2026 Notes payable
Deferred financing costs
2026 Notes payable, net of deferred financing costs

157

$

     December 31, 2023
100,000,000
(1,003,588)
98,996,412

$

December 31, 2022
100,000,000
(1,450,308)
98,549,692

$

$

    
 
 
 
 
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The following table summarizes the interest expense and deferred financing costs on the 2026 Notes for the years ended

December 31, 2023, 2022, and 2021:

For the year ended

Interest expense
Deferred financing costs
Total interest and financing expenses
Weighted average interest rate
Effective interest rate (including fee amortization)
Average debt outstanding
Cash paid for interest

$

     December 31, 2023      December 31, 2022      December 31, 2021
4,698,958
435,809
5,134,767

4,885,000
446,719
5,331,719

4,881,000
446,720
5,327,720

$

$

$

$
4.9 % 
5.3 % 
$
$

$
4.9 % 
5.3 % 
$
$

4.9 %(1)
5.3 %(1)

100,000,000 (1)
3,466,667

$
$

100,000,000
4,881,000

100,000,000
4,885,000

(1) Calculated for the period from January 14, 2021, the date of the 2026 Notes offering, through December 31, 2021.

The indenture and supplements thereto relating to the 2026 Notes contain certain covenants, including but not limited to (i) a

requirement that the Company comply with the asset coverage requirements of the 1940 Act or any successor provisions, and (ii) a
requirement to provide financial information to the holders of the notes and the trustee under the indenture if the Company should no
longer be subject to the reporting requirements under the Exchange Act. As of December 31, 2023, the Company was in compliance
with these covenants.

NOTE 12 — INCOME TAXES

As of December 31, 2023 and December 31, 2022, the Company had $36,240,561and $27,456,044, respectively, of

undistributed ordinary income.(1) Undistributed capital gains were $757,268 and $1,150,000 for the periods ended December 31, 2023
and December 31, 2022, respectively. Undistributed qualified dividends were $0 and $48,171 for the periods ended December 31,
2023 and December 31, 2022, respectively. All of the undistributed ordinary income and capital gains as of December 31, 2023 will
have been distributed within the required period of time such that the Company will not be subject to U.S. federal income tax for
the year ended December 31, 2023. We will be subject to a 4% nondeductible U.S. federal excise tax on our undistributed income to
the extent we did not distribute an amount equal to at least 98% of our net ordinary income plus 98.2% of our capital gain net income
attributable to the period. The Company has accrued $1,399,689 and $1,118,153 of U.S. federal excise tax for the tax years ended
December 31, 2023 and December 31, 2022, respectively, independent of prior year adjustments. See Note 1 for further discussion of
tax expense in each year.

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Ordinary dividend distributions from a RIC do not qualify for the reduced maximum tax rate on qualified dividend income from

domestic corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic
corporations and qualified foreign corporations. The tax character(2) of distributions paid in the years ended December 31, 2023 and
2022 was as follows:

Ordinary income
Qualified dividends
Distributions of long-term capital gains(2)
Total distributions paid to common stockholders(3)

$

     December 31, 2023      December 31, 2022
22,279,384
525,313
3,789,693
26,594,390

35,032,563
48,171
446,746
35,527,480

$

$

$

(1) The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax

return for each year. Therefore, final taxable income earned in each period, and the undistributed ordinary income and capital
gains for each period carried forward for distribution in the following period, may be different than this estimate.
(2) Distributions of long-term capital gains of $446,746 and $3,789,693 as of December 31, 2023 and December 31, 2022,

respectively, differ from distributions of net capital gains on the Consolidated Statement of Changes in Net Assets because
certain prepayment gains are characterized differently for tax reporting purposes. The qualified dividend amount in 2023 and
2022, respectively, represents the completion of a distribution of qualified dividends derived from qualified dividends received
by the Company from a portfolio company in 2022 and 2021, respectively, for tax purposes.

(3) Total distributions paid to common stockholders of $36,698,834 and $26,594,390 as of December 31, 2023 and December 31,

2022, respectively, differ from the total distributions from net investment income and net realized capital gains on the
Consolidated Statement of Changes in Net Assets because the amount of dividends attributable to 2023 and 2022, respectively,
for tax reporting purposes are on an amount paid basis. The Company recorded dividends payable for distributions accrued, but
not yet paid, on the Consolidated Statement of Assets and Liabilities in the amount of $0 and $1,171,059 as of December 31,
2022 and December 31, 2021, respectively, which were recognized in the following year for tax purposes.

Listed below is a reconciliation of “Net increase in net assets resulting from operations” to taxable income and total distributions

declared to common stockholders for the years ended December 31, 2023, 2022, and 2021:

Net increase in net assets resulting from operations (includes net
investment income, realized gain (loss), unrealized appreciation
(depreciation) and taxes)
Net change in unrealized (appreciation) depreciation
Income tax provision
Loss on debt extinguishment
Pre-tax expense (income), loss (gain) reported at Taxable Subsidiaries,
not consolidated for tax purposes
Long term capital loss carryover
Book income and tax income differences, including debt origination,
interest accrual, income from pass-through investments, dividends,
realized gains (losses) and changes in estimates

Estimated taxable income
Taxable income earned in prior year and carried forward for distribution
in current year
Adjustment for cumulative effect of distributions carried forward
Taxable income earned prior to period end and carried forward
Distribution payable as of period end and paid in following  period
Total distributions accrued or paid to common stockholders

