PhenixFIN Corp - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - PhenixFIN Corp	v384086_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - PhenixFIN Corp	v384086_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - PhenixFIN Corp	v384086_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-35040

Medley Capital Corporation

(Exact name of registrant as specified in its charter)

Delaware		27-4576073
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

375 Park Avenue, Suite 3304

New York, NY 10152

(Address of principal executive offices)

(212) 759-0777

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

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

As of July 31, 2014, the Registrant had 52,283,712 shares of common stock, $0.001 par value, outstanding.

TABLE OF CONTENTS

		Page

Part I.	Financial Information

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of June 30, 2014 (unaudited) and September 30, 2013	F-1

	Consolidated Statements of Operations for the three and nine months ended June 30, 2014 and 2013 (unaudited)	F-2

	Consolidated Statements of Changes in Net Assets for the nine months ended June 30, 2014 and 2013 (unaudited)	F-3

	Consolidated Statements of Cash Flows for the nine months ended June 30, 2014 and 2013 (unaudited)	F-4

	Consolidated Schedules of Investments as of June 30, 2014 (unaudited) and September 30, 2013	F-5

	Notes to Consolidated Financial Statements (unaudited)	F-12

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	16

Part II.	Other Information	16

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Mine Safety Disclosures	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

SIGNATURES		18

Medley Capital Corporation

Consolidated Statements of Assets and Liabilities

	As of
	June 30, 2014			September 30, 2013
	(unaudited)
ASSETS
Investments at fair value
Non-controlled/non-affiliated investments (amortized cost of $1,053,311,176 and $748,405,904, respectively)	$	1,033,051,922		$	740,097,249
Affiliated investments (amortized cost of $9,771,815 and $9,283,640, respectively)		9,997,575			9,139,377
Total investments at fair value		1,043,049,497			749,236,626
Cash		17,113,444			8,557,899
Interest receivable		13,522,842			9,607,539
Deferred financing costs, net		10,964,547			8,523,291
Fees receivable		195,000			-
Other assets		284,272			249,388
Receivable for dispositions		15,175,048			-
Deferred offering costs		295,368			218,681
Total assets	$	1,100,600,018		$	776,393,424

LIABILITIES
Revolving credit facility payable	$	85,582,886		$	2,500,000
Term loan payable		171,500,000			120,000,000
Notes payable		103,500,000			103,500,000
SBA debentures payable		48,000,000			30,000,000
Payable for investments originated, purchased and participated		15,896,925			54,013
Management and incentive fees payable, net		9,766,528			6,899,653
Accounts payable and accrued expenses		2,217,605			1,305,361
Interest and fees payable		1,347,018			1,155,524
Administrator expenses payable		858,591			701,208
Deferred revenue		311,678			255,922
Deferred tax liability		386,545			-
Due to affiliate		-			82,083
Offering costs payable		-			105,205
Total liabilities	$	439,367,776		$	266,558,969

Commitments (See note 8)

NET ASSETS
Common stock, par value $.001 per share, 100,000,000 common shares authorized, 52,283,712 and 40,152,904 common shares issued and outstanding, respectively	$	52,284		$	40,153
Capital in excess of par value		665,419,750			506,062,597
Accumulated undistributed net investment income		15,169,028			12,184,623
Accumulated undistributed net realized gain/(loss) from investments		886,904			-
Net unrealized appreciation/(depreciation) on investments		(20,295,724	)		(8,452,918	)
Total net assets		661,232,242			509,834,455
Total liabilities and net assets	$	1,100,600,018		$	776,393,424

NET ASSET VALUE PER SHARE	$	12.65		$	12.70

See accompanying notes to consolidated financial statements.

F-1

Medley Capital Corporation

Consolidated Statements of Operations

	For the three months						For the nine months
	ended June 30						ended June 30
	2014			2013			2014			2013
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
INVESTMENT INCOME
Interest from investments
Non-controlled/Non-affiliated investments	$	29,034,279		$	19,572,407		$	79,327,091		$	50,383,033
Affiliated investments		402,232			376,790			1,187,141			1,112,503
Total interest income		29,436,511			19,949,197			80,514,232			51,495,536
Interest from cash and cash equivalents		1,649			2,677			5,957			6,192
Other fee income (See note 9)		8,633,572			3,639,234			20,617,806			10,016,301
Total investment income		38,071,732			23,591,108			101,137,995			61,518,029

EXPENSES
Base management fees		4,593,080			2,977,097			12,336,267			7,606,894
Incentive fees		5,173,449			3,007,559			13,569,971			8,010,952
Interest and financing expenses		5,348,298			4,032,337			14,502,205			9,283,079
Administrator expenses		858,591			681,924			2,371,153			1,773,348
Professional fees		710,628			319,982			1,867,640			1,160,684
Directors fees		194,304			71,125			535,554			314,786
Insurance		150,214			69,758			426,499			210,517
General and administrative		349,373			398,785			1,248,823			963,046
Organizational expense		-			2,305			-			150,916
Total expenses		17,377,937			11,560,872			46,858,112			29,474,222
NET INVESTMENT INCOME		20,693,795			12,030,236			54,279,883			32,043,807

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from investments		813,852			(136,914	)		886,904			237,440
Net unrealized appreciation/(depreciation) on investments		(4,820,079	)		(8,736,445	)		(11,580,576	)		(7,988,618	)
Net unrealized appreciation/(depreciation) on participations		(29,380	)		-			124,315			-
Provision for deferred taxes on unrealized gain on investments		(69,687	)		-			(386,545	)		-
Net gain/(loss) on investments		(4,105,294	)		(8,873,359	)		(10,955,902	)		(7,751,178	)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	16,588,501		$	3,156,877		$	43,323,981		$	24,292,629

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.33		$	0.10		$	0.97		$	0.85
WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE	$	0.41		$	0.37		$	1.21		$	1.12
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (SEE NOTE 11)		50,503,492			32,658,336			44,836,152			28,684,229

DIVIDENDS DECLARED PER COMMON SHARE	$	0.37		$	0.36		$	1.11		$	1.08

See accompanying notes to consolidated financial statements.

F-2

Medley Capital Corporation

Consolidated Statements of Changes in Net Assets

	For the nine months ended June 30
	2014			2013
	(unaudited)			(unaudited)
INCREASE FROM OPERATIONS:
Net investment income	$	54,279,883		$	32,043,807
Net realized gain/(loss) from investments		886,904			237,440
Net unrealized appreciation/(depreciation) on investments		(11,580,576	)		(7,988,618	)
Net unrealized appreciation/(depreciation) on participations		124,315			-
Provision for taxes on unrealized gain on investments		(386,545	)		-
Net increase/(decrease) in net assets from operations		43,323,981			24,292,629
SHAREHOLDER DISTRIBUTIONS:
Distributions declared from net investment income		(51,295,478	)		(30,588,465	)
Net decrease in net assets from shareholder distributions		(51,295,478	)		(30,588,465	)
CAPITAL SHARE TRANSACTIONS:
Issuance of common stock, net of underwriting costs (12,000,000 and 9,987,534 shares, respectively)		157,976,250			135,932,400
Offering costs		(300,133	)		(493,875	)
Issuance of common stock under dividend reinvestment plan (130,808 and 128,350 shares, respectively)		1,693,167			1,764,174
Net increase in net assets from common share transactions		159,369,284			137,202,699
Total increase/(decrease) in net assets		151,397,787			130,906,863
Net assets at beginning of period		509,834,455			289,339,231
Net assets at end of period including accumulated undistributed net investment income of $15,169,028 and $7,014,978, respectively	$	661,232,242		$	420,246,094

Net asset value per common share	$	12.65		$	12.65
Common shares outstanding at end of period		52,283,712			33,226,126

See accompanying notes to consolidated financial statements.

