Stellus Capital Investment Corp - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023

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

COMMISSION FILE NUMBER: 1-35730

STELLUS CAPITAL INVESTMENT CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


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

4400 Post Oak Parkway, Suite 2200

Houston, Texas 77027

(Address of Principal Executive Offices) (Zip Code)

(713) 292-5400

(Registrant’s Telephone Number, Including Area Code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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

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

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of August 9, 2023 was 22,557,904.

Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Assets and Liabilities as of June 30, 2023 (unaudited) and December 31, 2022	1
	Consolidated Statements of Operations for the three and six-month periods ended June 30, 2023 and 2022 (unaudited)	2
	Consolidated Statements of Changes in Net Assets for the three and six-month periods ended June 30, 2023 and 2022 (unaudited)	3
	Consolidated Statements of Cash Flows for the three and six-month periods ended June 30, 2023 and 2022 (unaudited)	4
	Consolidated Schedules of Investments as of June 30, 2023 (unaudited) and December 31, 2022	5
	Notes to Unaudited Financial Statements	27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4.	Controls and Procedures	75
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	77
Item 6.	Exhibits	77
SIGNATURES		78

Table of Contents

PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES


	June 30, 2023
	(unaudited)		December 31, 2022
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $922,796,573 and $875,823,177, respectively)	$	881,666,450	$	844,733,638
Cash and cash equivalents		14,924,382		48,043,329
Receivable for sales and repayments of investments		207,077		718,794
Interest receivable		4,638,649		3,984,409
Other receivables		25,369		34,245
Related party receivable		883		—
Deferred offering costs		—		1,100
Prepaid expenses		309,747		667,267
Total Assets	$	901,772,557	$	898,182,782
LIABILITIES
Notes payable	$	98,771,216	$	98,549,692
Credit Facility payable		170,229,321		197,685,281
SBA-guaranteed debentures		308,519,553		307,895,195
Dividends payable		3,006,969		—
Management fees payable		1,865,589		7,150,407
Income incentive fees payable		3,176,395		2,464,408
Capital gains incentive fees payable		—		569,528
Interest payable		4,783,098		4,640,841
Related party payable		775,794		1,060,321
Unearned revenue		221,711		320,675
Administrative services payable		407,265		356,919
Income tax payable		782,358		1,175,373
Deferred tax liability		206,049		61,936
Other accrued expenses and liabilities		702,211		475,593
Total Liabilities	$	593,447,529	$	622,406,169
Commitments and contingencies (Note 7)
Net Assets	$	308,325,028	$	275,776,613
NET ASSETS
Common stock, par value $0.001 per share (100,000,000 shares authorized; 22,557,904 and 19,666,769 issued and outstanding, respectively)	$	22,558	$	19,667
Paid-in capital		315,823,482		275,114,720
Total distributable (loss) earnings		(7,521,012)		642,226
Net Assets	$	308,325,028	$	275,776,613
Total Liabilities and Net Assets	$	901,772,557	$	898,182,782
Net Asset Value Per Share	$	13.67	$	14.02

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STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	For the three		For the three		For the six		For the six
	months ended		months ended		months ended		months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
INVESTMENT INCOME
Interest income	$	25,662,895	$	15,658,018	$	49,071,499	$	30,774,969
Other income		922,122		451,027		1,588,865		828,480
Total Investment Income	$	26,585,017	$	16,109,045	$	50,660,364	$	31,603,449
OPERATING EXPENSES
Management fees	$	3,865,588	$	3,705,053	$	7,600,690	$	7,197,766
Valuation fees		46,422		30,029		193,495		169,617
Administrative services expenses		466,378		466,903		928,342		941,221
Income incentive fees		2,603,004		—		4,727,839		—
Capital gains incentive fee reversal		—		(983,575)		(569,528)		(1,025,792)
Professional fees		169,836		217,404		600,684		529,466
Directors’ fees		93,250		74,500		210,500		171,000
Insurance expense		121,885		125,890		242,431		250,397
Interest expense and other fees		8,101,975		5,524,378		15,988,399		10,415,975
Income tax expense		371,786		426,236		746,549		705,653
Other general and administrative expenses		331,649		347,656		510,099		559,392
Total Operating Expenses	$	16,171,773	$	9,934,474	$	31,179,500	$	19,914,695
Net Investment Income	$	10,413,244	$	6,174,571	$	19,480,864	$	11,688,754
Net realized (loss) gain on non-controlled, non-affiliated investments	$	(310,588)	$	(352,723)	$	(275,621)	$	3,105,367
Net realized loss on foreign currency translation		(10,704)		—		(50,616)		(7,350)
Net change in unrealized depreciation on non-controlled, non-affiliated investments		(6,295,233)		(4,289,591)		(10,544,875)		(8,011,193)
Net change in unrealized depreciation on foreign currency translation		(20,323)		(35,754)		(18,449)		(35,754)
Provision for taxes on net unrealized appreciation on investments		(65,353)		(160,656)		(144,113)		(181,813)
Net Increase in Net Assets Resulting from Operations		3,711,043		1,335,847	$	8,447,190	$	6,558,011
Net Investment Income Per Share—basic and diluted	$	0.49	$	0.32	$	0.95	$	0.60
Net Increase in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.17	$	0.07	$	0.41	$	0.34
Weighted Average Shares of Common Stock Outstanding—basic and diluted		21,231,979		19,543,117		20,509,995		19,530,509
Distributions Per Share—basic and diluted	$	0.41	$	0.34	$	0.81	$	0.62

Table of Contents

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)


	Common Stock					Total
	Number	Par		Paid-in		distributable
	of shares	value		capital		earnings (loss)		Net Assets
Balances at December 31, 2021	19,517,595	$	19,518	$	274,559,121	$	10,532,594	$	285,111,233
Net investment income	—		—		—		5,514,183		5,514,183
Net realized gain on non-controlled, non-affiliated investments	—		—		—		3,458,090		3,458,090
Net realized loss on foreign currency translation	—		—		—		(7,350)		(7,350)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(3,721,602)		(3,721,602)
Provision for taxes on unrealized appreciation on investments	—		—		—		(21,157)		(21,157)
Distributions from net investment income	—		—		—		(5,464,666)		(5,464,666)
Issuance of common stock, net of offering costs⁽¹⁾	14,924		15		167,655		—		167,670
Balances at March 31, 2022	19,532,519	$	19,533	$	274,726,776	$	10,290,092	$	285,036,401
Net investment income	—		—		—		6,174,571		6,174,571
Net realized loss on non-controlled, non-affiliated investments	—		—		—		(352,723)		(352,723)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(4,289,591)		(4,289,591)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(35,754)		(35,754)
Provision for taxes on unrealized appreciation on investments	—		—		—		(160,656)		(160,656)
Distributions from net investment income	—		—		—		(6,643,663)		(6,643,663)
Issuance of common stock, net of offering costs⁽¹⁾	13,416		13		137,520		—		137,533
Balances at June 30, 2022	19,545,935	$	19,546	$	274,864,296	$	4,982,276	$	279,866,118

