SEC Filing | Stellus Capital Investment Corporation

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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

COMMISSION FILE NUMBER: 1-35730

STELLUS CAPITAL INVESTMENT CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Maryland		46-0937320
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4400 Post Oak Parkway, Suite 2200

Houston, Texas 77027

(Address of Principal Executive Offices) (Zip Code)

(713) 292-5400

(Registrant’s Telephone Number, Including Area Code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SCM	New York Stock Exchange

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 and post 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 definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of November 3, 2022 was 19,545,935.

Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Assets and Liabilities as of September 30, 2022 (unaudited) and December 31, 2021	1
	Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited)	2
	Consolidated Statements of Changes in Net Assets for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited)	3
	Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2022 and 2021 (unaudited)	3
	Consolidated Schedules of Investments as of September 30, 2022 (unaudited) and December 31, 2021	5
	Notes to Unaudited Financial Statements	23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	71
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
SIGNATURES		74

Table of Contents

PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES


	September 30,
	2022		December 31,
	(unaudited)		2021
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $899,059,872 and $785,005,957, respectively)	$	871,733,280	$	772,873,326
Cash and cash equivalents		12,419,743		44,174,856
Receivable for sales and repayments of investments		562,133		536,105
Interest receivable		3,852,386		2,944,599
Other receivables		60,495		54,752
Deferred tax asset		—		151,278
Related party receivable		19,034		—
Deferred offering costs		241,997		14,888
Prepaid expenses		219,079		512,214
Total Assets	$	889,108,147	$	821,262,018
LIABILITIES
Notes payable	$	98,437,095	$	98,102,973
Credit Facility payable		197,371,231		175,451,116
SBA-guaranteed debentures		300,157,597		244,615,903
Dividends payable		2,214,557		1,171,059
Management fees payable		7,032,721		3,454,225
Income incentive fees payable		1,909,651		1,749,130
Capital gains incentive fees payable		1,715,602		3,388,151
Interest payable		885,348		3,693,662
Unearned revenue		344,555		529,726
Administrative services payable		376,887		386,368
Income tax payable		1,086,338		3,269,514
Other accrued expenses and liabilities		398,581		338,958
Total Liabilities	$	611,930,163	$	536,150,785
Commitments and contingencies (Note 7)
Net Assets	$	277,177,984	$	285,111,233
NET ASSETS
Common stock, par value $0.001 per share (100,000,000 shares authorized; 19,545,935 and 19,517,595 issued and outstanding, respectively)	$	19,546	$	19,518
Paid-in capital		274,864,296		274,559,121
Accumulated undistributed surplus		2,294,142		10,532,594
Net Assets	$	277,177,984	$	285,111,233
Total Liabilities and Net Assets	$	889,108,147	$	821,262,018
Net Asset Value Per Share	$	14.18	$	14.61

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STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	For the three months ended		For the three months ended		For the nine months ended		For the nine months ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
INVESTMENT INCOME
Interest income	$	19,617,468	$	16,460,579	$	50,392,437	$	44,819,754
Other income		524,799		568,764		1,353,279		1,301,827
Total Investment Income	$	20,142,267	$	17,029,343	$	51,745,716	$	46,121,581
OPERATING EXPENSES
Management fees	$	3,827,669	$	3,473,041	$	11,025,435	$	9,715,381
Valuation fees		145,865		141,012		315,482		289,447
Administrative services expenses		447,381		437,804		1,388,602		1,354,295
Income incentive fees		1,635,641		1,451,752		1,635,641		1,507,651
Capital gains incentive (reversal) fees		(646,757)		1,742,904		(1,672,549)		1,840,572
Professional fees		315,809		267,332		845,275		772,509
Directors’ fees		83,500		74,500		254,500		240,500
Insurance expense		127,274		120,119		377,671		356,439
Interest expense and other fees		6,448,280		4,854,388		16,864,255		13,869,834
Income tax expense		361,115		192,612		1,066,768		718,869
Other general and administrative expenses		207,170		209,779		766,562		796,338
Total Operating Expenses	$	12,952,947	$	12,965,243	$	32,867,642	$	31,461,835
Net Investment Income	$	7,189,320	$	4,064,100	$	18,878,074	$	14,659,746
Net realized gain on non-controlled, non-affiliated investments	$	1,553,450	$	7,921,322	$	4,658,817	$	6,601,885
Net realized loss on foreign currency translation		(676)		—		(8,026)		—
Loss on debt extinguishment		—		—		—		(539,250)
Net change in unrealized (depreciation) appreciation on non-controlled, non-affiliated investments		(4,798,980)		2,080,603		(12,810,173)		3,868,463
Net change in unrealized depreciation on foreign currency translations		(18,120)		—		(53,874)		—
Benefit (provision) for taxes on net unrealized depreciation (appreciation) on investments		30,535		(606,377)		(151,278)		(586,460)
Provision for taxes on realized gain on investments		—		(681,027)		—		(681,027)
Net Increase in Net Assets Resulting from Operations		3,955,529		12,778,621		10,513,540		23,323,357
Net Investment Income Per Share—basic and diluted	$	0.37	$	0.21	$	0.97	$	0.75
Net Increase in Net Assets Resulting from Operations Per Share—basic and diluted	$	0.20	$	0.66	$	0.54	$	1.20
Weighted Average Shares of Common Stock Outstanding—basic and diluted		19,545,935		19,486,003		19,535,708		19,486,003
Distributions Per Share—basic and diluted	$	0.34	$	0.58	$	0.96	$	1.08

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STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)


	Common Stock					Accumulated
	Number	Par		Paid-in		undistributed
	of shares	value		capital		surplus (deficit)		Net Assets
Balances at December 31, 2020	19,486,003	$	19,486	$	276,026,667	$	(2,685,504)	$	273,360,649
Net investment income	—		—		—		5,060,631		5,060,631
Net realized gain on non-controlled, non-affiliated investments	—		—		—		462,228		462,228
Loss on debt extinguishment							(539,250)		(539,250)
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		121,983		121,983
Provision for taxes on unrealized appreciation on investments	—		—		—		(167,804)		(167,804)
Distributions from net investment income	—		—		—		(4,869,552)		(4,869,552)
Balances at March 31, 2021	19,486,003	$	19,486	$	276,026,667	$	(2,617,268)	$	273,428,885
Net investment income	—		—		—		5,535,015		5,535,015
Net realized loss on non-controlled, non-affiliated investments	—		—		—		(1,781,665)		(1,781,665)
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		1,665,877		1,665,877
Benefit for taxes on unrealized depreciation on investments	—		—		—		187,721		187,721
Distributions from net investment income	—		—		—		(4,869,552)		(4,869,552)
Balances at June 30, 2021	19,486,003	$	19,486	$	276,026,667	$	(1,879,872)	$	274,166,281
Net investment income	—		—		—		4,064,100		4,064,100
Net realized gain on non-controlled, non-affiliated investments	—		—		—		7,921,322		7,921,322
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		2,080,603		2,080,603
Provision for taxes on unrealized appreciation on investments	—		—		—		(606,377)		(606,377)
Provision for taxes on realized gain on investments	—		—		—		(681,027)		(681,027)
Distributions from net investment income	—		—		—		(11,299,933)		(11,299,933)
Balances at September 30, 2021	19,486,003	$	19,486	$	276,026,667	$	(401,184)	$	275,644,969

Balances at December 31, 2021	19,517,595	$	19,518	$	274,559,121	$	10,532,594	$	285,111,233
Net investment income	—		—		—		5,514,183		5,514,183
Net realized gain on non-controlled, non-affiliated investments	—		—		—		3,458,090		3,458,090
Net realized loss on foreign currency translation	—		—		—		(7,350)		(7,350)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(3,721,602)		(3,721,602)
Provision for taxes on unrealized appreciation on investments	—		—		—		(21,157)		(21,157)
Distributions from net investment income	—		—		—		(5,464,666)		(5,464,666)
Issuance of common stock, net of offering costs	14,924		15		167,655		—		167,670
Balances at March 31, 2022	19,532,519	$	19,533	$	274,726,776	$	10,290,092	$	285,036,401
Net investment income	—		—		—		6,174,571		6,174,571
Net realized loss on non-controlled, non-affiliated investments	—		—		—		(352,723)		(352,723)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(4,289,591)		(4,289,591)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(35,754)		(35,754)
Provision for taxes on unrealized appreciation on investments	—		—		—		(160,656)		(160,656)
Distributions from net investment income	—		—		—		(6,643,663)		(6,643,663)
Issuance of common stock, net of offering costs	13,416		13		137,520		—		137,533
Balances at June 30, 2022	19,545,935	$	19,546	$	274,864,296	$	4,982,276	$	279,866,118
Net investment income	—		—		—		7,189,320		7,189,320
Net realized gain on non-controlled, non-affiliated investments	—		—		—		1,553,450		1,553,450
Net realized loss on foreign currency translation	—		—		—		(676)		(676)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(4,798,980)		(4,798,980)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(18,120)		(18,120)
Benefit for taxes on unrealized depreciation on investments	—		—		—		30,535		30,535
Distributions from net investment income	—		—		—		(6,643,663)		(6,643,663)
Balances at September 30, 2022	19,545,935	$	19,546	$	274,864,296	$	2,294,142	$	277,177,984

Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	For the		For the
	nine months ended		nine months ended
	September 30,		September 30,
	2022		2021
Cash flows from operating activities
Net increase in net assets resulting from operations	$	10,513,540	$	23,323,357
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(180,956,810)		(243,298,147)
Proceeds from sales and repayments of investments		74,385,466		123,617,259
Net change in unrealized depreciation (appreciation) on investments		12,810,173		(3,868,463)
Net change in unrealized depreciation on foreign currency translations		28,405		—
Increase in investments due to PIK		(1,010,061)		(607,393)
Amortization of premium and accretion of discount, net		(1,839,720)		(1,747,423)
Deferred tax provision		151,278		586,460
Amortization of loan structure fees		420,356		390,298
Amortization of deferred financing costs		334,122		346,123
Amortization of loan fees on SBA-guaranteed debentures		905,294		801,259
Net realized gain on investments		(4,658,817)		(6,595,217)
Loss on debt extinguishment		—		539,250
Changes in other assets and liabilities
Increase in interest receivable		(907,787)		(614,133)
Increase in other receivables		(5,743)		(110,000)
Increase in related party receivable		(19,034)		—
Increase in prepaid expenses		293,135		300,867
Increase in management fees payable		3,578,496		2,426,198
Increase in income incentive fees payable		160,521		948,489
(Decrease) increase in capital gains incentive fees payable		(1,672,549)		1,840,572
(Decrease) increase in administrative services payable		(9,481)		371,745
Decrease in interest payable		(2,808,314)		(1,406,381)
Decrease (increase) in unearned revenue		(185,171)		7,847
(Decrease) increase in income tax payable		(2,183,176)		511,851
Increase in other accrued expenses and liabilities		59,623		140,302
Net Cash Used In Operating Activities	$	(92,616,254)	$	(102,095,280)
Cash flows from Financing Activities
Proceeds from the issuance of common stock	$	420,004	$	—
Sales load for commons stock issued		(5,957)		—
Offering costs paid for common stock issued		(335,953)		—
Stockholder distributions paid		(17,708,494)		(13,636,301)
Repayment of Notes		—		(48,875,000)
Proceeds from issuance of Notes		—		100,000,000
Financing costs paid on Notes		—		(2,237,835)
Proceeds from SBA-guaranteed debentures		56,000,000		73,500,000
Financing costs paid on SBA-guaranteed debentures		(1,363,600)		(3,139,725)
Financing costs paid on Credit facility		(193,659)		(39,843)
Borrowings under Credit Facility		121,608,702		191,200,000
Repayments of Credit Facility		(97,559,902)		(175,400,000)
Net Cash Provided by Financing Activities	$	60,861,141	$	121,371,296
Net (Decrease) Increase in Cash and Cash Equivalents	$	(31,755,113)	$	19,276,016
Cash and Cash Equivalents balance at beginning of period		44,174,856		18,477,602
Cash and Cash Equivalents Balance at End of Period	$	12,419,743	$	37,753,618
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	18,012,797	$	13,733,216
Income and excise tax paid		3,249,944		870,000
Increase in dividends payable		1,043,498		7,402,736
Increase (decrease) in deferred offering costs		227,109		(90,000)
Gain on conversion of equity investment		—		6,668