$

$

$

2023

2022

2021

$

17,533,167
(2,785,648)
(2,860,890)

14,491,784
17,536,190
213,214

$

33,572,872
6,928,160
2,446,352
539,250

20,172,550

1,392,247

—  

—  

(16,619,608)
(4,896,643)

11,860,086
43,919,265

$

(3,615,815)
30,017,620

$

3,205,514
25,175,897

28,606,043

24,011,459

—  

—  

(36,997,828)

(28,606,043)

—  
$

35,527,480

—  
$

25,423,036

21,051,549
—
(25,182,518)
1,171,059
22,215,987

159

 
 
 
 
    
    
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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The aggregate gross unrealized appreciation and depreciation, the net unrealized appreciation, and the aggregate cost of the
Company’s portfolio company securities for U.S. federal income tax purposes as of December 31, 2023 and December 31, 2022 were
as follows:

Aggregate cost of portfolio company securities
Gross unrealized appreciation of portfolio company securities
Gross unrealized depreciation of portfolio company securities
Gross unrealized appreciation on foreign currency translations of portfolio company
securities
Gross unrealized depreciation on foreign currency translations of portfolio company
securities
Aggregate fair value of portfolio company securities

$

     December 31, 2023      December 31, 2022
875,823,177
28,927,746
(58,602,607)

902,143,550
38,379,839
(65,262,547)

$

11,142

—

(811,301)
874,460,683

$

(1,414,678)
844,733,638

$

As of December 31, 2023, the Taxable Subsidiaries had unrealized losses in investments and net operating loss (“NOL”)

carryovers creating a net deferred tax liability equal to $188,893 as reflected below. As of December 31, 2023, for U.S. federal
income tax purposes, the Taxable Subsidiaries had net operating loss carryforwards totaling $5,509,104, of which $918,232 will
expire during the tax years 2034 through 2037 if unused. Due to the nature of the Taxable Subsidiaries’ holdings, a valuation
allowance was established as we determined it is more likely than not that some of the deferred tax assets will not be realized prior to
expiration. Although our future projections indicate that we may be able to realize a portion of these deferred tax assets, due to the
degree of uncertainty of these projections, management has recorded a deferred tax asset valuation allowance of $6,507,196.

Deferred tax asset
Deferred tax liability
Total deferred tax asset before valuation allowance
Deferred tax valuation allowance
Net deferred tax liability

2023

6,507,196
(188,893)
6,318,303
(6,507,196)
(188,893)

$

$
$
$

2022

4,939,367
(61,936)
4,877,431
(4,939,367)
(61,936)

$

$
$
$

The Company has recorded a tax reclassification of stockholders’ equity in accordance with U.S. GAAP to reduce paid-in capital

and increases distributable earnings (increasing accumulated undistributed investment income) for book to tax differences that it has
determined to be permanent. For the years ended December 31, 2023 and 2022, this reclassification was $1,348,766 and $1,040,884,
respectively. The total adjustment on the Consolidated Statement of Assets and Liabilities as of December 31, 2023 and 2022 was
$5,707,301 and $4,358,534, respectively.

Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The 2020, 2021 and 2022 federal

tax years for the Company remain subject to examination by the IRS.

160

 
 
 
 
    
    
 
 
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NOTE 13 — SENIOR SECURITIES

Information about the Company’s senior securities is shown in the following table for the fiscal years ended December 31, 2012

through 2023.

Class and Year

SBA-guaranteed debentures
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Original Credit Facility(7)
Fiscal 2012
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Credit Facility
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
4.875% Notes due 2026
Fiscal 2021
Fiscal 2022
Fiscal 2023
5.75% Notes due 2022(9)
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
6.50% Notes due 2019(8)
Fiscal 2014
Fiscal 2015
Fiscal 2016
Short-Term Loan(5)
Fiscal 2012
Fiscal 2013

Outstanding
Exclusive of
Treasury
Securities(1)

Asset
Coverage per
 Unit(2)

Involuntary
Liquidating
Preference
per Unit(3)

Average
Market Value
per Unit(4)

(In thousands, except per unit amounts)

$
$
$
$
$
$
$
$
$
$

$
$
$
$
$

$
$
$
$
$
$
$

$
$
$

$
$
$
$

$
$
$

$
$

16,250  
65,000  
65,000  
90,000  
150,000  
161,000  
176,500  
250,000  
313,600  
325,000  

38,000
110,000
106,500
109,500
116,000

40,750
99,550
161,550
174,000
177,340
199,200
160,086

100,000
100,000
100,000

48,875
48,875
48,875
48,875

25,000
25,000
25,000

45,000
9,000

$
$
$
$
$

$
$
$
$
$
$
$

$
$
$

$
$
$
$

$
$
$

$
$

N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)
N/A  (6)

3,090  
2,470  
2,320  (6)
2,220  (6)
2,210  (6)

3,460  (6)
2,520  (6)
2,286  (6)
2,230  (6)
2,030  (6)
1,920  (6)
2,230  (6)

2,030  (6)
1,920  (6)
2,230  (6)

3,460  (6)
2,520  (6)
2,286  (6)
2,230  (6)

2,320  (6)
2,220  (6)
2,210  (6)

3,090  
2,470  

—  
—  
—  
—  
—  
—  
—  
—  
—  
—  

—  
—  
—  
—  
—  

—  
—  
—  
—  
—  
—  
—  

—  
—  
—  

— $
— $
— $
— $

— $
— $
— $

—  
—  

N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A

25.34
25.18
24.43
23.64

25.41
25.27
25.11

N/A
N/A

(1) Total amount of senior securities outstanding at the end of the period presented.
(2) Asset coverage per unit is the ratio of the carrying value of the Company’s total assets, less all liabilities and indebtedness not

represented by senior securities, in relation to the aggregate amount of senior securities

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representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.