Balances at December 31, 2022	19,666,769	$	19,667	$	275,114,720	$	642,226	$	275,776,613
Net investment income	—		—		—		9,067,620		9,067,620
Net realized gain on non-controlled, non-affiliated investments	—		—		—		34,967		34,967
Net realized loss on foreign currency translation	—		—		—		(39,912)		(39,912)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(4,249,642)		(4,249,642)
Net change in unrealized appreciation on foreign currency translations	—		—		—		1,874		1,874
Provision for taxes on unrealized appreciation on investments	—		—		—		(78,760)		(78,760)
Distributions from net investment income	—		—		—		(7,951,284)		(7,951,284)
Issuance of common stock, net of offering costs⁽¹⁾	581,614		581		8,289,988		—		8,290,569
Balances at March 31, 2023	20,248,383	$	20,248	$	283,404,708	$	(2,572,911)	$	280,852,045
Net investment income	—		—		—		10,413,244		10,413,244
Net realized loss on non-controlled, non-affiliated investments	—		—		—		(310,588)		(310,588)
Net realized loss on foreign currency translation	—		—		—		(10,704)		(10,704)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(6,295,233)		(6,295,233)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(20,323)		(20,323)
Provision for taxes on unrealized appreciation on investments	—		—		—		(65,353)		(65,353)
Distributions from net investment income	—		—		—		(8,659,144)		(8,659,144)
Issuance of common stock, net of offering costs⁽¹⁾	2,309,521		2,310		32,418,774		—		32,421,084
Balances at June 30, 2023	22,557,904	$	22,558	$	315,823,482	$	(7,521,012)	$	308,325,028

(1) See Note 4 to the Consolidated Financial Statements contained herein for more information on offering costs.

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STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	For the six		For the six
	months ended		months ended
	June 30, 2023		June 30, 2022
Cash flows from operating activities
Net increase in net assets resulting from operations	$	8,447,190	$	6,558,011
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(87,741,479)		(142,053,995)
Proceeds from sales and repayments of investments		44,269,661		58,182,238
Net change in unrealized depreciation on investments		10,544,875		8,011,193
Net change in unrealized depreciation on foreign currency translations		18,306		35,754
Increase in investments due to PIK		(1,904,853)		(653,534)
Amortization of premium and accretion of discount, net		(1,360,629)		(1,174,220)
Deferred tax provision		144,113		181,813
Amortization of loan structure fees		289,243		272,959
Amortization of deferred financing costs		221,524		221,524
Amortization of loan fees on SBA-guaranteed debentures		624,358		589,020
Net realized loss (gain) on investments		275,621		(3,105,367)
Changes in other assets and liabilities
Increase in interest receivable		(654,240)		(28,511)
Decrease (increase) in other receivable		8,876		(122,781)
Increase in related party receivable		(883)		(187,132)
Decrease in prepaid expenses		357,520		226,175
(Decrease) increase in management fees payable		(5,284,818)		250,828
Increase (decrease) in income incentive fees payable		711,987		(1,459,942)
Decrease in capital gains incentive fees payable		(569,528)		(1,025,791)
Increase in administrative services payable		50,346		13,373
Increase in interest payable		142,257		259,771
Decrease in related party payable		(284,527)		—
Decrease in unearned revenue		(98,964)		(18,860)
Decrease in income tax payable		(393,015)		(2,544,219)
Increase in other accrued expenses and liabilities		226,618		637,471
Net Cash Used in Operating Activities	$	(31,960,441)	$	(76,934,222)
Cash flows from Financing Activities
Proceeds from the issuance of common stock	$	41,448,945	$	420,004
Sales load for common stock issued		(614,721)		(5,957)
Offering costs paid for common stock issued		(121,471)		(183,114)
Stockholder distributions paid		(13,603,459)		(11,064,831)
Proceeds from SBA-guaranteed debentures		—		43,600,000
Financing costs paid on SBA-guaranteed debentures		—		(1,061,660)
Financing costs paid on Credit facility		—		(131,768)
Borrowings under Credit Facility		37,000,000		89,588,800
Repayments of Credit Facility		(65,267,800)		(61,940,000)
Net Cash (Used) Provided by Financing Activities	$	(1,158,506)	$	59,221,474
Net Decrease in Cash and Cash Equivalents	$	(33,118,947)	$	(17,712,748)
Cash and Cash Equivalents Balance at Beginning of Period	$	48,043,329	$	44,174,856
Cash and Cash Equivalents Balance at End of Period	$	14,924,382	$	26,462,108
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	14,711,017	$	9,072,909
Income and excise tax paid		1,139,564		3,132,755
Increase in dividends payable		3,006,969		1,043,498
(Decrease) increase in deferred offering costs		(1,100)		74,270