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Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Non-controlled, non-affiliated investments	(4)(5)
Ad.Net Acquisition, LLC	(9)												Los Angeles, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%		5/7/2021	5/7/2026	Services: Business	$	15,393,382		15,218,437		15,085,514	5.44	%
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)	(5)	Equity									5/7/2021				7,794		77,941		86,711	0.03	%
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity									5/7/2021				7,015		701,471		780,401	0.28	%
Total																$	15,997,849	$	15,952,626	5.75	%
ADS Group Opco, LLC													Lakewood, CO
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.75	%	1.00	%	10.42	%		6/4/2021	6/4/2026	Aerospace & Defense	$	14,625,000		14,397,840		14,040,000	5.07	%
Revolver	(11)	First Lien	3M LIBOR+	6.75	%	1.00	%	10.42	%		6/4/2021	6/4/2026			100,000		100,000		96,000	0.03	%
ADS Group Topco, LLC Class A Units		Equity									6/4/2021				77,626		288,691		79,354	0.03	%
ADS Group Topco, LLC Class B Units		Equity									6/4/2021				56,819		211,309		58,084	0.02	%
ADS Group Topco, LLC Class Z Units		Equity									6/15/2022				72,043		267,929		281,865	0.10	%
Total																$	15,265,769	$	14,555,303	5.25	%
Advanced Barrier Extrusions, LLC													Rhinelander, WI
Term Loan B (SBIC)	(4)(11)	First Lien	1M LIBOR+	7.50	%	1.00	%	10.69	%		11/30/2020	11/30/2026	Containers, Packaging, & Glass	$	17,193,750		16,938,263		14,528,718	5.24	%
GP ABX Holdings Partnership, L.P. Partner Interests		Equity									8/8/2018				644,737		528,395		—	—	%
Total																$	17,466,658	$	14,528,718	5.24	%
AIP ATCO Buyer, LLC	(9)												Sterling Heights, MI
Term Loan	(11)	First Lien	6M SOFR+	6.50	%	1.00	%	8.40	%		5/17/2022	5/17/2028	Services: Business	$	100,000		98,086		97,500	0.04	%
Revolver	(11)	First Lien	1M SOFR+	6.50	%	1.00	%	9.45	%		5/17/2022	5/17/2028			76,667		76,667		74,750	0.03	%
Total																$	174,753	$	172,250	0.07	%
Anne Lewis Strategies, LLC	(9)												Washington, DC
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%		3/5/2021	3/5/2026	Services: Business	$	10,637,500		10,481,779		10,637,500	3.84	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%		4/15/2022	3/5/2026			6,393,867		6,279,732		6,393,867	2.31	%
SG AL Investment, LLC Common Units	(6)	Equity									3/5/2021				1,000		680,630		3,687,107	1.33	%
Total																$	17,442,141	$	20,718,474	7.48	%
APE Holdings, LLC													Deer Park, TX
Class A Units		Equity									9/5/2014		Chemicals, Plastics, & Rubber	$	375,000		375,000		58,226	0.02	%
Total																$	375,000	$	58,226	0.02	%
Atmosphere Aggregator Holdings II, L.P.													Atlanta, GA
Common Units		Equity									1/26/2016		Services: Business	$	254,250		—		2,036,832	0.73	%
Stratose Aggregator Holdings, L.P. Common Units		Equity									6/30/2015				750,000		—		6,008,353	2.17	%
Total																$	—	$	8,045,185	2.90	%
ArborWorks Acquisition LLC	(9)												Oakhurst, CA
Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	9.87	%		11/23/2021	11/9/2026	Environmental Industries	$	14,662,500		14,536,791		14,076,000	5.08	%
Revolver	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	9.81	%		11/23/2021	11/9/2026			2,307,692		2,307,692		2,215,384	0.80	%
ArborWorks Holdings LLC Units		Equity									12/29/2021				115		115,385		2,951	—	%
Total																$	16,959,868	$	16,294,335	5.88	%
Archer Systems, LLC	(9)												Houston, TX
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	1.00	%	10.20	%		8/11/2022	8/11/2027	Services: Business	$	1,000,000		980,516		980,516	0.35	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	1.00	%	9.65	%		8/11/2022	8/11/2027			11,250		11,250		11,031	—	%
CF Arch Holdings LLC Class A Units		Equity									8/10/2022				100,000		100,000		100,000	0.04	%
Total																$	1,091,766	$	1,091,547	0.39	%
Axis Portable Air, LLC	(9)												Phoenix, AZ
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	5.75	%	1.00	%	9.45	%		3/22/2022	3/22/2028	Capital Equipment	$	12,000,000		11,776,310		11,820,000	4.26	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	5.75	%	1.00	%	9.45	%		3/22/2022	3/22/2028			100,000		99,015		98,500	0.04	%
Axis Air Parent, LLC Preferred Units		Equity									3/22/2022				4,436		443,636		558,591	0.20	%
Total																$	12,318,961	$	12,477,091	4.50	%
Baker Manufacturing Company, LLC													Evansville, IN
Term Loan (SBIC II)	(5)(10)(12)	First Lien	3M SOFR+	5.25	%	1.00	%	9.73	%		7/5/2022	7/5/2027	Capital Equipment	$	13,863,087		13,590,887		13,590,887	4.90	%
BSC Blue Water Holdings, LLC Series A Units (SBIC II)	(5)	Equity									7/5/2022				743,770		743,770		743,770	0.27	%
Total																$	14,334,657	$	14,334,657	5.17	%
BDS Solutions Intermediateco, LLC	(9)												Tampa Bay, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	9.14	%		2/24/2022	2/7/2027	Services: Business	$	13,422,278		13,300,876		13,220,944	4.77	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	9.03	%		2/24/2022	2/7/2027			83,398		83,398		82,147	0.03	%
Total																$	13,384,274	$	13,303,091	4.80	%
BLP Buyer, Inc.	(9)												Houston, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	9.03	%		2/1/2022	2/1/2027	Capital Equipment	$	6,194,304		6,084,038		6,070,418	2.19	%
Revolver	(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	8.93	%		2/1/2022	2/1/2027			36,566		36,566		35,835	0.01	%
BL Products Parent, L.P. Class A Units		Equity									2/1/2022				754,598		754,598		733,801	0.26	%
Total																$	6,875,202	$	6,840,054	2.46	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Café Valley, Inc.													Phoenix, AZ
Term Loan	(11)	First Lien	1M LIBOR+	7.00	%	1.25	%	10.03	%		8/28/2019	8/28/2024	Beverage, Food, & Tobacco	$	15,769,048		15,633,234		15,295,977	5.52	%
CF Topco LLC Units		Equity									8/28/2019				9,160		916,015		499,394	0.18	%
Total																$	16,549,249	$	15,795,371	5.70	%
Camp Profiles LLC	(9)												Boston, MA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%		9/3/2021	9/3/2026	Media: Advertising, Printing & Publishing	$	10,147,500		9,981,602		10,147,500	3.66	%
CIVC VI-A 829 Blocker, LLC Units		Equity									9/3/2021				250		250,000		419,700	0.15	%
Total																$	10,231,602	$	10,567,200	3.81	%
CEATI International Inc.	(7)(9)												Montreal, Canada
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%		2/19/2021	2/19/2026	Services: Business	$	13,297,500		13,104,136		12,965,063	4.68	%
CEATI Holdings, LP Class A Units		Equity									2/19/2021				250,000		250,000		279,287	0.10	%
Total																$	13,354,136	$	13,244,350	4.78	%
CF512, Inc.	(9)												Blue Bell, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.08	%		9/1/2021	9/1/2026	Media: Advertising, Printing & Publishing	$	14,216,860		13,984,433		13,719,270	4.95	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%		9/1/2021	9/1/2026			3,069,826		3,043,683		2,962,382	1.07	%
StellPen Holdings, LLC Membership Interests		Equity									9/1/2021				22.09%		220,930		218,450	0.08	%
Total																$	17,249,046	$	16,900,102	6.10	%
Colford Capital Holdings, LLC	(7)												New York, NY
Class A Units		Equity									8/20/2015		Finance	$	38,893		195,036		22,408	0.01	%
Total																$	195,036	$	22,408	0.01	%
CompleteCase, LLC	(9)												Seattle, WA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%		12/21/2020	12/21/2025	Services: Consumer	$	11,277,391		11,120,807		10,826,295	3.91	%
Revolver A	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%		12/21/2020	12/21/2025			40,000		40,000		38,400	0.01	%
CompleteCase Holdings, Inc. Class A Common Stock (SBIC II)	(5)	Equity									12/21/2020				417		5		3	—	%
CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity									12/21/2020				522		521,734		348,236	0.13	%
Total																$	11,682,546	$	11,212,934	4.05	%
Credit Connection, LLC	(9)												Fresno, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	9.42	%		7/30/2021	7/30/2026	Software	$	9,900,000		9,742,242		9,801,000	3.54	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	9.42	%		3/31/2022	7/30/2026			7,462,500		7,328,169		7,387,875	2.67	%
Series A Units		Equity									7/30/2021				804,384		804,384		1,051,632	0.38	%
Total																$	17,874,795	$	18,240,507	6.59	%
Curion Holdings, LLC	(9)												Chicago, IL
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	9.95	%		7/29/2022	7/29/2027	Services: Business	$	13,060,001		12,805,673		12,805,673	4.62	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	9.95	%		7/29/2022	7/29/2027			50,000		50,000		49,026	0.02	%
SP CS Holdings LLC Class A Units		Equity									7/29/2022				739,999		739,999		739,999	0.27	%
Total																$	13,595,672	$	13,594,698	4.91	%
Data Centrum Communications, Inc.													Montvale, NJ
Term Loan B	(11)	First Lien	3M SOFR+	8.50	%	1.00	%	12.25	%		5/15/2019	5/15/2024	Media: Advertising, Printing & Publishing	$	15,760,360		15,644,809		15,445,153	5.57	%
Health Monitor Holdings, LLC Series A Preferred Units		Equity									5/15/2019				1,000,000		1,000,000		440,821	0.16	%
Total																$	16,644,809	$	15,885,974	5.73	%
Douglas Products Group, LP													Liberty, MO
Partnership Interests		Equity									12/27/2018		Chemicals, Plastics, & Rubber	$	322		139,656		890,380	0.32	%
Total																$	139,656	$	890,380	0.32	%
Dresser Utility Solutions, LLC													Bradford, PA
Term Loan (SBIC)	(4)(11)	Second Lien	1M LIBOR+	8.50	%	1.00	%	11.62	%		10/1/2018	4/1/2026	Utilities: Oil & Gas	$	10,000,000		9,916,397		9,800,000	3.54	%
Total																$	9,916,397	$	9,800,000	3.54	%
DRS Holdings III, Inc.	(9)												St. Louis, MO
Term Loan	(11)	First Lien	1M LIBOR+	5.75	%	1.00	%	8.87	%		11/1/2019	11/1/2025	Consumer Goods: Durable	$	9,512,699		9,458,228		9,227,318	3.33	%
Total																$	9,458,228	$	9,227,318	3.33	%
DTE Enterprises, LLC	(9)												Roselle, IL
Term Loan	(11)	First Lien	1M LIBOR+	7.50	%	1.50	%	10.44	%		4/13/2018	4/13/2023	Energy: Oil & Gas	$	7,884,219		7,862,214		7,884,219	2.84	%
DTE Holding Company, LLC Class A-2 Units		Equity									4/13/2018				776,316		466,204		599,868	0.22	%
DTE Holding Company, LLC Class AA Units		Equity									4/13/2018				723,684		723,684		106,710	0.04	%
Total																$	9,052,102	$	8,590,797	3.10	%
EC Defense Holdings, LLC													Reston, VA
Class B Units (SBIC)	(4)	Equity									7/31/2020		Services: Business	$	20,054		500,000		1,100,000	0.40	%
Total																$	500,000	$	1,100,000	0.40	%
EH Real Estate Services, LLC													Skokie, IL
Term Loan (SBIC)	(4)	First Lien		10.00	%			10.00	%		9/3/2021	9/3/2026	FIRE: Real Estate	$	7,894,294		7,763,397		6,591,735	2.38	%
EH Holdco, LLC Series A Preferred Units		Equity									9/3/2021				7,892		7,891,642		4,711,587	1.70	%
Total																$	15,655,039	$	11,303,322	4.08	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Elliott Aviation, LLC														Moline, IL
Term Loan	(11)	First Lien	1M LIBOR+	8.00	%	1.75	%	9.12	%	2.00	%	1/31/2020	1/31/2025	Aerospace & Defense	$	9,960,214		9,860,416		9,063,795	3.27	%
Revolver	(11)	First Lien	1M LIBOR+	8.00	%	1.75	%	9.12	%	2.00	%	1/31/2020	1/31/2025			1,375,182		1,375,182		1,251,416	0.45	%
SP EA Holdings LLC Class A Units		Equity										1/31/2020				900,000		900,000		—	—	%
Total																	$	12,135,598	$	10,315,211	3.72	%
EOS Fitness Holdings, LLC														Phoenix, AZ
Class A Preferred Units		Equity										12/30/2014		Hotel, Gaming, & Leisure	$	118		—		228,711	0.08	%
Class B Common Units		Equity										12/30/2014				3,017		—		456,497	0.16	%
Total																	$	—	$	685,208	0.24	%
Exacta Land Surveyors, LLC	(9)													Cleveland, OH
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	5.75	%	1.50	%	9.42	%			2/8/2019	2/8/2024	Services: Business	$	16,416,875		16,310,822		16,088,538	5.80	%
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	9.42	%			7/15/2022	2/8/2024			997,500		980,344		977,550	0.35	%
SP ELS Holdings LLC Class A Units		Equity										2/8/2019				1,122,250		1,122,250		853,749	0.31	%
Total																	$	18,413,416	$	17,919,837	6.46	%
Exigo, LLC	(9)													Dallas, TX
Term Loan	(11)	First Lien	1M LIBOR+	5.75	%	1.00	%	8.87	%			3/16/2022	3/16/2027	Services: Business	$	9,015,537		8,891,774		8,880,304	3.20	%
Revolver	(11)	First Lien	1M LIBOR+	5.75	%	1.00	%	8.87	%			3/16/2022	3/16/2027			20,000		20,000		19,700	0.01	%
Gauge Exigo Coinvest, LLC Common Units		Equity										3/16/2022				377,535		377,535		361,837	0.13	%
Total																	$	9,289,309	$	9,261,841	3.34	%
Florachem Corporation	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%			4/29/2022	4/29/2028	Chemicals, Plastics, & Rubber	$	9,975,000		9,786,431		9,775,500	3.53	%
SK FC Holdings, L.P. Class A Units		Equity										4/29/2022				362		362,434		371,464	0.13	%
Total																	$	10,148,865	$	10,146,964	3.66	%
General LED OPCO, LLC														San Antonio, TX
Term Loan	(11)(15)	Second Lien	3M LIBOR+	9.00	%	1.50	%	-	%			5/1/2018	3/31/2026	Services: Business	$	4,500,000		4,460,434		3,937,500	1.42	%
Total																	$	4,460,434	$	3,937,500	1.42	%
Grupo HIMA San Pablo, Inc., et al														San Juan, PR
Term Loan	(13)(18)	Second Lien		13.75	%			-	%			2/1/2013		Healthcare & Pharmaceuticals	$	4,109,524		4,109,524		—	—	%
Total																	$	4,109,524	$	—	—	%
GS HVAM Intermediate, LLC														Carlsbad, CA
Term Loan	(11)	First Lien	1M LIBOR+	6.50	%	1.00	%	9.62	%			10/18/2019	10/2/2024	Beverage, Food, & Tobacco	$	12,667,555		12,609,372		12,604,217	4.55	%
Revolver	(11)	First Lien	1M LIBOR+	6.50	%	1.00	%	9.62	%			10/18/2019	10/2/2024			2,651,515		2,651,515		2,638,257	0.95	%
HV GS Acquisition, LP Class A Interests		Equity										10/2/2019				2,144		1,967,133		1,303,634	0.47	%
Total																	$	17,228,020	$	16,546,108	5.97	%
Heartland Business Systems, LLC	(9)													Little Chute, WI
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	9.31	%			8/26/2022	8/26/2027	Services: Business	$	10,000,000		9,802,596		9,802,596	3.54	%
AMCO HBS Holdings, LP Class A Units		Equity										8/26/2022				2,861		286,065		286,065	0.10	%
Total																	$	10,088,661	$	10,088,661	3.64	%
Heat Makes Sense Shared Services, LLC	(9)													Brooklyn, NY
Term Loan	(11)	First Lien	6M SOFR+	5.50	%	0.75	%	9.63	%			7/1/2022	7/1/2029	Consumer Goods: Non-Durable	$	100,000		98,004		98,004	0.04	%
Revolver	(11)	First Lien	3M SOFR+	5.50	%	0.75	%	8.19	%			7/1/2022	7/1/2028			32,000		32,000		31,361	0.01	%
Ishtar Co-Invest-B LP Partnership Interests		Equity										7/1/2022				77,778		77,778		77,778	0.03	%
Oshun Co-Invest-B LP Partnership Interests		Equity										7/1/2022				22,222		22,222		22,222	0.01	%
Total																	$	230,004	$	229,365	0.09	%
HV Watterson Holdings, LLC	(9)													Schaumburg, IL
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%			12/17/2021	12/17/2026	Services: Business	$	13,335,828		13,103,063		13,002,432	4.69	%
Revolver	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.63	%			12/17/2021	12/17/2026			16,000		16,000		15,600	0.01	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%			12/17/2021	12/17/2026			323,918		320,730		315,820	0.11	%
HV Acquisition VI, LLC Class A Units		Equity										12/17/2021				1,632		1,631,591		1,692,273	0.61	%
Total																	$	15,071,384	$	15,026,125	5.42	%
I2P Holdings, LLC														Cleveland, OH
Series A Preferred Units	(6)	Equity										1/31/2018		Services: Business	$	750,000		—		3,063,272	1.11	%
Total																	$	—	$	3,063,272	1.11	%
ICD Holdings, LLC	(7)													San Francisco, CA
Class A Units		Equity										1/1/2018		Finance	$	9,962		464,619		604,270	0.22	%
Total																	$	464,619	$	604,270	0.22	%
Infolinks Media Buyco, LLC	(9)													Ridgewood, NJ
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	9.42	%			11/1/2021	11/1/2026	Media: Advertising, Printing & Publishing	$	8,461,063		8,317,819		8,418,758	3.04	%
Tower Arch Infolinks Media, LP LP Interests	(6)(19)	Equity										10/28/2021				446,090		428,414		773,203	0.28	%
Total																	$	8,746,233	$	9,191,961	3.32	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Inoapps Bidco, LLC	(9)													Houston, TX
Term Loan B	(11)	First Lien	3M SONIA	5.75	%	1.00	%	7.70	%			2/15/2022	2/15/2027	Services: Business	£	10,000,000	$	13,282,349	$	11,017,372	3.97	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	8.54	%			2/15/2022	2/15/2027			83,333		82,524		82,083	0.03	%
Inoapps Holdings, LLC Series A-1 Preferred Units		Equity										2/15/2022				739,844		783,756		946,858	0.34	%
Total																	$	14,148,629	$	12,046,313	4.34	%
Integrated Oncology Network, LLC	(9)													Newport Beach, CA
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	8.23	%			7/17/2019	6/24/2025	Healthcare & Pharmaceuticals	$	15,872,258		15,747,473		15,316,729	5.53	%
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	8.23	%			11/1/2021	6/24/2025			1,098,683		1,083,753		1,060,229	0.38	%
Total																	$	16,831,226	$	16,376,958	5.91	%
International Designs Holdings LLC														Farmingville, NY
Common Units		Equity										4/1/2022		Construction & Building	$	200,000		200,000		194,990	0.07	%
Total																	$	200,000	$	194,990	0.07	%
Interstate Waste Services, Inc.														Amsterdam, OH
Common Stock		Equity										1/15/2020		Environmental Industries	$	21,925		946,125		648,147	0.23	%
Total																	$	946,125	$	648,147	0.23	%
Intuitive Health, LLC														Plano, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	9.17	%			10/18/2019	10/18/2027	Healthcare & Pharmaceuticals	$	5,850,000		5,781,953		5,850,000	2.11	%
Term Loan	(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	9.17	%			10/18/2019	10/18/2027			8,227,806		8,132,503		8,227,806	2.97	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	9.17	%			8/31/2021	10/18/2027			3,081,212		3,041,733		3,081,212	1.11	%
Legacy Parent, Inc. Class A Common Stock		Equity										10/30/2020				58		—		229,776	0.08	%
Total																	$	16,956,189	$	17,388,794	6.27	%
Invincible Boat Company LLC	(9)													Opa Locka, FL
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			8/28/2019	8/28/2025	Consumer Goods: Durable	$	5,381,042		5,287,584		5,273,421	1.90	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			8/28/2019	8/28/2025			4,967,116		4,912,592		4,867,774	1.76	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			6/1/2021	8/28/2025			1,104,255		1,088,258		1,082,170	0.39	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			8/28/2019	8/28/2025			744,681		744,681		729,787	0.26	%
Warbird Parent Holdco, LLC Class A Units		Equity										8/28/2019				1,362,575		1,299,691		1,004,866	0.36	%
Total																	$	13,332,806	$	12,958,018	4.67	%
J.R. Watkins, LLC														San Francisco, CA
Term Loan (SBIC)	(4)	First Lien		10.00	%			7.00	%	3.00	%	12/22/2017	12/22/2022	Consumer Goods: Non-Durable	$	12,694,221		12,679,701		11,234,386	4.05	%
J.R. Watkins Holdings, Inc. Class A Preferred Stock		Equity										12/22/2017				1,133		1,132,576		169,964	0.06	%
Total																	$	13,812,277	$	11,404,350	4.11	%
Jurassic Acquisition Corp.														Sparks, MD
Term Loan	(11)	First Lien	1M SOFR+	5.50	%	-	%	8.63	%			12/28/2018	11/15/2024	Metals & Mining	$	16,843,750		16,741,058		16,591,093	5.98	%
Total																	$	16,741,058	$	16,591,093	5.98	%
Kelleyamerit Holdings, Inc.														Walnut Creek, CA
Term Loan (SBIC)	(4)(10)(12)	First Lien	1M BSBY	6.50	%	1.00	%	10.87	%			12/24/2020	12/24/2025	Automotive	$	9,750,000		9,615,065		9,555,000	3.45	%
Term Loan	(10)(12)	First Lien	1M BSBY	6.50	%	1.00	%	10.87	%			12/24/2020	12/24/2025			1,500,000		1,479,241		1,470,000	0.53	%
Total																	$	11,094,306	$	11,025,000	3.98	%
KidKraft, Inc.														Dallas, TX
Term Loan	(10)(12)	First Lien	3M LIBOR+	5.00	%	1.00	%	7.29	%			4/3/2020	8/15/2022	Consumer Goods: Durable	$	1,580,768		1,580,768		1,580,768	0.57	%
KidKraft Group Holdings, LLC Preferred B Units		Equity										4/3/2020				4,000,000		4,000,000		4,000,000	1.44	%
Total																	$	5,580,768	$	5,580,768	2.01	%
Ledge Lounger, Inc.	(9)													Katy, TX
Term Loan A (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	9.92	%			11/9/2021	11/9/2026	Consumer Goods: Durable	$	7,587,401		7,458,817		7,359,779	2.66	%
SP L2 Holdings LLC Class A Units (SBIC)	(4)	Equity										11/9/2021				375,000		375,000		407,423	0.15	%
Total																	$	7,833,817	$	7,767,202	2.81	%
Lightning Intermediate II, LLC	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	6M SOFR+	6.50	%	1.00	%	8.60	%			6/6/2022	6/6/2027	Consumer Goods: Non-Durable	$	13,673,061		13,414,116		13,262,869	4.78	%
Revolver	(11)	First Lien	6M SOFR+	6.50	%	1.00	%	8.60	%			6/6/2022	6/6/2027			17,500		17,500		16,975	0.01	%
Gauge Vimergy Coinvest, LLC Units		Equity										6/6/2022				399		398,677		531,764	0.19	%
Total																	$	13,830,293	$	13,811,608	4.98	%
MacKenzie-Childs Acquisition, Inc.	(9)													Aurora, NY
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	9.12	%			9/2/2022	9/2/2027	Consumer Goods: Durable	$	100,000		98,519		98,519	0.04	%
Revolver	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	9.12	%			9/2/2022	9/2/2027			86,667		86,667		85,384	0.03	%
MacKenzie-Childs Investment, LP Partnership Interests		Equity										9/2/2022				100,000		100,000		100,000	0.04	%
Total																	$	285,186	$	283,903	0.11	%
Madison Logic, Inc.	(9)													New York, NY
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	5.50	%	1.00	%	8.62	%			2/4/2021	11/22/2026	Media: Broadcasting & Subscription	$	3,762,813		3,752,130		3,762,813	1.36	%
Term Loan	(11)	First Lien	1M LIBOR+	5.50	%	1.00	%	8.62	%			11/22/2021	11/22/2026			6,823,772		6,765,322		6,823,772	2.46	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	(4)	Equity										11/30/2016				5,000		—		3,738,254	1.35	%
Total																	$	10,517,452	$	14,324,839	5.17	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Microbe Formulas LLC	(9)													Meridian, ID
Term Loan (SBIC II)	(5)(11)	First Lien	1M SOFR+	6.25	%	1.00	%	9.00	%			4/4/2022	4/3/2028	Consumer Goods: Non-Durable	$	10,554,880		10,456,322		10,238,234	3.69	%
Total																	$	10,456,322	$	10,238,234	3.69	%
MOM Enterprises, LLC	(9)													Richmond, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	9.92	%			5/19/2021	5/19/2026	Consumer Goods: Non-Durable	$	16,260,833		16,009,846		15,773,008	5.69	%
MBliss SPC Holdings, LLC Units		Equity										5/19/2021				933,333		933,333		748,262	0.27	%
Total																	$	16,943,179	$	16,521,270	5.96	%
Monitorus Holding, LLC	(7)(9)													London, UK
Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	10.68	%			5/24/2022	5/24/2027	Media: Diversified & Production	$	100,000		99,054		98,500	0.04	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	10.68	%			5/24/2022	5/24/2027		€	100,000		100,932		96,504	0.03	%
Sapphire Aggregator S.a r.l. Class A Shares		Equity										9/1/2022			€	557,689		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class B Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class C Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class D Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class E Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class F Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class G Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class H Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Sapphire Aggregator S.a r.l. Class I Shares		Equity										9/1/2022			€	557,682		11,156		11,156	—	%
Total																	$	300,390	$	295,408	0.07	%
Naumann/Hobbs Material Handling Corporation II, Inc.	(9)													Phoenix, AZ
Term Loan	(11)	First Lien	3M SOFR+	6.75	%	1.50	%	10.30	%			8/30/2019	8/30/2024	Services: Business	$	8,600,197		8,525,811		8,557,196	3.09	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.75	%	1.50	%	10.30	%			8/30/2019	8/30/2024			5,423,316		5,376,408		5,396,199	1.95	%
Naumann Hobbs Holdings, L.P. Class A-1 Units		Equity										9/29/2022				123		220,379		316,291	0.11	%
Naumann Hobbs Holdings, L.P. Class A-2 Units		Equity										9/29/2022				123		220,379		316,291	0.11	%
Total																	$	14,342,977	$	14,585,977	5.26	%
NS412, LLC														Dallas, TX
Term Loan	(11)	Second Lien	3M LIBOR+	8.50	%	1.00	%	12.17	%			5/6/2019	11/6/2025	Services: Consumer	$	7,615,000		7,530,601		7,386,550	2.66	%
NS Group Holding Company, LLC Class A Units		Equity										5/6/2019				782		795,002		563,856	0.20	%
Total																	$	8,325,603	$	7,950,406	2.86	%
NuMet Machining Techniques, LLC	(7)													Birmingham, United Kingdom
Term Loan	(11)(16)	Second Lien	PRIME	8.00	%	-	%	-	%			11/5/2019	5/5/2026	Aerospace & Defense	$	12,675,000		12,516,116		10,266,750	3.70	%
Bromford Industries Limited Term Loan	(11)(16)	Second Lien	PRIME	8.00	%	-	%	-	%			11/5/2019	5/5/2026			7,800,000		7,699,060		6,318,000	2.28	%
Bromford Holdings, L.P. Class A Membership Interests		Equity										11/5/2019				0.83%		866,629		—	—	%
Bromford Holdings, L.P. Class D Membership Interests		Equity										3/18/2021				0.82%		280,078		—	—	%
Total																	$	21,361,883	$	16,584,750	5.98	%
NuSource Financial, LLC														Eden Prairie, MN
Term Loan (SBIC II)	(5)(11)	First Lien	1M LIBOR+	9.00	%	1.00	%	11.56	%			1/29/2021	1/29/2026	Services: Business	$	11,646,923		11,475,772		11,239,281	4.05	%
NuSource Financial Acquisition, Inc. (SBIC II)	(5)	Unsecured		13.75%	%		%	4.00	%	9.75	%	1/29/2021	7/29/2026			5,501,492		5,427,926		4,676,268	1.69	%
NuSource Holdings, Inc. Warrants (SBIC II)	(5)	Equity										1/29/2021				54,966		—		—	—	%
Total																	$	16,903,698	$	15,915,549	5.74	%
Nutritional Medicinals, LLC	(9)													Centerville, OH
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%			11/15/2018	11/15/2025	Healthcare & Pharmaceuticals	$	10,199,016		10,124,553		9,995,036	3.61	%
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%			10/28/2021	11/15/2025			4,340,881		4,288,721		4,254,063	1.53	%
Functional Aggregator, LLC Units		Equity										11/15/2018				12,500		972,803		1,403,867	0.51	%
Total																	$	15,386,077	$	15,652,966	5.65	%
Onpoint Industrial Services, LLC														Deer Park, TX
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	7.25	%	1.00	%	10.92	%			3/15/2021	3/15/2026	Services: Business	$	10,342,500		10,190,568		10,083,938	3.64	%
Onpoint Parent Holdings, LLC Class A Units	(6)	Equity										3/15/2021				500,000		499,036		722,886	0.26	%
Total																	$	10,689,604	$	10,806,824	3.90	%
PCP MT Aggregator Holdings, L.P.	(7)													Oak Brook, IL
Common Units		Equity										3/29/2019		Finance	$	825,020		119,281		1,266,578	0.46	%
Total																	$	119,281	$	1,266,578	0.46	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
PCS Software, Inc.	(9)												Shenandoah, TX
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.50	%	9.70	%		7/1/2019	7/1/2024	Transportation & Logistics	$	14,100,930		13,986,295		14,100,930	5.09	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.00	%	1.50	%	9.70	%		7/1/2019	7/1/2024			1,849,302		1,834,268		1,849,302	0.67	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.50	%	9.70	%		7/1/2019	7/1/2024			975,000		975,000		975,000	0.35	%
PCS Software Parent, LLC Class A Common Units		Equity									9/16/2022				461,216		—		492,724	0.18	%
Total																$	16,795,563	$	17,417,956	6.29	%
Pearl Media Holdings, LLC	(9)												Garland, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.50	%	9.30	%		8/31/2022	8/31/2027	Consumer Goods: Durable	$	10,000,000		9,802,596		9,802,596	3.54	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.50	%	9.30	%		8/31/2022	8/31/2027			11,667		11,667		11,437	—	%
Total																$	9,814,263	$	9,814,033	3.54	%
Peltram Plumbing Holdings, LLC	(9)												Auburn, WA
Term Loan	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	9.92	%		12/30/2021	12/30/2026	Construction & Building	$	16,621,626		16,331,509		16,122,976	5.82	%
Peltram Group Holdings LLC Class A Units		Equity									12/30/2021				508,516		508,516		333,383	0.12	%
Total																$	16,840,025	$	16,456,359	5.94	%
Premiere Digital Services, Inc.	(9)												Los Angeles, CA
Term Loan	(11)	First Lien	1M LIBOR+	5.25	%	1.00	%	8.37	%		11/3/2021	11/3/2026	Media: Broadcasting & Subscription	$	14,314,904		14,254,313		14,171,755	5.11	%
Premiere Digital Holdings, Inc. Common Stock		Equity									10/18/2018				5,000		—		2,597,456	0.94	%
Total																$	14,254,313	$	16,769,211	6.05	%
Protect America, Inc.													Austin, TX
Term Loan	(11)(14)	Second Lien	3M LIBOR+	7.75	%	1.00	%	-	%		8/30/2017	9/1/2024	Services: Consumer	$	17,979,749		17,979,749		—	—	%
Total																$	17,979,749	$	—	—	%
Rogers Mechanical Contractors, LLC	(9)												Atlanta, GA
Term Loan	(11)	First Lien	1M LIBOR+	7.00	%	1.00	%	9.52	%		4/28/2021	9/9/2025	Construction & Building	$	10,136,218		10,009,107		9,730,769	3.51	%
Total																$	10,009,107	$	9,730,769	3.51	%
Sales Benchmark Index, LLC	(9)												Dallas, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%		1/7/2020	1/7/2025	Services: Business	$	12,481,823		12,354,282		12,169,777	4.39	%
SBI Holdings Investments LLC Class A Units		Equity									1/7/2020				66,573		665,730		456,893	0.16	%
Total																$	13,020,012	$	12,626,670	4.55	%
Service Minds Company, LLC	(9)												Bradenton, FL
Term Loan	(11)	First Lien	1M LIBOR+	5.00	%	1.00	%	7.70	%		2/7/2022	2/7/2028	Services: Consumer	$	5,371,417		5,273,689		5,210,274	1.88	%
Delayed Draw Term Loan	(11)	First Lien	1M LIBOR+	5.00	%	1.00	%	7.70	%		2/7/2022	2/7/2028			32,162		31,859		31,197	0.01	%
Total																$	5,305,548	$	5,241,471	1.89	%
SIB Holdings, LLC	(9)												Charleston, SC
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	9.33	%		10/29/2021	10/29/2026	Services: Business	$	12,952,045		12,733,560		12,628,244	4.56	%
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	9.33	%		6/15/2022	10/29/2026			870,629		853,361		848,863	0.31	%
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	9.33	%		7/20/2022	10/29/2026			2,321,678		2,276,748		2,263,636	0.82	%
Delayed Draw Term Loan	(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	9.33	%		10/29/2021	10/29/2026			2,902,098		2,874,935		2,829,546	1.02	%
Revolver	(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	9.33	%		10/29/2021	10/29/2026			54,754		54,754		53,385	0.02	%
SIB Holdings, LLC Units		Equity									10/29/2021				238,095		500,000		396,384	0.14	%
Total																$	19,293,358	$	19,020,058	6.87	%
Skopos Financial Group, LLC	(7)												Irving, TX
Series A Preferred Units		Equity									6/29/2018		Finance	$	1,120,684		1,162,544		279,930	0.10	%
Total																$	1,162,544	$	279,930	0.10	%
Spire Power Solutions, L.P.													Franklin, WI
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.00	%	1.50	%	9.82	%		11/22/2019	8/12/2026	Capital Equipment	$	4,850,000		4,802,657		4,704,500	1.70	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.00	%	1.50	%	9.82	%		8/12/2021	8/12/2026			3,521,564		3,471,853		3,415,917	1.23	%
Total																$	8,274,510	$	8,120,417	2.93	%
TAC LifePort Holdings, LLC													Woodland, WA
Common Units		Equity									3/1/2021		Aerospace & Defense	$	500,000		500,000		741,794	0.27	%
Total																$	500,000	$	741,794	0.27	%
TFH Reliability, LLC													Houston, TX
Term Loan (SBIC)	(4)(11)	Second Lien	3M LIBOR+	10.75	%	0.80	%	14.42	%		10/21/2016	9/30/2023	Chemicals, Plastics, & Rubber	$	5,875,000		5,857,590		5,786,875	2.09	%
Term Loan (SBIC)	(4)(11)	Second Lien	3M LIBOR+	10.75	%	0.80	%	14.42	%		3/22/2022	9/30/2023			5,000,000		4,931,166		4,925,000	1.78	%
TFH Reliability Group, LLC Class A-1 Units		Equity									6/29/2020				27,129		21,511		26,748	0.01	%
TFH Reliability Group, LLC Class A Units		Equity									10/21/2016				250,000		231,521		184,885	0.07	%
Total																$	11,041,788	$	10,923,508	3.95	%
Tilley Distribution, Inc.	(9)												Baltimore, MD
Term Loan	(11)	First Lien	3M SOFR+	5.50	%	1.00	%	8.78	%		4/1/2022	12/31/2026	Chemicals, Plastics, & Rubber	$	99,497		98,116		95,517	0.03	%
Revolver	(11)	First Lien	3M SOFR+	5.50	%	1.00	%	8.78	%		4/1/2022	12/31/2026			53,878		53,878		51,723	0.02	%
Total																$	151,994	$	147,240	0.05	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Trade Education Acquisition, L.L.C.	(9)													Austin, TX
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	9.37	%			12/28/2021	12/28/2027	Education	$	10,523,039		10,333,919		10,049,502	3.63	%
Trade Education Holdings, L.L.C. Class A Units		Equity										12/28/2021				662,660		662,660		359,731	0.13	%
Total																	$	10,996,579	$	10,409,233	3.76	%
TradePending, LLC	(9)													Carrboro, NC
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	9.92	%			3/2/2021	3/2/2026	Software	$	9,750,505		9,608,272		9,506,742	3.43	%
TradePending Holdings, LLC Series A Units		Equity										3/2/2021				829,167		868,750		1,115,207	0.40	%
Total																	$	10,477,022	$	10,621,949	3.83	%
Unicat Catalyst Holdings, LLC	(9)													Alvin, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%			4/27/2021	4/27/2026	Chemicals, Plastics, & Rubber	$	7,265,625		7,155,797		6,902,344	2.49	%
Unicat Catalyst, LLC Class A Units		Equity										4/27/2021				7,500		750,000		242,294	0.09	%
Total																	$	7,905,797	$	7,144,638	2.58	%
U.S. Auto Sales, Inc. et al	(7)													Lawrenceville, GA
USASF Blocker II LLC Units		Equity										6/8/2015		Finance		441		441,000		360,274	0.13	%
USASF Blocker III LLC 2018 Series Units		Equity										2/13/2018				50		50,000		100,000	0.04	%
USASF Blocker III LLC 2019 Series Units		Equity										12/27/2019				75		75,000		150,000	0.05	%
USASF Blocker IV LLC Units		Equity										5/27/2020				110		110,000		330,000	0.12	%
USASF Blocker IV LLC 2022 Series Units		Equity										7/28/2022				100		100,000		300,000	0.11	%
USASF Blocker LLC Units		Equity										6/8/2015				9,000		9,000		—	—	%
Total																	$	785,000	$	1,240,274	0.45	%
U.S. Expediters, LLC	(9)													Stafford, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	9.67	%			12/22/2021	12/22/2026	Healthcare & Pharmaceuticals	$	15,906,865		15,629,225		15,906,865	5.74	%
Cathay Hypnos LLC Units	(6)	Equity										12/22/2021				1,372,932		1,316,740		2,490,988	0.90	%
Total																	$	16,945,965	$	18,397,853	6.64	%
Venbrook Buyer, LLC														Los Angeles, CA
Term Loan B (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			3/13/2020	3/13/2026	Services: Business	$	12,873,446		12,709,792		12,487,243	4.51	%
Term Loan B	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			3/13/2020	3/13/2026			146,474		144,612		142,080	0.05	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			3/13/2020	3/13/2026			2,225,556		2,225,556		2,158,789	0.78	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	10.17	%			3/13/2020	3/13/2026			4,388,812		4,356,350		4,257,148	1.54	%
Venbrook Holdings, LLC Term Loan	(17)	Unsecured		10.00%	%			-	%	10.00	%	3/31/2022	12/20/2028			87,095		87,095		84,482	0.03	%
Venbrook Holdings, LLC Common Units		Equity										3/13/2020				822,758		819,262		277,901	0.10	%
Total																	$	20,342,667	$	19,407,643	7.01	%
Vortex Companies, LLC														Houston, TX
Term Loan (SBIC II)	(5)(11)	Second Lien	3M SOFR+	9.50	%	1.00	%	13.15	%			12/21/2020	6/21/2026	Environmental Industries	$	10,000,000		9,851,144		9,800,000	3.54	%
Total																	$	9,851,144	$	9,800,000	3.54	%
Whisps Holdings LP														Elgin, IL
Class A Units		Equity										4/18/2019		Beverage, Food, & Tobacco	$	500,000		500,000		173,747	0.06	%
Total																	$	500,000	$	173,747	0.06	%
Xanitos, Inc.	(9)													Newtown Square, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%			6/25/2021	6/25/2026	Healthcare & Pharmaceuticals	$	12,640,000		12,441,303		12,197,600	4.40	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	10.17	%			6/25/2021	6/25/2026			2,226,790		2,207,719		2,148,852	0.78	%
Pure TopCo, LLC Class A Units		Equity										6/25/2021				442,133		1,053,478		918,889	0.33	%
Total																	$	15,702,500	$	15,265,341	5.51	%
Total Non-controlled, non-affiliated investments																	$	899,059,872	$	871,733,280	314.50	%
Net Investments																	$	899,059,872	$	871,733,280	314.50	%
LIABILITIES IN EXCESS OF OTHER ASSETS																			$	(594,555,296)	(214.50)	%
NET ASSETS																			$	277,177,984	100.00	%

(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.

(3)

Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars (“$”) unless otherwise noted, Euro (“€”), or Great British Pound (“£”).

(4)

Investments held by the SBIC subsidiary (as defined in Note 1), which include $3,960,094 of cash and $220,919,669 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).

(5)

Investments held by the SBIC II subsidiary (as defined in Note 1), which include $7,545,314 of cash and $234,014,544 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 95.7% of the Company’s total assets as of September 30, 2022.

