GREAT ELM CAPITAL CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

Overview


We are a BDC that seeks to generate both current income and capital appreciation
through debt and income-generating equity investments, including investments in
specialty finance businesses. To achieve our investment objective, we invest in
secured and senior secured debt instruments of middle market companies, as well
as income-generating equity investments in specialty finance companies, that we
believe offer sufficient downside protection and have the potential to generate
attractive returns. We generally define middle market companies as companies
with enterprise values between $100 million and $2 billion. We also make
investments throughout other portions of a company's capital structure,
including subordinated debt, mezzanine debt, and equity or equity­linked
securities. We source these transactions directly with issuers and in the
secondary markets through relationships with industry professionals.

In December 2021, Great Elm Specialty Finance, LLC ("GESF") a wholly-owned
subsidiary of GECC, was formed to oversee specialty finance related investments,
and Michael Keller, a seasoned professional with significant experience in
specialty finance, was appointed President of GESF. We believe investments in
specialty finance companies along the "continuum of lending" provide durable
risk adjusted returns that are expected to be largely uncorrelated to the liquid
credit markets. The "continuum of lending" as seen by Great Elm Capital
Management, Inc. ("GECM") is the various stages of capital that are provided to
under-banked small and medium sized businesses and includes, but is not limited
to inventory and purchase order financing, receivables factoring, asset-based
and asset-backed lending, and equipment financing. GECM believes that ownership
interests in multiple specialty finance companies will create a natural
competitive advantage for each business and generate both revenue and cost
synergies across companies.

On September 27, 2016, we and GECM, our external investment manager, entered
into an investment management agreement (the "Investment Management Agreement")
and an administration agreement (the "Administration Agreement"), and we began
to accrue obligations to our external investment manager under those agreements.
The Investment Management Agreement renews for successive annual periods,
subject to approvals from our board of directors (our "Board") and/or
stockholders. On August 1, 2022, our stockholders approved an amendment to the
Investment Management Agreement to eliminate $163.2 million of realized and
unrealized losses incurred prior to April 1, 2022 from the calculation of future
capital gains incentive fees and reset the capital gain incentive fee and
mandatory deferral periods in Sections 4.4 and 4.5, respectively, of the
Investment Management Agreement to begin on April 1, 2022.

We have elected to be treated as a RIC for U.S. federal income tax purposes. As
a RIC, we will not be taxed on our income to the extent that we distribute such
income each year and satisfy other applicable income tax requirements. To
qualify as a RIC, we must, among other things, meet source-of-income and asset
diversification requirements and annually distribute to our stockholders
generally at least 90% of our investment company taxable income on a timely
basis. If we qualify as a RIC, we generally will not have to pay corporate level
taxes on any income that we distribute to our stockholders.

Investments


Our level of investment activity can and does vary substantially from period to
period depending on many factors, including, among others, the amount of debt
and equity capital available from other sources to middle-market companies, the
level of merger and acquisition activity, pricing in the high yield and
leveraged loan credit markets, our expectations of future investment
opportunities, the general economic environment as well as the competitive
environment for the types of investments we make.

As a BDC, our investments and the composition of our portfolio are required to
comply with regulatory requirements.

Revenues


We generate revenue primarily from interest on the debt investments that we
hold. We may also generate revenue from dividends on the equity investments that
we hold, capital gains on the disposition of investments, and lease, fee, and
other income. Our investments in fixed income instruments generally have an
expected maturity of three to five years, although we have no lower or upper
constraint on maturity. Our debt investments generally pay interest quarterly or
semi-annually. Payments of principal of 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 and preferred stock
investments may defer payments of cash interest or dividends or payment-in-kind
("PIK"). In addition, we may generate revenue in the form of prepayment fees,
commitment, origination, due diligence fees, end-of-term or exit fees, fees for
providing significant managerial assistance, consulting fees and other
investment-related income.

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Expenses


Our primary operating expenses include the payment of a base management fee,
administration fees (including the allocable portion of overhead under the
Administration Agreement), and, depending on our operating results, an incentive
fee. The base management fee and incentive fee remunerates GECM for work in
identifying, evaluating, negotiating, closing and monitoring our investments.
The Administration Agreement provides for reimbursement of costs and expenses
incurred for office space rental, office equipment and utilities allocable to us
under the Administration Agreement, as well as certain costs and expenses
incurred relating to non-investment advisory, administrative or operating
services provided by GECM or its affiliates to us. We also bear all other costs
and expenses of our operations and transactions. In addition, our expenses
include interest on our outstanding indebtedness.

Critical Accounting Policies

Valuation of Portfolio Investments


We value our portfolio investments at fair value based upon the principles and
methods of valuation set forth in policies adopted by our Board. Fair value is
defined as the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date. Market
participants are buyers and sellers in the principal (or most advantageous)
market for the asset that (1) are independent of us; (2) are knowledgeable,
having a reasonable understanding about the asset based on all available
information (including information that might be obtained through due diligence
efforts that are usual and customary); (3) are able to transact for the asset;
and (4) are willing to transact for the asset (that is, they are motivated but
not forced or otherwise compelled to do so).

Investments for which market quotations are readily available are valued at such
market quotations unless the quotations are deemed not to represent fair value.
Debt and equity securities for which market quotations are not readily available
or for which market quotations are deemed not to represent fair value, are
valued at fair value using a valuation process consistent with our
Board-approved policy.