(3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to
any security junior to it. The “—” indicates information which the SEC expressly does not require to be disclosed for certain
types of senior securities.

(4) Average market value per unit for the 2022 Notes and the 6.50% Notes due 2019 represents the average of the daily closing

prices as reported on the New York Stock Exchange during the period presented. Average market value per unit for our SBA-
guaranteed Debentures, the Original Credit Facility (as defined below), the Credit Facility, and the 2026 Notes are not applicable
because these are not registered for public trading.

(5) Refers to short-term loans that the Company obtained from Raymond James & Associates, Inc. and repaid in full on January 2,

2013 and January 2, 2014, respectively.

(6) The Company has excluded its SBA-guaranteed debentures from the asset coverage calculation as of December 31, 2023, 2022,
2021, 2019, 2018, 2017, 2016, 2015 and 2014 pursuant to the exemptive relief granted by the SEC in August 2014 that permits it
to exclude such SBA-guaranteed debentures from the definition of senior securities in the 150% asset coverage ratio we are
required to maintain under the 1940 Act.

(7) On November 13, 2012, the Company entered into a senior secured revolving credit agreement, by and among us, as the

borrower, SunTrust Bank, as the administrative agent, various lenders that are parties thereto from time to time (the “Original
Credit Facility”). The Company terminated the Original Credit Facility on October 11, 2017.

(8) On September 20, 2017, the Company redeemed all of the issued and outstanding 6.50% Notes due 2019.
(9) On February 12, 2021, the Company redeemed all of the issued and outstanding 5.75% Notes due 2022.

NOTE 14 — SUBSEQUENT EVENTS

Investment Portfolio

The Company invested in the following portfolio companies subsequent to December 31, 2023:

Activity Type

Add-On Investment
Add-On Investment

Date
January 5, 2024
January 8, 2024

Company Name

Whisps Holdings LP*
EH Real Estate Services, LLC*

Add-On Investment

January 9, 2024

Add-On Investment

January 12, 2024

Morgan Electrical Group
Intermediate Holdings, Inc.*
Impact Home Services LLC*

Add-On Investment

January 31, 2024

Impact Home Services LLC*

Add-On Investment

February 7, 2024

Unicat Catalyst Holdings, LLC*

Add-On Investment

February 28, 2024 Monitorus Holding, LLC*

*

Existing portfolio company

Company Description

Investment Amount

Instrument Type

Manufacturer of cheese-based snacks
Offers residential property brokerage, title &
settlement, and property and casualty insurance
brokerage services to home buyers and sellers
Provider of commercial electrical services

Residential garage door, electrical, and plumbing
services provider
Residential garage door, electrical, and plumbing
services provider
Manufacturer and distributor of catalysts and other
industrial products
Provider of media monitoring and evaluation services

$
$

$

$

$

$

$

75,192
475,233

Equity
Senior Secured – First Lien

23,531

Equity

50,914

Equity

22,331

Equity

7,032

Equity

13,290

Equity

We realized the following portfolio company subsequent to December 31, 2023:

Activity Type

Full Repayment

Date
January 8, 2024

Company Name

Company Description

Proceeds Received

Instrument Type

Peltram Plumbing Holdings, LLC*

Provider of plumbing solutions.

$

16,160,003

Senior Secured – First Lien

*

Existing portfolio company

Credit Facility

The outstanding balance under the Credit Facility as of March 4, 2024 was $148,527,500.

SBA-guaranteed debentures

The outstanding balance of SBA-guaranteed debentures as of March 4, 2024 was $325,000,000.

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Distributions Declared

On January 13, 2024, the Company’s Board declared a regular monthly distribution for each of January, February and

March 2024 as follows:

Declared
1/13/2024
1/13/2024
1/13/2024

Ex-Dividend
Date
1/30/2024
2/28/2024
3/28/2024

Record
Date
1/31/2024
2/29/2024
3/29/2024

Payment
Date
2/15/2024
3/15/2024
4/15/2024

$
$
$

Amount per
Share

0.1333
0.1333
0.1333

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Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

As of December 31, 2023 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our management, including our Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that
information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

(b) Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is

defined in Exchange Act Rule 13a-15(f), and for performing an assessment of the effectiveness of internal control over financial
reporting as of December 31, 2023. Internal control over financial reporting is a process designed by, or under the supervision of, our
principal executive and principal financial officers, or persons performing similar functions, and effected by our Board, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures are being made only in accordance with authorizations; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation.

Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31,

2023 based upon the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that our internal control
over financial reporting was effective as of December 31, 2023.

(c) Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financing reporting that occurred during the calendar year 2023 that have

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B.  Other Information.

Fees and Expenses

The following table is intended to assist you in understanding the various costs and expenses that an investor in our common
stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may
vary. The footnotes to the fee table state which items are estimates. The following table should not be considered a representation of
our future expenses; actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this
Annual Report on Form 10-K contains a reference to fees or expenses paid by “you,” “us,” “the Company” or “Stellus,” or that “we”
will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.