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)

(8)

Represents a Payment-in-kind (“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 September 30, 2022, the Company had the following outstanding revolver and delayed draw term loan commitments:


				Unused
		Unfunded		Commitment
Investments	Security	Commitment		Fee	Maturity
Ad.Net Acquisition, LLC	Revolver	$	1,299,020	0.50%	May 7, 2026
AIP ATCO Buyer, LLC	Revolver		23,333	0.50%	May 17, 2028
Anne Lewis Strategies, LLC	Revolver		100,000	0.50%	March 5, 2026
ArborWorks Acquisition LLC ^(a)	Revolver		1,153,846	0.50%	November 9, 2026
Archer Systems, LLC	Revolver		88,750	0.50%	August 11, 2027
Axis Portable Air, LLC	Revolver		100,000	0.50%	March 22, 2028
BDS Solutions Intermediateco, LLC	Revolver		16,602	0.50%	February 7, 2027
BLP Buyer, Inc.	Revolver		63,434	0.50%	February 1, 2027
Camp Profiles LLC	Delayed Draw Term Loan		3,750,000	1.00%	September 3, 2026
Camp Profiles LLC	Revolver		100,000	0.50%	September 3, 2026
CEATI International Inc.	Revolver		100,000	0.50%	February 19, 2026
CF512, Inc.	Delayed Draw Term Loan		220,930	0.50%	September 1, 2026
CF512, Inc.	Revolver		100,000	0.50%	September 1, 2026
CompleteCase, LLC	Revolver A		60,000	0.50%	December 21, 2025
Credit Connection, LLC	Revolver		100,000	0.50%	July 30, 2026
Curion Holdings, LLC	Revolver		50,000	0.50%	July 29, 2027
Curion Holdings, LLC	Delayed Draw Term Loan		100,000	0.50%	July 29, 2027
DRS Holdings III, Inc.	Revolver		909,091	0.50%	November 1, 2025
DTE Enterprises, LLC	Revolver		750,000	0.50%	April 13, 2023
Exacta Land Surveyors, LLC	Revolver		1,500,000	0.50%	February 8, 2024
Exigo, LLC	Revolver		80,000	0.50%	March 16, 2027
Exigo, LLC	Delayed Draw Term Loan		100,000	0.50%	March 16, 2027
Florachem Corporation	Delayed Draw Term Loan		100,000	0.50%	April 29, 2028
Florachem Corporation	Revolver		100,000	0.50%	April 29, 2028
Heartland Business Systems, LLC	Delayed Draw Term Loan		100,000	0.50%	August 26, 2027
Heat Makes Sense Shared Services, LLC	Revolver		68,000	0.50%	July 1, 2028
HV Watterson Holdings, LLC	Delayed Draw Term Loan		2,555,354	1.00%	December 17, 2026
HV Watterson Holdings, LLC	Revolver		84,000	0.50%	December 17, 2026
Infolinks Media Buyco, LLC	LP Interests		303,910
Infolinks Media Buyco, LLC	Delayed Draw Term Loan		2,475,000	0.50%	November 1, 2026
Inoapps Bidco, LLC	Delayed Draw Term Loan		16,667	0.50%	February 15, 2027
Inoapps Bidco, LLC	Revolver		100,000	0.50%	February 15, 2027
Integrated Oncology Network, LLC	Revolver		553,517	0.50%	June 24, 2025
Invincible Boat Company LLC	Revolver		319,149	0.50%	August 28, 2025
Ledge Lounger, Inc.	Revolver		100,000	0.50%	November 9, 2026
Lightning Intermediate II, LLC	Revolver		82,500	0.50%	June 6, 2027
MacKenzie-Childs Acquisition, Inc.	Revolver		13,333	0.50%	September 2, 2027
Madison Logic, Inc.	Revolver		542,169	0.50%	November 22, 2026
Microbe Formulas LLC	Revolver		100,000	0.50%	April 3, 2028
MOM Enterprises, LLC	Revolver		100,000	0.50%	May 19, 2026
Monitorus Holding, LLC	Revolver	€	100,000	0.50%	May 24, 2027
Naumann/Hobbs Material Handling Corporation II, Inc.	Revolver – Working Capital		1,763,033	0.50%	August 30, 2024
Nutritional Medicinals, LLC	Revolver		2,000,000	0.50%	November 15, 2025
PCS Software, Inc.	Revolver		1,318,143	0.50%	July 1, 2024
Pearl Media Holdings, LLC	Revolver		88,333	0.50%	August 31, 2027
Pearl Media Holdings, LLC	Delayed Draw Term Loan		100,000	0.50%	August 31, 2027
Peltram Plumbing Holdings, LLC	Revolver		100,000	0.50%	December 30, 2026
Premiere Digital Services, Inc.	Revolver		576,923	0.50%	November 3, 2026
Rogers Mechanical Contractors, LLC	Delayed Draw Term Loan		100,000	1.00%	September 9, 2025
Rogers Mechanical Contractors, LLC	Revolver		100,000	0.75%	September 9, 2025
Sales Benchmark Index, LLC	Revolver		1,331,461	0.50%	January 7, 2025
Service Minds Company, LLC	Delayed Draw Term Loan		67,677	1.00%	February 7, 2028
Service Minds Company, LLC	Revolver		100,000	0.50%	February 7, 2028
SIB Holdings, LLC	Revolver		45,246	0.50%	October 29, 2026
Tilley Distribution, Inc.	Revolver		46,122	0.50%	December 31, 2026
Trade Education Acquisition, L.L.C.	Revolver		100,000	0.50%	December 28, 2027
TradePending, LLC	Revolver		100,000	0.50%	March 2, 2026
U.S. Expediters, LLC	Revolver		100,000	0.50%	December 22, 2026
Unicat Catalyst Holdings, LLC	Revolver		2,000,000	0.50%	April 27, 2026
Xanitos, Inc.	Delayed Draw Term Loan		1,556,383	1.00%	June 25, 2026
Xanitos, Inc.	Revolver		100,000	0.50%	June 25, 2026

(a)

The Company has full discretion to fund this revolver commitment.

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

September 30, 2022

(unaudited)

(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 floor is not in effect.

(12)

These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floor is not in effect.

(13)

Investment has been on non-accrual since October 31, 2017.

(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 $305,003.

(20)

The Company has full discretion to fund this revolver commitment.

Abbreviation Legend

BSBY — Bloomberg Short-Term Bank Yield Index

LIBOR — London Interbank Offered Rate

PIK — Payment-In-Kind

SOFR — Secured Overnight Financing Rate

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


														Principal						% of
						LIBOR					Investment		Headquarters/	Amount/		Amortized				Net
Investments	Footnotes	Security⁽³⁾	Coupon			floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value⁽¹⁾		Assets
Non-controlled, non-affiliated investments	⁽²⁾⁽⁹⁾
Ad.Net Acquisition, LLC	⁽¹⁹⁾												Los Angeles, CA
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%		5/7/2021	5/7/2026	Services: Business	$	15,510,294		15,303,443		15,277,640	5.36	%
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)	⁽⁹⁾	Equity									5/7/2021				7,794		77,941		81,692	0.03	%
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)	⁽⁹⁾	Equity									5/7/2021				7,015		701,471		735,229	0.26	%
Total																$	16,082,855	$	16,094,561	5.65	%
ADS Group Opco, LLC													Lakewood, CO
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.75	%	1.00	%	7.75	%		6/4/2021	6/4/2026	Aerospace & Defense	$	14,850,000		14,581,135		14,478,750	5.08	%
Revolver	^(33)(35)	First Lien	3M L+	6.75	%	1.00	%	7.75	%		6/4/2021	6/4/2026		$	70,000		70,000		68,250	0.02	%
Pluto Aggregator, LLC Class A Units		Equity									6/4/2021				77,626		288,691		250,169	0.09	%
Pluto Aggregator, LLC Class B Units		Equity									6/4/2021				56,819		211,309		183,114	0.06	%
Total																$	15,151,135	$	14,980,283	5.25	%
Advanced Barrier Extrusions, LLC													Rhinelander, WI
Term Loan B (SBIC)	^(2)(35)	First Lien	1M L+	7.00	%	1.00	%	8.00	%		11/30/2020	11/30/2026	Containers, Packaging, & Glass	$	17,325,000		17,028,817		17,151,749	6.02	%
GP ABX Holdings Partnership, L.P. Partner Interests	⁽⁴⁾	Equity									8/8/2018				644,737		528,395		559,158	0.20	%
Total																$	17,557,212	$	17,710,907	6.22	%
Anne Lewis Strategies, LLC	⁽²⁰⁾												Washington, DC
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.75	%	1.00	%	7.75	%		3/5/2021	3/5/2026	Services: Business	$	11,068,750		10,877,646		11,068,750	3.88	%
SG AL Investment, LLC Common Units	⁽⁴⁾	Equity									3/5/2021				1,000		920,488		2,069,142	0.73	%
Total																$	11,798,134	$	13,137,892	4.61	%
APE Holdings, LLC													Deer Park, TX
Class A Units		Equity									9/5/2014		Chemicals, Plastics, & Rubber		375,000		375,000		83,576	0.03	%
Total																$	375,000	$	83,576	0.03	%
Atmosphere Aggregator Holdings II, L.P.													Atlanta, GA
Common Units		Equity									1/26/2016		Services: Business		254,250		—		1,919,315	0.67	%
Stratose Aggregator Holdings, L.P. Common Units		Equity									6/30/2015				750,000		—		5,661,697	1.99	%
Total																$	—	$	7,581,012	2.66	%
ArborWorks Acquisition LLC													Oakhurst, CA
Term Loan	⁽³⁵⁾	First Lien	3M L+	7.00	%	1.00	%	8.00	%		11/23/2021	11/9/2026	Environmental Industries	$	15,000,000		14,852,082		14,852,082	5.21	%
Revolver	^(31)(35)	First Lien	3M L+	7.00	%	1.00	%	8.00	%		11/23/2021	11/9/2026		$	1,084,615		1,084,615		1,073,920	0.38	%
ArborWorks Holdings LLC Units		Equity									12/29/2021				115		115,385		115,385	0.04	%
Total																$	16,052,082	$	16,041,387	5.63	%
ASC Communications, LLC	⁽¹⁷⁾												Chicago, IL
Term Loan (SBIC)	^(2)(35)	First Lien	1M L+	5.00	%	1.00	%	6.00	%		6/29/2017	6/29/2023	Healthcare & Pharmaceuticals	$	3,395,062		3,385,618		3,395,062	1.19	%
Term Loan	⁽³⁵⁾	First Lien	1M L+	5.00	%	1.00	%	6.00	%		2/4/2019	6/29/2023		$	5,771,605		5,744,381		5,771,605	2.02	%
ASC Communications Holdings, LLC Class A Units (SBIC)	⁽²⁾⁽⁴⁾	Equity									6/29/2017				73,529		—		1,304,094	0.46	%
Total																$	9,129,999	$	10,470,761	3.67	%
Café Valley, Inc.													Phoenix, AZ
Term Loan	⁽³⁵⁾	First Lien	1M L+	7.00	%	1.25	%	8.25	%		8/28/2019	8/28/2024	Beverage, Food, & Tobacco	$	15,901,190		15,715,924		15,344,649	5.38	%
CF Topco LLC Units		Equity									8/28/2019				9,160		916,015		320,352	0.11	%
Total																$	16,631,939	$	15,665,001	5.49	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


															Principal							% of
						LIBOR						Investment		Headquarters/	Amount/			Amortized				Net
Investments	Footnotes	Security	Coupon			floor		Cash		PIK		Date	Maturity	Industry	Shares			Cost		Fair Value⁽¹⁾		Assets
Camp Profiles LLC	^(8)(16)													Boston, MA
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%			9/3/2021	9/3/2026	Media: Advertising, Printing & Publishing	$	10,224,375			10,031,055		10,071,009	3.53	%
CIVC VI-A 829 Blocker, LLC Units		Equity										9/3/2021				250			250,000		277,332	0.10	%
Total																		$	10,281,055	$	10,348,341	3.63	%
CEATI International Inc.	⁽³⁹⁾													Montreal, Canada
Term Loan	^(5)(35)	First Lien	3M L+	6.50	%	1.00	%	7.50	%			2/19/2021	2/19/2026	Services: Business	$	13,398,750			13,168,371		12,996,788	4.56	%
CEATI Holdings, LP Class A Units	⁽⁵⁾	Equity										2/19/2021				250,000			250,000		268,536	0.09	%
Total																		$	13,418,371	$	13,265,324	4.65	%
CF512, Inc.	⁽⁴⁹⁾													Blue Bell, PA
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%			9/1/2021	9/1/2026	Media: Advertising, Printing & Publishing	$	14,324,564			14,053,719		13,966,450	4.90	%
Delayed Draw Term Loan	^(35)(50)	First Lien	3M L+	6.00	%	1.00	%	7.00	%			9/1/2021	9/1/2026			3,093,023			3,062,540		3,015,698	1.06	%
StellPen Holdings, LLC Membership Interests		Equity										9/1/2021				22.09	%		220,930		246,500	0.09	%
Total																		$	17,337,189	$	17,228,648	6.05	%
Colford Capital Holdings, LLC														New York, NY
Class A Units	⁽⁵⁾	Equity										8/20/2015		Finance		38,893			195,036		22,408	0.01	%
Total																		$	195,036	$	22,408	0.01	%
CompleteCase, LLC														Seattle, WA
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.50	%	1.00	%	7.50	%			12/21/2020	12/21/2025	Services: Consumer	$	11,363,478			11,174,252		11,079,391	3.89	%
Revolver A	^(21)(35)	First Lien	3M L+	6.50	%	1.00	%	7.50	%			12/21/2020	12/21/2025			50,000			50,000		48,750	0.02	%
Revolver B	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.00	%	7.50	%			11/18/2021	8/17/2022			2,000,000			2,000,000		1,950,000	0.68	%
CompleteCase Holdings, Inc. Class A Common Stock (SBIC II)	⁽⁹⁾	Equity										12/21/2020				417			5		4	0.00	%
CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II)	⁽⁹⁾	Equity										12/21/2020				522			521,734		375,747	0.13	%
Total																		$	13,745,991	$	13,453,892	4.72	%
Credit Connection, LLC	⁽³⁶⁾													Fresno, CA
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	5.50	%	1.00	%	6.50	%			7/30/2021	7/30/2026	Software	$	9,975,000			9,789,605		9,775,500	3.43	%
Series A Units		Equity										7/30/2021				750,000			750,000		842,326	0.30	%
Total																		$	10,539,605	$	10,617,826	3.73	%
Data Centrum Communications, Inc.														Montvale, NJ
Term Loan B	⁽³⁵⁾	First Lien	3M L+	9.00	%	1.00	%	10.00	%			5/15/2019	5/15/2024	Media: Advertising, Printing & Publishing	$	15,882,235			15,717,629		14,532,245	5.10	%
Health Monitor Holdings, LLC Series A Preferred Units		Equity										5/15/2019				1,000,000			1,000,000		215,580	0.08	%
Total																		$	16,717,629	$	14,747,825	5.18	%
Douglas Products Group, LP														Liberty, MO
Partnership Interests		Equity										12/27/2018		Chemicals, Plastics, & Rubber		322			139,656		800,866	0.28	%
Total																		$	139,656	$	800,866	0.28	%
Dresser Utility Solutions, LLC														Bradford, PA
Term Loan (SBIC)	^(2)(35)	Second Lien	1M L+	8.50	%	1.00	%	9.50	%			10/1/2018	4/1/2026	Utilities: Oil & Gas	$	10,000,000			9,901,900		9,800,000	3.44	%
Total																		$	9,901,900	$	9,800,000	3.44	%
DRS Holdings III, Inc.	⁽¹⁰⁾													St. Louis, MO
Term Loan	⁽³⁵⁾	First Lien	3M L+	5.75	%	1.00	%	6.75	%			11/1/2019	11/1/2025	Consumer Goods: Durable	$	9,800,000			9,732,277		9,800,000	3.44	%
Total																		$	9,732,277	$	9,800,000	3.44	%
DTE Enterprises, LLC	⁽¹⁸⁾													Roselle, IL
Term Loan	^(6)(35)	First Lien	1M L+	8.50	%	1.50	%	9.50	%	0.50	%	4/13/2018	4/13/2023	Energy: Oil & Gas	$	9,368,725			9,310,842		9,087,663	3.19	%
DTE Holding Company, LLC Class A-2 Units		Equity										4/13/2018				776,316			466,204		—	0.00	%
DTE Holding Company, LLC Class AA Units		Equity										4/13/2018				723,684			723,684		605,420	0.21	%
Total																		$	10,500,730	$	9,693,083	3.40	%
EC Defense Holdings, LLC														Reston, VA
Class B Units (SBIC)	⁽²⁾	Equity										7/31/2020		Services: Business		20,054			500,000		616,212	0.22	%
Total																		$	500,000	$	616,212	0.22	%
EH Real Estate Services, LLC														Skokie, IL
Term Loan (SBIC)	⁽²⁾	First Lien		10.00	%			10.00	%			9/3/2021	9/3/2026	FIRE: Real Estate	$	7,954,099			7,803,059		7,834,788	2.75	%
EH Holdco, LLC Series A Preferred Units		Equity										9/3/2021				7,892			7,891,642		7,990,210	2.80	%
Total																		$	15,694,701	$	15,824,998	5.55	%
Elliott Aviation, LLC														Moline, IL
Term Loan	^(6)(35)	First Lien	1M L+	8.00	%	1.75	%	7.75	%	2.00	%	1/31/2020	1/31/2025	Aerospace & Defense	$	17,641,992			17,408,385		17,024,522	5.97	%
Revolver	^(6)(35)	First Lien	1M L+	8.00	%	1.75	%	7.75	%	2.00	%	1/31/2020	1/31/2025			1,354,425			1,354,425		1,307,020	0.46	%
SP EA Holdings, LLC Class A Units		Equity										1/31/2020				900,000			900,000		233,145	0.08	%
Total																		$	19,662,810	$	18,564,687	6.51	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


														Principal						% of
						LIBOR					Investment		Headquarters/	Amount/		Amortized				Net
Investments	Footnotes	Security	Coupon			floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value⁽¹⁾		Assets
Energy Labs Holding Corp.													Houston, TX
Common Stock		Equity									9/29/2016		Energy: Oil & Gas	$	598		598,182		768,334	0.27	%
Total																$	598,182	$	768,334	0.27	%
EOS Fitness Holdings, LLC													Phoenix, AZ
Class A Preferred Units		Equity									12/30/2014		Hotel, Gaming, & Leisure	$	118		—		218,008	0.08	%
Class B Common Units		Equity									12/30/2014				3,017		—		266,242	0.09	%
Total																$	—	$	484,250	0.17	%
Exacta Land Surveyors, LLC	⁽²³⁾												Cleveland, OH
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	5.75	%	1.50	%	7.25	%		2/8/2019	2/8/2024	Services: Business	$	16,544,375		16,385,082		16,048,044	5.63	%
SP ELS Holdings LLC, Class A Units		Equity									2/8/2019				1,069,143		1,069,143		452,649	0.16	%
Total																$	17,454,225	$	16,500,693	5.79	%
General LED OPCO, LLC													San Antonio, TX
Term Loan	^(35)(40)	Second Lien	3M L+	9.00	%	1.50	%	0.00	%		5/1/2018	3/31/2026	Services: Business	$	4,500,000		4,453,726		3,690,000	1.29	%
Total																$	4,453,726	$	3,690,000	1.29	%
Grupo HIMA San Pablo, Inc., et al	⁽²⁵⁾												San Juan, PR
Term Loan B	^(27)(35)(41)	First Lien	3M L+	7.00	%	1.50	%	0.00	%		2/1/2013		Healthcare & Pharmaceuticals	$	4,061,688		4,061,688		670,178	0.24	%
Term Loan	^(15)(27)	Second Lien		13.75	%			0.00	%		2/1/2013				4,109,524		4,109,524		0	0.00	%
Term Loan	^(38)(51)	First Lien		12.00	%			0.00	%		11/24/2021				147,344		147,344		147,344	0.05	%
Term Loan	^(35)(38)(51)	First Lien	3M L+	7.00	%	1.50	%	0.00	%		11/24/2021				442,033		442,033		331,525	0.12	%
Total																$	8,760,589	$	1,149,047	0.41	%
GS HVAM Intermediate, LLC													Carlsbad, CA
Term Loan	⁽³⁵⁾	First Lien	1M L+	5.75	%	1.00	%	6.75	%		10/18/2019	10/2/2024	Beverage, Food, & Tobacco	$	12,765,248		12,687,507		12,765,248	4.48	%
Revolver	⁽³⁵⁾	First Lien	1M L+	5.75	%	1.00	%	6.75	%		10/18/2019	10/2/2024			2,651,515		2,651,515		2,651,515	0.93	%
HV GS Acquisition, LP Class A Interests		Equity									10/2/2019				1,796		1,618,844		2,266,541	0.79	%
Total																$	16,957,866	$	17,683,304	6.20	%
HV Watterson Holdings, LLC	⁽³⁷⁾												Schaumburg, IL
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.00	%	1.00	%	7.00	%		12/17/2021	12/17/2026	Services: Business	$	13,436,603		13,167,870		13,167,870	4.62	%
Revolver	^(34)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%		12/17/2021	12/17/2026			40,000		40,000		39,200	0.01	%
HV Acquisition VI, LLC Class A Units		Equity									12/17/2021				1,084		1,084,126		1,084,126	0.38	%
Total																$	14,291,996	$	14,291,196	5.01	%
I2P Holdings, LLC													Cleveland, OH
Series A Preferred Units		Equity									1/31/2018		Services: Business	$	750,000		750,000		3,523,110	1.24	%
Total																$	750,000	$	3,523,110	1.24	%
ICD Holdings, LLC													San Francisco, CA
Class A Units	⁽⁴⁾⁽⁵⁾	Equity									1/1/2018		Finance	$	9,962		464,619		834,320	0.29	%
Total																$	464,619	$	834,320	0.29	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


															Principal						% of
						LIBOR						Investment		Headquarters/	Amount/		Amortized				Net
Investments	Footnotes	Security	Coupon			floor		Cash		PIK		Date	Maturity	Industry	Shares		Cost		Fair Value⁽¹⁾		Assets
Infolinks Media Buyco, LLC	⁽⁴³⁾													Ridgewood, NJ
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%			11/1/2021	11/1/2026	Media: Advertising, Printing & Publishing	$	8,525,000		8,359,127		8,359,127	2.93	%
Tower Arch Infolinks Media, LP LP Interests	⁽⁶⁰⁾	Equity										10/28/2021				441,718		441,718		441,718	0.15	%
Total																	$	8,800,845	$	8,800,845	3.08	%
Integrated Oncology Network, LLC	⁽³⁰⁾													Newport Beach, CA
Term Loan	⁽³⁵⁾	First Lien	3M L+	5.50	%	1.50	%	7.00	%			7/17/2019	6/24/2024	Healthcare & Pharmaceuticals	$	15,993,848		15,819,044		15,993,848	5.61	%
Term Loan	⁽³⁵⁾	First Lien	3M L+	5.50	%	1.50	%	7.00	%			11/1/2021	6/24/2024			1,107,034		1,084,893		1,107,034	0.39	%
Total																	$	16,903,937	$	17,100,882	6.00	%
Interstate Waste Services, Inc.														Amsterdam, OH
Common Stock		Equity										1/15/2020		Environmental Industries		21,925		946,125		514,402	0.18	%
Total																	$	946,125	$	514,402	0.18	%
Intuitive Health, LLC														Plano, TX
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	5.75	%	1.00	%	6.75	%			10/18/2019	10/18/2027	Healthcare & Pharmaceuticals	$	5,895,000		5,818,411		5,895,000	2.07	%
Term Loan	⁽³⁵⁾	First Lien	3M L+	5.75	%	1.00	%	6.75	%			10/18/2019	10/18/2027			11,298,750		11,151,955		11,298,750	3.96	%
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	5.75	%	1.00	%	6.75	%			8/31/2021	10/18/2027			3,104,554		3,060,021		3,104,554	1.09	%
Legacy Parent, Inc. Class A Common Stock	⁽⁴⁾	Equity										10/30/2020				58		—		230,224	0.08	%
Total																	$	20,030,387	$	20,528,528	7.20	%
Invincible Boat Company LLC	⁽²⁸⁾													Opa Locka, FL
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.50	%	8.00	%			8/28/2019	8/28/2025	Consumer Goods: Durable	$	5,579,004		5,460,897		5,551,109	1.95	%
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.50	%	1.50	%	8.00	%			8/28/2019	8/28/2025			5,149,850		5,080,887		5,124,101	1.80	%
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.50	%	1.50	%	8.00	%			6/1/2021	8/28/2025			1,144,879		1,124,655		1,139,155	0.40	%
Warbird Parent Holdco, LLC Class A Units	⁽⁴⁾	Equity										8/28/2019				1,362,575		1,299,691		1,405,979	0.49	%
Total																	$	12,966,130	$	13,220,344	4.64	%
J.R. Watkins, LLC														San Francisco
Term Loan (SBIC)	⁽²⁾⁽⁶⁾	First Lien		10.00	%			7.00	%	3.00	%	12/22/2017	12/22/2022	Consumer Goods: Non-Durable	$	12,500,354		12,443,581		11,937,838	4.19	%
J.R. Watkins Holdings, Inc. Class A Preferred Stock		Equity										12/22/2017				1,133		1,132,576		316,397	0.11	%
Total																	$	13,576,157	$	12,254,235	4.30	%
Jurassic Acquisition Corp.														Sparks, MD
Term Loan	⁽¹²⁾	First Lien	3M L+	5.50	%	0.00	%	5.72	%			12/28/2018	11/15/2024	Metals & Mining	$	16,975,000		16,838,603		16,974,999	5.95	%
Total																	$	16,838,603	$	16,974,999	5.95	%
Kelleyamerit Holdings, Inc.														Walnut Creek, CA
Term Loan (SBIC)	^(2)(13)(22)	First Lien	3M L+	6.50	%	1.00	%	8.82	%			12/24/2020	12/24/2025	Automotive	$	9,750,000		9,589,330		9,360,000	3.28	%
Term Loan	^(13)(22)	First Lien	3M L+	6.50	%	1.00	%	8.82	%			12/24/2020	12/24/2025			1,500,000		1,475,282		1,440,000	0.51	%
Total																	$	11,064,612	$	10,800,000	3.79	%
KidKraft, Inc.														Dallas, TX
Term Loan	^(22)(29)	First Lien	3M L+	5.00	%	1.00	%	6.00	%			4/3/2020	8/15/2022	Consumer Goods: Durable	$	1,580,768		1,580,768		1,580,768	0.55	%
KidKraft Group Holdings, LLC Preferred B Units		Equity										4/3/2020				4,000,000		4,000,000		4,000,000	1.40	%
Total																	$	5,580,768	$	5,580,768	1.95	%
Ledge Lounger, Inc.														Katy, TX
Term Loan A (SBIC)	^(2)(35)	First Lien	3M L+	6.25	%	1.00	%	7.25	%			11/9/2021	11/9/2026	Consumer Goods: Durable	$	7,644,737		7,495,964		7,495,964	2.63	%
Revolver	^(35)(52)	First Lien	3M L+	6.25	%	1.00	%	7.25	%			11/9/2021	11/9/2026			66,667		66,667		65,369	0.02	%
SP L2 Holdings LLC Class A Units (SBIC)	⁽²⁾	Equity										11/9/2021				375,000		375,000		375,000	0.13	%
Total																	$	7,937,631	$	7,936,333	2.78	%
Madison Logic, Inc.	⁽⁵³⁾													New York, NY
Term Loan (SBIC)	^(2)(35)	First Lien	1M L+	5.75	%	1.00	%	6.75	%			2/4/2021	11/22/2026	Media: Broadcasting & Subscription	$	3,791,247		3,778,850		3,753,335	1.32	%
Term Loan	⁽³⁵⁾	First Lien	1M L+	5.75	%	1.00	%	6.75	%			11/22/2021	11/22/2026			6,875,337		6,807,544		6,806,583	2.39	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	⁽²⁾⁽⁴⁾	Equity										11/30/2016				5,000		—		1,773,443	0.62	%
Total																	$	10,586,394	$	12,333,361	4.33	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