Our Board approves in good faith the valuation of our portfolio as of the end of
each quarter. Due to the inherent uncertainty and subjectivity 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 may differ materially from the values that we may ultimately
realize. In addition, changes in the market environment and other events may
impact the market quotations used to value some of our investments.

Those investments for which market quotations are not readily available or for
which market quotations are deemed not to represent fair value are valued
utilizing a market approach, an income approach, or both approaches, as
appropriate. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets or
liabilities (including a business). The income approach uses valuation
techniques to convert future amounts (for example, cash flows or earnings) to a
single present amount (discounted). The measurement is based on the value
indicated by current market expectations about those future amounts. In
following these approaches, the types of factors that we may take into account
in determining the fair value of our investments include, as relevant and among
other factors: available current market data, including relevant and applicable
market trading and transaction comparables; applicable market yields and
multiples, security covenants, call protection provisions, information rights
and the nature and realizable value of any collateral, the portfolio company's
ability to make payments, its earnings and discounted cash flows, the markets in
which the portfolio company does business, comparisons of financial ratios of
peer companies that are public, and merger and acquisition comparables; and
enterprise values.

We prefer the use of observable inputs and minimize the use of unobservable
inputs in our valuation process. Inputs refer broadly to the assumptions that
market participants would use in pricing an asset. Observable inputs are inputs
that reflect the assumptions market participants would use in pricing an asset
developed based on market data obtained from sources independent of us.
Unobservable inputs are inputs that reflect our assumptions about the
assumptions market participants would use in pricing an asset developed based on
the best information available in the circumstances.

Both observable and unobservable inputs are subject to some level of uncertainty
and assumptions used bear the risk of change in the future. We utilize the best
information available to us, including the factors listed above, in preparing
the fair valuations. In determining the fair value of any individual investment,
we may use multiple inputs or utilize more than one approach to calculate the
fair value to assess the sensitivity to change and determine a reasonable range
of fair value. In addition, our valuation procedures include an assessment of
the current valuation as compared to the previous valuation for each investment
and where differences are material understanding the primary drivers of those
changes, incorporating updates to our current valuation inputs and approaches as
appropriate.

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Revenue Recognition


Interest and dividend income, including PIK income, is recorded on an accrual
basis. Origination, structuring, closing, commitment and other upfront fees,
including original issue discounts ("OID"), earned with respect to capital
commitments are generally amortized or accreted into interest income over the
life of the respective debt investment, as are end-of-term or exit fees
receivable upon repayment of a debt investment if such fees are fixed in nature.
Other fees, including certain amendment fees, prepayment fees and commitment
fees on broken deals, and end-of-term or exit fees that have a contingency
feature or are variable in nature are recognized as earned. Prepayment fees and
similar income due upon the early repayment of a loan or debt security are
recognized when earned and are included in interest income.

We may purchase debt investments at a discount to their face value. Discounts on
the acquisition of corporate debt instruments are generally amortized using the
effective-interest or constant-yield method unless there are material questions
as to collectability.

We assess the outstanding accrued income receivables for collectability at least
quarterly, or more frequently if there is an event that indicates the underlying
portfolio company may not be able to make the expected payments. If it is
determined that amounts are not likely to be paid we may establish a reserve
against or reverse the income and put the investment on non-accrual status.

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation
(Depreciation)


We measure realized gains or losses by the difference between the net proceeds
from the repayment or sale of an investment and the amortized cost basis of the
investment, without regard to unrealized appreciation or depreciation previously
recognized. Realized gains and losses are computed using the specific
identification method.

Net change in unrealized appreciation or depreciation reflects the net change in
portfolio investment fair values and portfolio investment cost bases during the
reporting period, including the reversal of previously recorded unrealized
appreciation or depreciation when gains or losses are realized.

Portfolio and Investment Activity

The following is a summary of our investment activity for the year ended
December 31, 2021 and the nine months ended September 30, 2022:

                                                                                   Weighted Average
                                                                                        Yield
(in thousands)                         Acquisitions(1)      

Dispositions(2) End of Period(3)
Quarter ended March 31, 2021 $ 58,429 $ (28,268 )

                10.91 %
Quarter ended June 30, 2021                      49,904               (35,583 )                11.10 %
Quarter ended September 30, 2021                 72,340               (31,640 )                11.27 %
Quarter ended December 31, 2021                  34,184               (40,270 )                10.81 %
For the Year Ended December 31,
2021                                            214,857              

(135,761 )


Quarter ended March 31, 2022                     27,578               (29,723 )                10.38 %
Quarter ended June 30, 2022                      44,750               (34,014 )                10.27 %
Quarter ended September 30, 2022                 40,212               (28,430 )                11.59 %
For the Nine Months Ended September
30, 2022                              $         112,540     $         (92,167 )


(1)
Includes new investments, additional fundings (inclusive of those on revolving
credit facilities), refinancings and capitalized PIK income. Investments in
short-term securities, including U.S. Treasury Bills and money market mutual
funds, were excluded.

(2)

Includes scheduled principal payments, prepayments, sales, and repayments
(inclusive of those on revolving credit facilities). Investments in short-term
securities, including U.S. Treasury Bills and money market mutual funds, were
excluded.

(3)

Weighted average yield is based upon the stated coupon rate and fair value of
outstanding debt securities at the measurement date. Debt securities on
non-accrual status are included in the calculation and are treated as having 0%
as their applicable interest rate for purposes of this calculation, unless such
debt securities are valued at zero.