F-3

Medley Capital Corporation

Consolidated Statements of Cash Flows

	For the nine months ended June 30
	2014			2013
	(unaudited)			(unaudited)
Cash flows from operating activities
NET INCREASE IN NET ASSETS FROM OPERATIONS	$	43,323,981		$	24,292,629
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH USED BY OPERATING ACTIVITIES:
Investment increases due to paid-in-kind interest		(8,397,574	)		(6,522,188	)
Net amortization of premium/(discount) on investments		(490,301	)		(565,649	)
Amortization of deferred financing costs		1,592,209			1,029,597
Net realized (gain)/loss from investments		(886,904	)		(237,440	)
Net deferred income taxes		386,545			-
Net unrealized (appreciation)/depreciation on investments		11,580,576			7,988,618
Net unrealized (appreciation)/depreciation on participations		(124,315	)		-
Proceeds from sale and settlements of investments		278,008,120			140,693,504
Purchases, originations and participations		(573,502,473	)		(425,782,387	)
(Increase)/decrease in operating assets:
Interest receivable		(3,915,303	)		(6,000,916	)
Fees receivable		(195,000	)		(1,625,000	)
Other assets		(34,884	)		(112,964	)
Receivable for investments sold		-			(4,568,652	)
Receivable for paydown of investments		(15,175,048	)		-
Increase (decrease)/in operating liabilities:
Payable for investments purchased, originated and participated		15,842,912			4,787,700
Accounts payable and accrued expenses		912,244			711,660
Management and incentive fees payable, net		2,866,875			2,469,883
Administrator expenses payable		157,383			216,512
Interest and fees payable		191,494			1,765,734
Deferred revenue		55,756			7,688
Due to affiliate		(82,083	)		10,782
NET CASH USED BY OPERATING ACTIVITIES		(247,885,790	)		(261,440,889	)

Cash flows from financing activities
Proceeds from issuance of common stock, net of underwriting costs		159,669,417			137,696,574
Offering cost paid		(482,025	)		(628,734	)
Borrowings on debt		378,300,000			335,300,000
Paydowns on debt		(225,717,114	)		(167,100,000	)
Financing cost paid		(4,033,465	)		(4,673,177	)
Payments of cash dividends		(51,295,478	)		(30,588,465	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		256,441,335			270,006,198

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		8,555,545			8,565,309
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,557,899			4,893,616
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	17,113,444		$	13,458,925

Supplemental Information:
Interest paid during the period	$	12,660,917		$	6,437,602
Supplemental non-cash information
Paid-in-kind interest income	$	8,404,029		$	6,522,188
Net amortization of premium/(discount) on investments	$	490,301		$	565,649
Amortization of deferred financing costs	$	(1,592,209	)	$	(1,029,597	)
Issuance of common stock in connection with dividend reinvestment plan	$	1,693,167		$	1,764,174

See accompanying notes to consolidated financial statements.

F-4

Medley Capital Corporation

Consolidated Schedule of Investments

June 30, 2014

(unaudited)

Company ⁽¹⁾	Industry	Type of Investment	Maturity	Par Amount ⁽²⁾		Cost⁽¹⁵⁾		Fair Value		% of Net Assets ⁽³⁾

Non-Controlled/ Non-Affiliated Investments:

Accupac, Inc.	Containers, Packaging and Glass	Senior Secured Second Lien Term Loan (12.29%)	11/10/2018		10,000,000		10,000,000		10,000,000		1.5	%
					10,000,000		10,000,000		10,000,000

Aderant North America, Inc.	Electronics	Senior Secured Second Lien Term Loan (LIBOR + 8.75% , 1.25% LIBOR Floor)	6/20/2019		4,550,000		4,550,000		4,626,759		0.7	%
					4,550,000		4,550,000		4,626,759

Albertville Quality Foods, Inc. ⁽¹³⁾	Beverage, Food and Tobacco	Senior Secured First Lien Term Loan (LIBOR + 9.50% Cash, 1.00% LIBOR Floor, 3.00% LIBOR Cap)	10/31/2018		17,452,830		17,452,830		17,650,745		2.7	%
					17,452,830		17,452,830		17,650,745

Allen Edmonds Corporation	Retail Stores	Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)	5/27/2019		20,000,000		20,000,000		20,152,800		3.0	%
					20,000,000		20,000,000		20,152,800

Alora Pharmaceuticals LLC ⁽¹³⁾	Healthcare, Education and Childcare	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)	9/13/2018		13,475,000		13,475,000		13,678,877		2.1	%
					13,475,000		13,475,000		13,678,877

AM3 Pinnacle Corporation	Telecommunications	Senior Secured First Lien Term Loan (10.00%)	10/22/2018		7,971,534		7,971,534		7,971,534		1.2	%
					7,971,534		7,971,534		7,971,534

Amerit Fleet Services, Inc.	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 9.70% Cash, 1.00% LIBOR Floor, 1.50% PIK)	12/21/2016		8,411,672		8,411,672		8,466,768		1.3	%
					8,411,672		8,411,672		8,466,768

ARBOC Specialty Vehicles LLC	Automobile	Senior Secured First Lien Term Loan (LIBOR + 12.50% Cash, 1.00% LIBOR Floor)	3/21/2018		21,590,500		21,590,500		21,774,667		3.3	%
					21,590,500		21,590,500		21,774,667

Aurora Flight Sciences Corporation	Aerospace & Defense	Senior Secured Second Lien Term Loan (11.25% Cash, 2.00% PIK)	3/16/2016		16,049,211		16,049,211		16,049,211		2.4	%
					16,049,211		16,049,211		16,049,211
Autosplice, Inc. ⁽¹¹⁾	Diversified/Conglomerate Manufacturing	Revolver (LIBOR + 11.50% Cash, 1.00% LIBOR Floor)	9/28/2014		2,156,134		2,156,134		2,156,134		0.3	%
		Senior Secured First Lien Term Loan (LIBOR + 11.50% Cash, 1.00% LIBOR Floor)	6/30/2019		14,817,844		14,817,844		14,817,844		2.2	%
					16,973,978		16,973,978		16,973,978

BayDelta Maritime LLC	Cargo Transport	Senior Secured First Lien Term Loan (11.25% Cash, 2.50% Deferred)	6/30/2016		6,669,292		6,596,157		6,735,985		1.1	%
		Fee Note (14.88%)⁽⁶⁾	6/30/2016		250,000		189,375		189,029		0.0	%
		Warrants to purchase 10% of the outstanding equity	6/30/2016		-		25,000		587,000		0.1	%
					6,919,292		6,810,532		7,512,014

Be Green Manufacturing and Distribution Centers LLC ^(11)(14)	Containers, Packaging and Glass	Senior Secured First Lien Term Loan (LIBOR + 10.00%, 1.00% LIBOR Floor)	12/13/2018		5,000,000		5,000,000		5,062,850		0.8	%
		Senior Secured First Lien Delayed Draw (LIBOR + 10.00%, 1.00% LIBOR Floor)	12/13/2018		1,250,000		1,250,000		1,308,846		0.2	%
		Revolver (LIBOR + 10.00%, 1.00% LIBOR Floor)	12/13/2018		354,167		354,167		358,968		0.1	%
		1.74% Partnership Interest in RCAF VI CIV XXIII, L.P.			-		416,250		374,848		0.1	%
					6,604,167		7,020,417		7,105,512

Brantley Transportation LLC ⁽¹³⁾	Oil and Gas	Senior Secured First Lien Term Loan (12.00%)	8/2/2017		9,487,500		9,642,988		9,487,500		1.4	%
					9,487,500		9,642,988		9,487,500

California Products Corporation	Chemicals, Plastics and Rubber	Senior Secured Second Lien Term Loan (13.00%)	5/27/2019		13,750,000		13,750,000		13,954,875		2.1	%
					13,750,000		13,750,000		13,954,875

Calloway Laboratories, Inc.	Healthcare, Education and Childcare	Senior Secured First Lien Term Loans (17.00% PIK)	9/30/2014		29,989,991		28,093,477		17,150,668		2.6	%
		Warrants to purchase 15.00% of the outstanding equity	9/30/2014		-		68,433		-		0.0	%
					29,989,991		28,161,910		17,150,668

ConvergeOne Holdings Corp.	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)	6/17/2021		12,500,000		12,375,000		12,375,000		1.9	%
					12,500,000		12,375,000		12,375,000

Cornerstone Research & Development, Inc.	Healthcare, Education and Childcare	Senior Secured First Lien Term Loan (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)	4/28/2019		20,000,000		20,000,000		20,000,000		3.0	%
		Warrants to purchase 1.96% of the outstanding equity					400,000		400,000		0.1	%
					20,000,000		20,400,000		20,400,000

Dispensing Dynamics International⁽⁸⁾	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured Note (12.50%)	1/1/2018		4,800,000		4,726,600		4,892,976		0.7	%
					4,800,000		4,726,600		4,892,976

DLR Restaurants LLC ⁽¹³⁾	Restaurant & Franchise	Senior Secured First Lien Term Loan (11.00% Cash, 2.50% PIK)	4/18/2018		20,304,018		20,304,018		20,710,098		3.1	%
		Unsecured Debt (12.00% Cash, 4.00% PIK)	4/18/2018		262,474		262,474		262,474		0.0	%
					20,566,492		20,566,492		20,972,572