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Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Non-controlled, non-affiliated investments	(4)(5)
2X LLC	(9)													Berwyn, PA
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%			6/5/2023	6/5/2028	Services: Business	$	5,500,208		5,364,330		5,364,330	1.74	%
2X Investors LP Class A Units		Equity										6/5/2023				58,949		589,496		589,490	0.19	%
Total																	$	5,953,826	$	5,953,820	1.93	%
Ad.Net Acquisition, LLC	(9)													Los Angeles, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.50	%			5/7/2021	5/7/2026	Services: Business	$	15,276,471		15,134,674		15,200,089	4.93	%
Revolver	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.50	%			5/7/2021	5/7/2026			909,314		909,314		904,767	0.29	%
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)	(5)	Equity										5/7/2021				7,794		77,941		75,110	0.02	%
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity										5/7/2021				7,015		701,471		675,986	0.22	%
Total																	$	16,823,400	$	16,855,952	5.46	%
ADS Group Opco, LLC	(9)													Lakewood, CO
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.75	%	2.00	%	12.09	%			6/4/2021	6/4/2026	Aerospace & Defense	$	14,400,000		14,215,738		14,256,000	4.63	%
Revolver	(11)	First Lien	3M SOFR+	6.75	%	2.00	%	12.09	%			6/4/2021	6/4/2026			90,000		90,000		89,100	0.03	%
ADS Group Topco, LLC Class A Units		Equity										6/4/2021				77,626		288,691		-	0.00	%
ADS Group Topco, LLC Class B Units		Equity										6/4/2021				56,819		211,309		-	0.00	%
ADS Group Topco, LLC Class Z Units		Equity										6/15/2022				72,043		267,929		-	0.00	%
ADS Group Topco, LLC Class Y Units		Equity										4/11/2023				23,859		88,733		180,525	0.06	%
Total																	$	15,162,400	$	14,525,625	4.72	%
American Refrigeration, LLC	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.50	%	1.50	%	11.74	%			3/31/2023	3/31/2028	Services: Business	$	8,254,988		8,056,257		8,254,988	2.68	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	1.50	%	11.73	%			3/31/2023	3/31/2028			10,000		10,000		10,000	0.00	%
AR-USA Holdings, LLC Class A Units		Equity										3/31/2023				141		141,261		229,069	0.07	%
Total																	$	8,207,518	$	8,494,057	2.75	%
Advanced Barrier Extrusions, LLC														Rhinelander, WI
Term Loan B (SBIC)	(4)(11)	First Lien	1M SOFR+	7.50	%	1.00	%	12.63	%			11/30/2020	11/30/2026	Containers, Packaging, & Glass	$	17,062,500		16,848,669		14,417,813	4.69	%
GP ABX Holdings Partnership, L.P. Partner Interests		Equity										8/8/2018				644,737		528,395		-	0.00	%
GP ABX Holdings Partnership, L.P. Series B Preferred Interests		Equity										1/5/2023				353		35,308		6,343	0.00	%
Total																	$	17,412,372	$	14,424,156	4.69	%
Anne Lewis Strategies, LLC	(9)													Washington, DC
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%			3/5/2021	5/9/2028	Services: Business	$	10,350,000		10,227,396		10,350,000	3.36	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%			4/15/2022	5/9/2028			3,229,922		3,183,239		3,229,922	1.05	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%			3/5/2021	5/9/2028			30,000		30,000		30,000	0.01	%
SG AL Investment, LLC Common Units	(6)	Equity										3/5/2021				1,000		658,411		2,896,022	0.94	%
Total																	$	14,099,046	$	16,505,944	5.36	%
APE Holdings, LLC														Deer Park, TX
Class A Units		Equity										9/5/2014		Chemicals, Plastics, & Rubber		375,000		375,000		19,874	0.01	%
Total																	$	375,000	$	19,874	0.01	%
Atmosphere Aggregator Holdings II, L.P.														Atlanta, GA
Common Units		Equity										1/26/2016		Services: Business		254,250		-		2,317,698	0.75	%
Stratose Aggregator Holdings, L.P. Common Units		Equity										6/30/2015				750,000		-		6,836,868	2.22	%
Total																	$	-	$	9,154,566	2.97	%
ArborWorks Acquisition LLC	(9)													Oakhurst, CA
Term Loan	(11)	First Lien	3M SOFR+	10.00	%	1.00	%	12.23	%	3.00	%	11/23/2021	11/9/2026	Environmental Industries	$	14,923,831		14,818,863		12,759,876	4.14	%
Revolver	(11)	First Lien	1M SOFR+	10.00	%	1.00	%	12.20	%	3.00	%	11/23/2021	11/9/2026			2,430,617		2,430,617		2,078,178	0.67	%
ArborWorks Holdings LLC Units		Equity										12/29/2021				115		115,385		-	0.00	%
ArborWorks Holdings LLC Class A-1 Units		Equity										5/15/2023				29		15,515		-	0.00	%
Total																	$	17,380,380	$	14,838,054	4.81	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Archer Systems, LLC	(9)												Houston, TX
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.39	%		8/11/2022	8/11/2027	Services: Business	$	4,444,868		4,394,802		4,444,868	1.44	%
CF Arch Holdings LLC Class A Units		Equity									8/10/2022				100,000		100,000		129,525	0.04	%
Total																$	4,494,802	$	4,574,393	1.48	%
Axis Portable Air, LLC	(9)												Phoenix, AZ
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	5.75	%	2.00	%	11.14	%		3/22/2022	3/22/2028	Capital Equipment	$	12,000,000		11,801,894		12,000,000	3.89	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	5.75	%	2.00	%	11.14	%		4/17/2023	3/22/2028	Capital Equipment	$	1,893,610		1,856,705		1,893,610	0.61	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	5.75	%	1.00	%	11.14	%		3/22/2022	3/22/2028			100,000		99,123		100,000	0.03	%
Axis Air Parent, LLC Preferred Units		Equity									3/22/2022				4,436		443,636		729,770	0.24	%
Total																$	14,201,358	$	14,723,380	4.77	%
Baker Manufacturing Company, LLC													Evansville, IN
Term Loan (SBIC II)	(5)(10)(12)	First Lien	3M SOFR+	5.25	%	1.00	%	11.36	%		7/5/2022	7/5/2027	Capital Equipment	$	13,863,087		13,625,931		13,793,772	4.47	%
BSC Blue Water Holdings, LLC Series A Units (SBIC II)	(5)	Equity									7/5/2022				743,770		743,770		791,588	0.26	%
Total																$	14,369,701	$	14,585,360	4.73	%
BLP Buyer, Inc.	(9)												Houston, TX
Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.25	%	11.44	%		2/1/2022	2/1/2027	Capital Equipment	$	6,147,613		6,054,239		6,055,399	1.96	%
Term Loan	(11)	First Lien	1M SOFR+	6.75	%	2.00	%	11.94	%		4/14/2023	2/1/2027	Capital Equipment	$	1,729,958		1,680,856		1,704,009	0.55	%
Revolver	(11)	First Lien	1M SOFR+	6.25	%	1.25	%	11.44	%		2/1/2022	2/1/2027			76,566		76,566		75,418	0.02	%
BL Products Parent, L.P. Class A Units		Equity									2/1/2022				879,060		983,608		1,325,335	0.43	%
Total																$	8,795,269	$	9,160,161	2.96	%
Café Valley, Inc.													Phoenix, AZ
Term Loan	(11)	First Lien	3M SOFR+	7.24	%	2.00	%	12.48	%		8/28/2019	8/28/2024	Beverage, Food, & Tobacco	$	15,636,905		15,552,807		15,558,720	5.06	%