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Portfolio Reconciliation

The following is a reconciliation of the investment portfolio for the nine
months ended September 30, 2022 and the year ended December 31, 2021.
Investments in short-term securities, including U.S. Treasury Bills and money
market mutual funds, are excluded from the table below.

                                                 For the Nine Months       For the Year
                                                 Ended September 30,      Ended December
(in thousands)                                          2022                 31, 2021
Beginning Investment Portfolio, at fair value    $           212,149     $  

151,648

Portfolio Investments acquired(1)                            112,540        

214,857

Amortization of premium and accretion of
discount, net                                                    977        

3,958

Portfolio Investments repaid or sold(2)                      (92,167 )            (135,761 )
Net change in unrealized appreciation
(depreciation) on investments                                112,018               (12,922 )
Net realized gain (loss) on investments                     (128,504 )              (9,631 )
Ending Investment Portfolio, at fair value       $           217,013     $  

212,149

(1)

Includes new investments, additional fundings (inclusive of those on revolving
credit facilities), refinancings, and capitalized PIK income.

(2)

Includes scheduled principal payments, prepayments, sales, and repayments
(inclusive of those on revolving credit facilities).

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Portfolio Classification

The following table shows the fair value of our portfolio of investments by
industry as of September 30, 2022 and December 31, 2021 (in thousands):


                                         September 30, 2022                 

December 31, 2021

                                 Investments at       Percentage of        Investments at       Percentage of
Industry                           Fair Value          Fair Value            Fair Value          Fair Value
Specialty Finance               $         51,347               23.66 %    $         47,952               22.60 %
Energy Midstream                          26,333               12.13 %              31,815               15.00 %
Chemicals                                 24,477               11.28 %              15,058                7.10 %
Metals & Mining                           13,693                6.31 %              13,711                6.46 %
Internet Media                            13,298                6.13 %              11,870                5.60 %
Transportation Equipment                                        5.38 %                                    2.84 %
Manufacturing                             11,679                                     6,030
Oil & Gas Exploration &                                         5.37 %                                    4.64 %
Production                                11,647                                     9,849
Casinos & Gaming                           7,931                3.66 %               5,291                2.49 %
Shipping                                   7,292                3.36 %                   -                   - %
Consumer Products                          7,258                3.34 %                   -                   - %
Food & Staples                             6,404                2.95 %               2,724                1.28 %
Industrial                                 5,451                2.51 %               7,551                3.56 %
Oil & Gas Refining                         5,358                2.47 %               3,030                1.43 %
Hospitality                                5,001                2.30 %               4,085                1.93 %
Energy Services                            4,469                2.06 %                   -                   - %
Aircraft                                   3,574                1.65 %                   -                   - %
Wireless Telecommunications                                     1.64 %                                    3.84 %
Services                                   3,550                                     8,137
Restaurants                                3,333                1.54 %               8,310                3.92 %
Closed-End Fund                            2,654                1.22 %                   -                   - %
Apparel                                    2,585                1.19 %               2,929                1.38 %
Special Purpose Acquisition                                     0.01 %                                    1.43 %
Company                                       20                                     3,044
Retail                                         5                   - %               4,267                2.01 %
Biotechnology                                  4                   - %                  11                0.01 %
Auto Manufacturer                              2                   - %                   -                   - %
Communications Equipment                       1                   - %               1,057                0.50 %
Household & Personal Products                  1                   - %                   -                   - %
IT Services                                    1                   - %                   7                0.01 %
Technology                                  (355 )             (0.16 )%               (158 )             (0.07 )%
Construction Materials                                             - %                                    4.93 %
Manufacturing                                  -                                    10,461
Home Security                                  -                   - %               5,590                2.63 %
Healthcare Supplies                            -                   - %               2,869                1.35 %
Consumer Services                              -                   - %               2,640                1.24 %
Commercial Printing                            -                   - %               2,025                0.95 %
Software Services                              -                   - %               1,994                0.94 %
Total                           $        217,013              100.00 %    $        212,149              100.00 %




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Results of Operations

Investment Income

                                             For the Three Months Ended September 30,                                       For the Nine Months Ended September 30,
                                           2022                                    2021                                   2022                                   2021
                             In Thousands        Per Share(1)         In Thousands       Per Share(2)       In Thousands        Per Share(1)        In Thousands       Per Share(2)
Total Investment Income     $        6,033       $        0.79       $        7,373     $         1.85     $       17,104       $        2.95      $       18,901     $         4.80
Interest income                      4,990                0.65                5,872               1.47             12,765                2.20              15,143               3.85
Dividend income                        740                0.10                  915               0.23              3,396                0.59               2,809               0.71
Other income                           303                0.04                  586               0.15                943                0.16                 949               0.24


(1)
The per share amounts are based on a weighted average of 7,601,958 and 5,796,255
outstanding common shares for the three and nine months ended September 30,
2022, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,985,741 and 3,935,008
outstanding common shares for the three and nine months ended September 30,
2021, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

Investment income consists of interest income, including net amortization of
premium and accretion of discount on loans and debt securities, dividend income
and other income, which primarily consists of amendment fees, commitment fees
and funding fees on loans.