Stockholder transaction expenses:
Sales load (as percentage of offering price)
Offering expenses born by us (as a percentage of offering price)
Dividend reinvestment plan expenses
Total stockholder transaction expenses paid by us (as a percentage of offering price)
Annual expenses (as a percentage of net assets attributable to common stock)(5):
Base management fee
Incentive fees payable under Investment Advisory Agreement
Interest expense on borrowed funds
Other expenses
Total annual expenses

 — (1)
 — (2)
 — (3)
 — (4)

 4.90 % (6)
 3.07 % (7)
 9.98 % (8)
 2.28 % (9)  
 20.23 % (10)

(1)

(2)

In the event that securities are sold to or through underwriters, a corresponding prospectus supplement will disclose the
applicable sales load.
In the event that we conduct an offering of any of our securities, a corresponding prospectus will disclose the estimated offering
expenses because they will be ultimately borne by the Company (and indirectly by our stockholders).

(3) The expenses of administering our dividend reinvestment plan are included in other expenses.
(4) Total stockholder transaction expenses may include a sales load and will be disclosed in a future prospectus supplement, if any.
(5) Net assets attributable to common stock equals average net assets, which is calculated as the average of the net assets balances as

of each quarter end during the year ended December 31, 2023 and the prior year end.

(6) Our base management fee is 1.75% of the average value of our total assets (other than cash and cash equivalents but including
assets purchased with borrowed amounts). This item represents actual base management fees incurred for the year ended
December 31, 2023. We may from time to time decide it is appropriate to change the terms of the Investment Advisory
Agreement. Under the 1940 Act, any material change to our Investment Advisory Agreement must be submitted to stockholders
for approval. The 4.90% reflected in the table is calculated on our net assets (rather than our total assets). See “Item 1. Business  
— Management and Other Agreements — Investment Advisory Agreement.”

(7) This item represents actual fees incurred on pre-incentive fee net investment income (income incentive fee) for the year ended

December 31, 2023. The incentive fee consists of two parts, please See “Item 1. Business — Management and Other
Agreements — Investment Advisory Agreement — Incentive Fee” for additional information on the ordinary income and capital
gains components of our incentive fee.

(8) As of March 4, 2024, we had outstanding SBA debentures of $325.0 million; we had $148.5 million of outstanding balance

under our Credit Facility, which has a total commitment of $260 million.

(9) Other expenses represent our estimated annual operating expenses, as a percentage of net assets attributable to common shares

estimated for the current year, including professional fees, directors’ fees, insurance costs, expenses of our dividend reinvestment
plan and payments under the Administration Agreement based on our allocable portion of overhead and other expenses incurred
by our administrator. See “Item 1. Business  — Management and Other Agreements — Administration Agreement.” Other
expenses exclude interest payments on borrowed funds, and if we issue debt securities or preferred stock, interest payments on
debt securities and distributions with respect to preferred stock. “Other expenses” are based on actual other expenses for the year
ended December 31, 2023.

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(10) “Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual
expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our
total assets. The SEC requires that the “total annual expenses” percentage be calculated as a percentage of net assets (defined as
total assets less total liabilities), rather than the total assets, including assets that have been purchased with borrowed amounts. If
the “total annual expenses” percentage were calculated instead as a percentage of average consolidated total assets, our “total
annual expenses” would be 7.10% of average consolidated total assets.

Example

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect

to a hypothetical investment in us. In calculating the following expense amounts, we have assumed we would have no additional
leverage, that none of our assets are cash or cash equivalents and that our annual operating expenses would remain at the levels set
forth in the table above. Transaction expenses are not included in the following example.

You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return
You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return resulting entirely from net
realized capital gains (all of which is subject to our incentive fee
on capital gains)

$

$

1 year

3 years

5 years

10 years

 198

$

 486

$

 693

$

 992

 198

$

 486

$

 693

$

 992

The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will

bear directly or indirectly. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and
may result in a return greater or less than 5.0%. Assuming a 5.0% annual return, the incentive fee under the Investment Advisory
Agreement would either not be payable or have an insignificant impact on the expense amounts shown above. If we achieve
sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material
amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all
distributions at net asset value, if our Board authorizes and we declare a cash dividend, participants in our dividend reinvestment plan
who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total
dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on
the valuation date for the distribution.

This example and the expenses in the table above should not be considered a representation of our future expenses, and actual

expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

We will file with the SEC a definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, pursuant to

Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been
omitted under General Instruction G(3) to the Annual Report on Form 10-K. Only those sections of our definitive Proxy Statement
that specifically address the items set forth herein are incorporated by reference.

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Item 10.   Directors, Executive Officers and Corporate Governance

The information required by Item 10 is hereby incorporated by reference from the Company’s definitive Proxy Statement
relating to our 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the Company’s
fiscal year.

We have adopted a code of business conduct and ethics that applies to our directors, officers and employees. This code of ethics
is published on our website at www.stelluscapital.com. We intend to disclose any future amendments to, or waivers from, this code of
conduct within four business days of the waiver or amendment through a website posting.

Item 11.   Executive Compensation

The information required by Item 11 is hereby incorporated by reference from the Company’s definitive Proxy Statement
relating to the Company’s 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the
Company’s fiscal year.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is hereby incorporated by reference from the Company’s definitive Proxy Statement
relating to the Company’s 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the
Company’s fiscal year.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is hereby incorporated by reference from the Company’s definitive Proxy Statement
relating to the Company’s 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the
Company’s fiscal year.