DreamFinders Homes LLC ^{(11) (14)}	Buildings and Real Estate	Senior Secured First Lien Term Loan B (LIBOR + 14.50% Cash)	10/1/2018		10,111,865		9,953,422		9,888,520		1.5	%
		Warrants to purchase 5% of outstanding equity	10/1/2018		-		180,000		1,195,000		0.2	%
					10,111,865		10,133,422		11,083,520

F-5

Dynamic Energy Services International LLC	Oil and Gas	Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)	3/6/2018	18,762,500	18,762,500	18,693,642	2.8	%
				18,762,500	18,762,500	18,693,642

Essex Crane Rental Corp. ⁽¹³⁾	Business Services	Senior Secured First Lien Term Loan (LIBOR + 10.50% Cash, 1.00% LIBOR Floor)	5/13/2019	20,000,000	20,000,000	20,000,000	3.0	%
				20,000,000	20,000,000	20,000,000

Exide Technologies ⁽¹⁰⁾	Machinery (Nonagriculture, Nonconstruction, Nonelectric)	Senior Secured Note (8.63%)	2/1/2018	11,000,000	9,006,908	6,325,000	1.0	%
				11,000,000	9,006,908	6,325,000

FC Operating LLC	Retail Stores	Senior Secured First Lien Term Loan (LIBOR + 10.75% Cash, 1.25% LIBOR Floor)	11/14/2017	10,350,000	10,350,000	9,761,603	1.5	%
				10,350,000	10,350,000	9,761,603

Geneva Wood Fuels LLC^(4)(12)	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (4.50% Cash, 10.50% PIK)	12/31/2014	8,199,184	8,143,385	4,000,000	0.6	%
				8,199,184	8,143,385	4,000,000

GSG Fasteners, LLC ⁽¹³⁾	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)	11/18/2018	8,775,000	8,775,000	8,879,423	1.3	%
				8,775,000	8,775,000	8,879,423

Harrison Gypsum LLC ⁽¹³⁾	Mining, Steel, Iron and Nonprecious Metals	Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 0.50% PIK, 1.50% LIBOR Floor)	12/21/2017	23,144,044	23,144,044	22,733,237	3.4	%
				23,144,044	23,144,044	22,733,237

HD Vest, Inc.	Finance	Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 1.25% LIBOR Floor)	6/18/2019	8,750,000	8,750,000	8,925,000	1.3	%
				8,750,000	8,750,000	8,925,000

Help/Systems LLC	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)	6/28/2020	15,000,000	15,000,000	15,243,750	2.3	%
				15,000,000	15,000,000	15,243,750

HGDS Acquisition LLC	Business Services	Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.50% PIK)	3/28/2018	10,681,099	10,681,099	10,551,751	1.6	%
				10,681,099	10,681,099	10,551,751

Ingenio Acquisition LLC	Personal, Food and Miscellaneous Services	Senior Secured First Lien Term Loan (11.25%)	3/14/2019	23,712,665	23,712,665	23,712,665	3.6	%
				23,712,665	23,712,665	23,712,665

Insight Pharmaceuticals LLC	Personal, Food and Miscellaneous Services	Senior Secured Second Lien Term Loan (LIBOR + 11.75%, 1.50% LIBOR Floor)	8/25/2017	7,724,138	7,724,138	7,878,621	1.2	%
				7,724,138	7,724,138	7,878,621

Integra Telecom	Telecommunications	Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.25% LIBOR Floor)	2/22/2020	12,132,000	12,155,807	12,374,640	1.9	%
				12,132,000	12,155,807	12,374,640

Interface Security Systems⁽⁸⁾	Electronics	Senior Secured Note (9.25%)	1/15/2018	3,333,000	3,333,000	3,427,724	0.5	%
				3,333,000	3,333,000	3,427,724

JD Norman Industries, Inc.	Diversified/Conglomerate Manufacturing	Senior Secured First Lien Term Loan (LIBOR + 10.25% Cash)	3/6/2019	24,000,000	24,000,000	24,317,040	3.7	%
				24,000,000	24,000,000	24,317,040

Lexmark Carpet Mills, Inc.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Senior Secured First Lien Term Loan (LIBOR + 10.00%, 1.00% LIBOR Floor, 2.50% LIBOR Cap)	9/30/2018	29,875,880	29,875,880	30,519,406	4.6	%
				29,875,880	29,875,880	30,519,406

Lighting Science Group Corporation ⁽¹¹⁾	Containers, Packaging and Glass	Senior Secured Second Lien Term (LIBOR + 10.00% Cash, 2.00% PIK)	2/19/2019	15,336,593	14,430,024	14,742,569	2.2	%
		Warrants to purchase 2.41% of the outstanding equity		-	955,680	517,500	0.1	%
				15,336,593	15,385,704	15,260,069

Linc Energy Finance (USA), Inc.⁽⁸⁾	Oil and Gas	Senior Secured Note (12.50%)	10/31/2017	3,500,000	3,407,805	3,844,155	0.6	%
				3,500,000	3,407,805	3,844,155

Lucky Strike Entertainment, L.L.C.	Leisure, Amusement, Motion Pictures, Entertainment	Senior Secured Second Lien Term Loan (LIBOR + 11.00% Cash, 1.00% LIBOR Floor, 2.00% PIK)	12/24/2018	11,504,472	11,504,472	11,633,322	1.8	%
				11,504,472	11,504,472	11,633,322

Lydell Jewelry Design Studio LLC ^(11)(13)(14)	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (LIBOR + 10.50%, 1.50% LIBOR Floor)	9/13/2018	13,072,000	13,072,000	12,810,370	1.9	%
		Warrants to purchase 13.3% of the outstanding membership units	9/13/2018	-	-	163,300	0.0	%
				13,072,000	13,072,000	12,973,670

Marine Accessories Corporation	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (LIBOR + 11.00% Cash, 1.00% LIBOR Floor, 1.00% PIK)	11/26/2018	10,052,058	10,052,058	10,134,485	1.5	%
				10,052,058	10,052,058	10,134,485

Merchant Cash and Capital LLC ^{(11) (14)}	Structure Finance Securities	Senior Secured First Lien Delayed Draw (LIBOR + 8.00% Cash, 3.00% LIBOR Floor)	3/4/2016	10,336,667	10,336,667	10,468,092	1.6	%
		Senior Secured Second Lien Term Loan (12.00% Cash)	8/19/2016	10,000,000	10,000,000	10,000,000	1.5	%
				20,336,667	20,336,667	20,468,092

Meridian Behavioral Health LLC	Healthcare, Education and Childcare	Senior Secured First Lien Term Loan A (LIBOR + 11.50%, 2.50% LIBOR Floor)	11/14/2016	10,289,141	9,976,039	10,392,032	1.6	%
		Senior Secured First Lien Term Loan B (LIBOR + 11.50%, 2.50% LIBOR Floor)	11/14/2016	850,000	850,000	850,000	0.1	%
		Warrants to purchase 8% of the outstanding equity	11/14/2016	-	536,296	1,100,914	0.2	%
				11,139,141	11,362,335	12,342,946

Miratech Intermediate Holdings, Inc. ^{(11) (13)}	Machinery (Nonagriculture, Nonconstruction, Nonelectric)	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)	5/9/2019	16,000,000	16,000,000	16,000,000	2.4	%
				16,000,000	16,000,000	16,000,000

F-6

Modern VideoFilm, Inc. ⁽¹²⁾	Leisure, Amusement, Motion Pictures, Entertainment	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.50% LIBOR Floor, 3.00% PIK)	9/25/2017	13,539,892	12,783,026	5,805,512	0.9	%
		Warrants to purchase 4.5% of the outstanding equity	9/25/2017	-	339,573	-	0.0	%
				13,539,892	13,122,599	5,805,512

Momentum Telecom, Inc. ⁽¹¹⁾	Telecommunications	Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)	3/10/2019	10,000,000	10,000,000	10,115,900	1.5	%
		Revolver (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)⁽⁷⁾	3/10/2019	-	-	-	0.0	%
				10,000,000	10,000,000	10,115,900

NCM Group Holdings LLC	Buildings and Real Estate	Unsecured Debt (11.00% Cash)	10/24/2019	22,920,000	22,920,000	22,920,000	3.5	%
				22,920,000	22,920,000	22,920,000