For the three and nine months ended September 30, 2022, interest income has
decreased primarily due to our positions in Avanti Communications Group plc
("Avanti Communications") which were put on non-accrual status at the end of
fiscal year 2021 and early in fiscal year 2022 and subsequently exited as part
of the restructuring in April 2022. As a result, we recognized only $0.1 million
in interest income related to our investments in Avanti Communications for the
nine months ended September 30, 2022 as compared to $5.4 million in interest
income for the nine months ended September 30, 2021. For the three months ended
September 30, 2022, we did not hold any investments in Avanti Communications and
our investments in Avanti Space Limited ("Avanti Space") received in the April
2022 restructuring were on non-accrual, therefore we did not recognize any
interest income during this period whereas for the three months ended September
30, 2021, we recognized $1.9 million in interest income related to our
investments in Avanti Communications. These decreases have been partially offset
by interest earned on new positions.

Dividend income for the three months ended September 30, 2022 decreased as
compared to the corresponding period in the prior year primarily due to a lower
current quarter distribution from our investments in specialty finance portfolio
companies and preferred equity positions. Dividend income for the nine months
ended September 30, 2022 increased as compared to the corresponding period in
the prior year primarily due to higher quarterly distributions from our
investments in specialty finance portfolio companies earlier in 2022.


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Expenses

                                              For the Three Months Ended September 30,                                       For the Nine Months Ended September 30,
                                            2022                                    2021                                   2022                                   2021
                              In Thousands        Per Share(1)         In Thousands       Per Share(2)       In Thousands         Per Share(1)       In Thousands       Per Share(2)
Total Expenses               $        4,949       $        0.65       $        5,800     $         1.46     $        8,777       $         1.51     $       13,721     $         3.49
Management fees                         804                0.11                  876               0.22              2,355                 0.40              2,301               0.59
Incentive fees                            -                   -                  382               0.10                  -                    -                888               0.23
Incentive fee waiver                      -                   -                    -                  -             (4,854 )              (0.84 )                -                  -
Total advisory and                      804                0.11                1,258               0.32             (2,499 )              (0.44 )            3,189               0.82
management fees
Administration fees                     221                0.03                  175               0.04                704                 0.12                511               0.13
Directors' fees                          49                0.01                   61               0.02                156                 0.03                172               0.04
Interest expense                      2,671                0.35                3,147               0.79              8,008                 1.38              7,636               1.94
Professional services                   878                0.11                  937               0.24              1,669                 0.29              1,613               0.41
Custody fees                             13                0.00                   13                  -                 41                 0.01                 39               0.01
Other                                   313                0.04                  209               0.05                698                 0.12                561               0.14
Income Tax Expense
Excise tax                               22                   -                    -                  -                123                 0.02                  -                  -


(1)
The per share amounts are based on a weighted average of 7,601,958 and 5,796,255
outstanding common shares for the three and nine months ended September 30,
2022, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,985,741 and 3,935,008
outstanding common shares for the three and nine months ended September 30,
2021, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

Expenses are largely comprised of advisory fees and administration fees paid to
GECM and interest expense on our outstanding notes payable. See "-Liquidity and
Capital Resources." Advisory fees include management fees and incentive fees
calculated in accordance with the Investment Management Agreement, and
administration fees include direct costs reimbursable to GECM under the
Administration Agreement and fees paid for sub-administration services.

GECM waived all accrued and unpaid incentive fees pursuant to the Investment
Management Agreement as of March 31, 2022. As of March 31, 2022, there were
approximately $4.9 million of accrued and unpaid incentive fees held on our
balance sheet. In connection with the incentive fee waiver, we recognized the
reversal of these accrued and unpaid incentive fees during the period ending
March 31, 2022, resulting in a corresponding increase in net income and increase
in NAV in such period (subject to any offsetting additional expenses or losses).
The incentive fee waiver is not subject to recapture.

On August 1, 2022, our stockholders approved an amendment to the Investment
Management Agreement to eliminate $163.2 million of realized and unrealized
losses incurred prior to April 1, 2022 from the calculation of future capital
gains incentive fees and reset the capital gain incentive fee and mandatory
deferral periods in Sections 4.4 and 4.5, respectively, of the Investment
Management Agreement to begin on April 1, 2022.


Administration fees increased in the three and nine months ended September 30,
2022 as compared to the corresponding period in the prior year primarily due to
increases in allocable personnel time as a result of changes in staffing.
Professional services costs for the three months ended September 30, 2022
decreased as compared to the three months ended September 30, 2021, as the prior
year period included certain legal expenses.

For the three months ended September 30, 2022, interest expense decreased as
compared to the corresponding period in the prior year as a result of the
redemption of $30.3 million in aggregate principal amount of the 6.50% Notes due
2022 (the "GECCL Notes") in July 2021, which was partially offset by the
issuance of $57.5 million in aggregate principal amount of the GECCO Notes (as
defined below) in June and July 2021. The early redemption of the GECCL Notes
also resulted in recognizing any unamortized debt issuance costs in full during
the three months ended September 30, 2021. Interest expense increased for the
nine months ended September 30, 2022 as compared to the corresponding period in
the prior year due to the increase in outstanding debt as the GECCO Notes were
outstanding for the full year to date period.