Item 14.   Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from the Company’s definitive Proxy Statement
relating to the Company’s 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the
Company’s fiscal year.

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PART IV

Item 15.    Exhibits, Financial Statement Schedules

a. Documents Filed as Part of this Report

The following financial statements are set forth in Item 8:

Report of Independent Registered Public Accounting Firm (Grant Thornton LLP, Dallas, Texas, PCAOB ID Number 248)
Statements of Assets and Liabilities as of December 31, 2023 and December 31, 2022
Statements of Operations for the years ended December 31, 2023, 2022, and 2021
Statements of Changes in Net Assets for the years ended December 31, 2023, 2022, and 2021
Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Schedule of Investments as of December 31, 2023 and December 31, 2022
Notes to Financial Statements

Page

97
99
100
101
102
103
128

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Table of Contents

b. Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the

SEC:

 3.1 

     Articles of Amendment and Restatement (Incorporated by reference to Exhibit (a)(1) to the Registrant’s Registration

Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).

 3.3 

 4.1 

 4.2 

 4.4 

 4.5 

 4.6 

 4.7 

 4.8 

10.1

10.2

10.3

10.4

10.5

10.6

Bylaws (Incorporated by reference to Exhibit (b)(1) to the Registrant’s Registration Statement on Form N-2 (File
No. 333-184195), filed on October 23, 2012).

Form of Stock Certificate (Incorporated by reference to Exhibit (d) to the Registrant’s Registration Statement on
Form N-2 (File No. 333-184195), filed on October 23, 2012).

Form of Indenture (Incorporated by reference to Exhibit (d)(2) to the Registrant’s Registration Statement on Form N-2
(File No. 333-189938), filed January 29, 2014).

Second Supplemental Indenture between the Registrant and U.S. Bank National Association, date August 21, 2017,
(Incorporated by reference on exhibit (d)(4) to the Registrant’s Registration Statement on Form N-2 (File No. 333-
216138), filed on August 21, 2017).

Third Supplemental Indenture between the Registrant and U.S. Bank National Association, date January 14, 2021
(Incorporated by reference Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No 814-00971), filed on
January 14, 2021).

Form of Global Note with respect to the 5.75% Note due 2022 (Incorporated by reference to Exhibit 4.4).

Form of Global Note with respect to the 4.875% Note due 2026 (Incorporated by reference to Exhibit 4.5).

Description of Securities (Incorporated by reference to Exhibit 4.8 to the Registrant’s Current Report on Form 10-K
(File No. 814-00971), filed on March 1, 2022).

Form of Investment Advisory Agreement between Registrant and Stellus Capital Management, LLC (Incorporated by
reference to Exhibit (g) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on
October 23, 2012).

Custody Agreement between Registrant and ZB, National Association (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K (File No. 814-00971), filed on November 7, 2017).

Administration Agreement between Registrant and Stellus Capital Management, LLC (Incorporated by reference to
Exhibit (k)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23,
2012).

Dividend Reinvestment Plan (Incorporated by reference to Exhibit (e) to the Registrant’s Registration Statement on
Form N-2 (File No. 333-184195), filed on October 23, 2012).

Form of License Agreement between the Registrant and Stellus Capital Management (Incorporated by reference to
Exhibit (k)(2) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23,
2012).

Form of Indemnification Agreement between the Registrant and the directors (Incorporated by reference to Exhibit (k)
(3) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).

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10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

Form of Guarantee and Security Agreement, the Registrant, ZB, N.A., dba Amegy Bank, as administrative agent, and
ZB, N.A. dba Amegy Bank, as collateral agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K (File No. 814-00971), filed on October 13, 2017).

Consent and Waiver, dated March 28, 2018, between the Registrant, as a borrower, the lenders party hereto and ZB,
N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 10-Q (File No. 814-00971), filed on May 8, 2018).

Third Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement,
dated as of May 13, 2022, between the Registrant, as borrower, the lenders party thereto, and Zions Bancorporation,
N.A. dba Amegy Bank, as the administrative agent. (Incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K (File No. 814-00971), filed on May 19, 2022).

First Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement,
dated December 22, 2021, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy
Bank, as administrative agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K (File No. 814-00971), filed on December 22, 2021).

Amended and Restated Senior Secured Revolving Credit Agreement, dated September 18, 2020, between the
Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00971), filed
on September 21, 2020).

Third Amendment to Senior Secured Revolving Credit Agreement and Commitment Increase, dated May 15, 2020,
between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative
agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00971),
filed on May 18, 2020).

Increase Agreement, dated December 27, 2019, between the Registrant, as a borrower, the lenders party thereto and
ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit 10.12 to the Registrant’s
Current Report on Form 10-K (File No. 814-00971), filed on March 3, 2020).

Second Amendment to Senior Secured Revolving Credit Agreement and Commitment Increase, dated September 13,
2019, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as
administrative agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File
No. 814-00971), filed on September 18, 2019).

First Amendment to Senior Secured Revolving Credit Agreement and Commitment Increase, dated August 2, 2018,
between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative
agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q (File No. 814-
00971), filed on August 8, 2018).