															Principal
						LIBOR						Investment		Headquarters/	Amount/			Amortized
Investments	Footnotes	Security⁽³⁾	Coupon			floor		Cash		PIK		Date	Maturity	Industry	Shares			Cost		Value⁽¹⁾		Assets
Mobile Acquisition Holdings, LP														Santa Clara, CA
Class A2 Units		Equity										11/1/2016		Software	$	750			455,385		2,863,270	1.00	%
Total																		$	455,385	$	2,863,270	1.00	%
MOM Enterprises, LLC	⁽⁵⁴⁾													Richmond, CA
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.25	%	1.00	%	7.25	%			5/19/2021	5/19/2026	Consumer Goods: Non-Durable	$	16,384,333			16,087,954		16,138,568	5.66	%
MBliss SPC Holdings, LLC Units		Equity										5/19/2021				933,333			933,333		1,054,829	0.37	%
Total																		$	17,021,287	$	17,193,397	6.03	%
Naumann/Hobbs Material Handling Corporation II, Inc.	⁽³²⁾													Phoenix, AZ
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.25	%	1.50	%	7.75	%			8/30/2019	8/30/2024	Services: Business	$	8,744,721			8,642,580		8,700,997	3.05	%
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.25	%	1.50	%	7.75	%			8/30/2019	8/30/2024			5,514,453			5,450,043		5,486,881	1.92	%
CGC NH, Inc. Common Stock		Equity										8/30/2019				123			440,758		780,155	0.27	%
Total																		$	14,533,381	$	14,968,033	5.24	%
NS412, LLC														Dallas, TX
Term Loan	⁽³⁵⁾	Second Lien	3M L+	8.50	%	1.00	%	9.50	%			5/6/2019	11/6/2025	Services: Consumer	$	7,615,000			7,513,674		7,462,700	2.62	%
NS Group Holding Company, LLC Class A Units		Equity										5/6/2019				782			795,002		686,742	0.24	%
Total																		$	8,308,676	$	8,149,442	2.86	%
NuMet Machining Techniques, LLC														Birmingham, United Kingdom
Term Loan	^(5)(35)	Second Lien	1M L+	9.00	%	2.00	%	11.00	%			11/5/2019	5/5/2026	Aerospace & Defense	$	12,675,000			12,491,009		11,851,125	4.16	%
Bromford Industries Limited Term Loan	^(5)(35)	Second Lien	1M L+	9.00	%	2.00	%	11.00	%			11/5/2019	5/5/2026			7,800,000			7,683,112		7,293,000	2.56	%
Bromford Holdings, L.P. Class A Membership Interests	⁽⁵⁾	Equity										11/5/2019				0.83	%		866,629		—	0.00	%
Bromford Holdings, L.P. Class D Membership Interests	⁽⁵⁾	Equity										3/18/2021				0.82	%		280,078		393,106	0.14	%
Total																		$	21,320,828	$	19,537,231	6.86	%
NuSource Financial, LLC														Eden Prairie, MN
Term Loan (SBIC II)	^(9)(35)	First Lien	1M L+	9.00	%	1.00	%	10.00	%			1/29/2021	1/29/2026	Services: Business	$	11,081,250			10,892,077		10,804,219	3.79	%
NuSource Financial Acquisition, Inc. (SBIC II)	⁽⁶⁾⁽⁹⁾	Unsecured		13.75	%			4.00	%	9.75	%	1/29/2021	7/29/2026			5,113,983			5,030,143		4,883,854	1.71	%
NuSource Holdings, Inc. Warrants (SBIC II)	⁽⁹⁾	Equity										1/29/2021				54,966			—		—	0.00	%
Total																		$	15,922,220	$	15,688,073	5.50	%
Nutritional Medicinals, LLC	⁽²⁴⁾													Centerville, OH
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.00	%	1.00	%	7.00	%			11/15/2018	11/15/2025	Healthcare & Pharmaceuticals	$	11,627,085			11,524,782		11,452,678	4.02	%
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.00	%	1.00	%	7.00	%			10/28/2021	11/15/2025			4,975,866			4,903,854		4,901,228	1.72	%
Functional Aggregator, LLC Units	⁽⁴⁾	Equity										11/15/2018				12,500			972,803		1,326,406	0.47	%
Total																		$	17,401,439	$	17,680,312	6.21	%
Onpoint Industrial Services, LLC														Deer Park, TX
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	7.25	%	1.00	%	8.25	%			3/15/2021	3/15/2026	Services: Business	$	10,421,250			10,240,997		10,160,719	3.56	%
Onpoint Parent Holdings, LLC Class A Units		Equity										3/15/2021				500,000			500,000		448,143	0.16	%
Total																		$	10,740,997	$	10,608,862	3.72	%
PCP MT Aggregator Holdings, L.P.														Oak Brook, IL
Common Units		Equity										3/29/2019		Finance	$	750,000			—		1,779,415	0.62	%
Total																		$	—	$	1,779,415	0.62	%
PCS Software, Inc.														Shenandoah, TX
Term Loan	⁽³⁵⁾	First Lien	3M L+	5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024	Transportation & Logistics	$	14,210,240			14,051,962		14,210,240	4.98	%
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024			1,863,638			1,842,880		1,863,638	0.65	%
Delayed Draw Term Loan	⁽³⁵⁾	First Lien	3M L+	5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024			982,500			982,500		982,500	0.34	%
Revolver	⁽³⁵⁾	First Lien	3M L+	5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024			1,318,143			1,318,143		1,318,143	0.46	%
PCS Software Holdings, LLC Series A Preferred Units		Equity										7/1/2019				325,000			325,000		468,263	0.16	%
PCS Software Holdings, LLC Series A-2 Preferred Units		Equity										11/12/2020				63,312			63,312		91,220	0.03	%
Total																		$	18,583,797	$	18,934,004	6.62	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


														Principal						%
						LIBOR					Investment		Headquarters/	Amount/		Amortized				of Net
Investments	Footnotes	Security	Coupon			floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value⁽¹⁾		Assets
Peltram Plumbing Holdings, LLC													Auburn, WA
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.00	%	1.00	%	7.00	%		12/30/2021	12/30/2026	Construction & Building	$	16,747,230		16,412,285		16,412,285	5.76	%
Revolver	^(11)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%		12/30/2021	12/30/2026			31,500		31,500		30,870	0.01	%
Peltram Group Holdings LLC Class A Units		Equity									12/30/2021				508,516		508,516		508,516	0.18	%
Total																$	16,952,301	$	16,951,671	5.95	%
Premiere Digital Services, Inc.	⁽⁵⁵⁾												Los Angeles, CA
Term Loan	⁽³⁵⁾	First Lien	1M L+	5.75	%	1.00	%	6.75	%		11/3/2021	11/3/2026	Media: Broadcasting & Subscription	$	14,423,077		14,352,950		14,350,962	5.03	%
Premiere Digital Holdings, Inc., Common Stock	⁽⁴⁾	Equity									10/18/2018				5,000		0		1,228,760	0.43	%
Total																$	14,352,950	$	15,579,722	5.46	%
Protect America, Inc.													Austin, TX
Term Loan (SBIC)	^(2)(26)(35)	Second Lien	3M L+	7.75	%	1.00	%	0.00	%		8/30/2017	9/1/2024	Services: Consumer	$	17,979,749		17,979,748		1,078,785	0.38	%
Total																$	17,979,748	$	1,078,785	0.38	%
Rogers Mechanical Contractors, LLC	^(44)(45)												Atlanta, GA
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.00	%	7.50	%		4/28/2021	9/9/2025	Construction & Building	$	10,541,667		10,381,059		10,330,833	3.62	%
Total																$	10,381,059	$	10,330,833	3.62	%
Sales Benchmark Index, LLC	⁽⁷⁾												Dallas, TX
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.00	%	1.75	%	7.75	%		1/7/2020	1/7/2025	Services: Business	$	13,222,835		13,049,505		13,090,606	4.59	%
SBI Holdings Investments, LLC Class A Units		Equity									1/7/2020				66,573		665,730		532,800	0.19	%
Total																$	13,715,235	$	13,623,406	4.78	%
SIB Holdings, LLC	⁽⁵⁷⁾												Charleston, SC
Term Loan (SBIC)	^(2)(35)	First Lien	1M L+	6.00	%	1.00	%	7.00	%		10/29/2021	10/29/2026	Services: Business	$	13,017,131		12,763,993		12,763,993	4.48	%
Revolver	^(35)(56)	First Lien	1M L+	6.00	%	1.00	%	7.00	%		10/29/2021	10/29/2026			6,667		6,667		6,537	0.00	%
SIB Holdings, LLC Units		Equity									10/29/2021				238,095		500,000		500,000	0.18	%
Total																$	13,270,660	$	13,270,530	4.66	%
Skopos Financial Group, LLC													Irving, TX
Series A Preferred Units	⁽⁵⁾	Equity									6/29/2018		Finance		1,120,684		1,162,544		338,616	0.12	%
Total																$	1,162,544	$	338,616	0.12	%
Spire Power Solutions, L.P.													Franklin, WI
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.25	%	1.50	%	7.75	%		11/22/2019	8/12/2026	Capital Equipment	$	4,887,500		4,832,386		4,740,875	1.66	%
Term Loan (SBIC II)	^(9)(35)	First Lien	6M L+	6.25	%	1.50	%	7.75	%		8/12/2021	8/12/2026			3,548,310		3,490,420		3,441,861	1.21	%
Total																$	8,322,806	$	8,182,736	2.87	%
SQAD LLC													Tarrytown, NY
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	6.50	%	1.00	%	7.50	%		12/22/2017	12/22/2022	Media: Broadcasting & Subscription	$	14,179,594		14,162,082		14,179,594	4.97	%
SQAD Holdco, Inc. Series A Preferred Stock (SBIC)	⁽²⁾	Equity									10/31/2013				5,624		156,001		715,621	0.25	%
SQAD Holdco, Inc. Common Stock (SBIC)	⁽²⁾	Equity									10/31/2013				5,800		62,485		83,839	0.03	%
Total																$	14,380,568	$	14,979,054	5.25	%
TAC LifePort Purchaser, LLC	⁽⁴²⁾												Woodland, WA
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.00	%	1.00	%	7.00	%		3/1/2021	3/2/2026	Aerospace & Defense	$	10,042,067		9,869,166		9,791,015	3.43	%
TAC LifePort Holdings, LLC Common Units		Equity									3/1/2021				500,000		500,000		594,363	0.21	%
Total																$	10,369,166	$	10,385,378	3.64	%
TFH Reliability, LLC													Houston, TX
Term Loan (SBIC)	^(2)(35)	Second Lien	3M L+	10.75	%	0.80	%	11.55	%		10/21/2016	9/30/2023	Chemicals, Plastics, & Rubber	$	5,875,000		5,845,883		5,757,500	2.02	%
TFH Reliability Group, LLC Class A-1 Units		Equity									6/29/2020				27,129		21,511		24,883	0.01	%
TFH Reliability Group, LLC Class A Units		Equity									10/21/2016				250,000		231,521		85,123	0.03	%
Total																$	6,098,915	$	5,867,506	2.06	%
Trade Education Acquisition, L.L.C.	⁽⁵⁸⁾												Austin, TX
Term Loan (SBIC)	^(2)(35)	First Lien	1M L+	6.25	%	1.00	%	7.25	%		12/28/2021	12/28/2027	Education	$	10,602,558		10,390,507		10,390,507	3.64	%
Trade Education Holdings, L.L.C. Class A Units		Equity									12/28/2021				662,660		662,660		662,660	0.23	%
Total																$	11,053,167	$	11,053,167	3.87	%
TradePending, LLC	⁽¹⁴⁾												Carrboro, NC
Term Loan (SBIC II)	^(9)(35)	First Lien	3M L+	6.25	%	1.00	%	7.25	%		3/2/2021	3/2/2026	Software	$	9,925,000		9,753,957		9,676,875	3.39	%
TradePending Holdings, LLC Series A Units		Equity									3/2/2021				750,000		750,000		683,646	0.24	%
Total																$	10,503,957	$	10,360,521	3.63	%
Unicat Catalyst Holdings, LLC	⁽⁴⁶⁾												Alvin, TX
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.00	%	7.50	%		4/27/2021	4/27/2026	Chemicals, Plastics, & Rubber	$	7,406,250		7,274,639		7,221,094	2.53	%
Unicat Catalyst, LLC Class A Units		Equity									4/27/2021				7,500		750,000		315,280	0.11	%
Total																$	8,024,639	$	7,536,374	2.64	%
U.S. Auto Sales, Inc. et al													Lawrenceville, GA
USASF Blocker II LLC Units	⁽⁵⁾	Equity									6/8/2015		Finance	$	441		441,000		553,597	0.19	%
USASF Blocker III LLC 2018 Series Units	⁽⁵⁾	Equity									2/13/2018				50		50,000		100,000	0.04	%
USASF Blocker III LLC 2019 Series Units	⁽⁵⁾	Equity									12/27/2019				75		75,000		150,000	0.05	%
USASF Blocker IV LLC Units	⁽⁵⁾	Equity									5/27/2020				110		110,000		330,000	0.12	%
USASF Blocker LLC Units	⁽⁵⁾	Equity									6/8/2015				9,000		9,000		0	0.00	%
Total																$	685,000	$	1,133,597	0.40	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021


														Principal						%
						LIBOR					Investment		Headquarters/	Amount/		Amortized				of Net
Investments	Footnotes	Security	Coupon			floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value(1)		Assets
U.S. Expediters, LLC	⁽⁵⁹⁾												Stafford, TX
Term Loan	⁽³⁵⁾	First Lien	3M L+	6.00	%	1.00	%	7.00	%		12/22/2021	12/22/2026	Healthcare & Pharmaceuticals	$	16,027,068		15,706,527		15,706,527	5.51	%
Cathay Hypnos LLC Units		Equity									12/22/2021				1,372,932		1,372,932		1,372,932	0.48	%
Total																$	17,079,459	$	17,079,459	5.99	%
Venbrook Buyer, LLC													Los Angeles, CA
Term Loan B (SBIC)	^(2)(35)	First Lien	3M L+	6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026	Services: Business	$	12,952,771		12,758,396		12,952,771	4.54	%
Term Loan B	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026			147,377		145,165		147,377	0.05	%
Revolver	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026			2,222,222		2,222,222		2,222,222	0.78	%
Delayed Draw Term Loan	⁽³⁵⁾	First Lien	3M L+	6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026			4,415,556		4,376,990		4,415,556	1.55	%
Venbrook Holdings, LLC Common Units		Equity									3/13/2020				822,758		819,262		645,469	0.23	%
Total																$	20,322,035	$	20,383,395	7.15	%
Vortex Companies, LLC													Houston, TX
Term Loan (SBIC II)	^(9)(35)	Second Lien	3M L+	9.50	%	1.00	%	10.50	%		12/21/2020	6/21/2026	Environmental Industries	$	10,000,000		9,828,022		9,800,000	3.44	%
Total																$	9,828,022	$	9,800,000	3.44	%
Whisps Holdings LP													Elgin, IL
Class A Units		Equity									4/18/2019		Beverage, Food, & Tobacco	$	500,000		500,000		442,742	0.16	%
Total																$	500,000	$	442,742	0.16	%
Xanitos, Inc.	⁽⁴⁷⁾												Newtown Square, PA
Term Loan (SBIC)	^(2)(35)	First Lien	3M L+	6.50	%	1.00	%	7.50	%		6/25/2021	6/25/2026	Healthcare & Pharmaceuticals	$	12,736,000		12,502,437		12,481,280	4.38	%
Delayed Draw Term Loan	^(35)(48)	First Lien	3M L+	6.50	%	1.00	%	7.50	%		6/25/2021	6/25/2026		$	2,243,617		2,221,181		2,198,745	0.77	%
Pure TopCo, LLC Class A Units		Equity									6/25/2021				379,327		904,000		895,329	0.31	%
Total																$	15,627,618	$	15,575,354	5.46	%
Total Non-controlled, non-affiliated investments																$	785,005,957	$	772,873,326	271.08	%
Net Investments																$	785,005,957	$	772,873,326	271.08	%
LIABILITIES IN EXCESS OF OTHER ASSETS																		$	(487,762,093)	(171.08)	%
NET ASSETS																		$	285,111,233	100.00	%

(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)

Investments held by the SBIC subsidiary (as defined in Note 1), which include $35,201,060 of cash and $211,477,384 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).

(3)	Debt investments are income producing and equity securities are non-income producing, unless otherwise noted.

(4)	Security is income producing through dividends or distributions.

(5)

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 91% of the Company’s total assets as of December 31, 2021.

(6)	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.

(7)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,331,461, with an interest rate of LIBOR plus 6.00% and a maturity of January 7, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(8)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of September 3, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(9)

Investments held by the SBIC II subsidiary (as defined in Note 1), which include $7,810,985 of cash and $161,704,501 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.

(10)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $909,091, with an interest rate of LIBOR plus 5.75% and a maturity of November 1, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(11)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $68,500, with an interest rate of LIBOR plus 6.00% and a maturity of December 30, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

(12)	These loans have LIBOR floors, which are lower than the applicable LIBOR rates; therefore, the floors are not in effect.

(13)	These loans are last-out term loans with contractual rates higher than the applicable LIBOR rates; therefore, the floors are not in effect.

(14)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.25% and a maturity of March 2, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(15)	Investment has been on non-accrual since October 31, 2017.

(16)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $3,750,000, with an interest rate of LIBOR plus 6.00% and a maturity of September 3, 2026. This investment is accruing an unused commitment fee of 1.00% per annum.

(17)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $666,667, with an interest rate of LIBOR plus 5.00% and a maturity of June 29, 2023. This investment is accruing an unused commitment fee of 0.50% per annum.

(18)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $750,000, with an interest rate of LIBOR plus 8.50% and a maturity of April 13, 2023. The Company has full discretion to fund the revolver commitment.

(19)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,299,020, with an interest rate of LIBOR plus 6.00% and a maturity of May 7, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(20)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.75% and a maturity of March 5, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(21)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $50,000 with an interest rate of LIBOR plus 6.50% and a maturity of December 21, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(22)	This loan is a unitranche investment.

(23)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,500,000 with an interest rate of LIBOR plus 5.75% and a maturity of February 8, 2024. The Company has full discretion to fund the revolver commitment.

(24)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,000,000 with an interest rate of LIBOR plus 6.00% and a maturity of November 15, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(25)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $172,969, with an interest rate of 12.00% and maturity is at the administrative agent’s discretion. This investment has been on non-accrual since November 24, 2021.

(26)	Investment has been on non-accrual since June 28, 2019.

(27)	Maturity date is under ongoing negotiations with portfolio company and other lenders.

(28)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,063,830, with an interest rate of LIBOR plus 6.50% and a maturity of August 28, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(29)	These loans are last-out term loans with contractual rates lower than the applicable LIBOR rates; therefore, the floors are in effect.

(30)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $553,517, with an interest rate of LIBOR plus 5.50% and a maturity of June 24, 2024. This investment is accruing an unused commitment fee of 0.50% per annum.

(31)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,376,923, with an interest rate of LIBOR plus 7.00% and a maturity of November 9, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(32)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,763,033, with an interest rate of LIBOR plus 6.25% and a maturity of August 30, 2024. This investment is accruing an unused commitment fee of 0.50% per annum.

(33)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $30,000, with an interest rate of LIBOR plus 6.75% and a maturity of June 4, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(34)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $60,000, with an interest rate of LIBOR plus 6.00% and a maturity of December 17, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(35)	These loans have LIBOR floors, which are higher than the current applicable LIBOR rates; therefore, the floors are in effect.

(36)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 5.50% and a maturity of July 30,2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(37)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $2,879,272, with an interest rate of LIBOR plus 6.00% and a maturity of December 17, 2026. This investment is accruing an unused commitment fee of 1.00% per annum.

(38)	Maturity date is at the administrative agent’s discretion.

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

(39)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of February 19, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(40)	Investment has been on non-accrual since December 31, 2020.

(41)	Investment has been on non-accrual since January 1, 2021.

(42)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of March 2, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(43)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,475,000, with an interest rate of LIBOR plus 6.00% and a maturity of November 1, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(44)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of September 9, 2025. This investment is accruing an unused commitment fee of 1.00% per annum.

(45)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of September 9, 2025. This investment is accruing an unused commitment fee of 0.75% per annum.

(46)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,000,000, with an interest rate of LIBOR plus 6.50% and a maturity of April 27, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(47)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of June 25, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(48)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $1,556,383, with an interest rate of LIBOR plus 6.50% and a maturity of June 25, 2026. This investment is accruing an unused commitment fee of 1.00% per annum.

(49)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of September 1, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(50)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $220,930, with an interest rate of LIBOR plus 6.00% and a maturity of September 1, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(51)	Investment has been on non-accrual since November 24, 2021.

(52)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $33,333, with an interest rate of LIBOR plus 6.25% and a maturity of November 9, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(53)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $542,169, with an interest rate of LIBOR plus 5.75% and a maturity of November 22, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(54)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.25% and a maturity of May 19, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(55)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $576,923, with an interest rate of LIBOR plus 5.75% and a maturity of November 3, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(56)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $93,333, with an interest rate of LIBOR plus 6.00% and a maturity of October 29, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(57)	Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $2,902,098, with an interest rate of LIBOR plus 6.00% and a maturity of October 29, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(58)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.25% and a maturity of December 28, 2027. This investment is accruing an unused commitment fee of 0.50% per annum.

(59)	Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of December 22, 2026. This investment is accruing an unused commitment fee of 0.50% per annum

(60)	Excluded from the investment is an uncalled capital commitment in an amount not to exceed $308,282.46.

Abbreviation Legend
PIK — Payment-In-Kind
L — LIBOR

Table of Contents

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 (“ASC Topic 946”). 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 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 our investment adviser, Stellus Capital Management, LLC (“Stellus Capital” or the “Advisor”).

As of September 30, 2022, the Company had issued a total of 19,545,935 shares and raised $287,476,304 in gross proceeds since Inception, incurring $9,406,067 in offering expenses and sales load fees. Additionally, the Company has received $131,257 in offering expenses reimbursements from the Advisor for net proceeds from offerings of $278,201,494. 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 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 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 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”), 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 subsidiary and SBIC II subsidiary (together, “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 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 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 of both September 30, 2022 and December 31, 2021, the SBIC subsidiary had $75,000,000 in regulatory capital. As of both September 30, 2022 and December 31, 2021, the SBIC II subsidiary had $87,500,000 in regulatory capital.

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As of both September 30, 2022 and December 31, 2021, the SBIC subsidiary had $150,000,000 of SBA-guaranteed debentures outstanding. As of September 30, 2022 and December 31, 2021, the SBIC II subsidiary had $156,000,000 and $100,000,000 of SBA-guaranteed debentures outstanding, respectively. See footnote (2) 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).

As a BDC, the Company is required to comply with certain regulatory requirements. On March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement to 150% from 200% under certain circumstances.

On April 4, 2018, the Company’s board of directors (the “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, 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 test applicable to the Company was decreased from 200% to 150%, effective June 29, 2018. 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. As of September 30, 2022, our asset coverage ratio was 193%.

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. The Company 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 unaudited consolidated financial statements have been prepared on the accrual basis of accounting in conformity with generally accepted accounting principles in the U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q 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 unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of the financial statements for the interim periods included herein. The results of operations for the three and nine months ended September 30, 2022 and September 30, 2021 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021.

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.

COVID-19 Developments

The effect on the U.S. and global economy of the ongoing pandemic caused by the novel coronavirus, SARS-CoV-2 (also referred to as “COVID-19” or “Coronavirus”), uncertainty relating to new variants of the Coronavirus that have emerged in the United States and globally, vaccine distribution, hesitancy and efficacy, the length of economic recovery, and policies of the U.S. presidential administration have created stress on the market and could affect our portfolio companies. Each portfolio company has been assessed on an individual basis to identify the impact of the COVID-19 pandemic on the valuation of our investments in such company. We believe that any such COVID-19 pandemic impacts have been reflected in the valuation of our investments.

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The extent of the impact of the COVID-19 pandemic on the financial performance of our current and future investments will depend on future developments, including the duration and spread of the virus, related advisories and restrictions, and the health of the financial markets and economy, all of which are highly uncertain and cannot be predicted. To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments and our financial condition.

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 in accordance 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 September 30, 2022, cash balances totaling $242,911 did not exceed the Federal Deposit Insurance Corporation insurance protection levels of $250,000. In addition, at September 30, 2022, the Company held $11,961,055 in cash equivalents, which are carried at cost, which approximates fair value, and held foreign currency of $215,777 (acquisition cost of $241,247). 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 carrying values of our Credit Facility and SBA-guaranteed debentures approximate fair value because the interest rates adjusts to the market interest rates (Level 3 input). The carrying value of our 2026 Notes (as defined in Note 11) is based on the cost of the security, which approximates fair value (Level 2 input). See Note 6 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

The COVID-19 pandemic is an unprecedented circumstance that could materially impact the fair value of the Company’s investments. As a result, the fair value of the Company’s portfolio investments may be further negatively impacted after September 30, 2022, by circumstances and events that are not yet known. The COVID-19 pandemic may impact the Company’s portfolio companies’ ability to pay their respective contractual obligations, including principal and interest due to the Company, and some portfolio companies could require interest or principal deferrals to fulfill short-term liquidity needs. The Company works with each of its portfolio companies, as necessary, to help them access short-term liquidity through potential interest deferrals, funding on unused lines of credit, and other sources of liquidity. During the quarter ended September 30, 2022, no interest deferrals have been made related to COVID-19 or otherwise.

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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.

Use of Estimates

The preparation of the Statements 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 our Credit Facility, 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 and presented as an offset to the corresponding debt on the Consolidated Statements of Assets and Liabilities.

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 Statements of Changes in Net Assets and Liabilities as a reduction to Paid-in-Capital.

Investments

In December 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted a new rule providing a framework for fund valuation practices. 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. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. Finally, the SEC is rescinding previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, and have a compliance date of September 8, 2022. While our board of directors 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 of Directors. Under procedures established by our Board of Directors, 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 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 of Directors. Such determination of fair values may involve subjective 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.

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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 us in our valuation. Because the Company expects that there will not be a readily available market quotation 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:

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

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applicable market yields and multiples;

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financial covenants;

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call protection provisions;

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information rights;

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the nature and realizable value of any collateral;

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

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comparisons of financial ratios of peer companies that are public;

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comparable merger and acquisition transactions; and

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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 three and nine months ended September 30, 2022 and 2021 is as follows:


	For the three months ended				For the nine months ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
Loan interest	$	18,194,230	$	14,812,457	$	46,926,570	$	41,336,827
PIK income		356,527		247,391		1,010,061		607,393
Fee amortization income⁽¹⁾		769,272		701,489		2,070,733		936,083
Fee income acceleration⁽²⁾		297,439		699,242		385,073		1,939,451
Total Interest Income	$	19,617,468	$	16,460,579	$	50,392,437	$	44,819,754

(1)	Includes amortization of fees on unfunded commitments.