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Realized Gains (Losses)

                                           For the Three Months Ended September 30,                                     For the Nine Months Ended September 30,
                                          2022                                    2021                                 2022                                  2021
                            In Thousands         Per Share(1)        In

Thousands Per Share(2) In Thousands Per Share(1) In Thousands Per Share(2)
Net Realized Gain (Loss) $ 1,171 $ 0.15 $

1,660 $ 0.42 $ (128,513 ) $ (22.17 ) $ (3,984 ) $ (1.01 )
Gross realized gain

                 1,212                 0.16               2,103              0.53             3,657                0.63              6,681              1.70
Gross realized loss                   (41 )              (0.01 )              (443 )           (0.11 )        (132,170 )            (22.80 )          (10,665 )           (2.71 )


(1)
The per share amounts are based on a weighted average of 7,601,958 and 5,796,255
outstanding common shares for the three and nine months ended September 30,
2022, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,985,741 and 3,935,008
outstanding common shares for the three and nine months ended September 30,
2021, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

During the three months ended September 30, 2022, net realized gains were
primarily driven by the sale of our investment in Crestwood Equity Partners, LP
("Crestwood") resulting in realized gain of $0.7 million, the paydown of our
investment in Altus Midstream LP resulting in realized gain of $0.2 million and
the sale of our investment in Microstrategy Incorporated resulting in realized
gain of $0.1 million.

During the nine months ended September 30, 2022, gross realized losses included
$110 million in previously recognized unrealized losses recognized as a result
of the restructuring of Avanti Communications in April 2022, along with
additional losses of $15.9 million and $4.2 million recognized on the sales of
our positions in Tru (UK) Asia Limited ("Tru Taj") common stock and California
Pizza Kitchen, Inc. ("CPK") common stock, respectively.

During the three months ended September 30, 2021, net realized gains were
primarily driven by realized gains of $1.4 million recognized on partial sale of
our investments in Crestwood preferred equity and $0.4 million recognized on the
early paydown on our investment in CPK 1st lien secured loan. These realized
gains were partially offset by realized losses of $0.3 million on sales of our
investments in Tru Taj common stock and $0.1 million on the paydown of our
investment in OPS Acquisitions Limited and Ocean Protection Services Limited
("OPS") 1st lien secured loan.

In addition to the above items, during the nine months ended September 30, 2021,
net realized losses were primarily driven by the paydown of our investment in
OPS 1st lien secured loan and the sales of our investments in Boardriders, Inc.
("Boardriders") 1st lien secured loan, and CPK common stock for which we
recognized realized losses of $4.2 million, $2.9 million, and $1.6 million,
respectively. These realized losses were partially offset by realized gains of
$3.9 million, $1.2 million, and $0.4 million on the partial sale of our
investment in Crestwood preferred equity and paydowns on our investments in
Subcom, LLC ("Subcom") revolver and CPK 1st lien secured loan, respectively.

Change in Unrealized Appreciation (Depreciation) on Investments

                                            For the Three Months Ended September 30,                                    For the Nine Months Ended September 30,
                                           2022                                   2021                                 2022                                  2021
                             In Thousands         Per Share(1)       In Thousands      Per Share(2)      In Thousands        Per Share(1)       In Thousands      Per Share(2)
Net change in unrealized
appreciation/
(depreciation)              $         (902 )     $        (0.12 )   $       

(6,364 ) $ (1.60 ) $ 112,013 $ 19.32 $ 10,706 $ 2.72
Unrealized appreciation

              2,976                 0.39              2,148              0.54           123,592               21.32             24,320              6.18
Unrealized depreciation             (3,878 )              (0.51 )           (8,512 )           (2.14 )         (11,579 )             (2.00 )          (13,614 )           (3.46 )


(1)
The per share amounts are based on a weighted average of 7,601,958 and 5,796,255
outstanding common shares for the three and nine months ended September 30,
2022, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,985,741 and 3,935,008
outstanding common shares for the three and nine months ended September 30,
2021, respectively. These weighted average share amounts have been retroactively
adjusted for the reverse stock split effected on February 28, 2022.

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Net unrealized depreciation for the three months ended September 30, 2022 is
primarily due to the decrease of $1.3 million in fair value of our investment in
Lenders Funding, LLC ("Lenders Funding") equity and $0.7 million in the reversal
of previously recognized unrealized gains related to the sale of a portion of
our Crestwood preferred equity investment. These losses were partially offset by
unrealized gains of $0.6 million and $0.3 million due to the increase in fair
value of our investments in the Universal Fiber Systems warrants and First
Brands, Inc. second lien secured loans, respectively.

For the nine months ended September 30, 2022, unrealized appreciation also
includes approximately $15.3 million and $4.2 million in reversals of previously
recognized unrealized depreciation resulting from the sales of our investments
in Tru Taj common equity and CPK common equity, in addition to the $110 million
reversal of previously recognized unrealized losses on our investments in Avanti
Communications as a result of the restructuring in April 2022. Unrealized
depreciation for the nine months ended September 30, 2022 includes approximately
$7.0 million of loss on our investments in Avanti Space E2, F and G junior
priority notes along with losses of $1.0 million and $0.9 million on our
investments in Lenders Funding equity and Research Now Group, Inc. second lien
secured loan, respectively, each due to decreases in fair value.

During the three months ended September 30, 2021, net unrealized depreciation
was largely driven by the net unrealized losses of $3.6 million and $1.4 million
losses on our investments in Avanti Communications 2nd lien secured bond and Tru
Taj common stock, respectively, as a result of decreases in fair value. These
losses were offset by unrealized gains of $0.4 million and $0.3 million,
recognized on our investments in Prestige Capital Finance, LLC common stock and
Ruby Tuesday Operations, LLC warrants, respectively, as a result of increases in
fair value as of September 30, 2021 as compared to June 30, 2021.