CF Topco LLC Units		Equity									8/28/2019				9,160		916,015		1,390,618	0.45	%
Total																$	16,468,822	$	16,949,338	5.51	%
Camp Profiles LLC	(9)												Boston, MA
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	5.25	%	1.00	%	10.64	%		9/3/2021	9/3/2026	Media: Advertising, Printing & Publishing	$	10,070,625		9,933,236		10,070,625	3.27	%
CIVC VI-A 829 Blocker, LLC Units		Equity									9/3/2021				250		250,000		486,929	0.16	%
Total																$	10,183,236	$	10,557,554	3.43	%
CEATI International Inc.	(7)(9)												Montreal, Canada
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	1.00	%	11.94	%		2/19/2021	2/19/2026	Services: Business	$	12,576,575		12,429,688		12,450,809	4.04	%
CEATI Holdings, LP Class A Units		Equity									2/19/2021				250,000		250,000		247,238	0.08	%
Total																$	12,679,688	$	12,698,047	4.12	%
Cerebro Buyer, LLC	(9)												Columbia, SC
Term Loan	(11)	First Lien	1M SOFR+	6.75	%	1.00	%	11.95	%		3/15/2023	3/15/2029	Healthcare & Pharmaceuticals	$	4,670,617		4,558,255		4,600,558	1.49	%
Cerebro Holdings Partnership, L.P. Series A Partner Interests		Equity									3/15/2023				62,961		62,961		371,893	0.12	%
Cerebro Holdings Partnership, L.P. Series B Partner Interests		Equity									3/15/2023				341,091		341,091		-	0.00	%
Total																$	4,962,307	$	4,972,451	1.61	%
CF512, Inc.	(9)												Blue Bell, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	11.50	%		9/1/2021	9/1/2026	Media: Advertising, Printing & Publishing	$	13,982,410		13,791,654		13,702,762	4.44	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.43	%		9/1/2021	9/1/2026			3,019,259		2,997,819		2,958,874	0.96	%
StellPen Holdings, LLC Membership Interests		Equity									9/1/2021				22.09%		220,930		237,140	0.08	%
Total																$	17,010,403	$	16,898,776	5.48	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
CompleteCase, LLC	(9)													Seattle, WA
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.89	%			12/21/2020	12/21/2025	Services: Consumer	$	6,721,944		6,648,059		6,654,725	2.16	%
CompleteCase Holdings, Inc. Class A Common Stock (SBIC II)	(5)	Equity										12/21/2020				417		5		5	0.00	%
CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity										12/21/2020				522		521,734		521,734	0.17	%
CompleteCase Holdings, Inc. Class A Common Stock		Equity										4/27/2023				89		1		1	0.00	%
CompleteCase Holdings, Inc. Series C Preferred Stock		Equity										4/27/2023				111		111,408		111,409	0.04	%
Total																	$	7,281,207	$	7,287,874	2.37	%
COPILOT Provider Support Services, LLC	(9)													Maitland, FL
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.89	%			11/22/2022	11/22/2027	Healthcare & Pharmaceuticals	$	4,962,500		4,872,128		4,912,875	1.59	%
QHP Project Captivate Blocker, Inc. Common Stock		Equity										11/22/2022				4		285,714		286,799	0.09	%
Total																	$	5,157,842	$	5,199,674	1.68	%
Craftable Intermediate II Inc.	(9)													Dallas, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.50	%	1.50	%	11.74	%			6/30/2023	6/30/2028	High Tech Industries	$	10,083,715		9,882,041		9,882,041	3.21	%
Gauge Craftable LP Partnership Interests		Equity										6/30/2023				626,690		626,690		626,690	0.20	%
Total																	$	10,508,731	$	10,508,731	3.41	%
Credit Connection, LLC	(9)													Fresno, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	5.75	%	1.00	%	11.14	%			7/30/2021	7/30/2026	Software	$	9,825,000		9,695,877		9,677,625	3.14	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	5.75	%	1.00	%	11.14	%			3/31/2022	7/30/2026			7,406,250		7,296,176		7,295,156	2.37	%
Series A Units		Equity										7/30/2021				804,384		804,384		924,503	0.30	%
Total																	$	17,796,437	$	17,897,284	5.81	%
Curion Holdings, LLC														Chicago, IL
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.75	%	1.00	%	12.14	%			7/29/2022	7/29/2027	Services: Business	$	12,962,051		12,741,683		12,378,759	4.01	%
Revolver	(11)	First Lien	3M SOFR+	6.75	%	1.00	%	12.14	%			7/29/2022	7/29/2027			100,000		100,000		95,500	0.03	%
SP CS Holdings LLC Class A Units		Equity										7/29/2022				739,999		739,999		228,218	0.07	%
Total																	$	13,581,682	$	12,702,477	4.11	%
Data Centrum Communications, Inc.														Montvale, NJ
Health Monitor Holdings, LLC Series A Preferred Units		Equity										5/15/2019		Media: Advertising, Printing & Publishing		1,000,000		1,000,000		1,000,000	0.32	%
Total																	$	1,000,000	$	1,000,000	0.32	%
Douglas Products Group, LP														Liberty, MO
Partnership Interests		Equity										12/27/2018		Chemicals, Plastics, & Rubber		322		-		648,462	0.21	%
Total																	$	-	$	648,462	0.21	%
Dresser Utility Solutions, LLC														Bradford, PA
Term Loan (SBIC)	(4)(11)	Second Lien	1M SOFR+	8.50	%	1.00	%	13.70	%			10/1/2018	4/1/2026	Utilities: Oil & Gas	$	10,000,000		9,931,992		10,000,000	3.24	%
Total																	$	9,931,992	$	10,000,000	3.24	%
DRS Holdings III, Inc.	(9)													St. Louis, MO
Term Loan	(11)	First Lien	1M SOFR+	6.25	%	1.00	%	11.45	%			11/1/2019	11/1/2025	Consumer Goods: Durable	$	9,140,990		9,100,052		9,095,285	2.95	%
Total																	$	9,100,052	$	9,095,285	2.95	%
DTE Enterprises, LLC	(9)													Roselle, IL
DTE Holding Company, LLC Class A-2 Units		Equity										4/13/2018		Energy: Oil & Gas		776,316		466,204		276,224	0.09	%
DTE Holding Company, LLC Class AA Units		Equity										4/13/2018				723,684		723,684		1,211,159	0.39	%
Total																	$	1,189,888	$	1,487,383	0.48	%
EH Real Estate Services, LLC														Skokie, IL
Term Loan A-1 (SBIC)	(4)(18)	First Lien						-	%	-	%	9/3/2021	9/3/2026	FIRE: Real Estate	$	6,340,891		6,246,775		1,902,267	0.62	%
Term Loan A-2 (SBIC)	(4)(18)	First Lien						-	%	-	%	4/3/2023	9/3/2026		$	1,140,558		1,140,558		1,140,558	0.37	%
Term Loan A-2	(18)	First Lien						-	%	-	%	4/3/2023	9/3/2026		$	570,279		570,279		570,279	0.18	%
Term Loan A-3 (SBIC)	(4)(18)	First Lien						-	%	-	%	6/7/2023	9/3/2026		$	392,910		392,910		392,910	0.13	%
Term Loan A-3	(18)	First Lien						-	%	-	%	6/7/2023	9/3/2026		$	196,455		196,455		196,455	0.06	%
EH Holdco, LLC Series A Preferred Units		Equity										9/3/2021				7,892		7,891,642		-	0.00	%
Total																	$	16,438,619	$	4,202,469	1.36	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Elliott Aviation, LLC	(9)													Moline, IL
Term Loan	(11)	First Lien	1M SOFR+	8.00	%	2.00	%	11.25	%	2.00	%	1/31/2020	1/31/2025	Aerospace & Defense	$	10,112,300		10,042,519		8,747,140	2.84	%