(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 September 30, 2022, we had four loans on non-accrual status, which represented approximately 5.5% of our loan portfolio at cost and 2.5% at fair value. As of December 31, 2021, we had three loans on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 0.8% at fair value. As of September 30, 2022 and December 31, 2021, $6,200,882 and $10,363,904, respectively, of income from investments on non-accrual has not been accrued. 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, we 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, qualified, and intends to continue to qualify 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 not pay corporate-level U.S. federal income taxes 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 (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 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. Income tax expense for the three and nine months ended September 30, 2022 of $361,115 and $1,086,338, respectively, was mostly related to excise and franchise taxes. Income tax expense for the three and nine months ended September 30, 2021 of $192,612 and $718,869, respectively, was related mostly to excise tax.

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 September 30, 2022 and December 31, 2021, 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 on-going 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 three and nine months ended September 30, 2022 and 2021 were de minimis.

The Taxable Subsidiaries are direct wholly-owned subsidiaries of the Company that have elected to be taxable entities. 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 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 three and nine months ended September 30, 2022, the Company recorded deferred income tax benefit of $30,535 and provision of ($151,278), respectively, related to the Taxable Subsidiaries. For the three and nine months ended September 30, 2021, the Company recorded deferred income tax provision related to the Taxable Subsidiaries of ($606,377) and ($586,640), respectively. In addition, as of September 30, 2022 and December 31, 2021, the Company had a deferred tax liability of $0 and deferred tax asset of $151,278, respectively.

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.

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Distributable Earnings (Accumulated Undistributed Deficit)

The components that make up distributable earnings (accumulated undistributed deficit) on the Statements of Assets and Liabilities as of September 30, 2022 and December 31, 2021 are as follows:


	September 30,		December 31,
	2022		2021
Accumulated net realized gain from investments, net of cumulative dividends of $25,571,955 for both periods	$	7,461,702	$	2,810,908
Net unrealized depreciation on non-controlled non-affiliated investments and cash equivalents, net of benefit for taxes of $0 and $151,278, respectively		(24,942,806)		(11,981,353)
Net unrealized depreciation on foreign currency translations		(53,874)		—
Accumulated undistributed net investment income		19,829,121		19,703,039
Accumulated undistributed surplus	$	2,294,142	$	10,532,594

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 the London Interbank Offered Rate (“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 nine months ended September 30, 2022.

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. We believe the impact of the recently issued standards and any that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

NOTE 2 — RELATED PARTY ARRANGEMENTS

Investment Advisory Agreement

The Company has entered into an 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 three and nine months ended September 30, 2022, the Company recorded an expense for base management fees of $3,827,669 and $11,025,435, respectively. For the three and nine months ended September 30, 2021, the Company recorded an expense for base management fees of $3,473,041 and $9,715,381, respectively. As of September 30, 2022 and December 31, 2021, $7,032,721 and $3,454,225, respectively, were payable to Stellus Capital.

The incentive fee has two components, the investment income incentive fee and the capital gains incentive fee, 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

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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 Income 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 Income 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 Income Incentive Fee that is attributable to deferred interest until the Company actually receives such interest in cash.

For both the three and nine months ended September 30, 2022, the Company incurred $1,635,641 of Income Incentive Fees. For the three and nine months ended September 30, 2021, the Company incurred $1,451,752 and $1,507,651 of Income Incentive Fees, respectively. As of September 30, 2022 and December 31, 2021, $1,909,651 and $1,749,130, respectively, of such Income Incentive Fees were payable to the Advisor, of which $1,591,753 and $1,459,942, respectively, are currently payable (as explained below). As of September 30, 2022 and December 31, 2021, $317,898 and $289,188, respectively, of Income 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 by the Company in cash.

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 Gain Incentive Fees is subtracted from such Capital Gain Incentive Fees when the calculated.

U.S. GAAP requires that the Capital Gains Incentive Fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments and other financial instruments in the calculation, as an incentive fee would be payable if such realized gains and losses and unrealized capital appreciation or depreciation were realized, even though such realized gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the Capital Gains Incentive 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 three and nine months ended September 30, 2022, the Company reversed $646,757 and $1,672,549, respectively, related to the Capital Gains Incentive Fee. For the three and nine months ended September 30, 2021, the Company accrued $1,742,904 and $1,840,572, respectively, related to the Capital Gains Incentive Fee. As of September 30, 2022 and December 31, 2021, $1,715,602 and $3,388,151, respectively, of Capital Gains Incentive Fees were accrued but not currently payable to the Advisor.

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The following tables summarize the components of the incentive fees discussed above:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Investment income incentive fees incurred	$	1,635,641	$	1,451,752	$	1,635,641	$	1,507,651
Capital gains incentive fees (reversed) incurred		(646,757)		1,742,904		(1,672,549)		1,840,572
Incentive fees (reversal) expense	$	988,884	$	3,194,656	$	(36,908)	$	3,348,223


	September 30,		December 31,
	2022		2021
Investment income incentive fee currently payable	$	1,591,753	$	1,459,942
Investment income incentive fee deferred		317,898		289,188
Capital gains incentive fee deferred		1,715,602		3,388,151
Incentive fee payable	$	3,625,253	$	5,137,281

Director Fees

For the three and nine months ended September 30, 2022, the Company recorded an expense relating to director fees of $83,500 and $254,500, respectively. For the three and nine months ended September 30, 2021, the Company recorded an expense relating to director fees of $74,500 and $240,500, respectively. As of both September 30, 2022 and December 31, 2021, the Company had no unpaid independent director fees.

Co-Investment Pursuant to SEC Order

On October 23, 2013, the Company received an exemptive order (the “2013 Order”) from the SEC to co-invest with private funds managed by Stellus Capital where doing so is consistent with the Company’s investment strategy as well as applicable law (including the terms and conditions of the exemptive order issued by the SEC). On December 18, 2018, the Company received a new exemptive order (the “2018 Order”) that superseded the 2013 Order. On May 9, 2022, the Company received a new exemptive order (the “Order”) that superseded the 2018 Order and permits the Company greater flexibility to enter into co-investment transactions. The Order expands on the 2013 Order and 2018 Order and allows 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. Additionally, the Order provided added relief which allows the Company, subject to the satisfaction of certain conditions, to co-invest in existing portfolio companies with certain affiliates that are private funds if such private funds did not have an investment in such existing portfolio company. Without the added relief, such private funds would not be able to participate in such co-investments with the Company unless the private funds had previously acquired securities of the portfolio company in a co-investment transaction with the Company. 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 private credit funds managed by Stellus Capital that have an investment strategy that is 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 both September 30, 2022 and December 31, 2021, there was no cash due to other investment funds related to interest paid by a borrower to the Company as administrative agent. Any such amount would be included in “Other Accrued Expenses and Liabilities” on the Consolidated Statements of Assets and Liabilities.

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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 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 the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC.

For the three months ended September 30, 2022 and 2021, the Company recorded expenses of $369,209 and $368,680, respectively, related to the administration agreement and are included in administrative services expenses on our Consolidated Statements of Operations. For the nine months ended September 30, 2022 and 2021, the Company recorded expenses of $1,162,527 and $1,133,108, respectively, related to the administration agreement and are included in administrative services expenses on our Consolidated Statements of Operations. As of September 30, 2022 and December 31, 2021, $369,209 and $382,322, respectively, remained payable to Stellus Capital related to the administration agreement and are included in administrative services payable on our Consolidated Statements of Assets and Liabilities.

Indemnifications

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.

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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.

For the three and nine months ended September 30, 2022, the Company has declared aggregate distributions of $0.34 and $0.96 per share on its common stock. The Company has declared aggregate distributions of $13.01 per share on its common stock since Inception:


Date Declared	Record Date	Payment Date	Per Share⁽¹⁾
Fiscal 2012			$	0.18
Fiscal 2013			$	1.36
Fiscal 2014			$	1.42
Fiscal 2015			$	1.36
Fiscal 2016			$	1.36
Fiscal 2017	Various		$	1.36
Fiscal 2018			$	1.36
Fiscal 2019			$	1.36
Fiscal 2020			$	1.15
Fiscal 2021			$	1.14
Fiscal 2022
January 13, 2022	January 28, 2022	February 15, 2022	$	0.0933
January 13, 2022	February 25, 2022	March 15, 2022	$	0.0933
January 13, 2022	March 31, 2022	April 15, 2022	$	0.0933
April 19, 2022	April 29, 2022	May 13, 2022	$	0.1133
April 19, 2022	May 27, 2022	June 15, 2022	$	0.1133
April 19, 2022	June 30, 2022	July 15, 2022	$	0.1133
July 13, 2022	July 29, 2022	August 15, 2022	$	0.1133
July 13, 2022	August 31, 2022	September 15, 2022	$	0.1133
July 13, 2022	September 30, 2022	October 14, 2022	$	0.1133
Total			$	13.01

(1)	Distributions for fiscal years 2012 through 2021 are shown in aggregate amounts

The Company has adopted an “opt out” dividend reinvestment plan (“DRIP”) pursuant to which a stockholder whose shares are held in his own name will receive distributions in shares of the Company’s common stock under the Company’s DRIP unless it elects 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 the Company’s 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 shares through the DRIP during either of the three and nine months ended September 30, 2022 or 2021.

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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.


												Average
	Number of	Gross		Underwriting		Offering		Fees Covered		Net		Offering
Issuance of Common Stock	Shares	Proceeds⁽¹⁾⁽²⁾		fees		Expenses		by Advisor		Proceeds⁽³⁾		Price
Year ended December 31, 2012	12,035,023	$	180,522,093	$	4,959,720	$	835,500	$	—	$	174,726,873	$	14.90
Year ended December 31, 2013	63,998		899,964		—		—		—		899,964	$	14.06
Year ended December 31, 2014	380,936		5,485,780		75,510		29,904		—		5,380,366	$	14.47
Year ended December 31, 2017	3,465,922		48,741,406		1,358,880		307,021		—		47,075,505	$	14.06
Year ended December 31, 2018	7,931		93,737		—		—		—		93,737	$	11.85
Year ended December 31, 2019	3,177,936		45,862,995		1,015,127		559,261		37,546		44,326,153	$	14.43
Year ended December 31, 2020	354,257		5,023,843		5,680		84,592		66,423		4,999,994	$	14.40
Year ended December 31, 2021	31,592		449,515		6,744		53,327		4,255		393,699	$	14.23
Quarter ended March 31,2022	14,924		209,006		3,137		50,369		12,170		167,670	$	14.00
Quarter ended June 30, 2022	13,416		187,965		2,820		58,475		10,863		137,533	$	14.01
Quarter ended September 30, 2022	—		—		—		—		—		—		NA
Total	19,545,935	$	287,476,304	$	7,427,618	$	1,978,449	$	131,257	$	278,201,494

(1)	Net of partial share redemptions. Such share redemptions impacted gross proceeds by $94, $757, $(1,051), $(142), $(31) and $(29) in 2020, 2019, 2018, 2017, 2016 and 2015, respectively.

(2)

Includes common shares issued under the DRIP of $0 during the nine months ended September 30, 2022, $228,943 and $94,788 during the year ended December 31, 2020 and 2018, respectively; $0 for the years ended 2021, 2019, 2017, 2016 and 2015, and $390,505, $938,385, $113,000 for the years ended 2014, 2013, and 2012, respectively.

(3)

Net Proceeds per this equity table will differ from the Statements of Assets and Liabilities as of September 30, 2022 and December 31, 2021 in the amount of $3,317,652 which represents a tax reclassification of stockholders’ equity in accordance with U.S. GAAP. This reclassification reduces paid-in capital and increases distributable earnings (reducing the accumulated undistributed deficit).

On November 16, 2021, the Company entered into an equity distribution agreement, as amended and restated on August 29, 2022 (the “Equity Distribution Agreement”), with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the 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 common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program (the “ATM Program”) to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with its investment objective and strategies.

During the nine months ending September 30, 2022, the Company issued 28,340 shares under the ATM Program, for gross proceeds of $396,971 not including underwriting fees and other expenses of $114,801. The average per share offering price of shares issued in the ATM Program during the nine months ended September 30, 2022 was $14.01. 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 nine months ending September 30, 2022, the Advisor reimbursed the Company $23,033, which resulted in net proceeds of $414,047, or $14.61 per share, excluding the impact of offering expenses. The Company did not issue any shares during the nine months ended September 30, 2021.

The Company issued 0 shares of common stock through the DRIP for both the nine months ended September 30, 2022 and 2021.

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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 three and nine months ended September 30, 2022 and September 30, 2021.


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
Net increase in net assets resulting from operations	$	3,955,529	$	12,778,621	$	10,513,540	$	23,323,357
Weighted average common shares		19,545,935		19,486,003		19,535,708		19,486,003
Net increase in net assets from operations per share	$	0.20	$	0.66	$	0.54	$	1.20

NOTE 6 — PORTFOLIO INVESTMENTS AND FAIR VALUE

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 September 30, 2022, the Company had investments in 89 portfolio companies. The total cost and fair value of the investments were $899,059,872 and $871,733,280, respectively. The composition of our investments as of September 30, 2022 is as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	756,556,124	$	742,272,654
Senior Secured – Second Lien		84,851,781		58,220,675
Unsecured Debt		5,515,021		4,760,750
Equity		52,136,946		66,479,201
Total Investments	$	899,059,872	$	871,733,280

(1)

Includes unitranche investments, which account for 3.0% 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 the second lien and subordinated loans to the extent we invest in the “last-out” tranche.

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At December 31, 2021, the Company had investments in 73 portfolio companies. The total cost and fair value of the investments were $785,005,957 and $772,873,326 respectively. The composition of our investments as of December 31, 2021 was as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	652,561,144	$	646,352,935
Senior Secured – Second Lien		79,806,598		56,733,110
Unsecured Debt		5,030,143		4,883,854
Equity		47,608,072		64,903,427
Total Investments	$	785,005,957	$	772,873,326

(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. Our unitranche 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.

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 September 30, 2022 and December 31, 2021, the Company had 49 and 32 of such investments with aggregate unfunded commitments of $30,269,900 and $30,982,734, 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 aggregate gross unrealized appreciation and depreciation and the aggregate cost and fair value of the Company’s portfolio company securities as September 30, 2022 and December 31, 2021 were as follows:


	2022		2021
Aggregate cost of portfolio company securities	$	899,059,872	$	785,005,957
Gross unrealized appreciation of portfolio company securities		30,662,296		27,283,421
Gross unrealized depreciation of portfolio company securities		(57,988,888)		(39,416,052)
Aggregate fair value of portfolio company securities	$	871,733,280	$	772,873,326

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 September 30, 2022 are as follows:


	Quoted Prices
	in Active
	Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Senior Secured – First Lien	$	—	$	—	$	742,272,654	$	742,272,654
Senior Secured – Second Lien		—		—		58,220,675		58,220,675
Unsecured Debt		—		—		4,760,750		4,760,750
Equity		—		—		66,479,201		66,479,201
Total Investments	$	—	$	—	$	871,733,280	$	871,733,280

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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, 2021 are as follows:


	Quoted Prices
	in Active
	Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Senior Secured – First Lien	$	—	$	—	$	646,352,935	$	646,352,935
Senior Secured – Second Lien		—		—		56,733,110		56,733,110
Unsecured Debt		—		—		4,883,854		4,883,854
Equity		—		—		64,903,427		64,903,427
Total Investments	$	—	$	—	$	772,873,326	$	772,873,326

The aggregate values of Level 3 portfolio investments change during the nine months ended September 30, 2022 are as follows:


	Senior Secured		Senior Secured
	Loans-First		Loans-Second		Unsecured
	Lien		Lien		Debt		Equity		Total
Fair value at beginning of period	$	646,352,935	$	56,733,110	$	4,883,854	$	64,903,427	$	772,873,326
Purchases of investments		168,278,616		4,900,000		83,511		7,694,683		180,956,810
Payment-in-kind interest		618,968		—		391,093		—		1,010,061
Sales and redemptions		(62,655,976)		—		—		(11,897,663)		(74,553,639)
Realized gains		(3,930,891)		—		—		8,731,852		4,800,961
Change in unrealized depreciation included in earnings⁽¹⁾		(5,691,477)		(3,557,615)		(607,983)		(2,953,098)		(12,810,173)
Change in unrealized depreciation on foreign currency included in earnings		(2,383,786)		—		—		—		(2,383,786)
Amortization of premium and accretion of discount, net		1,684,265		145,180		10,275		—		1,839,720
Fair value at end of period	$	742,272,654	$	58,220,675	$	4,760,750	$	66,479,201	$	871,733,280

(1)	Includes reversal of positions during the nine months ended September 30, 2022.

There were no Level 3 transfers during the nine months ended September 30, 2022.

The aggregate values of Level 3 portfolio investments change during the year ended December 31, 2021 are as follows:


	Senior Secured		Senior Secured
	Loans-First		Loans-Second		Unsecured
	Lien		Lien		Debt		Equity		Total
Fair value at beginning of period	$	508,673,064	$	70,720,186	$	21,191,245	$	52,840,000	$	653,424,495
Purchases of investments		354,637,555		965,250		11,705,915		22,105,811		389,414,531
Payment-in-kind interest		521,595		—		417,435		—		939,030
Sales and redemptions		(214,319,978)		(13,161,428)		(29,384,595)		(33,210,915)		(290,076,916)
Realized gains (losses)		1,475,577		(1,781,665)		—		23,993,443		23,687,355
Change in unrealized (depreciation) appreciation included in earnings⁽¹⁾		(6,821,212)		(157,390)		875,354		(824,912)		(6,928,160)
Amortization of premium and accretion of discount, net		2,186,334		148,157		78,500		—		2,412,991
Fair value at end of period	$	646,352,935	$	56,733,110	$	4,883,854	$	64,903,427	$	772,873,326

(1)	Includes reversal of positions during the twelve months ended December 31, 2021.

There were no Level 3 transfers during the twelve months ended December 31, 2021.

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The following is a summary of geographical concentration of our investment portfolio as of September 30, 2022:


					% of Total
	Cost		Fair Value		Investments
Texas	$	201,139,725	$	179,543,296	20.60	%
California		161,803,119		159,142,278	18.26	%
Illinois		66,129,076		60,270,478	6.91	%
Florida		56,001,786		55,461,152	6.36	%
Arizona		43,211,187		43,543,647	4.99	%
Pennsylvania		42,867,943		41,965,443	4.81	%
Ohio		34,745,618		37,284,222	4.28	%
Wisconsin		35,829,829		32,737,796	3.75	%
Washington		29,022,571		28,411,087	3.26	%
New Jersey		25,391,042		25,077,935	2.88	%
District of Columbia		17,442,141		20,718,474	2.38	%
Georgia		10,794,107		19,016,228	2.18	%
South Carolina		19,293,358		19,020,058	2.18	%
United Kingdom		21,662,273		16,880,158	1.94	%
Maryland		16,893,052		16,738,333	1.92	%
Minnesota		16,903,698		15,915,549	1.83	%
New York		11,427,678		15,055,505	1.73	%
Colorado		15,265,769		14,555,303	1.67	%
Indiana		14,334,657		14,334,657	1.64	%
Canada		13,354,136		13,244,350	1.52	%
North Carolina		10,477,022		10,621,949	1.22	%
Massachusetts		10,231,602		10,567,200	1.21	%
Idaho		10,456,322		10,238,234	1.17	%
Missouri		9,597,884		10,117,698	1.16	%
Virginia		500,000		1,100,000	0.13	%
Michigan		174,753		172,250	0.02	%
Puerto Rico		4,109,524		—	—	%
	$	899,059,872	$	871,733,280	100.00	%

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The following is a summary of geographical concentration of our investment portfolio as of December 31, 2021:


					% of Total
					Investments
	Cost		Fair Value		at fair value
California	$	153,793,390	$	157,446,299	20.37	%
Texas		161,550,893		142,657,160	18.46	%
Illinois		69,780,236		71,066,882	9.20	%
Pennsylvania		42,866,707		42,604,002	5.51	%
Washington		41,067,458		40,790,941	5.28	%
Ohio		36,551,789		38,218,517	4.94	%
Arizona		31,165,320		31,117,284	4.03	%
New York		25,161,998		27,334,823	3.54	%
Wisconsin		25,880,018		25,893,643	3.35	%
New Jersey		25,518,474		23,548,670	3.05	%
United Kingdom		21,320,828		19,537,231	2.53	%
Georgia		11,066,059		19,045,442	2.46	%
Maryland		16,838,603		16,974,999	2.20	%
Minnesota		15,922,220		15,688,073	2.03	%
Colorado		15,151,135		14,980,283	1.94	%
South Carolina		13,270,660		13,270,530	1.71	%
Canada		13,418,371		13,265,324	1.71	%
Florida		12,966,130		13,220,344	1.71	%
District of Columbia		11,798,134		13,137,892	1.70	%
Missouri		9,871,933		10,600,866	1.37	%
North Carolina		10,503,957		10,360,521	1.34	%
Massachusetts		10,281,055		10,348,341	1.34	%
Puerto Rico		8,760,589		1,149,047	0.15	%
Virginia		500,000		616,212	0.08	%
	$	785,005,957	$	772,873,326	100.00	%

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The following is a summary of industry concentration of our investment portfolio as of September 30, 2022:


					% of Total
	Cost		Fair Value		Investments
Services: Business	$	204,607,775	$	216,144,996	24.80	%
Healthcare & Pharmaceuticals		85,931,481		83,081,912	9.53	%
Media: Advertising, Printing & Publishing		52,871,690		52,545,237	6.03	%
Consumer Goods: Non-Durable		55,272,075		52,204,827	5.99	%
Consumer Goods: Durable		46,305,068		45,631,242	5.23	%
Aerospace & Defense		49,263,250		42,197,058	4.84	%
Capital Equipment		41,803,330		41,772,219	4.79	%
Software		37,641,126		38,124,297	4.37	%
Beverage, Food, & Tobacco		34,277,269		32,515,226	3.73	%
Media: Broadcasting & Subscription		24,771,765		31,094,050	3.57	%
Chemicals, Plastics, & Rubber		29,763,100		29,310,956	3.36	%
Environmental Industries		27,757,137		26,742,482	3.07	%
Construction & Building		27,049,132		26,382,118	3.03	%
Services: Consumer		43,293,446		24,404,811	2.80	%
Transportation & Logistics		16,795,563		17,417,956	2.00	%
Metals & Mining		16,741,058		16,591,093	1.90	%
Containers, Packaging, & Glass		17,466,658		14,528,718	1.67	%
Retail		13,384,274		13,303,091	1.53	%
High Tech Industries		14,148,629		12,046,313	1.38	%
FIRE: Real Estate		15,655,039		11,303,322	1.30	%
Automotive		11,269,059		11,197,250	1.28	%
Education		10,996,579		10,409,233	1.19	%
Utilities: Oil & Gas		9,916,397		9,800,000	1.12	%
Energy: Oil & Gas		9,052,102		8,590,797	0.99	%
Finance		2,726,480		3,413,460	0.39	%
Hotel, Gaming, & Leisure		-		685,208	0.08	%
Media: Diversified & Production		300,390		295,408	0.03	%
Total	$	899,059,872	$	871,733,280	100.00	%

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The following is a summary of industry concentration of our investment portfolio as of December 31, 2021:


					% of Total
					Investments
	Cost		Fair Value		at fair value
Services: Business	$	167,253,835	$	177,242,299	22.93	%
Healthcare & Pharmaceuticals		104,933,428		99,584,343	12.89	%
Aerospace & Defense		66,503,939		63,467,579	8.21	%
Media: Advertising, Printing & Publishing		53,136,718		51,125,659	6.62	%
Media: Broadcasting & Subscription		39,319,912		42,892,137	5.55	%
Consumer Goods: Durable		36,216,806		36,537,445	4.73	%
Beverage, Food, & Tobacco		34,089,805		33,791,047	4.37	%
Consumer Goods: Non-Durable		30,597,444		29,447,632	3.81	%
Construction & Building		27,333,360		27,282,504	3.53	%
Environmental Industries		26,826,229		26,355,789	3.41	%
Software		21,498,947		23,841,617	3.08	%
Services: Consumer		40,034,415		22,682,119	2.93	%
Transportation & Logistics		18,583,797		18,934,004	2.45	%
Containers, Packaging, & Glass		17,557,212		17,710,907	2.29	%
Metals & Mining		16,838,603		16,974,999	2.20	%
FIRE: Real Estate		15,694,701		15,824,998	2.05	%
Chemicals, Plastics, & Rubber		14,638,210		14,288,322	1.85	%
Education		11,053,167		11,053,167	1.43	%
Automotive		11,064,612		10,800,000	1.40	%
Energy: Oil & Gas		11,098,912		10,461,417	1.35	%
Utilities: Oil & Gas		9,901,900		9,800,000	1.27	%
Capital Equipment		8,322,806		8,182,736	1.06	%
Finance		2,507,199		4,108,356	0.53	%
Hotel, Gaming, & Leisure		—		484,250	0.06	%
	$	785,005,957	$	772,873,326	100.00	%

The following provides quantitative information about Level 3 fair value measurements as of September 30, 2022:


Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)⁽¹⁾⁽³⁾
First lien debt	$	742,272,654	Income/Market	HY credit spreads,	-1.31% to 5.10% (1.68%)
			approach⁽²⁾	Risk free rates	-0.33% to 3.88% (2.72%)
				Market multiples	3.7x to 23.6x (10.7x)⁽⁴⁾

Second lien debt	$	58,220,675	Income/Market	HY credit spreads,	-0.27% to 2.34% (1.39%)
			approach⁽²⁾	Risk free rates	1.18% to 3.91% (2.59%)
				Market multiples	5.8x to 18.3x (12.5x)⁽⁴⁾

Unsecured debt	$	4,760,750	Income/Market	HY credit spreads,	4.65% to 4.65% (4.65%)
			approach⁽²⁾	Risk free rates	3.66% to 3.66% (3.66%)
				Market multiples	9.5x to 9.5x (9.5x)⁽⁴⁾

Equity investments	$	66,479,201	Market approach⁽⁵⁾	Underwriting multiple/
				EBITDA Multiple	1.1x to 24.6x (11.5x)
Total Long Term Level 3 Investments	$	871,733,280

(1)	Weighted average based on fair value as of September 30, 2022.

(2)	Included 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.

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(3)

The Company calculates the price of the loan by discounting future cash flows, which include forecasted future LIBOR, SOFR, or BSBY 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 could result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for 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 -1.31% (-131 basis points) to 5.10% (510 basis points). The average of all changes was 1.68% (168 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 could 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.

The following provides quantitative information about Level 3 fair value measurements as of December 31, 2021:



Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)⁽¹⁾⁽³⁾
First lien debt	$	646,352,935	Income/Market⁽²⁾	HY credit spreads,	-3.93% to 0.48% (-0.24%)
			approach	Risk free rates	-1.95% to 0.86% (-0.05%)
				Market multiples	4.5x to 25x (11.6x)⁽⁴⁾

Second lien debt	$	56,733,110	Income/Market⁽²⁾	HY credit spreads,	-2.54% to 0.53% (-0.53%)
			approach	Risk free rates	-1.79% to 0.94% (-0.29%)
				Market multiples	7.1x to 16.4x (12.9x)⁽⁴⁾

Unsecured debt	$	4,883,854	Income/Market	HY credit spreads,	0.25% to 0.25% (0.25%)
			approach⁽²⁾	Risk free rates	0.75% to 0.75% (0.75%)
				Market multiples	12.4x to 12.4x (12.4x)⁽⁴⁾

Equity investments	$	64,903,427	Market approach⁽⁵⁾	Underwriting	1.6x to 24.9x (11.5x)
				EBITDA Multiple
Total Long Term Level 3 Investments	$	772,873,326

(1)	Weighted average based on fair value as of December 31, 2021.