In addition to the items noted for the quarter ended September 30, 2021,
unrealized appreciation for the nine months ended September 30, 2021 was largely
driven by the paydown of our investment in OPS 1st lien secured loan, full sale
of our investment in Boardriders 1st lien secured loan, and partial sale of our
investment in CPK common stock, for which we relieved approximately $4.2
million, $3.5 million and $2.9 million, respectively, of previously recognized
unrealized losses. In addition, we recognized unrealized appreciation of
approximately $4.2 million on the increase in the fair value of CPK common
equity still held as of period end. Unrealized depreciation for the nine months
ended September 30, 2021, includes decreases in fair value of $5.4 million and
$3.9 million on our investments in Avanti Communications 2nd lien secured bonds
and PFS Holdings Corp. common stock, respectively. In addition, we recognized
unrealized loss of $1.2 million on our investment in Subcom 1st lien secured
revolver due to the termination of the revolver and reversal of previously
recognized unrealized gains, as noted under the discussion of realized gains
above.

Liquidity and Capital Resources


We generate liquidity through our operations with cash received from investment
income and sales and paydowns on investments. Such proceeds are generally
reinvested in new investment opportunities, distributed to shareholders in the
form of dividends, or used to pay operating expenses. We also receive proceeds
from our issuances of notes payable and our revolving credit facility and from
time to time may raise additional equity capital. See "-Revolver" and "-Notes
Payable" below for more information regarding our outstanding credit facility
and notes.

At September 30, 2022, we had approximately $1.5 million of cash and cash
equivalents and approximately $19.8 million of money market fund investments at
fair value. At September 30, 2022, we had investments in 50 debt instruments
across 41 companies, totaling approximately $173.4 million at fair value and 116
equity investments in 116 companies, totaling approximately $43.6 million at
fair value.

In the normal course of business, we may enter into investment agreements under
which we commit to make an investment in a portfolio company at some future date
or over a specified period of time. As of September 30, 2022, we had
approximately $21.6 million in unfunded loan commitments, subject to our
approval in certain instances, to provide debt financing to certain of our
portfolio companies. We had sufficient cash and other liquid assets on our
September 30, 2022 balance sheet to satisfy the unfunded commitments.

For the nine months ended September 30, 2022, net cash used in operating
activities was approximately $34.3 million, reflecting the purchases and
repayments of investments offset by net investment income, including non-cash
income related to accretion of discount and PIK income and proceeds from sales
of investments and principal payments received. Net cash used in purchases and
proceeds from sales of investments was approximately $16.9 million, reflecting
payments for additional investments of $109.4 million, offset by proceeds from
principal repayments and sales of $92.5 million. Such amounts include draws and
repayments on revolving credit facilities.

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For the nine months ended September 30, 2022, net cash provided by financing
activities was $26.6 million, consisting of $36.2 million in proceeds from the
rights offering, net of related expenses, offset by approximately $9.6 million
in distributions to stockholders.

We believe we have sufficient liquidity available to meet our short-term and
long-term obligations for at least the next 12 months and for the foreseeable
future thereafter.

Contractual Obligations and Cash Requirements

A summary of our material contractual payment obligations and cash obligations
as of September 30, 2022 is as follows:


                                            Less than                                           More than
(in thousands)              Total            1 year           1-3 years       3-5 years          5 years
Contractual Obligations
GECCM Notes                   45,610                   -          45,610               -                    -
GECCN Notes                   42,823                   -          42,823               -                    -
GECCO Notes                   57,500                   -               -          57,500                    -
Total                     $  145,933     $             -     $    88,433     $    57,500     $              -

See “-Revolver” and “-Notes Payable” below for more information regarding our
outstanding credit facility and notes.


We have certain contracts under which we have material future commitments. Under
the Investment Management Agreement, GECM provides investment advisory services
to us. For providing these services, we pay GECM a fee, consisting of two
components: (1) a base management fee based on the average value of our total
assets and (2) an incentive fee based on our performance. On August 1, 2022, our
stockholders approved an amendment to the Investment Management Agreement to
eliminate $163.2 million of realized and unrealized losses incurred prior to
April 1, 2022 from the calculation of future capital gains incentive fees and
reset the capital gain incentive fee and mandatory deferral periods in Sections
4.4 and 4.5, respectively, of the Investment Management Agreement to begin on
April 1, 2022.

We are also party to the Administration Agreement with GECM. Under the
Administration Agreement, GECM furnishes us with, or otherwise arranges for the
provision of, office facilities, equipment, clerical, bookkeeping, finance,
accounting, compliance and record keeping services at such office facilities and
other such services as our administrator.

If any of the contractual obligations discussed above are terminated, our costs
under any new agreements that we enter into may increase. In addition, we would
likely incur significant time and expense in locating alternative parties to
provide the services we expect to receive under our Investment Management
Agreement and our Administration Agreement. Any new investment management
agreement would also be subject to approval by our stockholders.

Both the Investment Management Agreement and the Administration Agreement may be
terminated by either party without penalty upon no fewer than 60 days' written
notice to the other.