Revolver A	(11)	First Lien	1M SOFR+	8.00	%	2.00	%	11.25	%	2.00	%	1/31/2020	1/31/2025			1,396,180		1,396,180		1,207,696	0.39	%
SP EA Holdings LLC Class A Units		Equity										1/31/2020				900,000		900,000		-	0.00	%
Total																	$	12,338,699	$	9,954,836	3.23	%
EOS Fitness Holdings, LLC														Phoenix, AZ
Class A Preferred Units		Equity										12/30/2014		Hotel, Gaming, & Leisure		118		-		239,419	0.08	%
Class B Common Units		Equity										12/30/2014				3,017		-		591,711	0.19	%
Total																	$	-	$	831,130	0.27	%
Equine Network, LLC	(9)													Boulder, CO
Term A Loan (SBIC)	(4)(11)	First Lien	1M SOFR+	6.50	%	1.00	%	11.72	%			5/22/2023	5/22/2028	Services: Consumer	$	5,008,219		4,884,531		4,884,531	1.58	%
Total																	$	4,884,531	$	4,884,531	1.58	%
Evriholder Acquisition, Inc.	(9)													Anaheim, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.75	%	1.50	%	12.14	%			1/23/2023	1/24/2028	Consumer Goods: Durable	$	12,918,750		12,615,939		12,854,156	4.17	%
KEJ Holdings LP Class A Units		Equity										1/23/2023				873,333		873,333		873,284	0.28	%
Total																	$	13,489,272	$	13,727,440	4.45	%
Exacta Land Surveyors, LLC	(9)													Cleveland, OH
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.75	%	1.50	%	11.14	%	1.00	%	2/8/2019	2/8/2024	Services: Business	$	16,318,863		16,238,417		16,207,928	5.27	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.75	%	1.50	%	11.14	%	1.00	%	7/15/2022	2/8/2024			991,792		981,701		985,050	0.32	%
SP ELS Holdings LLC Class A Units		Equity										2/8/2019				1,122,250		1,122,250		526,770	0.17	%
Total																	$	18,342,368	$	17,719,748	5.76	%
Exigo, LLC	(9)													Dallas, TX
Term Loan	(11)	First Lien	1M SOFR+	5.75	%	1.00	%	10.95	%			3/16/2022	3/16/2027	Software	$	8,856,973		8,753,057		8,856,973	2.87	%
Gauge Exigo Coinvest, LLC Common Units		Equity										3/16/2022				377,535		377,535		377,535	0.12	%
Total																	$	9,130,592	$	9,234,508	2.99	%
Florachem Corporation	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.50	%	1.00	%	11.89	%			4/29/2022	4/29/2028	Chemicals, Plastics, & Rubber	$	9,900,000		9,733,329		9,751,500	3.16	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	1.00	%	11.89	%			4/29/2022	4/29/2028			70,000		70,000		68,950	0.02	%
SK FC Holdings, L.P. Class A Units		Equity										4/29/2022				362		362,434		289,949	0.09	%
Total																	$	10,165,763	$	10,110,399	3.27	%
General LED OPCO, LLC														San Antonio, TX
Term Loan	(11)(14)	Second Lien	3M SOFR+	9.00	%	1.50	%	-	%			5/1/2018	3/31/2026	Services: Business	$	4,500,000		4,467,706		4,230,000	1.37	%
Total																	$	4,467,706	$	4,230,000	1.37	%
GS HVAM Intermediate, LLC	(9)													Carlsbad, CA
Term Loan	(11)	First Lien	1M SOFR+	6.50	%	1.00	%	11.70	%			10/18/2019	10/2/2024	Beverage, Food, & Tobacco	$	12,458,681		12,421,108		12,458,681	4.04	%
HV GS Acquisition, LP Class A Interests		Equity										10/2/2019				2,144		1,967,133		2,763,378	0.90	%
Total																	$	14,388,241	$	15,222,059	4.94	%
Heartland Business Systems, LLC	(9)													Little Chute, WI
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.64	%			8/26/2022	8/26/2027	Services: Business	$	9,925,000		9,753,229		9,925,000	3.22	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.64	%			8/26/2022	8/26/2027			49,875		49,400		49,875	0.02	%
AMCO HBS Holdings, LP Class A Units	(6)	Equity										8/26/2022				2,861		261,372		609,233	0.20	%
Total																	$	10,064,001	$	10,584,108	3.44	%
Heat Makes Sense Shared Services, LLC	(9)													Brooklyn, NY
Term Loan	(11)	First Lien	6M SOFR+	5.25	%	0.75	%	10.26	%			7/1/2022	7/1/2029	Consumer Goods: Non-Durable	$	99,250		97,437		99,250	0.03	%
Ishtar Co-Invest-B LP Partnership Interests		Equity										7/1/2022				77,778		77,778		134,314	0.04	%
Oshun Co-Invest-B LP Partnership Interests		Equity										7/1/2022				22,222		22,222		38,375	0.01	%
Total																	$	197,437	$	271,939	0.08	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
HV Watterson Holdings, LLC	(9)												Schaumburg, IL
Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.64	%		12/17/2021	12/17/2026	Services: Business	$	13,235,053		13,039,185		13,036,527	4.23	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.64	%		12/17/2021	12/17/2026			64,000		64,000		63,040	0.02	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.64	%		12/17/2021	12/17/2026			321,489		318,790		316,667	0.10	%
HV Acquisition VI, LLC Class A Units		Equity									12/17/2021				1,632		1,631,591		1,762,272	0.57	%
Total																$	15,053,566	$	15,178,506	4.92	%
I2P Holdings, LLC													Cleveland, OH
Series A Preferred Units		Equity									1/31/2018		Services: Business		750,000		-		3,295,767	1.07	%
Total																$	-	$	3,295,767	1.07	%
ICD Holdings, LLC	(7)												San Francisco, CA
Class A Units	(6)	Equity									1/1/2018		Finance		9,962		458,494		1,756,706	0.57	%
Total																$	458,494	$	1,756,706	0.57	%
Impact Home Services LLC	(9)												Tampa, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%		4/28/2023	4/28/2028	Services: Consumer	$	5,936,899		5,792,109		5,792,109	1.88	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%		6/30/2023	4/28/2028	Services: Consumer	$	269,859		263,113		263,278	0.09	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%		4/28/2023	4/28/2028			12,500		12,500		12,195	0.00	%
Impact Holdings Georgia LLC Class A Units		Equity									4/28/2023				311		310,844		310,844	0.10	%
Total																$	6,378,566	$	6,378,426	2.07	%
Infolinks Media Buyco, LLC	(9)												Ridgewood, NJ
Term Loan (SBIC II)	(5)(11)	First Lien	1M SOFR+	5.50	%	1.00	%	10.70	%		11/1/2021	11/1/2026	Media: Advertising, Printing & Publishing	$	8,397,125		8,277,407		8,355,139	2.71	%
Delayed Draw Term Loan	(11)	First Lien	1M SOFR+	5.50	%	1.00	%	10.70	%		11/1/2021	11/1/2026		$	1,485,000		1,470,150		1,477,575	0.48	%
Tower Arch Infolinks Media, LP LP Interests	(6)(17)	Equity									10/28/2021				449,369		421,837		768,207	0.25	%
Total																$	10,169,394	$	10,600,921	3.44	%
Inoapps Bidco, LLC	(9)												Houston, TX
Term Loan B	(11)	First Lien	3M SONIA+	5.75	%	1.00	%	10.34	%		2/15/2022	2/15/2027	High Tech Industries	£	9,900,000	$	13,218,295	$	12,445,368	4.04	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	11.02	%		2/15/2022	2/15/2027		$	82,708		82,021		81,881	0.03	%
Inoapps Holdings, LLC Series A-1 Preferred Units		Equity									2/15/2022				739,844		783,756		767,623	0.25	%