(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 rates based on the published forward LIBOR 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 -3.93% (-393 basis points) to 0.48% (48 basis points). The average of all changes was -0.24%.

(4)	Median of LTM (last twelve months) EBITDA multiples of comparable companies.

(5)

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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.

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, 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 business, financial condition or results of operations.

As of September 30, 2022, the Company had $29,965,990 in unfunded debt commitments and $303,910 in unfunded equity commitments to 49 existing portfolio companies. As of December 31, 2021, the Company had $30,674,452 in unfunded debt commitments and $308,282 in unfunded equity commitments to 32 existing portfolio companies. As of September 30, 2022, 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.

NOTE 8 — FINANCIAL HIGHLIGHTS


	For the			For the
	nine months ended			nine months ended
	September 30,			September 30,
	2022			2021
	(unaudited)			(unaudited)
Per Share Data:⁽¹⁾
Net asset value at beginning of period	$	14.61		$	14.03
Net investment income		0.97			0.75
Change in unrealized (depreciation) appreciation on investments		(0.66)			0.20
Net realized gain		0.24			0.34
Loss on debt extinguishment		—			(0.03)
Provision for taxes on unrealized appreciation on investments		(0.01)			(0.03)
Provision for taxes on realized gain on investments		—			(0.03)
Total from operations	$	0.54		$	1.20
Sales load		(0.00)			—
Offering costs		(0.01)			—
Stockholder distributions from:
Net investment income		(0.96)			(1.08)
Net asset value at end of period	$	14.18		$	14.15
Per share market value at end of period	$	11.93		$	13.06
Total return based on market value⁽²⁾		(2.3)	%		25.9	%
Weighted average shares outstanding for the period		19,535,708			19,486,003

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	For the			For the
	nine months ended			nine months ended
	September 30,			September 30,
	2022			2021
	(unaudited)			(unaudited)
Ratio/Supplemental Data:⁽¹⁾
Net assets at end of period	$	277,177,984		$	275,644,969
Weighted average net assets	$	283,289,645		$	273,663,257
Annualized ratio of gross operating expenses to net assets⁽⁵⁾		15.57	%		15.59	%
Annualized ratio of interest expense and other fees to net assets		7.96	%		6.78	%
Annualized ratio of net investment income to net assets⁽⁵⁾		8.91	%		6.95	%
Portfolio turnover⁽³⁾		8.92	%		17.17	%
Notes payable	$	100,000,000		$	100,000,000
Credit Facility payable	$	199,033,419		$	189,800,000
SBA-guaranteed debentures	$	306,000,000		$	250,000
Asset coverage ratio⁽⁴⁾		1.93	x		1.95	x

(1)	Based on weighted average shares of common stock outstanding for the period.

(2)	Total return on market value is based on the change in market price per share since the end of the prior year and assumes enrollment in the Company’s DRIP. The total returns are not annualized.

(3)	Portfolio turnover is calculated as the lesser of purchases or sales and repayments of investments divided by average portfolio balance and is not annualized.

(4)	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.

(5)

These ratios include the impact of income tax provision on net unrealized depreciation in Taxable Subsidiaries of ($151,278) and ($586,640), respectively, which are not reflected in total operating expenses or net investment income. The impact of the tax provision on net unrealized appreciation to weighted average net assets for the nine months ended September 30, 2022 and 2021 is 0.07% and 0.29%, respectively.

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 and May 13, 2022, 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 $265,000,000 on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $280,000,000, 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 September 18, 2024, 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 September 18, 2025.

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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 2.00 to 1.00. As of September 30, 2022 and December 31, 2021, the Company was in compliance with these covenants.

As of September 30, 2022 and December 31, 2021, $199,033,419 and $177,340,000, respectively, was outstanding under the Credit Facility. 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 $3,967,310 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 September 30, 2022 and December 31, 2021, $1,662,188 and $1,888,884 of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on our Consolidated Statements 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:


	September 30,		December 31,
	2022		2021
Credit Facility payable	$	199,033,419	$	177,340,000
Prepaid loan structure fees		(1,662,188)		(1,888,884)
Credit facility payable, net of prepaid loan structure fees	$	197,371,231	$	175,451,116

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 three and nine months ended September 30, 2022 and 2021:


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	2,575,787		$	1,406,123		$	5,800,223		$	3,873,550
Loan fee amortization		148,121			150,598			420,356			390,298
Total interest and financing expenses	$	2,723,908		$	1,556,721		$	6,220,579		$	4,263,848
Weighted average interest rate		4.9	%		2.8	%		3.8	%		2.8	%
Effective interest rate (including fee amortization)		5.2	%		3.2	%		4.1	%		3.3	%
Average debt outstanding	$	207,437,767		$	191,891,304		$	201,712,826		$	174,057,143
Cash paid for interest and unused fees	$	2,548,660		$	1,415,901		$	5,772,502		$	3,904,908

NOTE 10 — SBA-GUARANTEED DEBENTURES

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 September 30, 2022 and December 31, 2021, the SBIC subsidiary had $75,000,000 in regulatory capital, as such term is defined by the SBA, and $150,000,000 of SBA-guaranteed debentures outstanding.

As of September 30, 2022, and December 31, 2021, the SBIC II subsidiary had $87,500,000 both in regulatory capital, as such term is defined by the SBA and $156,000,000 and $100,000,000 of SBA-guaranteed debentures outstanding, respectively.

On August 12, 2014, the Company obtained exemptive relief from the SEC to permit it to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from its asset coverage test under the 1940 Act. The exemptive relief provides the Company with increased

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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 held $463,857,626 and $403,333,676 in assets at September 30, 2022 and December 31, 2021, respectively, which accounted for approximately 52.2% and 49.1% of the Company’s total consolidated assets, respectively.

Debentures guaranteed by the SBA 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 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 treasury rate plus a spread at each pooling date.

The following table summarizes the SBIC subsidiaries’ aggregate SBA-guaranteed debentures as of September 30, 2022:


Issuance Date	Licensee	Maturity Date	Debenture Amount		Interest Rate		SBA Annual Charge
October 14, 2014	SBIC I	March 1, 2025	$	6,500,000	2.52	%	0.36	%
October 17, 2014	SBIC I	March 1, 2025		6,500,000	2.52	%	0.36	%
December 24, 2014	SBIC I	March 1, 2025		3,250,000	2.52	%	0.36	%
June 29, 2015	SBIC I	September 1, 2025		9,750,000	2.83	%	0.36	%
October 22, 2015	SBIC I	March 1, 2026		6,500,000	2.51	%	0.36	%
October 22, 2015	SBIC I	March 1, 2026		1,500,000	2.51	%	0.74	%
November 10, 2015	SBIC I	March 1, 2026		8,800,000	2.51	%	0.74	%
November 18, 2015	SBIC I	March 1, 2026		1,500,000	2.51	%	0.74	%
November 25, 2015	SBIC I	March 1, 2026		8,800,000	2.51	%	0.74	%
December 16, 2015	SBIC I	March 1, 2026		2,200,000	2.51	%	0.74	%
December 29, 2015	SBIC I	March 1, 2026		9,700,000	2.51	%	0.74	%
November 28, 2017	SBIC I	March 1, 2028		25,000,000	3.19	%	0.22	%
April 27, 2018	SBIC I	September 1, 2028		40,000,000	3.55	%	0.22	%
July 30, 2018	SBIC I	September 1, 2028		17,500,000	3.55	%	0.22	%
September 25, 2018	SBIC I	March 1, 2029		2,500,000	3.11	%	0.22	%
Total SBIC I SBA-guaranteed Debentures			$	150,000,000

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Issuance Date	Licensee	Maturity Date	Debenture Amount		Interest Rate		SBA Annual Charge
October 17, 2019	SBIC II	March 1, 2030	$	6,000,000	2.08	%	0.09	%
November 15, 2019	SBIC II	March 1, 2030		5,000,000	2.08	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		9,000,000	1.67	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		6,500,000	1.67	%	0.27	%
February 16, 2021	SBIC II	March 1, 2031		13,500,000	1.67	%	0.27	%
February 26, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
March 2, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
April 21, 2021	SBIC II	September 1, 2031		10,000,000	1.30	%	0.27	%
May 14, 2021	SBIC II	September 1, 2031		6,700,000	1.30	%	0.27	%
May 28, 2021	SBIC II	September 1, 2031		7,300,000	1.30	%	0.27	%
July 23, 2021	SBIC II	September 1, 2031		16,000,000	1.30	%	0.27	%
February 25, 2022	SBIC II	March 1, 2032		10,000,000	2.94	%	0.27	%
March 29, 2022	SBIC II	September 1, 2032		10,000,000	4.26	%	0.27	%
April 1, 2022	SBIC II	September 1, 2032		6,670,000	4.26	%	0.27	%
April 12, 2022	SBIC II	September 1, 2032		6,665,000	4.26	%	0.27	%
April 21, 2022	SBIC II	September 1, 2032		6,665,000	4.26	%	0.27	%
June 30, 2022	SBIC II	September 1, 2032		3,600,000	4.26	%	0.27	%
July 28, 2022	SBIC II	September 1, 2032		6,400,000	4.26	%	0.27	%
September 9, 2022	SBIC II	March 1, 2033		6,000,000	4.07	%⁽¹⁾	0.27	%
Total SBIC II SBA-guaranteed Debentures			$	156,000,000
Total SBA-guaranteed debentures			$	306,000,000

(1)	Interest rate of the SBA-guaranteed debentures will be set as determined by the SBA when pooled on March 22, 2023.

As of September 30, 2022 and December 31, 2021, the carrying amount of the SBA-guaranteed debentures approximated their fair value. 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 value 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. At September 30, 2022 and December 31, 2021, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of September 30, 2022, the Company has incurred $10,686,100 in financing costs related to the SBA-guaranteed debentures since receiving its licenses, which were recorded as prepaid loan fees. As of September 30, 2022 and December 31, 2021, $5,842,403 and $5,384,097 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements 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:


	September 30,		December 31,
	2022		2021
SBA debentures payable	$	306,000,000	$	250,000,000
Prepaid loan fees		(5,842,403)		(5,384,097)
SBA Debentures, net of prepaid loan fees	$	300,157,597	$	244,615,903

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The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and nine months ended September 30, 2022 and 2021:


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	2,076,751		$	1,661,946		$	5,743,011		$	4,644,014
Debenture fee amortization		316,274			299,373			905,294			801,258
Total interest and financing expenses	$	2,393,025		$	1,961,319		$	6,648,305		$	5,445,272
Weighted average interest rate		2.8	%		2.7	%		2.7	%		2.8	%
Effective interest rate (including fee amortization)		3.2	%		3.2	%		3.2	%		3.3	%
Average debt outstanding	$	299,556,522		$	246,173,913		$	280,681,996		$	220,354,579
Cash paid for interest	$	3,955,224		$	3,201,057		$	7,360,295		$	5,907,676

NOTE 11 — NOTES

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 Statements of Operations for the nine months ended September 30, 2021.

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, 2020, the fair value of the 2022 Notes was $49,168,250. The carrying value of the 2022 Notes approximates fair value.

The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the nine months ended September 30, 2021:


	For the nine months ended


	September 30,
	2021
Interest expense	$	320,063
Deferred financing costs		28,232
Administration fees		9,000
Total interest and financing expenses	$	357,295
Loss on debt extinguishment⁽¹⁾		539,250
Weighted average interest rate⁽²⁾		5.7	%
Effective interest rate (including fee amortization)⁽²⁾		6.4	%
Average debt outstanding⁽³⁾	$	48,875,000
Cash paid for interest	$	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 nine months ended September 30, 2021, the average is calculated for the period January 1, 2021 through February 12, 2021; the repayment date of the 2022 Notes.

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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 both September 30, 2022 and December 31, 2021, the aggregate carrying amount of the 2026 Notes was approximately $100,000,000.

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. As of September 30, 2022 and December 31, 2021, $1,562,905 and $1,897,027 of prepaid financing costs had yet to be amortized, respectively. These financing costs are presented on the Consolidated Statements 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 three and nine months ended September 30, 2022 and 2021:


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	1,218,750		$	1,218,750		$	3,656,250		$	3,480,208
Deferred financing costs		112,598			117,598			339,122			323,211
Total interest and financing expenses	$	1,331,348		$	1,336,348		$	3,995,372		$	3,803,419
Weighted average interest rate		4.8	%		4.8	%		4.9	%		4.9	%
Effective interest rate (including fee amortization)		5.3	%		5.3	%		5.3	%		5.3	%
Average debt outstanding	$	100,000,000		$	100,000,000		$	100,000,000		$	100,000,000⁽¹⁾
Cash paid for interest	$	2,437,500		$	3,466,667		$	4,880,000		$	3,466,667

(1)	Calculated for the period from January 14, 2021, the date of the 2026 bond offering, through September 30, 2021.

The following is a summary of the 2026 Notes Payable, net of deferred financing costs:


	September 30,		December 31,
	2022		2021
Notes payable	$	100,000,000	$	100,000,000
Deferred financing costs		(1,562,905)		(1,897,027)
Notes payable, net of deferred financing costs	$	98,437,095	$	98,102,973

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 September 30, 2022 and 2021, the Company was in compliance with these covenants.

NOTE 12 — SUBSEQUENT EVENTS

Investment Portfolio

New and Add-On Investments


Activity Type	Date	Company Name	Company Description	Investment Amount	Instrument Type
New Investment	October 12, 2022	NINJIO, LLC	Cybersecurity awareness and training platform	$5,000,000	First lien term loan
				$100,000	Revolver commitment
				$100,000	Delayed draw term loan commitment
				$313,253	Equity investment

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Full Repayments and Realizations


Activity Type	Date	Company Name	Company Description	Proceeds Received	Realized Gain	Instrument Type
Full Realization	October 17, 2022	EC Defense Holdings, LLC	Existing portfolio company	$1,159,638	$950,000	Equity investment

Credit Facility

The outstanding balance under the Credit Facility as of November 3, 2022 was $206,828,283.

Dividends Declared

On October 4, 2022, the Board declared a regular monthly dividend for each of October 2022, November 2022 and December 2022 as follows:


	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
10/04/2022	10/28/2022	10/31/2022	11/15/2022	$	0.0933
10/04/2022	11/29/2022	11/30/2022	12/15/2022	$	0.0933
10/04/2022	12/15/2022	12/16/2022	12/29/2022	$	0.0933

On October 4, 2022, the Board declared an additional monthly dividend for each of October 2022, November 2022 and December 2022 as follows:


	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
10/04/2022	10/28/2022	10/31/2022	11/15/2022	$	0.02
10/04/2022	11/29/2022	11/30/2022	12/15/2022	$	0.02
10/04/2022	12/15/2022	12/16/2022	12/29/2022	$	0.02

Custody Agreement

Ðn November 2, 2022, the Company's SBIC Subsidiary, a wholly owned subsidiary of the Company, entered into a Custody Agreement, dated as of November 2, 2022 (the "Frost Agreement”), with Frost Bank (“Frost”), pursuant to which Frost was appointed as a custodian to hold certain securities, loans, cash, and other assets on behalf of the SBIC Subsidiary. Either party may terminate the Frost Agreement at any time upon sixty (60) days’ prior written notice.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or Stellus Capital Investment Corporation’s (“we”, “us”, “our” and the “Company”) future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, related to the current COVID-19 pandemic and otherwise, 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, LLC (“Stellus Capital” or the “Advisor”);

●

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 London Interbank Offered Rate ("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 to locate suitable investments for us and to monitor and administer our investments;

●

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

●

our ability to maintain our qualification as a regulated investment company (“RIC”) and as a business development company (“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 BDC 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 quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. 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 U.S. Securities and Exchange Commission (“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 Investment Company Act of 1940, as amended (the “1940 Act”). Our investment activities are managed by our investment adviser, Stellus Capital.

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 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 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 September 30, 2022, we were in compliance with the RIC requirements. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income we distribute to our stockholders.

On March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement to 150% from 200% under certain circumstances.

On April 4, 2018, the 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 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 28, 2019 which effectively increased the amount of leverage we may incur. As of September 30, 2022, our asset coverage ratio was 193%. 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.

COVID-19 Developments

The effect on the U.S. and global economy of the ongoing pandemic caused by the novel coronavirus, SARS-CoV-2 (also referred to as “COVID-19” or “Coronavirus”, uncertainty relating to new variants of the Coronavirus that have emerged in the United States and globally, vaccine distribution, hesitancy and efficacy, the length of economic recovery, and policies of the U.S. presidential administration have created stress on the market and could affect our portfolio companies. Each portfolio company has been assessed on an individual basis to identify the impact of the COVID-19 pandemic on the valuation of our investments in such company. We believe that any such COVID-19 pandemic impacts have been reflected in the valuation of our investments.

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Economic Developments

Portfolio Composition and Investment Activity

Portfolio Composition

We originate and invest primarily in privately-held 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 (including unitranche), second lien, and unsecured debt financing, often times with a corresponding equity investment.

As of September 30, 2022, we had $871.7 million (at fair value) invested in 89 portfolio companies. As of September 30, 2022, our portfolio included approximately 85% of first lien debt, 7% of second lien debt, 0% of unsecured debt and 8% of equity investments at fair value. The composition of our investments at cost and fair value as of September 30, 2022 was as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	756,556,124	$	742,272,654
Senior Secured – Second Lien		84,851,781		58,220,675
Unsecured Debt		5,515,021		4,760,750
Equity		52,136,946		66,479,201
Total Investments	$	899,059,872	$	871,733,280

(1)

Includes unitranche investments, which account for 3.0% 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.

As of December 31, 2021, we had $772.9 million (at fair value) invested in 73 portfolio companies. As of December 31, 2021, our portfolio included approximately 84% of first lien debt, 7% 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, 2021 was as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	652,561,144	$	646,352,935
Senior Secured – Second Lien		79,806,598		56,733,110
Unsecured Debt		5,030,143		4,883,854
Equity		47,608,072		64,903,427
Total Investments	$	785,005,957	$	772,873,326

(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.

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 September 30, 2022 and December 31, 2021, we had unfunded commitments of $30.3 million and $31.0 million, respectively, to provide debt financing to 49 and 32 portfolio companies, respectively. As of September 30, 2022, 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 September 30, 2022:


					% of Total
	Cost		Fair Value		Investments
Texas	$	201,139,725	$	179,543,296	20.60	%
California		161,803,119		159,142,278	18.26	%
Illinois		66,129,076		60,270,478	6.91	%
Florida		56,001,786		55,461,152	6.36	%
Arizona		43,211,187		43,543,647	4.99	%
Pennsylvania		42,867,943		41,965,443	4.81	%
Ohio		34,745,618		37,284,222	4.28	%
Wisconsin		35,829,829		32,737,796	3.75	%
Washington		29,022,571		28,411,087	3.26	%
New Jersey		25,391,042		25,077,935	2.88	%
District of Columbia		17,442,141		20,718,474	2.38	%
Georgia		10,794,107		19,016,228	2.18	%
South Carolina		19,293,358		19,020,058	2.18	%
United Kingdom		21,662,273		16,880,158	1.94	%
Maryland		16,893,052		16,738,333	1.92	%
Minnesota		16,903,698		15,915,549	1.83	%
New York		11,427,678		15,055,505	1.73	%
Colorado		15,265,769		14,555,303	1.67	%
Indiana		14,334,657		14,334,657	1.64	%
Canada		13,354,136		13,244,350	1.52	%
North Carolina		10,477,022		10,621,949	1.22	%
Massachusetts		10,231,602		10,567,200	1.21	%
Idaho		10,456,322		10,238,234	1.17	%
Missouri		9,597,884		10,117,698	1.16	%
Virginia		500,000		1,100,000	0.13	%
Michigan		174,753		172,250	0.02	%
Puerto Rico		4,109,524		—	—	%
	$	899,059,872	$	871,733,280	100.00	%

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The following is a summary of geographical concentration of our investment portfolio as of December 31, 2021:


					% of Total
					Investments
	Cost		Fair Value		at fair value
California	$	153,793,390	$	157,446,299	20.37	%
Texas		161,550,893		142,657,160	18.46	%
Illinois		69,780,236		71,066,882	9.20	%
Pennsylvania		42,866,707		42,604,002	5.51	%
Washington		41,067,458		40,790,941	5.28	%
Ohio		36,551,789		38,218,517	4.94	%
Arizona		31,165,320		31,117,284	4.03	%
New York		25,161,998		27,334,823	3.54	%
Wisconsin		25,880,018		25,893,643	3.35	%
New Jersey		25,518,474		23,548,670	3.05	%
United Kingdom		21,320,828		19,537,231	2.53	%
Georgia		11,066,059		19,045,442	2.46	%
Maryland		16,838,603		16,974,999	2.20	%
Minnesota		15,922,220		15,688,073	2.03	%
Colorado		15,151,135		14,980,283	1.94	%
South Carolina		13,270,660		13,270,530	1.71	%
Canada		13,418,371		13,265,324	1.71	%
Florida		12,966,130		13,220,344	1.71	%
District of Columbia		11,798,134		13,137,892	1.70	%
Missouri		9,871,933		10,600,866	1.37	%
North Carolina		10,503,957		10,360,521	1.34	%
Massachusetts		10,281,055		10,348,341	1.34	%
Puerto Rico		8,760,589		1,149,047	0.15	%
Virginia		500,000		616,212	0.08	%
	$	785,005,957	$	772,873,326	100.00	%

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The following is a summary of industry concentration of our investment portfolio as of September 30, 2022:


					% of Total
	Cost		Fair Value		Investments
Services: Business	$	204,607,775	$	216,144,996	24.80	%
Healthcare & Pharmaceuticals		85,931,481		83,081,912	9.53	%
Media: Advertising, Printing & Publishing		52,871,690		52,545,237	6.03	%
Consumer Goods: Non-Durable		55,272,075		52,204,827	5.99	%
Consumer Goods: Durable		46,305,068		45,631,242	5.23	%
Aerospace & Defense		49,263,250		42,197,058	4.84	%
Capital Equipment		41,803,330		41,772,219	4.79	%
Software		37,641,126		38,124,297	4.37	%
Beverage, Food, & Tobacco		34,277,269		32,515,226	3.73	%
Media: Broadcasting & Subscription		24,771,765		31,094,050	3.57	%
Chemicals, Plastics, & Rubber		29,763,100		29,310,956	3.36	%
Environmental Industries		27,757,137		26,742,482	3.07	%
Construction & Building		27,049,132		26,382,118	3.03	%
Services: Consumer		43,293,446		24,404,811	2.80	%
Transportation & Logistics		16,795,563		17,417,956	2.00	%
Metals & Mining		16,741,058		16,591,093	1.90	%
Containers, Packaging, & Glass		17,466,658		14,528,718	1.67	%
Retail		13,384,274		13,303,091	1.53	%
High Tech Industries		14,148,629		12,046,313	1.38	%
FIRE: Real Estate		15,655,039		11,303,322	1.30	%
Automotive		11,269,059		11,197,250	1.28	%
Education		10,996,579		10,409,233	1.19	%
Utilities: Oil & Gas		9,916,397		9,800,000	1.12	%
Energy: Oil & Gas		9,052,102		8,590,797	0.99	%
Finance		2,726,480		3,413,460	0.39	%
Hotel, Gaming, & Leisure		—		685,208	0.08	%
Media: Diversified & Production		300,390		295,408	0.03	%
Total	$	899,059,872	$	871,733,280	100.00	%

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The following is a summary of industry concentration of our investment portfolio as of December 31, 2021:


					% of Total
					Investments
	Cost		Fair Value		at fair value
Services: Business	$	167,253,835	$	177,242,299	22.93	%
Healthcare & Pharmaceuticals		104,933,428		99,584,343	12.89	%
Aerospace & Defense		66,503,939		63,467,579	8.21	%
Media: Advertising, Printing & Publishing		53,136,718		51,125,659	6.62	%
Media: Broadcasting & Subscription		39,319,912		42,892,137	5.55	%
Consumer Goods: Durable		36,216,806		36,537,445	4.73	%
Beverage, Food, & Tobacco		34,089,805		33,791,047	4.37	%
Consumer Goods: Non-Durable		30,597,444		29,447,632	3.81	%
Construction & Building		27,333,360		27,282,504	3.53	%
Environmental Industries		26,826,229		26,355,789	3.41	%
Software		21,498,947		23,841,617	3.08	%
Services: Consumer		40,034,415		22,682,119	2.93	%
Transportation & Logistics		18,583,797		18,934,004	2.45	%
Containers, Packaging, & Glass		17,557,212		17,710,907	2.29	%
Metals & Mining		16,838,603		16,974,999	2.20	%
FIRE: Real Estate		15,694,701		15,824,998	2.05	%
Chemicals, Plastics, & Rubber		14,638,210		14,288,322	1.85	%
Education		11,053,167		11,053,167	1.43	%
Automotive		11,064,612		10,800,000	1.40	%
Energy: Oil & Gas		11,098,912		10,461,417	1.35	%
Utilities: Oil & Gas		9,901,900		9,800,000	1.27	%
Capital Equipment		8,322,806		8,182,736	1.06	%
Finance		2,507,199		4,108,356	0.53	%
Hotel, Gaming, & Leisure		—		484,250	0.06	%
	$	785,005,957	$	772,873,326	100.00	%

At September 30, 2022, our average portfolio company investment at amortized cost and fair value was approximately $10.1 million and $9.8 million, respectively, and our largest portfolio company investment at amortized cost and fair value was $20.7 million and $20.5 million, respectively. At December 31, 2021, our average portfolio company investment at amortized cost and fair value was approximately $10.8 million and $10.6 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $21.3 million and $20.5 million, respectively.

At September 30, 2022, 97% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 3% bore interest at fixed rates. At December 31, 2021, 96% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 4% bore interest at fixed rates.

The weighted average yield on all of our debt investments as of September 30, 2022 and December 31, 2021 was approximately 9.8% and 8.0%, respectively. The weighted average yield on all of our investments, including non-income producing equity positions, as of September 30, 2022 and December 31, 2021 was approximately 9.2% and 7.5%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of original issue discount. The weighted average yield of our debt investments is not the same as a return on investment for our stockholder, but rather relates to a portion of our investment portfolio and is calculated before the payment of all of our subsidiaries’ fees and expenses.

As of September 30, 2022 and December 31, 2021, we had cash and cash equivalents of $12.4 million and $44.2 million, respectively.

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Investment Activity

During the nine months ended September 30, 2022, we made an aggregate of $181.0 million of investments in 20 new portfolio companies and 26 existing portfolio companies. During the nine months ended September 30, 2022, we received an aggregate of $74.4 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 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.


	As of September 30, 2022					As of December 31, 2021
	(dollars in millions)					(dollars in millions)
					Number of					Number of
			% of Total		Portfolio			% of Total		Portfolio
Investment Category	Fair Value		Portfolio		Companies	Fair Value		Portfolio		Companies
1	$	158.8	18	%	19	$	63.6	8	%	12
2		559.6	64	%	53		585.0	76	%	48
3		132.8	15	%	13		118.4	15	%	10
4		20.5	3	%	2		3.7	1	%	1
5		—	—	%	2		2.2	—	%	2
Total	$	871.7	100	%	89	$	772.9	100	%	73

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 September 30, 2022, we had loans to four portfolio companies that were on non-accrual status, which represented approximately 5.5% of our loan portfolio at cost and 2.5% at fair value. As of December 31, 2021, we had loans to three portfolio companies that were on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 0.8% at fair value. As of September 30, 2022 and December 31, 2021, $6.2 million and $10.4 million of income from investments on non-accrual has not been accrued, respectively.