Omnivere LLC	Business Services	Senior Secured First Lien Term Loan A (LIBOR + 12.00% Cash, 1.00% PIK)	5/5/2019	18,362,373	17,508,455	17,699,491	2.7	%
		Senior Secured First Lien Term Loan C (LIBOR + 12.00% Cash, 1.00% PIK)	5/5/2019	1,669,307	1,669,307	1,669,307	0.3	%
		Warrants to purchase 12.50% of the outstanding equity			872,698	872,698	0.1	%
				20,031,680	20,050,460	20,241,496

Physicians Care Alliance LLC ^(11)(13)(14)	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (10.00% Cash, 1.00% PIK)	12/28/2017	15,580,848	15,580,848	15,824,221	2.4	%
		Revolving Credit Facility (10.50%)⁽⁷⁾	12/28/2017	-	-	11,987	0.0	%
				15,580,848	15,580,848	15,836,208

The Plastics Group Acquisition Corp ^{(11) (14)}	Chemicals, Plastics and Rubber	Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK)	2/28/2019	20,892,155	20,892,155	21,194,382	3.2	%
		Delayed Draw Term Loan (11.00% Cash, 2.00% PIK)⁽⁷⁾	2/28/2019	-	-	-	0.0	%
				20,892,155	20,892,155	21,194,382

Prestige Industries LLC	Business Services	Senior Secured Second Lien Term Loan (18.00% PIK)	1/31/2017	6,325,740	6,232,068	5,701,326	0.9	%
		Warrants to purchase 0.63% of the outstanding common units	1/31/2017	-	151,855	-	0.0	%
				6,325,740	6,383,923	5,701,326

Prince Mineral Holding Corp.⁽⁸⁾	Mining, Steel, Iron and Nonprecious Metals	Senior Secured Note (11.50%)	12/15/2019	6,800,000	6,732,747	7,405,540	1.1	%
				6,800,000	6,732,747	7,405,540

RCS Capital Corporation	Finance	Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)	4/29/2021	7,200,000	7,200,000	7,200,000	1.1	%
				7,200,000	7,200,000	7,200,000

RCS Management Corporation & Specialized Medical Services, Inc.	Diversified/Conglomerate Service	Senior Secured Second Lien Term Loan ( LIBOR + 11.00% Cash, 1.50% LIBOR Floor, 0.50% PIK)	4/30/2015	25,571,479	25,571,479	25,571,479	3.9	%
				25,571,479	25,571,479	25,571,479

Red Skye Wireless LLC ^(11)(14)	Retail Stores	Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 2.00% PIK, 1.00% LIBOR Floor)	6/27/2017	13,798,996	13,798,996	13,906,993	2.1	%
				13,798,996	13,798,996	13,906,993

Reddy Ice Corporation	Beverage, Food and Tobacco	Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.25% LIBOR Floor)	10/1/2019	17,000,000	17,000,000	16,409,930	2.5	%
				17,000,000	17,000,000	16,409,930

Response Team Holdings, LLC ⁽¹¹⁾	Buildings and Real Estate	Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% PIK, 2.00% LIBOR Floor)	3/28/2019	18,551,972	18,551,972	18,823,758	2.8	%
		Preferred Equity (12.00% PIK)	3/28/2019	4,776,422	4,347,409	4,470,635	0.7	%
		Warrants to purchase 6.17% of the outstanding common units	3/28/2019	-	429,012	429,012
				23,328,393	23,328,393	23,723,405

Revstone Aero LLC ⁽⁹⁾	Aerospace & Defense	Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.00% PIK)	11/1/2013	13,355,361	13,228,521	13,355,361	2.0	%
		Fee Note	11/1/2013	500,000	309,051	500,000	0.1	%
				13,855,361	13,537,572	13,855,361

Sendero Drilling Company LLC ^{(11) (14)}	Oil and Gas	Senior Secured First Lien Term Loan (LIBOR + 11.00% Cash)	3/18/2019	17,042,500	16,282,553	15,857,386	2.4	%
		Warrants to purchase 5.52% of the outstanding common units	3/18/2019	-	793,523	793,523	0.1	%
				17,042,500	17,076,076	16,650,909

T. Residential Holdings LLC	Buildings and Real Estate	Senior Secured First Lien Term Loan (12.00%)	3/28/2019	20,000,000	20,000,000	20,140,600	3.0	%
				20,000,000	20,000,000	20,140,600

Taylored Freight Services LLC	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 2.00% PIK, 1.50% LIBOR Floor)	11/1/2017	14,455,657	14,455,657	13,165,056	2.0	%
				14,455,657	14,455,657	13,165,056

Tempel Steel Company⁽⁸⁾	Mining, Steel, Iron and Nonprecious Metals	Senior Secured Note (12.00%)	8/15/2016	12,000,000	11,866,933	11,625,000	1.8	%
				12,000,000	11,866,933	11,625,000

Tenere Acquisition Corp.^(11)(14)	Diversified/Conglomerate Manufacturing	Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK)	12/15/2017	11,075,911	11,075,911	11,468,187	1.7	%
				11,075,911	11,075,911	11,468,187

The Great Atlantic & Pacific Tea Company, Inc.	Grocery	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 2.00% LIBOR Floor)	3/13/2017	7,807,209	7,807,209	7,946,021	1.2	%
				7,807,209	7,807,209	7,946,021

Transtelco Inc.	Telecommunications	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.50% LIBOR Floor)	11/19/2017	19,104,000	19,104,000	19,175,258	2.9	%
				19,104,000	19,104,000	19,175,258

U.S. Well Services LLC ⁽¹⁰⁾	Oil and Gas	Warrants to purchase 2.95% of the outstanding common membership interests	2/15/2017	-	11,370	4,342,520	0.7	%
				-	11,370	4,342,520

UELS LLC	Oil and Gas	Senior Secured Second Lien Term Loan (LIBOR + 10.50% Cash, 1.50% LIBOR Floor)	12/5/2018	20,430,000	20,430,000	20,805,095	3.1	%
				20,430,000	20,430,000	20,805,095

F-7

United Road Towing Inc.⁽¹⁶⁾	Personal, Food and Miscellaneous Services	Senior Secured Second Lien Term Loan (10.00% Cash, 5.00% PIK)	6/30/2014		23,156,538		22,699,857		20,992,097	3.2	%
					23,156,538		22,699,857		20,992,097

Untangle, Inc.	Business Services	Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash)	4/18/2019		10,000,000		10,000,000		10,000,000	1.5	%
					10,000,000		10,000,000		10,000,000

Velocity Pooling Vehicle LLC	Automobile	Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)	5/14/2022		24,000,000		20,648,811		20,640,000	3.1	%
					24,000,000		20,648,811		20,640,000

Water Capital USA, Inc.	Finance	Senior Secured First Lien Term Loan (7.00% Cash, 7.00% PIK)	1/3/2015		26,504,627		26,504,627		22,717,116	3.4	%
					26,504,627		26,504,627		22,717,116

Wheels Up Partners LLC ^{(11) (13) (14)}	Aerospace & Defense	Senior Secured First Lien Delayed Draw (LIBOR + 8.55% Cash, 1.00% LIBOR Floor)	4/15/2021		16,914,000		16,914,000		17,216,314	2.6	%
					16,914,000		16,914,000		17,216,314

Window Products, Inc.	Buildings and Real Estate	Senior Secured Second Lien Term Loan (LIBOR + 10.75% Cash, 1.00% LIBOR Floor)	12/27/2019		14,000,000		14,000,000		14,000,000	2.1	%
					14,000,000		14,000,000		14,000,000

Subtotal Non-Controlled / Non-Affiliated Investments				$	1,060,919,459	$	1,053,311,176	$	1,033,051,922

Affiliated Investments:
Cymax Stores, Inc.⁽¹⁰⁾	Home and Office Furnishings, Housewares, and Durable Consumer Products	Senior Secured First Lien Term Loan (10.00% Cash, 5.00% PIK)	8/1/2015		9,353,932		9,093,661		8,957,325	1.4	%
		190 Class B Common Units ⁽⁵⁾			-		678,154		1,040,250	0.2	%

Subtotal Affiliated Investments				$	9,353,932	$	9,771,815	$	9,997,575

Total Investments, June 30, 2014				$	1,070,273,391	$	1,063,082,991	$	1,043,049,497	157.7	%

(1)

All of our investments are domiciled in the United States except for Cymax Stores, Inc. which is domiciled in Canada and denominated in USD.