Revolver

On May 5, 2021, we entered into a Loan, Guarantee and Security Agreement (the
"Loan Agreement") with City National Bank ("CNB"). The Loan Agreement provides
for a senior secured revolving line of credit of up to $25 million (subject to a
borrowing base as defined in the Loan Agreement). We may request to increase the
revolving line in an aggregate amount not to exceed $25 million, which increase
is subject to the sole discretion of CNB. The maturity date of the revolving
line is May 5, 2024. Borrowings under the revolving line bear interest at a rate
equal to (i) the secured overnight financing rate ("SOFR") plus 3.50%, (ii) a
base rate plus 2.00% or (iii) a combination thereof, as determined by us. As of
September 30, 2022, there were no borrowings outstanding under the revolving
line.

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Borrowings under the revolving line are secured by a first priority security
interest in substantially all of our assets, subject to certain specified
exceptions. We have made customary representations and warranties and are
required to comply with various affirmative and negative covenants, reporting
requirements and other customary requirements for similar loan agreements. In
addition, the Loan Agreement contains financial covenants requiring (i) net
assets of not less than $65 million, (ii) asset coverage equal to or greater
than 150% and (iii) bank asset coverage equal to or greater than 300%, in each
case tested as of the last day of each fiscal quarter of the Company. Borrowings
are also subject to the leverage restrictions contained in the Investment
Company Act of 1940, as amended (the "Investment Company Act"). In May 2022, the
Loan Agreement was amended to require an asset coverage equal to or greater than
150% as of the last day of each fiscal quarter except for the fiscal quarters
ending March 31, 2022 and June 30, 2022. In addition, the interest rate was
amended to replace London Interbank Offered Rate ("LIBOR") with SOFR.

Notes Payable


On January 11, 2018, we issued $43.0 million in aggregate principal amount of
6.75% notes due 2025 (the "GECCM Notes"). On January 19, 2018 and February 9,
2018, we issued an additional $1.9 million and $1.5 million, respectively, of
the GECCM Notes upon partial exercise of the underwriters' over-allotment
option. The aggregate principal balance of the GECCM Notes outstanding as of
September 30, 2022 is $45.6 million.

On June 18, 2019, we issued $42.5 million in aggregate principal amount of 6.50%
Notes due 2024 (the "GECCN Notes"), which included $2.5 million of GECCN Notes
issued in connection with the partial exercise of the underwriters'
over-allotment option. On July 5, 2019, we issued an additional $2.5 million of
the GECCN Notes upon another partial exercise of the underwriters'
over-allotment option. The aggregate principal balance of the GECCN Notes
outstanding as of September 30, 2022 is $42.8 million.

On June 23, 2021, we issued $50.0 million in aggregate principal amount of
5.875% notes due 2026 (the "GECCO Notes" and, together with the GECCM Notes and
GECCN Notes, the "Notes"). On July 9, 2021, we issued an additional $7.5 million
of the GECCO Notes upon full exercise of the underwriters' over-allotment
option. The aggregate principal balance of the GECCO Notes outstanding as of
September 30, 2022 is $57.5 million.

The Notes are our unsecured obligations and rank equal with all of our
outstanding and future unsecured unsubordinated indebtedness. The unsecured
notes are effectively subordinated, or junior in right of payment, to
indebtedness under our Loan Agreement and any other future secured indebtedness
that we may incur and structurally subordinated to all future indebtedness and
other obligations of our subsidiaries. We pay interest on the Notes on March 31,
June 30, September 30 and December 31 of each year. The GECCM Notes, GECCN Notes
and GECCO Notes will mature on January 31, 2025, June 30, 2024 and June 30,
2026, respectively. The GECCM Notes and GECCN Notes are currently callable at
the Company's option and the GECCO Notes can be called on, or after, June 30,
2023. Holders of the Notes do not have the option to have the Notes repaid prior
to the stated maturity date. The Notes were issued in minimum denominations of
$25 and integral multiples of $25 in excess thereof.

We may repurchase the Notes in accordance with the Investment Company Act and
the rules promulgated thereunder.


As of September 30, 2022, our asset coverage ratio was approximately 165.5%.
Under the Investment Company Act, we are subject to a minimum asset coverage
ratio of 150%.

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Share Price Data


The following table sets forth: (i) NAV per share of our common stock as of the
applicable period end, (ii) the range of high and low closing sales prices of
our common stock as reported on the Nasdaq Global Market during the applicable
period, (iii) the closing high and low sales prices as a premium (discount) to
NAV during the relevant period, and (iv) the distributions per share of our
common stock declared during the applicable period. Shares of business
development companies may trade at a market price that is less than the value of
the net assets attributable to those shares. The possibility that our shares of
common stock will trade at a discount or premium to NAV is separate and distinct
from the risk that our NAV will decrease. During the last two fiscal years, our
common stock has generally traded below NAV. During the last two fiscal years,
using the high and low sales prices within each fiscal quarter compared to the
NAV at such quarter end, our common stock has traded as high as a 59.9% premium
to NAV and as low as a 51.0% discount to NAV.