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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 three months and nine months ended September 30, 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 at 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 interest in-kind, or 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.

The following shows the breakdown of investment income for the three and nine months ended September 30, 2022 and 2021 (in millions).


	For the three months ended				For the nine months ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest income⁽¹⁾	$	19.0	$	16.2	$	49.0	$	44.2
PIK interest		0.3		0.2		1.0		0.6
Miscellaneous fees⁽¹⁾		0.8		0.6		1.7		1.3
Total	$	20.1	$	17.0	$	51.7	$	46.1

(1)

For the three and nine months ended September 30, 2022, we recognized $0.6 million and $0.5 million, respectively, of non-recurring income related to early repayments, interest write-offs and amendments to specific loan positions. For the three and nine months ended September 30, 2021, we recognized $0.8 million and $1.3 million of non-recurring income related to early repayments, and amendments to specific loan positions.

The increase in interest income from the respective periods was due primarily to growth in the overall investment portfolio.

Expenses

Our primary operating expenses include the payment of fees to Stellus Capital 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;

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●

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

●

offerings of our commons 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’s overhead in performing its obligations under the administration agreement, including rent and the allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs);

●

transfer 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;

●

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 in connection with administering our business.

The following shows the breakdown of operating expenses for the three and nine months ended September 30, 2022 and 2021 (in millions).


	For the three months ended				For the nine months ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Operating Expenses
Management fees	$	3.8	$	3.5	$	11.0	$	9.7
Valuation fees		0.1		0.1		0.3		0.3
Administrative services expenses		0.5		0.4		1.4		1.4
Income incentive fees		1.6		1.5		1.6		1.5
Capital gains incentive (reversal) fees		(0.6)		1.7		(1.7)		1.8
Professional fees		0.3		0.3		0.8		0.8
Directors' fees		0.1		0.1		0.3		0.2
Insurance expense		0.1		0.1		0.4		0.4
Interest expense and other fees		6.5		4.9		16.9		13.9
Income tax expense		0.4		0.2		1.1		0.7
Other general and administrative expenses		0.2		0.2		0.8		0.8
Total Operating Expenses	$	13.0	$	13.0	$	32.9	$	31.5

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The increase in operating expenses for both the three months ended September 30, 2021 and nine months ended September 30, 2021 was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures and 2026 Notes and (2) higher management fees due to a larger investment portfolio.

Net Investment Income

For the three months ended September 30, 2022, net investment income was $7.2 million, or $0.37 per common share (based on 19,545,935 weighted average shares outstanding for the quarter ended September 30, 2022).

For the three months ended September 30, 2021, net investment income was $4.1 million, or $0.21 per common share (based on 19,486,003 weighted average shares outstanding for the quarter ended September 30, 2021).

For the nine months ended September 30, 2022, net investment income was $18.9 million, or $0.97 per common share (based on 19,535,708 weighted average shares outstanding for the nine months ended September 30, 2022).

For the nine months ended September 30, 2021, net investment income was $14.7 million, or $0.75 per common share (based on 19,486,003 weighted average shares outstanding for the nine months ended September 30, 2021).

The increase in net investment income over the respective periods was due to higher investment income as a result of a larger investment portfolio, rising interest rates, offset by the increase in 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 three months ended September 30, 2022 totaled $16.2 million and net realized gains totaled $1.6 million.

Repayments and sales of investments and amortization of other certain investments for the three months ended September 30, 2021 totaled $67.6 million, and net realized gains totaled $7.9 million, primarily attributable to the loss after the restructuring of one specific investment.

Proceeds from repayments of investments and amortization of certain other investments for the nine months ended September 30, 2022 totaled $74.4 million and net realized gains totaled $4.7 million.

Repayments and sales of investments and amortization of other certain investments for the nine months ended September 30, 2021 totaled $123.6 million, and net realized gains totaled $6.6 million, primarily attributable to the loss after the restructuring of one specific investment.

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 (depreciation) appreciation on investments and cash equivalents for the three months ended September 30, 2022 and 2021 totaled ($4.8) million and $2.1 million, respectively.

Net change in unrealized (depreciation) appreciation on investments and cash equivalents for the nine months ended September 30, 2022 and 2021 totaled ($12.8) million and $3.9 million, respectively.

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The change in unrealized depreciation over the respective periods was due to the accounting reversal upon realization of one portfolio company and the widening of credit spreads and swap rates caused by the macro-economic environment which have been reflected in the valuation of our investments.

Provision for Taxes on Unrealized Appreciation on Investments

We have direct wholly owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). 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. For the three months ended September 30, 2022 and 2021, we recognized a benefit (provision) for income tax on unrealized investments of $30.5 thousand and $(151.3) thousand for the Taxable Subsidiaries, respectively. For the nine months ended September 30, 2022 and 2021, we recognized aprovision for income tax on unrealized investments of $606.4 thousand and $586.5 thousand, respectively. As of September 30, 2022 and December 31, 2021, there was $0 and $151.3 thousand of deferred tax assets on the Consolidated Statements of Assets and Liabilities, respectively.

Net Increase in Net Assets Resulting from Operations

For the three months ended September 30, 2022, net increase in net assets resulting from operations totaled $4.0 million, or $0.20 per common share (based on 19,545,935 weighted average shares outstanding for the quarter ended September 30, 2022).

For the three months ended September 30, 2021, net increase in net assets resulting from operations totaled $12.8 million, or $0.66 per common share (based on 19,486,003 weighted average shares outstanding for the quarter ended September 30, 2021).

For the nine months ended September 30, 2022, net increase in net assets resulting from operations totaled $10.5 million, or $0.54 per common share (based on 19,535,708 weighted average shares outstanding for the nine months ended September 30, 2022).

For the nine months ended September 30, 2021, net increase in net assets resulting from operations totaled $23.3 million, or $1.20 per common share (based on 19,486,003 weighted average shares outstanding for the nine months ended September 30, 2021).

The net increase in net assets between the respective periods was due to a larger amount of realized gains on investments and an increase in net investment income, offset by net unrealized depreciation.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

Our operating activities used net cash of $92.6 million for the nine months ended September 30, 2022, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the nine months ended September 30, 2022 provided cash of $60.9 million primarily from proceeds from SBA-guaranteed debentures and net borrowings on our Credit Facility.

Our operating activities used net cash of ($102.1) million for the nine months ended September 30, 2021, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the nine months ended September 30, 2021 provided cash of $121.4 million due to the issuance of our 4.875% fixed-rate notes due 2026 (the “2026 Notes”) offset by the repayment of our 5.75% fixed-rate notes due 2022 (the “2022 Notes”) and net repayments on our Credit Facility.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from the Credit Facility, 2026 Notes, 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

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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 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 2022 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 June 23, 2023, the one-year anniversary of our 2022 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 a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of the senior securities, which include 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 Stellus Capital SBIC, LP (“SBIC subsidiary”) and Stellus Capital SBIC II, LP (“SBIC II subsidiary”) (together, “the SBIC subsidiaries”) guaranteed by the Small Business Administration (“SBA”) from the definition of senior securities in the asset coverage test under the 1940 Act. We were in compliance with the asset coverage ratios at all times. As of September 30, 2022 and December 31, 2021, our asset coverage ratio was 193% and 203%, 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 September 30, 2022 and December 31, 2021, we had cash and cash equivalents of $12.4 million and $44.2 million, respectively.

Credit Facility

The Credit Facility, as amended and restated, provides for borrowings up to a maximum of $265.0 million on a committed basis with an accordion feature that allows us to increase the aggregate commitments up to $280.0 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 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 September 18, 2024, 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 September 18, 2025.

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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 investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.0, and (iii) maintaining a minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 2.00 to 1.00. As of September 30, 2022, we were in compliance with these covenants.

As of September 30, 2022 and December 31, 2021, $199.0 million and $177.3 million, respectively, was outstanding under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair values 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 incurred costs of $4.0 million in connection with the current Credit Facility, which 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 remaining life of the Credit Facility. As of September 30, 2022 and December 31, 2021, $1.7 million and $1.9 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

Interest is paid quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the three and nine months ended September 30, 2022 and 2021 (in millions):


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	2.5		$	1.4		$	5.8		$	3.9
Loan fee amortization		2.6			0.2			0.4			0.4
Total interest and financing expenses	$	5.1		$	1.6		$	6.2		$	4.3
Weighted average interest rate		4.9	%		2.8	%		3.8	%		2.8	%
Effective interest rate (including fee amortization)		5.2	%		3.2	%		4.1	%		3.3	%
Average debt outstanding	$	207.4		$	191.9		$	201.7		$	174.1
Cash paid for interest and unused fees	$	2.5		$	1.4		$	5.8		$	3.9

SBA-Guaranteed Debentures

Due to the SBIC subsidiaries’ status as licensed SBICs, we have the ability to issue debentures guaranteed by the SBA at favorable interest rates (“SBA-guaranteed debentures”). 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 September 30, 2022 and December 31, 2021, the SBIC subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA and $150.0 million of SBA-guaranteed debentures outstanding.

As of September 30, 2022 and December 31, 2021, the SBIC II subsidiary had $87.5 million in regulatory capital, respectively, and $156.0 million and $100.0 million of SBA-guaranteed debentures outstanding, respectively.

On August 12, 2014, we obtained exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from our 150% asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the 150% 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 $463.9 million and $403.3 million in assets at September 30, 2022 and December 31, 2021, respectively, which accounted for approximately 52.2% and 49.1% of our total consolidated assets, 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 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

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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 treasury rate plus a spread at each pooling date.

As of September 30, 2022 and December 31, 2021, the carrying amount of the SBA-guaranteed debentures approximated their fair value. 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 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 September 30, 2022 and December 31, 2021, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of September 30, 2022, we have incurred $10.7 million in financing costs related to the SBA-guaranteed debentures since the SBIC subsidiaries received their licenses, which were recorded as prepaid loan fees. As of September 30, 2022 and December 31, 2021, $5.8 and $5.4 million of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements 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 three and nine months ended September 30, 2022 and 2021 (dollars in millions):


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	2.1		$	1.7		$	5.7		$	4.6
Debenture fee amortization		0.3			0.3			0.9			0.8
Total interest and financing expenses	$	2.4		$	2.0		$	6.6		$	5.4
Weighted average interest rate		2.8	%		2.7	%		2.7	%		2.8	%
Effective interest rate (including fee amortization)		3.2	%		3.2	%		3.2	%		3.3	%
Average debt outstanding	$	299.6		$	246.2		$	280.7		$	220.4
Cash paid for interest	$	4.0		$	3.2		$	7.4		$	5.9

Notes Offering

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 $6.38 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 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. We redeemed all $48.875 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 Statements of Operations for the three months ended September 30, 2021.

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, 2020, the fair value of the 2022 Notes was $49.2 million. The carrying value of the 2026 Notes approximates fair value.

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The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the nine months ended September 30, 2021 (dollars in millions):


	For the nine months ended
	September 30,
	2021
Interest expense	$	0.3
Deferred financing costs		0.1
Total interest and financing expenses	$	0.4
Loss on extinguishment of debt⁽¹⁾		0.5
Weighted average interest rate⁽²⁾:		5.7	%
Effective interest rate (including fee amortization)⁽²⁾		6.4	%
Average debt outstanding⁽³⁾	$	48.9
Cash paid for interest	$	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 nine months ended September 30, 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 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 is payable semi-annually beginning September 30, 2021.

We used the net proceeds from this offering to fully redeem the 2022 Notes and repay a portion of the amount outstanding under the Credit Facility. As of both September 30, 2022 and December 31, 2021, the aggregate carrying amount of the 2026 Notes were approximately $100.0 million.

In connection with the issuance of the 2026 Notes, we have incurred $2.3 million of fees which are being amortized over the term of the 2026 Notes, of which $1.6 million and $1.9 million remains to be amortized as of September 30, 2022 and December 31, 2021, respectively. These financing costs are presented on the Consolidated Statements 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 three and nine months ended September 30, 2022 and 2021 (dollars in millions):


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	1.2		$	1.2		$	3.7		$	3.5
Deferred financing costs		0.1			0.1			0.3			0.3
Total interest and financing expenses	$	1.3		$	1.3		$	4.0		$	3.8
Weighted average interest rate		4.8	%		4.8	%		4.9	%		4.9	%
Effective interest rate (including fee amortization)		5.3	%		5.3	%		5.3	%		5.3	%
Average debt outstanding	$	100.0		$	100		$	100.0		$	100.0⁽¹⁾
Cash paid for interest	$	2.4		$	3.5		$	4.9		$	3.5

(1)	Calculated for the period from January 14, 2021, the date of the 2026 Notes offering, through September 30, 2021.

Off-Balance Sheet Arrangements

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 September 30, 2022 and December 31, 2021, our off-balance sheet arrangements consisted of $30.3 million

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and $30.7 million, respectively, of unfunded commitments to provide debt and equity financings to 49 and 32 of our portfolio companies, respectively. As of September 30, 2022, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.

Regulated Investment Company Status and Dividends

We have elected, have qualified, and intend 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 taxed 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 in order to avoid a federal excise tax on our undistributed earnings of a RIC. As of December 31, 2021, we had $24,601,309 of undistributed taxable income that will be carried forward toward distributions paid during the year ending December 31, 2022.

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 distribution requirement. In addition, we may retain for investment some or all of 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 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 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 business development company under the 1940 Act and due to provisions in 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 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 stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash.

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. We have no current intention of paying dividends in shares of our 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 shareholders best interest to take advantage of the IRS rulings.

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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

See Note 1 to the consolidated financial statements contained herein for a description of critical accounting policies.

Subsequent Events

Investment Portfolio

New and Add-On Investments


Activity Type	Date	Company Name	Company Description	Investment Amount	Instrument Type
New Investment	October 12, 2022	NINJIO, LLC	Cybersecurity awareness and training platform	$5,000,000	First lien term loan
				$100,000	Revolver commitment
				$100,000	Delayed draw term loan commitment
				$313,253	Equity investment

Full Repayments and Realizations


Activity Type	Date	Company Name	Company Description	Proceeds Received	Realized Gain	Instrument Type
Full Realization	October 17, 2022	EC Defense Holdings, LLC	Existing portfolio company	$1,159,638	$950,000	Equity investment

Credit Facility

The outstanding balance under the Credit Facility as of November 3, 2022 was $206.8 million.

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Dividend Declared

On October 4, 2022, the Board declared a regular monthly dividend for each of October 2022, November 2022 and December 2022 as follows:


	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
10/04/2022	10/28/2022	10/31/2022	11/15/2022	$	0.0933
10/04/2022	11/29/2022	11/30/2022	12/15/2022	$	0.0933
10/04/2022	12/15/2022	12/16/2022	12/29/2022	$	0.0933

On October 4, 2022, the Board declared an additional monthly dividend for each of October 2022, November 2022 and December 2022 as follows:


	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
10/04/2022	10/28/2022	10/31/2022	11/15/2022	$	0.02
10/04/2022	11/29/2022	11/30/2022	12/15/2022	$	0.02
10/04/2022	12/15/2022	12/16/2022	12/29/2022	$	0.02

Custody Agreement

On November 2, 2022, the Company's SBIC Subsidiary, a wholly owned subsidiary of the Company, entered into a Custody Agreement, dated as of November 2, 2022 (the "Frost Agreement”), with Frost Bank (“Frost”), pursuant to which Frost was appointed as a custodian to hold certain securities, loans, cash, and other assets on behalf of the SBIC Subsidiary. Either party may terminate the Frost Agreement at any time upon sixty (60) days’ prior written notice.

Item 3.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 rates in May, June, July and September, bringing the target for the federal funds rate to 3% - 3.25%. The Federal Reserve also released median projections showing that they anticipate the target rate to be 4.4% by the end of 2022. At September 30, 2022 and December 31, 2021, 97% and 96% of the loans in our portfolio bore interest at floating rates, respectively. These floating rate loans typically bear interest in reference to LIBOR, SOFR, or the Sterling Overnight Index Average, which are indexed to 30-day or 90-day rates, subject to an interest rate floor. As of September 30, 2022 and December 31, 2021, the weighted average interest rate floor on our floating rate loans was 1.03% and 1.13%, respectively.

Assuming that the Consolidated Statements of Assets and Liabilities as of September 30, 2022 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:


	($ in millions)
	Interest			Interest		Net Interest
Change in Basis Points⁽²⁾	Income			Expense⁽³⁾		Income⁽¹⁾
Up 200 basis points	$	15.6	$	(4.0)	$	11.6
Up 150 basis points		11.7		(3.0)		8.7
Up 100 basis points		7.8		(2.0)		5.8
Up 50 basis points		3.9		(1.0)		2.9
Down 50 basis points		(3.9)		1.0		(2.9)
Down 100 basis points		(7.8)		2.0		(5.8)
Down 150 basis points		(11.5)		3.0		(8.5)
Down 200 basis points		(14.9)		4.0		(10.9)

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(1)	Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note 2 for more information on the incentive fee.

(2)	At September 30, 2022, the three month LIBOR rate was 375 basis points and the three month SOFR rate was 359 basis points. This table assumes floating rates would not fall below zero.

(3)	Includes the impact of the 25 bps LIBOR floor in place on the Credit Facility.

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 three and nine months ended September 30, 2022 and 2021, we did not engage in hedging activities.

Item 4.Controls and Procedures

(a)	Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer and its Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

(b)	Changes in Internal Control Over Financial Reporting

The Company’s management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.Legal Proceedings

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us 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 1A.Risk Factors

There have been no material changes in the information provided under the heading “Risk Factors” in our Annual Report on Form 10-K as of December 31, 2021 other than as provided below. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, financial condition and/or operating results.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

No shares were issued under the distribution reinvestment program (“DRIP”) during either of the nine months ended September 30, 2022 and 2021.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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Item 6.EXHIBITS.

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits filed with the SEC:


Exhibit Number		Description
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).

3.2		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).

4.1		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).
10.1		Amended and Restated Equity Distribution Agreement, dated August 29, 2022, by and among Stellus Capital Investment Corporation and Stellus Capital Management, LLC, on the one hand, and Keefe, Bruyette & Woods, Inc. and Raymond James & Associates, Inc., on the other hand (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 333-184195, filed on August 29, 2022).
10.2		Custody Agreement, dated November 2, 2022, by and among Stellus Capital SBIC LP and Frost Bank, as custodian.*

31.1		Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Chief Executive Officer Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Chief Financial Officer Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

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

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

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SIGNATURES

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.

Dated: November 3, 2022	STELLUS CAPITAL INVESTMENT CORPORATION

	By:	/s/ Robert T. Ladd
		Name:	Robert T. Ladd
		Title:	Chief Executive Officer and President

	By:	/s/ W. Todd Huskinson
		Name:	W. Todd Huskinson
		Title:	Chief Financial Officer

Exhibit 10.2

CUSTODY AGREEMENT

dated as of November 2, 2022
by and between

Stellus Capital SBIC LP

(“Company”)
and

FROST BANK, a Texas state bank

(“Custodian”)

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		Page
1.	DEFINITIONS	1
2.	APPOINTMENT OF CUSTODIAN	3
3.	DUTIES OF CUSTODIAN	4
4.	REPORTING	6
5.	CERTAIN GENERAL TERMS	6
6.	COMPENSATION OF CUSTODIAN	8
7.	RESPONSIBILITY OF CUSTODIAN	8
8.	SECURITY CODES	12
9.	TAX LAW	12
10.	EFFECTIVE PERIOD AND TERMINATION	12
11.	REPRESENTATIONS AND WARRANTIES	13
12.	PARTIES IN INTEREST; NO THIRD PARTY BENEFIT	14
13.	NOTICES	14
14.	CHOICE OF LAW AND JURISDICTION	15
15.	ENTIRE AGREEMENT; COUNTERPARTS	15
16.	AMENDMENT; WAIVER	16
17.	SUCCESSOR AND ASSIGNS	16
18.	SEVERABILITY	17
19.	REQUEST FOR INSTRUCTIONS	17
20.	OTHER BUSINESS	17
21.	REPRODUCTION OF DOCUMENTS	17
SCHEDULES
	SCHEDULE A – Initial Authorized Persons

THIS CUSTODY AGREEMENT (this “Agreement”) is dated as of October 18, 2022 and is by and between Stellus Capital SBIC LP_ (and any successor or permitted assign, the “Company”), a Delaware LP having its registered office at 4400 Posts Oak Parkway, Suite 2200, Houston TX, 77027, and FROST BANK (or any successor or permitted assign acting as custodian hereunder, the “Custodian”), a Texas state bank.

RECITALS

WHEREAS, the Company is a wholly owned subsidiary of a closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”);

WHEREAS, the Company desires to retain Frost Bank to act as custodian for the Company;

WHEREAS, the Company desires that the Company’s cash be held and administered by the Custodian pursuant to this Agreement in compliance with Section 17(f) of the 1940 Act; and

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

1.	DEFINITIONS

1.1Defined Terms. In addition to terms expressly defined elsewhere herein, the following words shall have the following meanings as used in this Agreement:

“Account” or “Accounts” means the Cash Account.

“Agreement” means this Custody Agreement (as the same may be amended from time to time in accordance with the terms hereof).

“Authorized Person” has the meaning set forth in Section 5.3.

“Business Day” means any day that is not Saturday or Sunday and is not a legal holiday or a day in which banking institutions generally are authorized or obligated by law or regulation to remain closed in the State of Texas, or the city in which the Custodian is located.

“Cash Account” or “Cash Accounts” means the segregated accounts to be established at Frost Bank to which the Company shall deposit and in which Custodian shall hold any cash received by it from time to time from the Company, as applicable, which accounts shall be designated the “SBIC I Operating _ Account” and the “_SBIC I Money Market_ Account”.

“Company” means Stellus Capital SBIC LP__, its successors or permitted assigns.

“Confidential Information” means any databases, computer programs, screen formats, screen designs, report formats, interactive design techniques, and other similar or related information that may be furnished to the Company by the Custodian from time to time pursuant to this Agreement.

“Custodian” has the meaning set forth in the first paragraph of this Agreement.

“Eligible Investment” means any investment that at the time of its acquisition is one or more of the following:

(a)

United States government and agency obligations;

(b)

commercial paper having a rating assigned to such commercial paper by Standard & Poor’s Rating Services or Moody’s Investor Service, Inc. (or, if neither such organization shall rate such commercial paper at such time, by any nationally recognized rating organization in the United States of America) equal to one of the two highest ratings assigned by such organization, it being understood that as of the date hereof such ratings by Standard & Poor’s Rating Services are “A1+” and “A1” and such ratings by Moody’s Investor Service, Inc. are “P1” and “P2”;

(c)

interest bearing deposits in United States dollars in United States banks with an unrestricted surplus of at least U.S. $250,000,000, maturing within one year; and

(d)

money market funds (including funds of the bank serving as Custodian or its affiliates) or United States government securities funds designed to maintain a fixed share price and high liquidity.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (including any beneficiary thereof) unincorporated organization, or any government or agency or political subdivision thereof.

“Proper Instructions” means instructions received by the Custodian in form acceptable to it, from the Company, or any Person duly authorized by the Company in any of the following forms acceptable to the Custodian:

(a)in writing signed by the Authorized Person (whether by manual, facsimile, PDF or other electronic signature);

(b)by electronic mail from an Authorized Person;

(c)in a communication utilizing access codes effected between electro mechanical or electronic devices; or

(d)such other means as may be agreed in writing upon from time to time by the Custodian and the party giving such instructions, including oral instructions.

1.2Construction. In this Agreement unless the contrary intention appears:

(a)

any reference to this Agreement or another agreement or instrument refers to such agreement or instrument as the same may be amended, modified or otherwise rewritten from time to time;

(b)

a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them;

(c)

any term defined in the singular form may be used in, and shall include, the plural with the same meaning, and vice versa;

(d)

a reference to a Person includes a reference to the Person’s executors, successors and permitted assigns;

(e)

an agreement, representation or warranty in favor of two or more Persons is for the benefit of them jointly and severally;

(f)

an agreement, representation or warranty on the part of two or more Persons binds them jointly and severally;

(g)

a reference to the term “including” means “including, without limitation,”

(h)

a reference to any accounting term is to be interpreted in accordance with generally accepted principles and practices in the United States, consistently applied, unless otherwise instructed by the Company; and

(i)

any reference to “execute”, “executed”, “sign”, “signed”, “signature” or any other like term hereunder shall include execution by electronic signature (including, without limitation, any .pdf file, .jpeg file, or any other electronic or image file, or any “electronic signature” as defined under the U.S. Electronic Signatures in Global and National Commerce Act (“E-SIGN”) or the Texas Uniform Electronic Transactions Act (“TUETA”), which includes any electronic signature provided using Orbit, Adobe Fill & Sign, Adobe Sign, DocuSign, or any other similar platform identified by the Company and reasonably available at no undue burden or expense to the Custodian), except to the extent the Custodian requests otherwise. Any such electronic signatures shall be valid, effective and legally binding as if such electronic signatures were handwritten signatures and shall be deemed to have been duly and validly delivered for all purposes hereunder.

1.3 Headings. Headings are inserted for convenience and do not affect the interpretation of this Agreement.

2.	APPOINTMENT OF CUSTODIAN

2.1 Appointment and Acceptance.

(a)

The Company hereby appoints the Custodian as custodian of certain cash owned by the Company and delivered to the Custodian (or Frost Bank on its behalf) from time to time during the period of this Agreement, on the terms and conditions set forth in this Agreement (which shall include any addendum hereto which is hereby incorporated herein and made a part of this Agreement), and the Custodian hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement with respect to it subject to and in accordance with the provisions hereof. Any Account may contain any number of sub-accounts for the convenience of the Custodian or as required by the Company for convenience in administering such Account.

2.2Instructions. The Company agrees that it shall from time to time provide, or cause to be provided, to the Custodian all necessary instructions and information, and shall respond promptly to all inquiries and requests of the Custodian, as may reasonably be necessary to enable the Custodian to perform its duties hereunder.

2.3Company Responsible For Directions. The Company is solely responsible for directing the Custodian with respect to deposits to, withdrawals from and transfers to or from the Account. Without limiting the generality of the foregoing, the Custodian has no responsibility for the Company’s compliance with the 1940 Act, any restrictions, covenants, limitations or obligations to which the Company may be subject or for which it may have obligations to third-parties in respect of the Account, and the Custodian shall have no liability for the application of any funds made at the direction of the Company. The Company shall be solely responsible for properly instructing all applicable payors to make all appropriate payments to the Custodian (or Frost Bank on its behalf) for deposit to the Account, and for properly instructing the Custodian with respect to the allocation or application of all such deposits.

3.	DUTIES OF CUSTODIAN

3.1Accounts. The Company directs the Custodian to open and maintain the Cash Accounts as a segregated account in the name of the Company, subject only to order of the Custodian, to which the Custodian (or Frost Bank on the Custodian’s behalf) shall deposit and hold any cash received by it from time to time from the Company. The Custodian shall have no power or authority to assign, hypothecate, pledge or otherwise dispose of any such cash except pursuant to the direction of the Company under terms of the Agreement.