(2)

Par amount includes accumulated PIK interest and is net of repayments.

(3)

Percentage is based on net assets of $661,232,242 as of June 30, 2014.

(4)

Investment is held via participation agreements with affiliated entities (See note 7).

(5)

190 Class B Common Units represent 19% ownership of Cymax Stores, Inc.

(6)

Fee note is a zero coupon note, due at the earlier of prepayment or maturity and stated interest rate represents an effective interest rate.

(7)

The entire commitment was unfunded at June 30, 2014. As such, no interest is being earned on this investment.

(8)

Securities are exempt from registration under Rule 144a of the Securities Act of 1933. These securities represent a fair value of $31.2 million and 4.7% of net assets as of June 30, 2014 and are considered restricted.

(9)

The term loan matured by its term on November 1, 2013. The company continues to make current interest payments.

(10)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended.

(11)

The investment has an unfunded commitment as of June 30, 2014 (See note 8).

(12)

The investment was on non-accrual status as of June 30, 2014.

(13)

A portion of this investment was sold via a participation agreement (See note 3).

(14)

Includes an analysis of the value of any unfunded loan commitments.

(15)

Gross unrealized appreciation, gross unrealized depreciation, and net depreciation for federal income tax purposes totaled $30.4 million, $34.7 million and $4.3 million, respectively. The tax cost of investments is $1.0 billion.

(16)

A portion of this investment was participated to third party with a par value of $1.3 million and a fair value of $1.2 million. Such amount has been presented on a gross basis in accordance with US GAAP.

See accompanying notes to consolidated financial statements.

F-8

Medley Capital Corporation

Consolidated Schedule of Investments

September 30, 2013

Company ⁽¹⁾	Industry	Type of Investment	Maturity	Par Amount ⁽²⁾		Cost		Fair Value		% of Net Assets ⁽³⁾

Non-Controlled/ Non-Affiliated Investments:

Accupac, Inc.	Containers, Packaging and Glass	Senior Secured Second Lien Term Loan (12.29%)	11/10/2018		12,000,000		12,000,000		12,000,000		2.4	%
					12,000,000		12,000,000		12,000,000

Aderant North America, Inc.	Electronics	Senior Secured Second Lien Term Loan (LIBOR + 8.75% , 1.25% LIBOR Floor)	6/20/2019		4,550,000		4,550,000		4,550,000		0.9	%
					4,550,000		4,550,000		4,550,000

Alora Pharmaceuticals LLC⁽¹³⁾	Healthcare, Education and Childcare	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)	9/13/2018		14,000,000		14,000,000		14,000,000		2.7	%
					14,000,000		14,000,000		14,000,000

American Apparel, Inc.⁽⁸⁾	Retail Stores	Senior Secured Note (13.00%)	4/15/2020		13,000,000		12,626,748		13,259,927		2.6	%
					13,000,000		12,626,748		13,259,927

American Gaming Systems LLC⁽¹³⁾	Hotels, Motels, Inns and Gaming	Senior Secured First Lien Term Loan (LIBOR + 10.00% , 1.50% LIBOR Floor)	8/15/2016		10,750,000		10,750,000		10,848,660		2.1	%
					10,750,000		10,750,000		10,848,660

Amerit Fleet Services, Inc. ⁽¹²⁾	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 9.70% Cash, 1.00% LIBOR Floor, 1.50% PIK)	12/21/2016		8,906,159		8,906,159		8,870,534		1.7	%
					8,906,159		8,906,159		8,870,534

ARBOC Specialty Vehicles LLC	Automobile	Senior Secured First Lien Term Loan (LIBOR + 12.50% Cash, 1.00% LIBOR Floor)	3/21/2018		24,687,500		24,687,500		24,647,996		4.8	%
					24,687,500		24,687,500		24,647,996

Aurora Flight Sciences Corporation	Aerospace & Defense	Senior Secured Second Lien Term Loan (11.25% Cash, 2.00% PIK)	3/16/2014		15,807,836		15,807,836		15,863,600		3.1	%
					15,807,836		15,807,836		15,863,600

BayDelta Maritime LLC	Cargo Transport	Senior Secured First Lien Term Loan (11.25% Cash, 2.50% Deferred)	6/30/2016		6,669,292		6,573,846		6,680,885		1.3	%
		Fee Note (14.88%)⁽⁶⁾	6/30/2016		250,000		170,717		170,717		0.0	%
		Warrants to purchase 10% of the outstanding equity	6/30/2016		-		25,000		594,346		0.1	%
					6,919,292		6,769,563		7,445,948

Brantley Transportation LLC⁽¹³⁾	Oil and Gas	Senior Secured First Lien Term Loan (12.00%)	8/2/2017		10,162,500		10,346,975		10,162,500		2.0	%
					10,162,500		10,346,975		10,162,500

Calloway Laboratories, Inc.	Healthcare, Education and Childcare	Senior Secured First Lien Term Loans (12.00% PIK)	9/30/2014		24,869,263		24,388,179		19,666,360		3.9	%
		Warrants to purchase 15.00% of the outstanding equity	9/30/2014		-		68,433		-		0.0	%
					24,869,263		24,456,612		19,666,360

Caregiver Services, Inc.	Healthcare, Education and Childcare	Senior Secured Second Lien Term Loan (12.45% Cash, 2.00% PIK)	12/29/2017		15,361,486		15,361,486		15,361,486		3.0	%
					15,361,486		15,361,486		15,361,486

Cenegenics LLC⁽¹³⁾	Personal, Food and Miscellaneous Services	Senior Secured First Lien Term Loan (10.00% Cash, 2.25% PIK)	12/20/2017		19,414,099		19,414,099		19,899,452		3.9	%
					19,414,099		19,414,099		19,899,452

Dispensing Dynamics International⁽⁸⁾	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured Note (12.50%)	1/1/2018		4,800,000		4,714,770		4,825,840		0.9	%
					4,800,000		4,714,770		4,825,840

DLR Restaurants LLC ^{(10) (13)}	Restaurant & Franchise	Senior Secured First Lien Term Loan (11.00% Cash, 2.50% PIK)	4/18/2018		9,683,644		9,683,644		9,683,644		1.9	%
		Unsecured Debt (12.00% Cash, 4.00% PIK)	4/18/2018		254,645		254,645		254,645		0.0	%
					9,938,289		9,938,289		9,938,289

DreamFinders Homes LLC ⁽¹⁰⁾	Buildings and Real Estate	Senior Secured First Lien Term Loan A (LIBOR + 10.00% Cash)	4/30/2014		10,000,000		10,000,000		10,000,000		2.0	%
		Senior Secured First Lien Term Loan B (LIBOR + 14.50% Cash)	9/13/2018		7,277,199		7,098,472		7,098,472		1.4	%
		Warrants to purchase 5% of outstanding equity	9/13/2018		-		180,000		180,000		0.0	%
					17,277,199		17,278,472		17,278,472

Exide Technologies ⁽⁹⁾	Machinery (Nonagriculture, Nonconstruction, Nonelectric)	Senior Secured Note (8.63%)	2/1/2018		11,000,000		9,006,908		8,002,435		1.6	%
					11,000,000		9,006,908		8,002,435

FC Operating LLC	Retail Stores	Senior Secured First Lien Term Loan (LIBOR + 10.75% Cash, 1.25% LIBOR Floor)	11/14/2017		10,925,000		10,925,000		10,860,657		2.1	%
					10,925,000		10,925,000		10,860,657

Geneva Wood Fuels LLC^{(4) (11)}	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (4.50% Cash, 10.50% PIK)	12/31/2014		8,199,184		8,143,385		4,090,000		0.8	%
					8,199,184		8,143,385		4,090,000

Harrison Gypsum LLC⁽¹³⁾	Mining, Steel, Iron and Nonprecious Metals	Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 0.50% PIK, 1.50% LIBOR Floor)	12/21/2017		23,885,299		23,885,299		23,885,299		4.7	%
					23,885,299		23,885,299		23,885,299

F-9

HD Vest, Inc.	Finance	Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 1.25% LIBOR Floor)	6/18/2019	8,750,000	8,750,000	8,750,000	1.7	%
				8,750,000	8,750,000	8,750,000

Help/Systems LLC	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)	6/28/2020	15,000,000	15,000,000	15,000,000	3.0	%
				15,000,000	15,000,000	15,000,000

HGDS Acquisition LLC	Business Services	Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.50% PIK)	3/28/2018	13,066,264	13,066,264	13,000,932	2.6	%
				13,066,264	13,066,264	13,000,932