Total																$	14,084,072	$	13,294,872	4.32	%
Integrated Oncology Network, LLC	(9)												Newport Beach, CA
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.04	%		7/17/2019	6/24/2025	Healthcare & Pharmaceuticals	$	15,752,918		15,680,175		15,437,860	5.01	%
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.04	%		11/1/2021	6/24/2025			1,090,422		1,081,708		1,068,614	0.35	%
Revolver	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.19	%		7/17/2019	6/24/2025			498,165		498,165		488,202	0.16	%
Total																$	17,260,048	$	16,994,676	5.52	%
International Designs Holdings LLC													Farmingville, NY
Common Units		Equity									4/1/2022		Construction & Building		200,000		200,000		176,204	0.06	%
Total																$	200,000	$	176,204	0.06	%
Interstate Waste Services, Inc.													Amsterdam, OH
Common Stock		Equity									1/15/2020		Environmental Industries		21,925		946,125		582,307	0.19	%
Total																$	946,125	$	582,307	0.19	%
Intuitive Health, LLC													Plano, TX
Term Loan (SBIC II)	(5)(10)(12)	First Lien	3M SOFR+	5.50	%	1.50	%	12.08	%		10/18/2019	10/18/2027	Healthcare & Pharmaceuticals	$	5,820,000		5,760,693		5,820,000	1.89	%
Term Loan	(10)(12)	First Lien	3M SOFR+	5.50	%	1.50	%	12.08	%		10/18/2019	10/18/2027			8,185,612		8,102,601		8,185,612	2.65	%
Term Loan (SBIC II)	(5)(10)(12)	First Lien	3M SOFR+	5.50	%	1.50	%	12.08	%		8/31/2021	10/18/2027			3,065,650		3,031,322		3,065,650	0.99	%
Legacy Parent, Inc. Class A Common Stock		Equity									10/30/2020				58		-		185,874	0.06	%
Total																$	16,894,616	$	17,257,136	5.59	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Invincible Boat Company LLC	(9)													Opa Locka, FL
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	12.04	%			8/28/2019	8/28/2025	Consumer Goods: Durable	$	5,381,042		5,309,414		5,273,421	1.71	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	12.04	%			8/28/2019	8/28/2025			4,967,116		4,925,363		4,867,774	1.58	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	12.04	%			6/1/2021	8/28/2025			1,104,255		1,091,999		1,082,170	0.35	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	12.04	%			8/28/2019	8/28/2025			638,298		638,298		625,532	0.20	%
Warbird Parent Holdco, LLC Class A Units		Equity										8/28/2019				1,362,575		1,299,691		827,207	0.27	%
Total																	$	13,264,765	$	12,676,104	4.11	%
J.R. Watkins, LLC														San Francisco
Term Loan (SBIC)	(4)	First Lien		12.00	%			7.00	%	5.00	%	12/22/2017	3/31/2024	Consumer Goods: Non-Durable	$	13,027,616		13,027,616		11,789,992	3.82	%
J.R. Watkins Holdings, Inc. Class A Preferred Stock		Equity										12/22/2017				1,133		1,132,576		134,200	0.04	%
Total																	$	14,160,192	$	11,924,192	3.86	%
Jurassic Acquisition Corp.														Sparks, MD
Term Loan	(11)	First Lien	1M SOFR+	5.50	%	-	%	10.70	%			12/28/2018	11/15/2024	Metals & Mining	$	16,712,500		16,644,442		16,545,375	5.38	%
Total																	$	16,644,442	$	16,545,375	5.38	%
Kelleyamerit Holdings, Inc.														Walnut Creek, CA
Term Loan (SBIC)	(4)(10)(12)	First Lien	1M BSBY+	6.75	%	1.00	%	13.11	%			12/24/2020	12/24/2025	Automotive	$	9,750,000		9,642,668		9,750,000	3.16	%
Term Loan	(10)(12)	First Lien	1M BSBY+	6.75	%	1.00	%	13.11	%			12/24/2020	12/24/2025			1,500,000		1,483,487		1,500,000	0.49	%
Total																	$	11,126,155	$	11,250,000	3.65	%
KidKraft, Inc.														Dallas, TX
Term Loan	(10)(12)	First Lien	1M SOFR+	6.00	%	1.00	%	11.24	%			4/3/2020	6/30/2023	Consumer Goods: Durable	$	1,580,768		1,580,768		1,359,460	0.44	%
KidKraft Group Holdings, LLC Preferred B Units		Equity										4/3/2020				4,000,000		4,000,000		-	0.00	%
Total																	$	5,580,768	$	1,359,460	0.44	%
Ledge Lounger, Inc.	(9)													Katy, TX
Term Loan A (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.64	%			11/9/2021	11/9/2026	Consumer Goods: Durable	$	7,530,066		7,422,509		7,492,416	2.43	%
SP L2 Holdings LLC Class A Units (SBIC)	(4)	Equity										11/9/2021				375,000		375,000		264,355	0.09	%
Total																	$	7,797,509	$	7,756,771	2.52	%
Lightning Intermediate II, LLC	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	6M SOFR+	6.50	%	1.00	%	12.09	%			6/6/2022	6/6/2027	Consumer Goods: Non-Durable	$	13,415,079		13,194,591		13,213,853	4.29	%
Gauge Vimergy Coinvest, LLC Units		Equity										6/6/2022				399		398,677		252,284	0.08	%
Total																	$	13,593,268	$	13,466,137	4.37	%
MacKenzie-Childs Acquisition, Inc.	(9)													Aurora, NY
Term Loan	(11)	First Lien	6M SOFR+	6.00	%	1.00	%	11.11	%			9/2/2022	9/2/2027	Consumer Goods: Durable	$	99,250		97,959		98,258	0.03	%
Revolver	(11)	First Lien	6M SOFR+	6.00	%	1.00	%	11.11	%			9/2/2022	9/2/2027			86,667		86,667		85,800	0.03	%
MacKenzie-Childs Investment, LP Partnership Interests		Equity										9/2/2022				100,000		100,000		91,917	0.03	%
Total																	$	284,626	$	275,975	0.09	%
Madison Logic Holdings, Inc.	(9)(19)													New York, NY
Term Loan	(11)	First Lien	3M SOFR+	7.00	%	1.00	%	12.24	%			12/30/2022	12/30/2028	Media: Broadcasting & Subscription	$	4,517,894		4,392,469		4,450,126	1.44	%
Total																	$	4,392,469	$	4,450,126	1.44	%
Microbe Formulas LLC	(9)													Meridian, ID
Term Loan (SBIC II)	(5)(11)	First Lien	1M SOFR+	6.25	%	1.00	%	11.44	%			4/4/2022	4/3/2028	Consumer Goods: Non-Durable	$	9,216,892		9,140,420		9,216,892	2.99	%
Total																	$	9,140,420	$	9,216,892	2.99	%
MOM Enterprises, LLC	(9)													Richmond, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.48	%	1.00	%	11.72	%			5/19/2021	5/19/2026	Consumer Goods: Non-Durable	$	16,137,333		15,933,634		15,975,960	5.19	%
MBliss SPC Holdings, LLC Units		Equity										5/19/2021				933,333		933,333		911,747	0.30	%
Total																	$	16,866,967	$	16,887,707	5.49	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Monitorus Holding, LLC	(7)													London, UK
Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	12.54	%			5/24/2022	5/24/2027	Media: Diversified & Production	$	100,000		99,181		99,500	0.03	%
Revolver	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	12.54	%			5/24/2022	5/24/2027		€	100,000		108,717		107,917	0.04	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	12.54	%			5/24/2022	5/24/2027		€	100,000		100,931		100,426	0.03	%