Senior Secured Revolving Credit Agreement, dated October 10, 2017, between the Registrant, as a borrower, the
lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00971), filed on October 13, 2017).

Equity Distribution Agreement, dated November 16, 2021 between Registrant and sales agent (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
(File No. 814-00971), filed on November 16, 2021).

Amended and Restated Equity Distribution Agreement, dated August 29, 2022 between Registrant and sales agent
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8 K 
(File No. 814-00971), filed on August 29, 2022).  

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10.19

14.1

21.1

23.1*

31.1*

31.2*

32.1*

32.2*

97.1

Custody Agreement, dated November 2, 2022, by and among Stellus Capital SBIC LP and Frost Bank, as custodian.
(Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 814-00971),
filed on November 3, 2022).

Code of Ethics (Incorporated by reference to Exhibit (r)(1) to the Registrant’s Registration Statement on Form N-2
(File No. 333-184195), filed on October 23, 2012).

Subsidiaries of the Registrant and jurisdiction of incorporation/organizations:

Stellus Capital SBIC, LP — Delaware

Stellus Capital SBIC GP, LLC — Delaware

Stellus Capital SBIC II, LP — Delaware

SCIC-SKP Blocker 1, Inc. — Delaware

SCIC-ERC Blocker 1, Inc. — Delaware

SCIC-Consolidated Blocker, Inc. — Delaware

SCIC-CC Blocker 1, Inc. — Delaware

SCIC-APE Blocker 1, Inc. — Delaware

SCIC-Hollander Blocker 1, Inc. — Delaware

SCIC — Invincible Blocker 1, Inc. — Delaware

SCIC-ICD Blocker 1, Inc. — Delaware

SCIC-Venbrook Blocker, Inc. — Delaware

Consent of Grant Thornton LLP

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.

Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Dodd-Frank Compensation Recoupment Policy*

101.INS*

XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

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Exhibit 104 Cover Page Interactive Data File — The cover page interactive data file does not appear in the Interactive Data File

because its XBRL tags are embedded within the Inline XBRL document

*

Filed herewith.

c. Financial statement schedules

No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been

presented in the aforementioned financial statements.

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Pursuant 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 on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date: March 4, 2024

STELLUS CAPITAL INVESTMENT CORPORATION

/s/ Robert T. Ladd
Robert T. Ladd
Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons

on behalf of the registrant and in the capacity and on the dates indicated.

Date: March 4, 2024

Date: March 4, 2024

Date: March 4, 2024

Date: March 4, 2024

Date: March 4, 2024

Date: March 4, 2024

/s/ Robert T. Ladd
Robert T. Ladd
Chief Executive Officer, President and
Chairman of the Board of Directors

/s/ W. Todd Huskinson
W. Todd Huskinson

Chief Financial Officer, Chief Compliance Officer

and Secretary

(Principal Accounting and Financial Officer)

/s/ Dean D’Angelo
Dean D’Angelo
Director

/s/ J. Tim Arnoult
J. Tim Arnoult
Director

/s/ Bruce R. Bilger
Bruce R. Bilger
Director

/s/ William C. Repko
William C. Repko
Director

173

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 4, 2024 with respect to the consolidated financial statements included in the Annual

Report of Stellus Capital Investment Corporation on Form 10-K for the year ended December 31, 2023. We consent to the
incorporation by reference of said report in the Registration Statement of Stellus Capital Investment Corporation on Form N-2 (File
No. 333-265695).

Exhibit 23.1

/s/ GRANT THORNTON LLP

Dallas, Texas
March 4, 2024

Exhibit 31.1

I, Robert T. Ladd, Chief Executive Officer of Stellus Capital Investment Corporation certify that:

1.

I have reviewed this Annual Report on Form 10-K of Stellus Capital Investment
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 the statements 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 the financial 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 in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation;

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the registrant’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 are reasonably 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 internal control over financial reporting.

ND
Dated this 4th day of March 2024.

By:

/s/ Robert T. Ladd
Robert T. Ladd
Chief Executive Officer

I, W. Todd Huskinson, Chief Financial Officer of Stellus Capital Investment Corporation certify that:

1.

I have reviewed this Annual Report on Form 10-K of Stellus Capital Investment
Corporation;

Exhibit 31.2

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 the statements 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 the financial 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 in the Securities and Exchange Act of 1934, as amended (the “Exchange 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 the
registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in 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 the effectiveness 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the registrant’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 are reasonably 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 internal control over financial reporting.

Dated this 4th day of March 2024.

By: /s/ W. Todd Huskinson

W. Todd Huskinson
Chief Financial Officer

Certification of Chief Executive Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

Exhibit 32.1

In connection with this Annual Report on Form 10-K (the “Report”) of Stellus Capital Investment Corporation (the
“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Robert T. Ladd, the Chief Executive
Officer of the Registrant, hereby certify, to the best of my knowledge, 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 the Registrant.

/s/ Robert T. Ladd
Name: Robert T. Ladd
Date:  March 4, 2024

Certification of Chief Financial Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

Exhibit 32.2

In connection with this Annual Report on Form 10-K (the “Report”) of Stellus Capital Investment Corporation (the

“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, W. Todd Huskinson, the Chief Financial
Officer of the Registrant, hereby certify, to the best of my knowledge, 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 the Registrant.