Hoffmaster Group, Inc.	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.50% LIBOR Floor)	1/3/2019	6,000,000	6,000,000	5,951,856	1.2	%
		Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.25% LIBOR Floor)	1/3/2019	2,000,000	1,983,005	1,926,637	0.4	%
				8,000,000	7,983,005	7,878,493

Ingenio Acquisition LLC	Personal, Food and Miscellaneous Services	Senior Secured First Lien Term Loan (12.75%)	5/9/2018	25,000,000	25,000,000	25,000,000	4.9	%
				25,000,000	25,000,000	25,000,000

Insight Pharmaceuticals LLC	Personal, Food and Miscellaneous Services	Senior Secured Second Lien Term Loan (LIBOR + 11.75%, 1.50% LIBOR Floor)	8/25/2017	7,724,138	7,724,138	7,748,867	1.5	%
				7,724,138	7,724,138	7,748,867

Integra Telecom	Telecommunications	Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.25% LIBOR Floor)	2/22/2020	12,132,000	12,158,115	12,329,145	2.4	%
				12,132,000	12,158,115	12,329,145

Interface Security Systems ⁽⁸⁾	Electronics	Senior Secured Note (9.25%)	1/15/2018	3,333,000	3,333,000	3,427,030	0.7	%
				3,333,000	3,333,000	3,427,030

JD Norman Industries, Inc.	Diversified/Conglomerate Manufacturing	Senior Secured Second Lien Term Loan (13.50%)	1/28/2019	12,500,000	12,500,000	12,500,000	2.5	%
				12,500,000	12,500,000	12,500,000

Lexmark Carpet Mills, Inc.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Senior Secured First Lien Term Loan (LIBOR + 10.00%, 1.00% LIBOR Floor, 2.50% LIBOR Cap)	9/30/2018	31,000,000	31,000,000	31,000,000	6.1	%
				31,000,000	31,000,000	31,000,000

Linc Energy Finance (USA), Inc.⁽⁸⁾	Oil and Gas	Senior Secured Note (12.50%)	10/31/2017	3,500,000	3,392,153	3,823,750	0.7	%
				3,500,000	3,392,153	3,823,750

Lydell Jewelry Design Studio LLC ^(10)(13)	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (LIBOR + 10.50%, 1.50% LIBOR Floor)	9/13/2018	13,072,000	13,072,000	13,072,000	2.6	%
		Revolver (LIBOR + 10.50%, 1.50% LIBOR Floor)	9/13/2018	2,250,000	2,250,000	2,250,000	0.4	%
		Warrants to purchase 17.5% of the outstanding membership units	9/13/2018	-	-	-	0.0	%
				15,322,000	15,322,000	15,322,000

Meridian Behavioral Health LLC	Healthcare, Education and Childcare	Senior Secured First Lien Term Loan A (14.00% )	11/14/2016	10,289,141	9,902,304	10,289,141	2.0	%
		Senior Secured First Lien Term Loan B (14.00%)	11/14/2016	3,750,000	3,750,000	3,750,000	0.7	%
		Warrants to purchase 8% of the outstanding equity	11/14/2016	-	536,296	1,071,347	0.2	%
				14,039,141	14,188,600	15,110,488

Modern VideoFilm, Inc.	Leisure, Amusement, Motion Pictures, Entertainment	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 3.00% PIK, 1.50% LIBOR Floor)	9/25/2017	11,868,109	11,583,071	9,791,187	1.9	%
		Warrants to purchase 4.5% of the outstanding equity	9/25/2017	-	339,573	-	0.0	%
				11,868,109	11,922,644	9,791,187

NCM Demolition and Remediation LP	Buildings and Real Estate	Senior Secured First Lien Term Loan (LIBOR + 11.50%, 1.00% LIBOR Floor)	8/29/2018	19,291,000	19,291,000	19,291,000	3.8	%
				19,291,000	19,291,000	19,291,000

Physicians Care Alliance LLC ^{(10) (13)}	Personal and Nondurable Consumer Products (Manufacturing Only)	Senior Secured First Lien Term Loan (10.00% Cash, 1.00% PIK)	12/28/2017	15,854,027	15,854,027	15,900,559	3.1	%
		Revolving Credit Facility (10.50%)⁽⁷⁾	12/28/2017	-	-	-	0.0	%
				15,854,027	15,854,027	15,900,559

Prestige Industries LLC	Business Services	Senior Secured Second Lien Term Loan (10.00% Cash, 3.00% PIK)	1/31/2017	6,029,795	5,914,778	5,506,459	1.1	%
		Warrants to purchase 0.63% of the outstanding common units	1/31/2017	-	151,855	-	0.0	%
				6,029,795	6,066,633	5,506,459

Prince Mineral Holdings Corp.⁽⁸⁾	Mining, Steel, Iron and Nonprecious Metals	Senior Secured Note (11.50%)	12/15/2019	6,800,000	6,726,424	7,242,000	1.4	%
				6,800,000	6,726,424	7,242,000

RCS Management Corporation & Specialized Medical Services, Inc.	Diversified/Conglomerate Service	Senior Secured Second Lien Term Loan ( LIBOR + 11.00% Cash, 0.50% PIK, 1.50% LIBOR Floor)	9/23/2015	25,474,725	25,474,725	25,336,272	5.0	%
				25,474,725	25,474,725	25,336,272

Red Skye Wireless LLC ⁽¹⁰⁾	Retail Stores	Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 2.00% PIK, 1.00% LIBOR Floor)	6/27/2017	15,080,145	15,080,145	15,075,802	3.0	%
				15,080,145	15,080,145	15,075,802

Reddy Ice Corporation	Beverage, Food and Tobacco	Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.25% LIBOR Floor)	10/1/2019	17,000,000	17,000,000	16,863,027	3.3	%
				17,000,000	17,000,000	16,863,027

Revstone Aero LLC	Aerospace & Defense	Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.00% PIK)	11/1/2013	13,203,903	13,051,823	13,203,780	2.6	%
		Fee Note	11/1/2013	500,000	274,147	500,000	0.1	%
				13,703,903	13,325,970	13,703,780

F-10

SESAC HOLDCO II	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 8.75%, 1.25% LIBOR Floor)	7/12/2019		3,500,000		3,494,828		3,561,527	0.7	%
					3,500,000		3,494,828		3,561,527

Sizzling Platter LLC⁽⁸⁾	Restaurant & Franchise	Senior Secured Note (12.25% )	4/15/2016		10,867,000		11,066,638		11,500,444	2.3	%
					10,867,000		11,066,638		11,500,444

Taylored Freight Services LLC	Business Services	Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 2.00% PIK, 1.50% LIBOR Floor)	11/1/2017		14,239,039		14,239,039		13,992,136	2.8	%
					14,239,039		14,239,039		13,992,136

Tempel Steel Company⁽⁸⁾	Mining, Steel, Iron and Nonprecious Metals	Senior Secured Note (12.00%)	8/15/2016		12,000,000		11,828,051		11,616,000	2.3	%
					12,000,000		11,828,051		11,616,000

Tenere Acquisition Corp.⁽¹⁰⁾	Diversified/Conglomerate Manufacturing	Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK)	12/15/2017		10,909,333		10,909,333		11,107,612	2.2	%
					10,909,333		10,909,333		11,107,612

The Great Atlantic & Pacific Tea Company, Inc.	Grocery	Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 2.00% LIBOR Floor)	3/13/2017		7,874,921		7,874,921		7,968,817	1.6	%
					7,874,921		7,874,921		7,968,817

Travelclick, Inc.	Hotels, Motels, Inns and Gaming	Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.25% LIBOR Floor)	3/26/2018		15,000,000		15,000,000		15,169,312	3.0	%
					15,000,000		15,000,000		15,169,312

U.S. Well Services LLC ⁽⁹⁾	Oil and Gas	Senior Secured Note (14.50%)	2/15/2017		21,558,808		21,430,696		21,564,270	4.2	%
		Warrants to purchase 3.48% of the outstanding common membership interests	2/15/2017		-		11,370		436,137	0.1	%
					21,558,808		21,442,066		22,000,407

United Restaurant Group L.P.	Restaurant & Franchise	Senior Secured Second Lien Term Loan (LIBOR + 11.50% Cash, 3.50% PIK)	12/31/2016		10,832,789		10,832,789		10,809,818	2.1	%
					10,832,789		10,832,789		10,809,818