Sapphire Aggregator S.a r.l. Class A Shares		Equity										9/1/2022			€	557,689		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class B Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class C Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class D Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class E Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class F Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class G Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class H Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Sapphire Aggregator S.a r.l. Class I Shares		Equity										9/1/2022			€	557,682		11,156		13,695	0.00	%
Total																	$	409,233	$	431,098	0.10	%
Naumann/Hobbs Material Handling Corporation II, Inc.	(9)													Phoenix, AZ
Term Loan	(11)	First Lien	3M SOFR+	6.75	%	1.50	%	11.99	%			8/30/2019	8/30/2024	Services: Business	$	8,455,673		8,409,793		8,371,116	2.72	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.75	%	1.50	%	11.99	%			8/30/2019	8/30/2024			5,332,179		5,303,247		5,278,857	1.71	%
Naumann Hobbs Holdings, L.P. Class A-1 Units		Equity										9/29/2022				123		220,379		357,321	0.12	%
Naumann Hobbs Holdings, L.P. Class A-2 Units		Equity										9/29/2022				123		220,379		357,321	0.12	%
Total																	$	14,153,798	$	14,364,615	4.67	%
NINJIO, LLC	(9)													Westlake Village, CA
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	1.50	%	11.99	%			10/12/2022	10/12/2027	Media: Diversified & Production	$	4,975,000		4,886,934		4,950,125	1.61	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	1.50	%	11.99	%			10/12/2022	10/12/2027			66,667		66,667		66,334	0.02	%
NINJIO Holdings, LLC Units		Equity										10/12/2022				184		313,253		328,680	0.11	%
Total																	$	5,266,854	$	5,345,139	1.74	%
NS412, LLC														Dallas, TX
Term Loan	(11)	Second Lien	3M LIBOR+	8.50	%	1.00	%	14.04	%			5/6/2019	11/6/2025	Services: Consumer	$	7,615,000		7,548,829		7,538,850	2.45	%
NS Group Holding Company, LLC Class A Units		Equity										5/6/2019				782		795,002		813,328	0.26	%
Total																	$	8,343,831	$	8,352,178	2.71	%
NuMet Machining Techniques, LLC	(7)													Birmingham, United Kingdom
Term Loan	(11)(15)	Second Lien	PRIME+	8.00	%	-	%	-	%			11/5/2019	5/5/2026	Aerospace & Defense	$	12,675,000		12,543,458		1,330,875	0.43	%
Bromford Industries Limited Term Loan	(11)(15)	Second Lien	PRIME+	8.00	%	-	%	-	%			11/5/2019	5/5/2026			7,800,000		7,716,428		819,000	0.27	%
Total																	$	20,259,886	$	2,149,875	0.70	%
NuSource Financial, LLC														Eden Prairie, MN
Term Loan (SBIC II)	(5)(11)	First Lien	1M LIBOR+	9.00	%	1.00	%	14.17	%			1/29/2021	1/29/2026	Services: Business	$	10,984,910		10,854,930		10,984,910	3.56	%
NuSource Financial Acquisition, Inc. (SBIC II)	(5)	Unsecured		13.75	%			4.00	%	9.75	%	1/29/2021	7/29/2026			5,947,879		5,885,742		5,620,746	1.82	%
NuSource Holdings, Inc. Warrants (SBIC II)	(5)	Equity										1/29/2021				54,966		-		-	0.00	%
Total																	$	16,740,672	$	16,605,656	5.38	%
Nutritional Medicinals, LLC	(9)													Centerville, OH
Term Loan	(11)	First Lien	3M SOFR+	6.21	%	1.00	%	11.45	%			11/15/2018	11/15/2025	Healthcare & Pharmaceuticals	$	9,497,282		9,442,959		9,497,282	3.08	%
Term Loan	(11)	First Lien	3M SOFR+	6.21	%	1.00	%	11.45	%			10/28/2021	11/15/2025			4,009,520		3,971,754		4,009,520	1.30	%
Functional Aggregator, LLC Units		Equity										11/15/2018				12,500		972,803		1,874,213	0.61	%
Total																	$	14,387,516	$	15,381,015	4.99	%
Onpoint Industrial Services, LLC														Deer Park, TX
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	7.00	%	1.75	%	12.24	%			11/16/2022	11/16/2027	Services: Business	$	12,828,792		12,595,013		12,700,504	4.12	%
Spearhead TopCo, LLC Class A Units		Equity										11/16/2022				606,742		606,742		688,293	0.22	%
Total																	$	13,201,755	$	13,388,797	4.34	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
PCP MT Aggregator Holdings, L.P.	(7)													Oak Brook, IL
Common Units		Equity										3/29/2019		Finance		825,020		119,281		3,023,143	0.98	%
Total																	$	119,281	$	3,023,143	0.98	%
PCS Software, Inc.	(9)													Shenandoah, TX
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.50	%	11.39	%			7/1/2019	7/1/2024	Transportation & Logistics	$	13,991,620		13,922,474		13,921,662	4.53	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.00	%	1.50	%	11.39	%			7/1/2019	7/1/2024			1,834,967		1,825,899		1,825,792	0.59	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.50	%	11.39	%			7/1/2019	7/1/2024			967,500		967,500		962,663	0.31	%
PCS Software Parent, LLC Class A Common Units	(6)	Equity										9/16/2022				461,216		-		450,071	0.15	%
Total																	$	16,715,873	$	17,160,188	5.58	%
Pearl Media Holdings, LLC	(9)													Garland, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.50	%	11.64	%			8/31/2022	8/31/2027	Consumer Goods: Durable	$	9,925,000		9,753,231		9,676,875	3.14	%
Total																	$	9,753,231	$	9,676,875	3.14	%
Peltram Plumbing Holdings, LLC	(9)													Auburn, WA
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%			12/30/2021	12/30/2026	Construction & Building	$	16,242,452		16,002,684		16,080,027	5.22	%
Revolver	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.74	%			12/30/2021	12/30/2026			42,500		42,500		42,075	0.01	%
Peltram Group Holdings LLC Class A Units		Equity										12/30/2021				508,516		508,516		286,826	0.09	%
Total																	$	16,553,700	$	16,408,928	5.32	%
Premiere Digital Services, Inc.	(9)													Los Angeles, CA
Term Loan	(11)	First Lien	1M SOFR+	5.25	%	1.00	%	10.47	%			11/3/2021	11/3/2026	Media: Broadcasting & Subscription	$	13,284,316		13,237,180		13,284,316	4.31	%
Premiere Digital Holdings, Inc. Common Stock		Equity										10/18/2018				5,000		-		2,857,533	0.93	%
Total																	$	13,237,180	$	16,141,849	5.24	%
Protect America, Inc.														Austin, TX
Term Loan	(11)(13)	Second Lien	3M LIBOR+	7.75	%	1.00	%	-	%			8/30/2017	9/1/2024	Services: Consumer	$	17,979,749		17,979,749		-	0.00	%
Total																	$	17,979,749	$	-	0.00	%
Red's All Natural, LLC														Franklin, TN
Term Loan (SBIC II)	(5)(10)(12)	First Lien	3M SOFR+	6.00	%	1.50	%	12.25	%			1/31/2023	1/31/2029	Beverage, Food, & Tobacco	$	10,916,882		10,709,066		10,807,713	3.51	%
Centeotl Co-Invest B, LP Common Units		Equity										1/31/2023				710,600		710,600		700,032	0.23	%
Total																	$	11,419,666	$	11,507,745	3.74	%
RIA Advisory Borrower, LLC	(9)													Coral Gables, FL
Term Loan	(4)(11)	First Lien	1M SOFR+	6.50	%	2.00	%	11.69	%			5/1/2023	8/2/2027	Services: Business	$	5,985,000		5,868,827		5,868,827	1.90	%
Revolver	(11)	First Lien	1M SOFR+	6.50	%	2.00	%	11.69	%			5/1/2023	8/2/2027			22,114		22,114		21,685	0.01	%