/s/ W. Todd Huskinson
Name: W. Todd Huskinson
Date: March 4, 2024

Exhibit 97.1

STELLUS CAPITAL INVESTMENT CORPORATION
DODD-FRANK COMPENSATION RECOUPMENT POLICY

The Board of Directors of Stellus Capital Investment Corporation has adopted the following Dodd-Frank
Compensation Recoupment Policy effective as of October 2, 2023. It is the intention of the Board that this
Dodd-Frank  Compensation  Recoupment Policy  be  interpreted  and  administered  in  a  manner  consistent
with applicable laws and regulations and Securities Exchange listing requirements, including Section 304
of  the  Sarbanes-Oxley Act  of  2002,  Section  954  of  the  Dodd-Frank  Wall  Street  Reform  and  Consumer
Protection Act of 2010 (and Rule 10D-1 promulgated thereunder), and Section 303A.14 of the New York
Stock Exchange Listed Company Manual. This Dodd-Frank Compensation Recoupment Policy applies to
awards of Incentive-Based Compensation received on or after the Effective Date by Executive Officers of
the Company.

Definitions

“Board” means the Board of Directors of the Company.

“Committee” means the Compensation Committee of the Board of Directors of the Company.

“Company” means Stellus Capital Investment Corporation.

“Effective Date” means October 2, 2023.

“Executive  Officer”  means  the  Company’s  president,  principal  financial  officer,  principal  accounting
officer (or if there is no such accounting officer, the controller), any vice-president of the Company in
charge of a principal business unit, division, or function (such as sales, administration, or finance), any
other  officer  who  performs  a  policy-making  function,  or  any  other  person  who  performs  similar
policymaking functions for the Company. Executive officers of the Company’s subsidiaries are deemed
Executive Officers of the Company if they perform such policymaking functions for the Company.

“Excess Incentive-Based Compensation” means the amount of Incentive-Based Compensation received
by a current or former Executive Officer that exceeds the amount of Incentive-Based Compensation that
otherwise  would  have  been  received  had  the  amount  of  such  Incentive-Based  Compensation  been
determined based on the accounting restatement, computed without regard to taxes paid by the Executive
Officer. With regards to Incentive-Based Compensation based on stock price or total shareholder return,
where the amount of Excess Incentive-Based Compensation is not subject to mathematical recalculation
directly from the information in an accounting restatement, Excess Incentive-Based Compensation means
a reasonable estimate of the effect of  the  accounting  restatement  on  the  applicable  Financial  Reporting
Measure.

“Financial Reporting Measure” means any measure that is determined and presented in accordance with
the accounting principles used to prepare the Company’s financial statements, and any

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measures  that  are  derived  wholly  or  in  part  from  such  measures.  “Stock  price”  and  “total  shareholder
return” metrics are also Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting
Measure need not be presented in the Company’s financial statements or included in a filing with the U.S.
Securities and Exchange Commission.

“Incentive-Based  Compensation”  means  any  compensation  that  is  granted,  earned,  or  vested  based
wholly or in part upon the attainment of a Financial Reporting Measure.

“Lookback Period” means the three completed fiscal years preceding the date on which the Company is
required to prepare an accounting restatement, and if the Company changes its fiscal year, any transition
period of less than nine months within or immediately following those three completed fiscal years. For
purposes  of  this  definition,  the  date  on  which  the  Company  is  required  to  prepare  an  accounting
restatement  shall  be  deemed  to  be  the  earlier  of  (i)  the  date  the  Company’s  Board,  a  committee  of  the
Board, or the officer(s) of the Company authorized to take such action (if Board action is not required)
concludes, or reasonably should have concluded, that the Company is required to prepare an accounting
restatement; and (ii) the date a court, regulator, or other legally authorized body directs the Company to
prepare an accounting restatement.

“Securities  Exchange”  means  the  securities  exchange  upon  which  the  Company’s  Common  Stock,  par
value $0.001 per share, trades.

Recoupment for an Accounting Restatement

The Company shall recover reasonably promptly any Excess Incentive-Based Compensation in the event
that the Company is required to restate its financial statements due to the material noncompliance of the
Company  with  any  financial  reporting  requirement  under  the  federal  securities  laws,  including  any
required  accounting  restatement  to  correct  an  error  (i)  in  previously  issued  financial  statements  that  is
material to the previously issued financial statements or (ii) that would result in a material misstatement
if the error were corrected in the current period or left uncorrected in the current period. The preceding
sentence  shall  apply  to  Excess  Incentive-Based  Compensation  received  by  any  current  or  former
Executive Officer: (a) after beginning service as an Executive Officer; (b) who served as an Executive
Officer at any time during the performance period for the applicable Incentive-Based Compensation; (c)
while  the  Company  has  a  class  of  securities  listed  on  a  national  securities  exchange  or  a  national
securities  association;  and  (d)  during  the  Lookback  Period.  For  purposes  of  this  paragraph,  Incentive-
Based  Compensation  is  deemed  “received”  in  the  Company’s  fiscal  period  during  which  the  Financial
Reporting  Measure  specified  in  the  Incentive-Based  Compensation  is  attained,  even  if  the  payment  or
grant of the Incentive-Based Compensation occurs after the end of that period.

If  the  Company  is  required  to  recoup  Excess  Incentive-Based  Compensation  following  an  accounting
restatement based on adjustments to stock price or total shareholder return, the Company shall determine
the amount of such Excess Incentive-Based Compensation subject to recoupment, which amount shall be
a reasonable estimate of the effect of the accounting restatement on the applicable Financial Reporting
Measure.