United Road Towing Inc.⁽¹³⁾	Personal, Food and Miscellaneous Services	Senior Secured Second Lien Term Loan (10.00% Cash, 5.00% PIK)	6/30/2014		21,016,117		20,653,191		19,937,991	3.9	%
					21,016,117		20,653,191		19,937,991

Velum Global Credit Management LLC	Finance	Senior Secured First Lien Term Loan (15.00%)	3/31/2014		8,300,000		8,331,636		8,290,332	1.6	%
					8,300,000		8,331,636		8,290,332

Water Capital USA, Inc.	Finance	Senior Secured First Lien Term Loan (7.00% Cash, 7.00% PIK)	1/3/2015		25,141,230		25,141,230		25,141,230	4.9	%
					25,141,230		25,141,230		25,141,230

Westport Axle Corp.⁽¹³⁾	Automobile	Senior Secured First Lien Term Loan (11.50% Cash, 1.50% PIK)	11/17/2018		19,084,847		19,084,847		19,084,847	3.7	%
					19,084,847		19,084,847		19,084,847

YRCW Receivables LLC	Cargo Transport	Senior Secured Second Lien Term Loan (LIBOR + 9.75% Cash, 1.50% LIBOR Floor)	9/30/2014		4,848,049		4,779,391		4,858,530	1.0	%
					4,848,049		4,779,391		4,858,530

Subtotal Non-Controlled / Non-Affiliated Investments				$	752,093,486	$	748,405,904	$	740,097,249

Affiliated Investments:
Cymax Stores, Inc.⁽⁹⁾	Home and Office Furnishings, Housewares, and Durable Consumer Products	Senior Secured First Lien Term Loan (10.00% Cash, 5.00% PIK)	8/1/2015		9,006,620		8,605,486		8,466,223	1.7	%
		190 Class B Common Units ⁽⁵⁾			-		678,154		673,154	0.1	%

Subtotal Affiliated Investments				$	9,006,620	$	9,283,640	$	9,139,377

Total Investments, September 30, 2013				$	761,100,106	$	757,689,544	$	749,236,626	147.0	%

(1)

All of our investments are domiciled in the United States except for Cymax Stores, Inc. which is domiciled in Canada and denominated in USD.

(2)

Par amount includes accumulated PIK interest and is net of repayments.

(3)

Percentage is based on net assets of $509,834,455 as of September 30, 2013.

(4)

Investment is held via participation agreements with affiliated entities (See note 7).

(5)

190 Class B Common Units represent 19% ownership of Cymax Stores, Inc.

(6)

Fee note is a zero coupon note, due at the earlier of prepayment or maturity and stated interest rate represents an effective interest rate.

(7)

The entire commitment was unfunded at September 30, 2013. As such, no interest is being earned on this investment.

(8)

Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent $55.7 million and 10.9% of net assets as of September 30, 2013 and are considered restricted.

(9)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended.

(10)

The investment has an unfunded commitment as of September 30, 2013 (See note 8).

(11)

The investment was on PIK non-accrual status as of September 30, 2013.

(12)	Investment changed its name from Kelley Amerit Holdings, Inc. during FY 2013.
(13)	A portion of this investment was sold via a participation agreement (See note 3).

See accompanying notes to consolidated financial statements.

F-11

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements

June 30, 2014

(unaudited)

Note 1. Organization

Medley Capital Corporation (the “Company”, “we” and “us”) is a non-diversified closed end management investment company incorporated in Delaware that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected and qualified to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We are externally managed and advised by MCC Advisors LLC (“MCC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), pursuant to an investment management agreement.

Medley Capital BDC LLC (the “LLC”), a Delaware limited liability company, was formed on April 23, 2010. On January 18, 2011, the LLC, in accordance with Delaware law, converted into Medley Capital Corporation, a Delaware corporation, and on January 20, 2011, the Company filed an election to be regulated as a BDC under the 1940 Act.

On January 20, 2011, the Company consummated its IPO, sold 11,111,112 shares of common stock at $12.00 per share and commenced its operations and investment activities. On February 24, 2011, an additional 450,000 shares of common stock were issued at a price of $12.00 per share pursuant to the partial exercise of the underwriters’ option to purchase additional shares. Net of underwriting fees and offering costs, the Company received total cash proceeds of approximately $129.6 million.

On January 20, 2011, the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “MCC”.

Prior to the consummation of our IPO, Medley Opportunity Fund LP (“MOF LP”), a Delaware limited partnership, and Medley Opportunity Fund, Ltd. (“MOF LTD”), a Cayman Islands exempted limited liability company, which are managed by an affiliate of MCC Advisors, transferred all of their respective interests in six loan participations in secured loans to middle market companies with a combined fair value, plus payment-in-kind interest and accrued interest thereon, of approximately $84.95 million (the “Loan Assets”) to MOF I BDC LLC (“MOF I BDC”), a Delaware limited liability company, in exchange for membership interests in MOF I BDC. As a result, MOF LTD owned approximately 90% of the outstanding MOF I BDC membership interests and MOF LP owned approximately 10% of the outstanding MOF I BDC membership interests.

On January 18, 2011, each of MOF LTD and MOF LP contributed their respective MOF I BDC membership interests to the LLC in exchange for LLC membership interests. As a result, MOF I BDC became a wholly-owned subsidiary of the LLC. As a result of the LLC’s conversion noted above, MOF LTD and MOF LP’s LLC membership interests were exchanged for 5,759,356 shares of the Company’s common stock at $14.75 per share. On February 23, 2012, MOF LTD and MOF LP collectively sold 4,406,301 shares of common stock in an underwritten public offering. See Note 7 for further information.

On March 26, 2013, our wholly-owned subsidiary, Medley SBIC LP (“SBIC LP”), a Delaware limited partnership which we own directly and through our wholly-owned subsidiary, Medley SBIC GP LLC, received a license from 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.

The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

F-12

The Company’s investment objective is to generate current income and capital appreciation by lending to privately-held middle market companies, primarily through directly originated transactions, to help these companies fund acquisitions, growth or refinancing. The portfolio generally consists of senior secured first lien loans and senior secured second lien loans. In many of our investments, we will receive warrants or other equity participation features which we believe will increase the total investment returns.

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, MOF I BDC, MCC Investment Holdings LLC, MCC Investment Holdings RT1 LLC, MCC Investment Holdings Sendero LLC, MCC Investment Holdings Omnivere LLC and SBIC LP. All references made to the “Company,” “we,” and “us” herein include Medley Capital Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP may be omitted. 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 financial statements for the interim periods included herein. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended September 30, 2013, which was filed with the U.S. Securities and Exchange Commission on December 10, 2013. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2014.

Cash and Cash Equivalents

The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in a financial institution and, at times, such balance may be in excess of the Federal Deposit Insurance Corporation insurance limits.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Organizational Expenses

Organizational expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and have been expensed as incurred.

Offerings

On December 3, 2012, we completed a public offering of 5,000,000 shares of our common stock at a public offering price of $13.75 per share, raising approximately $66.0 million in net proceeds. On December 19, 2012, we sold an additional 495,263 shares of our common stock at a public offering price of $13.75 per share, raising approximately $6.5 million in net proceeds, pursuant to the underwriters’ partial exercise of the over-allotment option.

On April 12, 2013, we completed a public offering of 4,000,000 shares of our common stock and an additional 492,271 shares of our common stock pursuant to the underwriters’ partial exercise of the over-allotment option at a public offering price of $14.70 per share, raising approximately $63.4 million in net proceeds.

F-13

On September 9, 2013, we completed a public offering of 6,000,000 shares of our common stock and an additional 900,000 shares of our common stock pursuant to the underwriters’ partial exercise of the over-allotment option at a public offering price of $13.00 per share, raising approximately $86.6 million in net proceeds.

On February 5, 2014, the Company completed a public offering of 6,000,000 shares of our common stock at a public offering price of $14.00 per share, raising approximately $81.1 million in net proceeds.

On April 28, 2014, the Company completed a public offering of 6,000,000 shares of our common stock at a public offering price of $13.25 per share, raising approximately $76.9 million in net proceeds.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the public offering 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.

Deferred Financing Costs

Financing costs, incurred in connection with our credit facilities, unsecured notes and SBA debentures are deferred and amortized over the life of the respective facility or instrument.

Indemnification

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

Revenue Recognition

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis.

Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Other fee income for the three and nine months ended June 30, 2014 was approximately $8.6 million and $20.6 million, respectively. For the three and nine months ended June 30, 2013 other fee income was approximately $3.6 million and $10.0 million, respectively.

Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.

Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as income when the services are rendered.

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three and nine months ended June 30, 2014, the Company earned approximately $2.9 million and $8.4 million in PIK, respectively. For the three and nine months ended June 30, 2013, the Company earned approximately $2.4 million and $6.5 million in PIK interest, respectively.

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports changes in fair value of investments as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

F-14

Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on non-accrual status. Interest Receivable is analyzed regularly and may be reserved against when deemed uncollectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At June 30, 2014, two portfolio companies were on non-accrual status with a combined fair value of approximately $9.8 million, or 0.9% of the fair value of our portfolio. One portfolio company was on PIK non-accrual status at September 30, 2013.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.”

Valuation of Investments

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

F-15

The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, the Company uses a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company's assets and liabilities using an expected recovery model. We may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

•

our quarterly valuation process begins with each portfolio investment being initially valued by the investment professionals responsible for monitoring the portfolio investment;

•

preliminary valuation conclusions are then documented and discussed with senior management; and

•

an independent valuation firm engaged by our board of directors reviews approximately one third of these preliminary valuations each quarter on a rotating quarterly basis on non-fiscal year-end quarters, such that each of these investments will be valued by independent valuation firms at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms.

In addition, all of our investments are subject to the following valuation process:

•

review management’s preliminary valuations and their own independent assessment;

•

the audit committee of our board of directors reviews the preliminary valuations of the investment professionals, senior management and independent valuation firms; and

•

our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of MCC Advisors, the respective independent valuation firms and the audit committee.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ 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.

Fair Value of Financial Instruments

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5.

New Accounting Pronouncements

In June 2013, the FASB issued Accounting Standards Update 2013-08 “Financial Services-Investment Companies (Topic 946) Amendments to the Scope, Measurement, and Disclosure Requirements” (“ASU 2013-08”). ASU 2013-08 clarifies the characteristics of an investment company and requires reporting entities to disclose information about the following items: (i) the type and amount of financial support provided to investee companies, including situations in which the Company assisted an investee in obtaining financial support, (ii) the primary reasons for providing the financial support, (iii) the type and amount of financial support the Company is contractually required to provide to an investee, but has not yet provided, and (iv) the primary reasons for the contractual requirement to provide the financial support. The amendments in ASU 2013-08 are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. We are currently evaluating the impact this accounting standards update will have on our financial statements.

F-16

Federal Income Taxes

The Company has elected to be treated as a RIC under subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

The Company is subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. There is no provision for federal excise tax for 2013 accrued at June 30, 2014.

The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. Such deferred tax liabilities amounted to $69,687 and $386,545 for the three and nine months ended June 30, 2014, respectively, and are recorded as deferred tax liability on the consolidated statements of assets and liabilities. The change in deferred tax liabilities is included as a component of net unrealized appreciation/(depreciation) on investments in the consolidated statement of operations. There were no deferred tax liabilities for the three and nine months ended June 30, 2013.

ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statement of operations. There were no material uncertain income tax positions at June 30, 2014. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by the Internal Revenue Service.

F-17

Segments

The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s financial statements. See Note 3 for further information.

Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk

MCC Advisors has broad discretion in making investments for the Company. Investments will generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuate.

The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase materially. MCC Advisors may attempt to minimize this risk by maintaining low loan-to-liquidation values with each loan and the collateral underlying the loan.

The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

Note 3. Investments

The composition of our investments as of June 30, 2014 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

	Investments at Amortized Cost		Percentage			Investments at Fair Value		Percentage
Senior Secured First Lien Term Loans	$	663,884		62.4	%	$	641,244		61.5	%
Senior Secured Second Lien Term Loans		326,737		30.7			324,815		31.1
Senior Secured Notes		39,074		3.7			37,520		3.6
Unsecured Debt		23,183		2.2			23,183		2.2
Equity/Warrants		10,205		1.0			16,287		1.6
Total	$	1,063,083		100.0	%	$	1,043,049		100.0	%

The composition of our investments as of September 30, 2013 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

	Investments at Amortized Cost		Percentage			Investments at Fair Value		Percentage
Senior Secured First Lien Term Loans	$	418,109		55.2	%	$	408,802		54.5	%
Senior Secured Second Lien Term Loans		253,210		33.4			251,963		33.6
Senior Secured Notes		84,125		11.1			85,262		11.4
Unsecured Debt		255		0.1			255		0.1
Equity/Warrants		1,991		0.2			2,955		0.4
Total	$	757,690		100.0	%	$	749,237		100.0	%

F-18

The following table shows the portfolio composition by industry grouping at fair value at June 30, 2014 (dollars in thousands):

	Investments at		Percentage of
	Fair Value		Total Portfolio
Business Services	$	115,745		11.1	%
Buildings and Real Estate		91,868		8.8
Oil and Gas		73,824		7.1
Healthcare, Education and Childcare		63,572		6.1
Personal and Nondurable Consumer Products (Manufacturing Only)		56,717		5.4
Diversified/Conglomerate Manufacturing		52,759		5.1
Personal, Food and Miscellaneous Services		52,583		5.0
Telecommunications		49,637		4.7
Aerospace & Defense		47,121		4.5
Retail Stores		43,821		4.2
Automobile		42,415		4.1
Mining, Steel, Iron and Nonprecious Metals		41,764		4.0
Home and Office Furnishings, Housewares, and Durable Consumer Products		40,517		3.9
Finance		38,842		3.7
Chemicals, Plastics and Rubber		35,149		3.4
Beverage, Food and Tobacco		34,061		3.3
Containers, Packaging and Glass		32,366		3.1
Diversified/Conglomerate Service		25,571		2.4
Machinery (Nonagriculture, Nonconstruction, Nonelectric)		22,325		2.1
Restaurant & Franchise		20,973		2.0
Structure Finance Securities		20,468		2.0
Leisure, Amusement, Motion Pictures, Entertainment		17,439		1.7
Electronics		8,054		0.8
Grocery		7,946		0.8
Cargo Transport		7,512		0.7
Total	$	1,043,049		100.0	%

The following table shows the portfolio composition by industry grouping at fair value at September 30, 2013 (dollars in thousands):

F-19

	Investments at		Percentage of
	Fair Value		Total Portfolio
Personal, Food and Miscellaneous Services	$	72,586		9.7	%
Healthcare, Education and Childcare		64,138		8.6
Business Services		59,932		8.0
Personal and Nondurable Consumer Products (Manufacturing Only)		48,017		6.4
Automobile		43,733		5.8
Mining, Steel, Iron and Nonprecious Metals		42,743		5.7
Finance		42,182		5.6
Home and Office Furnishings, Housewares, and Durable Consumer Products		40,139		5.4
Retail Stores		39,196		5.2
Buildings and Real Estate		36,570		4.9
Oil and Gas		35,987		4.8
Restaurant & Franchise		32,249		4.3
Aerospace & Defense		29,567		3.9
Hotels, Motels, Inns and Gaming		26,018		3.5
Diversified/Conglomerate Service		25,336		3.4
Diversified/Conglomerate Manufacturing		23,608		3.2
Beverage, Food and Tobacco		16,863		2.2
Telecommunications		12,329		1.6
Cargo Transport		12,305		1.6
Containers, Packaging and Glass		12,000		1.6
Leisure, Amusement, Motion Pictures, Entertainment		9,791		1.3
Machinery (Nonagriculture, Nonconstruction, Nonelectric)		8,002		1.1
Electronics		7,977		1.1
Grocery		7,969		1.1
Total	$	749,237		100.0	%

The Company invests in portfolio companies principally located in North America. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

The following table shows the portfolio composition by geographic location at fair value at June 30, 2014 (dollars in thousands):

	Investments at Fair Value		Percentage
Midwest	$	313,974		30.1	%
West		198,725		19.1
Southeast		193,370		18.5
Southwest		172,238		16.4
Northeast		107,169		10.3
Mid-Atlantic		47,575		4.6
International		9,998		1.0
Total	$	1,043,049		100.0	%

The following table shows the portfolio composition by geographic location at fair value at September 30, 2013 (dollars in thousands):

	Investments at Fair Value		Percentage
Midwest	$	231,437		30.9	%
West		182,195		24.3
Southeast		103,692		13.9
Southwest		101,386		13.5
Northeast		61,490		8.2
Mid-Atlantic		59,898		8.0
International		9,139		1.2
Total	$	749,237

PhenixFIN Corp - FORM 10-Q - July 31, 2014

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