                                                                     Premium      Premium
                                                                    (Discount)   (Discount)
                                                                     of High       of Low
                                                                      Sales        Sales
                                         Closing Sales Price          Price        Price       Distributions
                           NAV(1)         High            Low       to NAV(2)    to NAV(2)      Declared(3)
Fiscal year ending
December 31, 2022
Fourth Quarter (through
October 28, 2022)           N/A        $    10.29       $  9.34         --           --             --
Third Quarter             $  12.56          12.70          8.04        1.1%       (36.0)%     $          0.45
Second Quarter               12.84          15.00         12.30       16.9%        (4.2)%                0.45
First Quarter                15.06          18.99         13.80       26.1%        (8.4)%                0.60
Fiscal year ending
December 31, 2021
Fourth Quarter            $  16.63     $    21.12       $ 18.24       27.0%         9.7%      $          0.60
Third Quarter                22.17          21.84         19.50       (1.5)%      (12.0)%                0.60
Second Quarter               23.40          23.04         19.26       (1.5)%      (17.7)%                0.60
First Quarter                23.36          24.18         18.24        3.5%       (21.9)%                0.60
Fiscal year ending
December 31, 2020
Fourth Quarter            $  20.74     $    24.36       $ 15.06       17.5%       (27.4)%     $          1.50
Third Quarter                33.16          31.86         19.56       (3.9)%      (41.0)%                1.50
Second Quarter               30.59          29.70         15.00       (2.9)%      (51.0)%                1.50
First Quarter                30.32          48.48         15.72       59.9%       (48.2)%                1.50


(1)
NAV per share is determined as of the last day in the relevant quarter and
therefore does not necessarily reflect the NAV per share on the date of the high
and low closing sales prices. The NAVs shown are based on outstanding shares at
the end of each period as adjusted retroactively for the reverse stock split
effected on February 28, 2022.

(2)

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

(3)

We have adopted a dividend reinvestment plan that provides for reinvestment of
our dividends and other distributions on behalf of our stockholders, unless a
stockholder elects to receive cash. As a result, if our Board authorizes, and we
declare, a cash distribution, our stockholders who have not opted out of our
dividend reinvestment plan will have their cash distributions (net of any
applicable withholding tax) automatically reinvested in additional shares of our
common stock, rather than receiving the cash distributions. In accordance with
the terms of the dividend reinvestment plan, during 2021, a total of (i) 51,029
shares of our common stock were purchased in the open market by our plan
administrator and (ii) 26 shares were purchased from the Company by our plan
administrator. See "Dividend Reinvestment Plan" in this prospectus.

For all periods presented in the table above, there was no return of capital
included in any distribution.


The last reported closing price for our common stock on October 28, 2022 was
$9.95 per share. As of October 28, 2022, we had 10 record holders of our common
stock.

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Distributions

The following table summarizes our distributions declared for record dates since
January 1, 2020:

Record Date Payment Date Distribution Per Share Declared(1)
January 31, 2020 February 14, 2020 $

0.498

February 28, 2020    March 13, 2020       $                              0.498
March 31, 2020       April 15, 2020       $                              0.498
April 30, 2020       May 15, 2020         $                              0.498
May 29, 2020         June 15, 2020        $                              0.498
June 30, 2020        July 15, 2020        $                              0.498
July 31, 2020        August 21, 2020      $                              0.498
August 31, 2020      September 21, 2020   $                              0.498
September 30, 2020   October 21, 2020     $                              

0.498

October 31, 2020     November 20, 2020    $                              

0.498

November 30, 2020    December 21, 2020    $                              0.498
March 15, 2021       March 31, 2021       $                               0.60
June 15, 2021        June 30, 2021        $                               0.60
September 15, 2021   September 30, 2021   $                               

0.60

December 15, 2021    December 31, 2021    $                               0.60
March 15, 2022       March 30, 2022       $                               0.60
June 23, 2022        June 30, 2022        $                               0.45
September 15, 2022   September 30, 2022   $                               

0.45

(1)

Per share amounts have been adjusted for the periods shown to reflect the
six-for-one reverse stock split effected on February 28, 2022 on a retroactive
basis.


Recent Developments

COVID-19

We have been closely monitoring, and will continue to monitor, the impact of the
COVID-19 pandemic (including new variants of COVID-19) on all aspects of our
business, including how it will impact our portfolio companies, employees, and
financial markets. Given the continued fluidity of the pandemic, we cannot
estimate the long-term impact of COVID-19 on our business, future results of
operations, financial position or cash flows at this time. Further, the
operational and financial performance of the portfolio companies in which we
make investments may be significantly impacted by COVID-19, which may in turn
impact the valuation of our investments. The COVID-19 pandemic and preventative
measures taken to contain or mitigate its spread have caused, and are continuing
to cause, business shutdowns, cancellations of events and restrictions on
travel, significant reductions in demand for certain goods and services,
reductions in business activity and financial transactions, supply chain
disruptions, labor difficulties and shortages, commodity inflation and elements
of economic and financial market instability in the United States and globally.
Such effects will likely continue for the duration of the pandemic, which is
uncertain, and for some period thereafter.

Interest Rate Risk


We are also subject to financial risks, including changes in market interest
rates. As of September 30, 2022, approximately $87.2 million in principal amount
of our debt investments bore interest at variable rates, which are generally
based on LIBOR, and many of which are subject to certain floors. In connection
with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks
reduced certain interest rates. Although the U.S. Federal Reserve and other
central banks have begun to raise interest rates in response to inflationary
trends, a prolonged period of historically low interest rates will reduce our
gross investment income and could result in a decrease in our net investment
income if such decreases in interest rates are not offset by a corresponding
increase in the spread over LIBOR or other applicable reference rate that we
earn on any portfolio investments or a decrease in our operating expenses. See
"Item 3. Quantitative and Qualitative Disclosures About Market Risk" for an
analysis of the impact of hypothetical base rate changes in interest rates.

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