3.2Delivery of Cash to Custodian. The Company shall deliver, or cause to be delivered, to the Custodian (or Frost Bank on its behalf) certain of the Company’s cash, including but not limited to cash owned by the Company at any time during the period of this Agreement. The Custodian shall not be responsible for such cash until actually delivered to, and received by it.

3.3Bank Accounts, and Management of Cash

(a)

Cash received by the Custodian (or Frost Bank on its behalf) from time to time shall be credited to the Cash Account. All amounts credited to the Cash Account shall be subject to clearance and receipt of final payment by the Custodian or Frost Bank on its behalf.

(b)

Amounts held in the Cash Account from time to time may be invested in Eligible Investments pursuant to specific written Proper Instructions (which may be standing instructions) received by the Custodian from two Authorized Persons acting on behalf of the Company. Such investments shall be subject to availability and the Custodian’s then applicable transaction charges (which shall be at the Company’s expense). The Custodian shall have no liability for any loss incurred on any such investment. Absent receipt of such written instruction from the Company, the Custodian shall have no obligation to invest (or otherwise pay interest on) amounts on deposit in the Cash Account. In no instance will the Custodian have any obligation to provide investment advice to the Company. Any earnings from such investment of amounts held in the Cash Account, from time to time (collectively, “Reinvestment Earnings”) shall be redeposited in the Cash Account (and may be reinvested at the written direction of the Company).

(c)

The Company acknowledges that cash deposited with any bank (including the bank acting as Custodian and Frost Bank) may make a margin or generate banking income for which such bank shall not be required to account to the Company.

(d)

The Custodian shall be authorized to open such additional accounts as may be necessary or convenient for administration of its duties hereunder, with notice to be provided to the Company.

3.4Payment of Moneys.

Upon receipt of Proper Instructions, which may be standing instructions, the Custodian shall cause Frost Bank to pay out from the respective Cash Account designated by the Company (or remit to its agents or its sub-custodians, and direct them to pay out) moneys of the Company on deposit therein for any other purpose directed by the Company, but only upon receipt of Proper Instructions specifying the amount of such payment, and naming the Person or Persons to whom such payment is to be made.

(a)

At any time or times, the Custodian shall be entitled to pay (i) itself from the Cash Account, whether or not in receipt of express direction or instruction from the Company, any amounts due and payable to it pursuant to Section 6 hereof, and (ii) as otherwise permitted under this Agreement, provided, however, that in each case (i) the Custodian shall have first invoiced or billed the Company for such amounts and the Company shall have failed to pay such amounts within thirty (30) days after the date of such invoice or bill, and (i) all such payments shall be regularly accounted for to the Company.

3.5Records. The Custodian shall create and maintain complete and accurate records relating to its activities under this Agreement with respect to the cash held for the Company under this Agreement, as required by Section 31 of the 1940 Act, and Rules 31a-1 and 32a-2 thereunder. To the extent that the Custodian, in its sole opinion, is able to do so, the Custodian shall provide assistance to the Company (at the Company’s reasonable request made from time to time) by providing sub-certifications regarding certain of its services performed hereunder to the Company in connection with the Company’s certification requirements pursuant to the Sarbanes-Oxley Act of 2002, as amended. All such records shall be the property of the Company and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Company (including its independent public accountants) and employees and agents of the Securities and Exchange Commission, upon reasonable request and at least five Business Days’ prior written notice and at the Company’s expense.

4.	REPORTING

Upon the Company’s written request, the Custodian shall provide to the Company a monthly report of (i) all deposits to and withdrawals from the Cash Account during the month, and the outstanding balance (as of the last day of the preceding monthly report and as of the last day of the subject month) and (ii) such other matters as the parties may agree from time to time.

5.	CERTAIN GENERAL TERMS

5.1Resolution of Discrepancies. In the event of any discrepancy between the information set forth in any report provided by the Custodian to the Company and any information contained in the books or records of the Company, the Company shall promptly notify the Custodian thereof and the parties shall cooperate to diligently resolve the discrepancy.

5.2Improper Instructions. Notwithstanding anything herein to the contrary, the Custodian shall not be obligated to take any action (or forebear from taking any action), which it reasonably determines (at its sole option) to be contrary to the terms of this Agreement or applicable law. In no instance shall the Custodian be obligated to provide services on any day that is not a Business Day.

5.3Proper Instructions

(a)

The Company will give a notice to the Custodian, in form acceptable to the Custodian, specifying the names and specimen signatures (whether manual, facsimile, PDF or other electronic signature) of persons authorized to give Proper Instructions (collectively, “Authorized Persons” and each is an “Authorized Person”) which notice shall be signed (whether manual, facsimile, PDF or other electronic signature) by an Authorized Person previously certified to the

Custodian. The Custodian shall be entitled to rely upon the identity and authority of such persons until it receives written notice from an Authorized Person of the Company to the contrary. The initial Authorized Persons are set forth on Schedule A attached hereto and made a part hereof (as such Schedule A may be modified from time to time by written notice from the Company to the Custodian). The Custodian shall be entitled to accept and act upon Proper Instructions sent by unsecured email, facsimile transmission or other similar unsecured electronic methods. If such person on behalf of the Company elects to give the Custodian email or facsimile instructions (or instructions by a similar electronic method) and the Custodian in its discretion elects to act upon such instructions, the Custodian’s reasonable understanding of such instructions shall be deemed controlling. The Custodian shall not be liable for any losses, costs or expenses arising directly or indirectly from the Custodian’s reliance upon and compliance with such instructions notwithstanding such instructions conflicting with or being inconsistent with a subsequent written instruction. The Company agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Custodian, including without limitation the risk of the Custodian acting on unauthorized instructions, and the risk of interception and misuse by third parties (except, in each case, to the extent due to the Custodian’s bad faith, willful misconduct or gross negligence, as applicable), and acknowledges and agrees that there may be more secure methods of transmitting such instructions than the method(s) selected by it and agrees that the security procedures (if any) to be followed in connection with its transmission of such instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances.

(b)

The Custodian shall have no responsibility or liability to the Company (or any other person or entity), and shall be indemnified and held harmless by the Company, in the event that a subsequent written confirmation of an oral instruction fails to conform to the oral instructions received by the Custodian. The Custodian shall not have an obligation to act in accordance with purported instructions to the extent that they conflict with applicable law or regulations, local market practice or the Custodian’s operating policies and practices. The Custodian shall not be liable for any loss resulting from a delay while it obtains clarification of any Proper Instructions.

5.4Actions Permitted Without Express Authority. The Custodian may, at its discretion, without express authority from the Company:

(a)

make payments to itself as described in or pursuant to Section 3.4, provided that (i) the Custodian shall have first invoiced or billed the Company for such amounts and the Company shall have failed to pay such amounts within thirty (30) days after the date of such invoice or bill, and (ii) all such payments shall be regularly accounted for to the Company; and

(b)

endorse for collection cheques, drafts and other negotiable instruments.

5.5Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate, instrument, electronic communication or paper reasonably believed by it to be genuine and to have been properly executed (whether manual, facsimile, PDF or other electronic signature) or otherwise given by or on behalf of the Company by an Authorized Person. The Custodian may receive and accept a certificate signed (whether manual, facsimile, PDF or other electronic signature) by any Authorized Person as conclusive evidence of:

(a)

the authority of any person to act in accordance with such certificate; or

(b)

any determination or of any action by the Company as described in such certificate,

and such certificate may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary from an Authorized Person of the Company.

5.6Receipt of Communications. Any communication received by the Custodian on a day which is not a Business Day or after 1:30 p.m., San Antonio, Texas time (or such other time as is agreed by the Company and the Custodian from time to time), on a Business Day will be deemed to have been received on the next Business Day (but in the case of communications so received after 1:30 p.m. San Antonio, Texas time, on a Business Day the Custodian will use reasonable efforts to process such communications as soon as possible after receipt).

6.	COMPENSATION OF CUSTODIAN

6.1Fees. The Custodian shall be entitled to compensation for its services in accordance with the terms of that certain fee letter agreement dated November 2, 2022 between the Company and the Custodian.

6.2Expenses. The Company agrees to pay or reimburse to the Custodian upon its request from time to time all costs, disbursements, advances, and expenses (including reasonable fees and expenses of legal counsel) incurred, and any disbursements and advances made (including any account overdraft resulting from any settlement or assumed settlement, provisional credit, chargeback, returned deposit item, reclaimed payment or claw-back, or the like), in connection with the preparation or execution of this Agreement, or in connection with the transactions contemplated hereby or the administration of this Agreement or performance by the Custodian, as applicable, of its duties and services under this Agreement, from time to time (including costs and expenses of any action deemed necessary by the Custodian to collect any amounts owing to it under this Agreement).

7.	RESPONSIBILITY OF CUSTODIAN

7.1General Duties. The Custodian shall have no duties, obligations or responsibilities under this Agreement except for such duties as are expressly and specifically set forth in this Agreement, and the duties and obligations of the Custodian

shall be determined solely by the express provisions of this Agreement. No implied duties, obligations or responsibilities shall be read into this Agreement against, or on the part of, the Custodian.

7.2Instructions

(a)

The Custodian shall be entitled to refrain from taking any action unless it has such instruction (in the form of Proper Instructions) from the Company as it reasonably deems necessary, and shall be entitled to require, upon notice to the Company, that Proper Instructions to it be in writing. The Custodian shall have no liability for any action (or forbearance from action) taken pursuant to the Proper Instruction of the Company.

(b)

Whenever the Custodian is entitled or required to receive or obtain any communications or information pursuant to or as contemplated by this Agreement, it shall be entitled to receive the same in writing, in form, content and medium reasonably acceptable to it and otherwise in accordance with any applicable terms of this Agreement; and whenever any report or other information is required to be produced or distributed by the Custodian it shall be in form, content and medium reasonably acceptable to it and the Company, and otherwise in accordance with any applicable terms of this Agreement.

7.3General Standards of Care. Notwithstanding any terms herein contained to the contrary, the acceptance by the Custodian of its appointment hereunder is expressly subject to the following terms, which shall govern and apply to each of the terms and provisions of this Agreement (whether or not so stated therein):

(a)

The Custodian may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, statement, certificate, request, waiver, consent, opinion, report, receipt or other paper, electronic communication or document furnished to it (including any of the foregoing provided to it by telecopier or electronic means), not only as to its due execution and validity, but also as to the truth and accuracy of any information therein contained, which it in good faith believes to be genuine and signed (whether manual, facsimile, PDF or other electronic signature) or presented by the proper person (which in the case of any instruction from or on behalf of the Company shall be an Authorized Person); and the Custodian shall be entitled to presume the genuineness and due authority of any signature (whether manual, facsimile, PDF or other electronic signature) appearing thereon. The Custodian shall not be bound to make any independent investigation into the facts or matters stated in any such notice, instruction, statement, certificate, request, waiver, consent, opinion, report, receipt or other paper, electronic communication or document, provided, however, that if the form thereof is specifically prescribed by the terms of this Agreement, the Custodian, as applicable, shall examine the same to determine whether it substantially conforms on its face to such requirements hereof.

(b)

Neither the Custodian nor any of their directors, officers or employees shall be liable to anyone for any error of judgment, or for any act done or step taken or omitted to be taken by it (or any of its directors, officers or employees), or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection herewith, unless such action constitutes gross negligence, willful misconduct or bad faith on its part and in breach of the terms of this Agreement. The Custodian shall not be liable for any action taken by it in good faith and reasonably believed by it to be within powers conferred upon it, or taken by it pursuant to any direction or instruction by which it is governed hereunder, or omitted to be taken by it by reason of the lack of direction or instruction required hereby for such action. The Custodian shall not be under any obligation at any time to ascertain whether the Company is in compliance with the 1940 Act, the regulations thereunder, or the Company’s investment objectives and policies then in effect.

(c)

In no event shall the Custodian be liable for any indirect, incidental, special, punitive or consequential damages (including lost profits or diminution of value) whether or not it has been advised of the likelihood of such damages.

(d)

The Custodian may consult with, and obtain advice from, legal counsel selected in good faith with respect to any question as to any of the provisions hereof or its duties hereunder, or any matter relating hereto, and the written opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Custodian in good faith in accordance with the opinion and directions of such counsel; the reasonable cost of such services shall be reimbursed pursuant to Section 6.2 above.

(e)

The Custodian shall not be deemed to have notice of any fact, claim or demand with respect hereto unless actually known by an officer working in its Trust group and charged with responsibility for administering this Agreement or unless (and then only to the extent received) in writing by the Custodian at the applicable address(es) as set forth in Section 13 and specifically referencing this Agreement.

(f)

No provision of this Agreement shall require the Custodian to expend or risk its own funds, or to take any action (or forbear from action) hereunder which might in its judgment involve any expense or any financial or other liability unless it shall be furnished with acceptable indemnification. Nothing herein shall obligate the Custodian to commence, prosecute or defend legal proceedings in any instance, whether on behalf of the Company or on its own behalf or otherwise, with respect to any matter arising hereunder, or relating to this Agreement or the services contemplated hereby.

(g)

The permissive rights of the Custodian to take any action hereunder shall not be construed as duty.

(h)

The Custodian may act or exercise its duties or powers hereunder through agents (including for the avoidance of doubt, sub-custodians) or attorneys, and the Custodian, as applicable, shall not be liable or responsible for the actions or omissions of any such agent or attorney appointed and maintained with reasonable due care.

(i)

All indemnifications contained in this Agreement in favor of the Custodian shall survive the termination of this Agreement or earlier resignation of the Custodian, as applicable.

7.4Indemnification; Custodian’s Lien.

(a)

The Company shall and does hereby indemnify and hold harmless the Custodian and its officers, directors, employees, attorneys, agents, advisors, successors and assigns (collectively, the “Indemnified Persons” and each an “Indemnified Person”) for and from any and all costs and expenses (including reasonable fees and expenses), and any and all losses, damages, claims and liabilities, that may arise, be brought against or incurred by an Indemnified Person, whether brought by or involving any third party or the Company, and any advances or disbursements made by an Indemnified Person (including in respect of any Account overdraft, returned deposit item, chargeback, provisional credit, settlement or assumed settlement, reclaimed payment, claw-back or the like), as a result of, relating to, or arising out of this Agreement, or the administration or performance of the duties of the Custodian hereunder, or the enforcement of any provision of this Agreement, including indemnification obligations, or the relationship between the Company and the Custodian created hereby, other than such liabilities, losses, damages, claims, costs and expenses as are directly caused by the Custodian’s, as applicable, own actions constituting bad faith, gross negligence or willful misconduct.

(b)

If the Company requires the Custodian, its affiliates, subsidiaries or agents, to advance cash for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee’s own gross negligent action, grossly negligent failure to act or willful misconduct, or if the Company fails to compensate or pay the Custodian pursuant to Section 6.2 or Section 7.4 hereof, any cash at any time held for the account of the Company shall be security therefor and should the Company fail to repay the Custodian promptly (or, if specified, within the time frame provided herein), the Custodian shall be entitled to utilize available cash to the extent necessary to obtain reimbursement.

7.5Force Majeure. Without prejudice to the generality of the foregoing, the Custodian shall not be liable to the Company for any damage or loss resulting from or caused by events or circumstances beyond the reasonable control of the Custodian, including nationalization, expropriation, currency restrictions, the interruption,

disruption or suspension of the normal procedures and practices of any securities market, power, mechanical, communications or other technological failures or interruptions, computer viruses or the like, fires, floods, earthquakes or other natural disasters, civil and military disturbance, acts of war or terrorism, riots, revolution, acts of God, work stoppages, strikes, national disasters of any kind, or other similar events or acts; errors by the Company (including any Authorized Person) in its instructions to the Custodian; or changes in applicable law, regulation or orders.

8.	SECURITY CODES

If the Custodian issues to the Company, security codes, passwords or test keys in order that it may verify that certain transmissions of information, including Proper Instructions, have been originated by the Company, the Company shall take all commercially reasonable steps to safeguard any security codes, passwords, test keys or other security devices which the Custodian shall make available.

9.	TAX LAW

9.1Domestic Tax Law. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Company or the Custodian as custodian of the Company’s cash, by the tax law of the United States or any state or political subdivision thereof. The Custodian shall be kept indemnified by and be without liability to the Company for such obligations including taxes, (but excluding any income taxes assessable in respect of compensation paid to the Custodian pursuant to this Agreement) withholding, certification and reporting requirements, claims for exemption or refund, additions for late payment interest, penalties and other expenses (including legal expenses) that may be assessed against the Company, or the Custodian as custodian of the Company’s cash.

9.2Foreign Tax Law. It shall be the responsibility of the Company to notify the Custodian of the obligations imposed on the Company by the tax law of foreign (e.g., non-U.S.) jurisdictions, including responsibility for withholding and other taxes, assessments or other government charges, certifications and government reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to cooperate with the Company with respect to any claims for exemption or refund under the tax law of the jurisdictions for which the Company has provided such information.

10.	EFFECTIVE PERIOD AND TERMINATION

10.1Effective Date. This Agreement shall become effective as of its due execution (whether manual, facsimile, PDF or other electronic signature) and delivery by each of the parties. This Agreement shall continue in full force and effect until terminated as hereinafter provided. This Agreement may only be amended by mutual written agreement of the parties hereto. This Agreement may be terminated by the Custodian or the Company pursuant to Section 10.2.

10.2Termination. This Agreement shall terminate upon the earliest of (a) occurrence of the effective date of termination specified in any written notice of termination given by any party to the other parties not later than sixty (60) days prior to the effective date of termination specified therein, (b) such other date of termination as may be mutually agreed upon by the parties in writing.

10.3Resignation. The Custodian may at any time resign under this Agreement by giving not less than sixty (60) days’ advance written notice thereof to the Company. The Company may at any time remove the Custodian under this Agreement by giving not less than sixty (60) days’ advance written notice to the Custodian.

10.4Successor. Prior to the effective date of termination of this Agreement, or the effective date of the resignation or removal of the Custodian, as the case may be, the Company shall give Proper Instruction to the Custodian designating a successor Custodian, if applicable. The Custodian shall, upon receipt of Proper Instruction from the Company deliver directly to the successor Custodian all cash then owned by the Company and held by the Custodian as custodian, , provided that the Company shall have paid to the Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. In addition, the Custodian shall, at the expense of the Company, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by the Custodian under this Agreement (if such form differs from the form in which the Custodian has maintained the same, the Company shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities. Upon such delivery and transfer, the Custodian shall be relieved of all obligations under this Agreement.

10.5Payment of Fees, etc. Upon termination of this Agreement or resignation of the Custodian, the Company shall pay to each of the Custodian such compensation, and shall likewise reimburse the Custodian for its costs, expenses and disbursements, as may be due as of the date of such termination or resignation (or removal, as the case may be). All indemnifications in favor of the Custodian under this Agreement shall survive the termination of this Agreement, or any resignation or removal of the Custodian, as applicable.

10.6Final Report. In the event of any resignation or removal of the Custodian, the Custodian shall provide to the Company a complete final report or data file transfer of any Confidential Information as of the date of such resignation or removal.

11.	REPRESENTATIONS AND WARRANTIES

11.1Representations of the Company. The Company represents and warrants to the Custodian that:

(a)

it has the power and authority to enter into and perform its obligations under this Agreement, and it has duly authorized, executed and delivered this Agreement so as to constitute its valid and binding obligation; and

(b)

in giving any instructions which purport to be “Proper Instructions” under this Agreement, the Company will act in accordance with the provisions of its organizational and operational documents and any applicable laws and regulations.

11.2Representations of the Custodian. The Custodian hereby represents and warrants to the Company that:

(a)

it is qualified to act as a custodian pursuant to Sections 17(f) and 26(a)(1) of the 1940 Act;

(b)

it has the power and authority to enter into and perform its obligations under this Agreement;

(c)

it has duly authorized and executed this Agreement so as to constitute its valid and binding obligations; and

(d)

it maintains business continuity policies and standards that include data file backup and recovery procedures that comply with all applicable regulatory requirements.

12.	PARTIES IN INTEREST; NO THIRD PARTY BENEFIT

This Agreement is not intended for, and shall not be construed to be intended for, the benefit of any third parties and may not be relied upon or enforced by any third parties (other than successors and permitted assigns pursuant to Section 17).

13.	NOTICES

Any Proper Instructions shall be given to the following address (or such other address as either party may designate by written notice to the other party), and otherwise any notices, approvals and other communications hereunder shall be sufficient if made in writing and given to the parties at the following address (or such other address as either of them may subsequently designate by notice to the other), given by (i) certified or registered mail, postage prepaid, (ii) recognized courier or delivery service, (iii) electronic mail or (iv) confirmed telecopier or telex, with a duplicate sent on the same day by first class mail, postage prepaid:

(a)

if to the Company or any Subsidiary, to

Stellus Capital SBIC LP

Attention: Victoria Garcia

Email: vgarcia@stelluscapital.com with a copy to

LoanOps@stelluscapital.com

Phone: 832-654-0299

(b)

if to the Custodian, to

Frost Bank

Attention: Ralph Ruske

Phone: 713-388-4650

E-mail: rruske@frostbank.com

14.	CHOICE OF LAW AND JURISDICTION

This Agreement shall be construed, and the provisions thereof interpreted under and in accordance with and governed by the laws of the State of Texas for all purposes (without regard to its choice of law provisions); except to the extent such laws are inconsistent with federal securities laws, including the 1940 Act, in which case such federal securities laws shall govern. All actions and proceedings relating to or arising from, directly or indirectly, this Agreement may be brought in Texas State or U.S. federal courts located within the City of San Antonio, State of Texas and the Company and the Custodian hereby submit to personal jurisdiction of such courts for such actions or proceedings. The Company and the Custodian each hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury and any objection to laying of venue in such courts on grounds of forum nonconveniens in respect of any claim based upon, arising out of or in connection with this Agreement. No actions or proceedings relating to or arising from, directly or indirectly, this Agreement shall be brought in a forum outside of the United States of America.

15.	ENTIRE AGREEMENT; COUNTERPARTS

15.1Complete Agreement. This Agreement constitutes the complete and exclusive agreement of the parties with regard to the matters addressed herein and supersedes and terminates as of the date hereof, all prior agreements, agreements or understandings, oral or written between the parties to this Agreement relating to such matters.

15.2Counterparts. This Agreement may be executed (whether manual, facsimile, PDF or other electronic signature) in any number of counterparts and all counterparts taken together shall constitute one and the same instrument.

15.3Electronic Signatures. The exchange of copies of this Agreement and of signature pages by pdf or other electronic transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by pdf shall be deemed to be their original signatures for all purposes. By executing this Agreement, the Company hereby acknowledges and agrees, and directs the Custodian to acknowledge and agree and the Custodian does hereby acknowledge and agree, that execution of this Agreement, any Proper Instructions and any other notice, form or other document

executed by the Company or the Custodian in connection with this Agreement, by electronic signature (including, without limitation, any .pdf file, .jpeg file or any other electronic or image file, or any other “electronic signature” as defined under E-SIGN or TUETA, including Orbit, Adobe Fill & Sign, Adobe Sign, DocuSign, or any other similar platform identified by the Company and reasonably available at no undue burden or expense to the Custodian) shall be permitted hereunder notwithstanding anything to the contrary herein and such electronic signatures shall be legally binding as if such electronic signatures were handwritten signatures. Any electronically signed document delivered via email from a person purporting to be an Authorized Person shall be considered signed or executed by such Authorized Person on behalf of the Company. The Company also hereby acknowledges that the Custodian shall have no duty to inquire into or investigate the authenticity or authorization of any such electronic signature and shall be entitled to conclusively rely on any such electronic signature without any liability with respect thereto.

16.	AMENDMENT; WAIVER

16.1Amendment. This Agreement may not be amended except by an express written instrument duly executed (whether manual, facsimile, PDF or other electronic signature) by each of the Company and the Custodian.

16.2Waiver. In no instance shall any delay or failure to act be deemed to be or effective as a waiver of any right, power or term hereunder, unless and except to the extent such waiver is set forth in an expressly written instrument signed by the party against whom it is to be charged.

17.	SUCCESSOR AND ASSIGNS

17.1Successors Bound. The covenants and agreements set forth herein shall be binding upon and inure to the benefit of each of the parties and their respective successors and permitted assigns. Neither party shall be permitted to assign their rights under this Agreement without the written consent of the other party; provided, however, that the foregoing shall not limit the ability of the Custodian to delegate certain duties or services to or perform them through agents or attorneys appointed with due care as expressly provided in this Agreement.

17.2Merger and Consolidation. Any corporation or association into which the Custodian may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Custodian shall be a party, or any corporation or association to which the Custodian transfers all or substantially all of its corporate trust business, shall be the successor of the Custodian hereunder and shall succeed to all of the rights, powers and duties of the Custodian, as applicable, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto.

18.	SEVERABILITY

The terms of this Agreement are hereby declared to be severable, such that if any term hereof is determined to be invalid or unenforceable, such determination shall not affect the remaining terms.

19.	REQUEST FOR INSTRUCTIONS

If, in performing its duties under this Agreement, the Custodian is required to decide between alternative courses of action, the Custodian may (but shall not be obliged to) request written instructions from the Company as to the course of action desired by it. If the Custodian does not receive such instructions within two (2) Business Days after it has requested them, the Custodian may, but shall be under no duty to, take or refrain from taking any such courses of action. The Custodian shall act in accordance with instructions received from the Company in response to such request after such two-Business Day period except to the extent it has already taken, or committed itself to take, action inconsistent with such instructions.

20.	OTHER BUSINESS

Nothing herein shall prevent the Custodian or any of its affiliates from engaging in other business, or from entering into any other transaction or financial or other relationship with, or receiving fees from or from rendering services of any kind to the Company or any other Person. Nothing contained in this Agreement shall constitute the Company and/or the Custodian (and/or any other Person) as members of any partnership, joint venture, association, syndicate, unincorporated business or similar assignment as a result of or by virtue of the engagement or relationship established by this Agreement.

21.	REPRODUCTION OF DOCUMENTS

This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further production shall likewise be admissible in evidence.

PAGE INTENTIONALLY ENDS HERE. SIGNATURES APPEAR ON NEXT PAGE.

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed and delivered by a duly authorized officer, intending the same to take effect as of the date first written above.

STELLUS CAPITAL SBIC LP

By:
	Name:	W. Todd Huskinson
	Title:

FROST BANK, as Custodian

By:
	Name:	Ralph Ruske
	Title:	Senior Vice President

SCHEDULE A

Any of the following persons (each acting singly) shall be an Authorized Person (as this list may subsequently be modified by the Company from time to time by written notice to the Custodian):

W. Todd Huskinson

Victoria H. Garcia

Vince Gwon

Exhibit 31.1

I, Robert T. Ladd, Chief Executive Officer of Stellus Capital Investment Corporation certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in 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 3^rd day of November 2022.


	By:	/s/ Robert T. Ladd
		Robert T. Ladd
		Chief Executive Officer

Exhibit 31.2

I, W. Todd Huskinson, Chief Financial Officer of Stellus Capital Investment Corporation certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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;

(a)

(b)

(c)

(d)

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)

(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 3^rd day of November 2022.

	By:	/s/ W. Todd Huskinson
		W. Todd Huskinson
		Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

In connection with this Quarterly report on Form 10-Q (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:	November 3, 2022

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

In connection with this Quarterly report on Form 10-Q (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:	November 3, 2022