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Notwithstanding  the  foregoing,  if  the  Committee  makes  a  determination  that  recovery  would  be
impracticable,  and  one  of  the  following  enumerated  conditions  is  satisfied,  the  Company  need  not
recover such Excess Incentive-Based Compensation.

● Expenses Exceed Recovery Amount: The Company need not recover the Excess Incentive-Based
Compensation at issue if the direct expense to be paid to a third party to assist in enforcing this
Dodd-Frank  Compensation  Recoupment  Policy  would  exceed  the  amount  to  be  recovered;
provided,  however,  that  the  Company  must  make  a  reasonable  attempt  to  recover  the  Excess
Incentive-Based  Compensation  and  document  such  attempt(s)  prior  to  the  Committee’s
determination  that  recovery  would  be  impracticable.  The  Company  must  provide  the
documentation  evidencing  the  attempt(s)  to  the  Securities  Exchange  consistent  with  the  listing
standards of the Securities Exchange.

● Recovery  Would  Violate  Home  Country  Law:  The  Company  need  not  recover  the  Excess
Incentive-Based  Compensation  at  issue  if  recovery  would  violate  home  country  law  where  that
law was adopted prior to November 28, 2022; provided, however, that the Company must obtain
an  opinion  of  home  country  counsel,  in  a  form  acceptable  to  the  Securities  Exchange,  that
recovery would result in such violation. The Company must provide the opinion to the Securities
Exchange consistent with the listing standards of the Securities Exchange.

● Recovery Would Violate ERISA Anti-Alienation Provisions : The Company need not recover the
Excess  Incentive-Based  Compensation  at  issue  if  recovery  would  violate  the  anti-alienation
provisions of the Employee Retirement Income Security Act of 1974, as amended, contained in
26 U.S.C. § 401(a)(13) or 26 U.S.C. § 411(a), or regulations promulgated thereunder.

Method of Recoupment

The Committee shall have the sole discretion and authority to determine the means, timing (which shall
in  all  circumstances  be  reasonably  prompt)  and  any  other  requirements  by  which  any  recoupment
required by this Dodd-Frank Compensation Recoupment Policy shall occur and impose any other terms,
conditions or  procedures  (e.g.,  the  imposition  of  interest  charges  on  un-repaid  amounts)  to  govern  the
current or former Executive Officer’s repayment of Excess Incentive-Based Compensation.

Other Policy Terms

Any applicable award agreement, plan or other document setting forth the terms and conditions of any
Incentive-Based  Compensation  or  other  compensation  covered  by  this  Dodd-Frank  Compensation
Recoupment Policy received on or after the Effective Date shall be deemed to (i) include the restrictions
imposed  herein;  (ii)  incorporate  the  Dodd-Frank  Compensation  Recoupment  Policy  by  reference;  and
(iii) govern the terms of such award agreement, plan or other document in the event of any inconsistency.
Eligibility for participation in and for payment under any such award agreement, plan or other document
is contingent upon acceptance of the terms of this Dodd-Frank Compensation Recoupment Policy.

Any recoupment under this Dodd-Frank Compensation Recoupment Policy is in addition to, and not in
lieu  of,  any  other  remedies  or  rights  that  may  be  available  to  the  Company  or  its  affiliates  under
applicable law, including, without limitation: (i) dismissing the current or former Executive

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Officer;  (ii)  adjusting  the  future  compensation  of  the  current  or  former  Executive  Officer;  or  (iii)
authorizing legal action or taking such other action to enforce the current or former Executive Officer’s
obligations  to  the  Company  or  its  affiliates  as  it  may  deem  appropriate  in  view  of  all  of  the  facts  and
circumstances surrounding the particular case.

Incentive-Based  Compensation  and  other  compensation  paid  to  employees  of  the  Company  and  its
affiliates may also be subject to other recoupment or similar policies, and this policy does not supersede
any such other policies. However, in the event of any conflict between any such policy and this Dodd-
Frank Compensation Recoupment Policy, this policy shall govern. In addition, no Executive Officer shall
be subject to recoupment more than one time with respect to the same compensation.

Current  or  former  Executive  Officers  shall  not  be  entitled  to  any  indemnification  by  or  from  the
Company or its affiliates with respect to any amounts subject to recoupment pursuant to this Dodd-Frank
Compensation Recoupment Policy.

Administration

The  Board  has  delegated  the  administration  of  this  policy  to  the  Committee.  The  Committee  is
responsible  for  monitoring  the  application  of  this  policy  with  respect  to  all  Executive  Officers.  The
Committee shall have the sole authority to review, interpret, construe and implement the provisions of
this  Dodd-Frank  Compensation  Recoupment  Policy  and  to  delegate  to  one  or  more  executive  officers
and/or employees certain administrative and record-keeping responsibilities, as appropriate, with respect
to the implementation of this Dodd-Frank Compensation Recoupment Policy; provided, however, that no
such action shall contravene the federal securities laws. Any determinations of the Board or Committee
under this Dodd-Frank Compensation Recoupment Policy shall be binding on the applicable individual.

The Board may amend, modify or change this Dodd-Frank Compensation Recoupment Policy, as well as
any  related  rules  and  procedures,  at  any  time  and  from  time  to  time  as  it  may  determine,  in  its  sole
discretion, is necessary or appropriate.

Approved by the Board of Directors of the Company on November 1, 2023.

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