RIA Advisory Aggregator, LLC Class A Units		Equity										5/1/2023				143,055		165,078		125,332	0.04	%
RIA Products Aggregator, LLC Class A Units		Equity										5/1/2023				134,841		78,390		118,135	0.04	%
Total																	$	6,134,409	$	6,133,979	1.99	%
Rogers Mechanical Contractors, LLC	(9)													Atlanta, GA
Term Loan	(11)	First Lien	6M SOFR+	8.00	%	1.00	%	12.28	%	1.00	%	4/28/2021	9/9/2025	Construction & Building	$	9,334,591		9,244,647		9,194,572	2.98	%
Delayed Draw Term Loan	(11)	First Lien	6M SOFR+	8.00	%	1.00	%	12.28	%	1.00	%	4/28/2021	9/9/2025			46,765		46,485		46,064	0.01	%
Total																	$	9,291,132	$	9,240,636	2.99	%
Sales Benchmark Index, LLC	(9)													Dallas, TX
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.44	%			1/7/2020	1/7/2025	Services: Business	$	12,481,823		12,392,647		12,419,414	4.03	%
SBI Holdings Investments LLC Class A Units		Equity										1/7/2020				66,573		665,730		473,763	0.15	%
Total																	$	13,058,377	$	12,893,177	4.18	%
Service Minds Company, LLC	(9)													Bradenton, FL
Term Loan	(11)	First Lien	6M LIBOR+	5.50	%	1.00	%	10.68	%			2/7/2022	2/7/2028	Services: Consumer	$	5,330,827		5,245,209		5,250,865	1.70	%
Revolver	(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	10.70	%			2/7/2022	2/7/2028			70,000		70,000		68,950	0.02	%
Delayed Draw Term Loan	(11)	First Lien	6M LIBOR+	5.50	%	1.00	%	10.68	%			2/7/2022	2/7/2028			99,258		98,369		97,769	0.03	%
Total																	$	5,413,578	$	5,417,584	1.75	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
SIB Holdings, LLC	(9)													Charleston, SC
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.68	%			10/29/2021	10/29/2026	Services: Business	$	12,626,617		12,448,042		12,310,952	3.99	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.68	%			6/15/2022	10/29/2026			848,864		832,103		827,642	0.27	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.68	%			7/20/2022	10/29/2026			2,263,636		2,226,709		2,207,045	0.72	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.68	%			10/29/2021	10/29/2026			2,829,545		2,807,313		2,758,806	0.89	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	11.68	%			10/29/2021	10/29/2026			100,000		100,000		97,500	0.03	%
SIB Holdings, LLC Units		Equity										10/29/2021				238,095		500,000		301,980	0.10	%
Total																	$	18,914,167	$	18,503,925	6.00	%
TAC LifePort Holdings, LLC														Woodland, WA
Common Units	(6)	Equity										3/1/2021		Aerospace & Defense		546,543		537,049		665,282	0.22	%
Total																	$	537,049	$	665,282	0.22	%
Tilley Distribution, Inc.	(9)													Baltimore, MD
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.39	%			4/1/2022	12/31/2026	Chemicals, Plastics, & Rubber	$	98,743		97,581		95,287	0.03	%
Total																	$	97,581	$	95,287	0.03	%
Trade Education Acquisition, L.L.C.	(9)													Austin, TX
Term Loan (SBIC)	(4)(11)	First Lien	1M SOFR+	6.25	%	1.00	%	11.45	%			12/28/2021	12/28/2027	Education	$	9,780,860		9,626,085		9,145,104	2.97	%
Trade Education Holdings, L.L.C. Class A Units		Equity										12/28/2021				662,660		662,660		257,594	0.08	%
Total																	$	10,288,745	$	9,402,698	3.05	%
TradePending, LLC	(9)													Carrboro, NC
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	11.79	%			3/2/2021	3/2/2026	Software	$	9,676,263		9,562,242		9,531,119	3.09	%
TradePending Holdings, LLC Series A Units	(6)	Equity										3/2/2021				829,167		848,364		1,625,167	0.53	%
Total																	$	10,410,606	$	11,156,286	3.62	%
Unicat Catalyst Holdings, LLC	(9)													Alvin, TX
Term Loan	(11)	First Lien	1M SOFR+	6.50	%	1.00	%	11.70	%			4/27/2021	4/27/2026	Chemicals, Plastics, & Rubber	$	7,125,000		7,037,371		6,697,500	2.17	%
Unicat Catalyst, LLC Class A Units		Equity										4/27/2021				7,500		750,000		163,865	0.05	%
Total																	$	7,787,371	$	6,861,365	2.22	%
U.S. Auto Sales, Inc. et al	(7)													Lawrenceville, GA
USASF Blocker II LLC Units		Equity										6/8/2015		Finance		441		441,000		-	0.00	%
USASF Blocker III LLC 2018 Series Units		Equity										2/13/2018				50		50,000		-	0.00	%
USASF Blocker III LLC 2019 Series Units		Equity										12/27/2019				75		75,000		-	0.00	%
USASF Blocker IV LLC Units		Equity										5/27/2020				110		110,000		-	0.00	%
USASF Blocker IV LLC 2022 Series Units		Equity										7/28/2022				100		100,000		-	0.00	%
USASF Blocker V LLC Units		Equity										12/20/2022				200		200,000		-	0.00	%
USASF Blocker LLC Units		Equity										6/8/2015				9,000		9,000		-	0.00	%
Total																	$	985,000	$	-	0.00	%
U.S. Expediters, LLC	(9)													Stafford, TX
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	11.44	%			12/22/2021	12/22/2026	Healthcare & Pharmaceuticals	$	15,786,662		15,553,031		15,707,729	5.09	%
Cathay Hypnos LLC Units		Equity										12/22/2021				1,372,932		1,316,740		2,064,950	0.67	%
Total																	$	16,869,771	$	17,772,679	5.76	%
Venbrook Buyer, LLC														Los Angeles, CA
Term Loan B (SBIC)	(4)(11)	First Lien	3M SOFR+	8.00	%	1.50	%	6.39	%	7.00	%	3/13/2020	3/13/2026	Services: Business	$	13,279,212		13,147,715		12,416,063	4.03	%
Term Loan B	(11)	First Lien	3M SOFR+	8.00	%	1.50	%	6.39	%	7.00	%	3/13/2020	3/13/2026			151,091		149,595		141,270	0.05	%
Revolver	(11)	First Lien	3M SOFR+	8.00	%	1.50	%	6.39	%	7.00	%	3/13/2020	3/13/2026			2,313,084		2,313,084		2,162,734	0.70	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	8.00	%	1.50	%	6.39	%	7.00	%	3/13/2020	3/13/2026			4,527,452		4,501,375		4,233,168	1.37	%
Venbrook Holdings, LLC Term Loan	(16)	Unsecured		10.00	%			-	%	10.00	%	3/31/2022	12/20/2028			93,830		93,830		87,731	0.03	%
Venbrook Holdings, LLC Common Units		Equity										3/13/2020				822,758		819,262		-	0.00	%
Total																	$	21,024,861	$	19,040,966	6.18	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Vortex Companies, LLC													Houston, TX
Term Loan (SBIC II)	(5)(11)	Second Lien	3M SOFR+	9.50	%	1.00	%	14.84	%		12/21/2020	6/21/2026	Environmental Industries	$	10,000,000		9,876,242		10,000,000	3.24	%
Total																$	9,876,242	$	10,000,000	3.24	%
Whisps Holdings LP													Elgin, IL
Class A Units		Equity									4/18/2019		Beverage, Food, & Tobacco		500,000		500,000		-	0.00	%
Class A-1 Units		Equity									3/6/2023		Beverage, Food, & Tobacco		107,418		107,418		107,418	0.03	%
Total																$	607,418	$	107,418	0.03	%
Xanitos, Inc.	(9)												Newtown Square, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.50	%	1.00	%	11.89	%		6/25/2021	6/25/2026	Healthcare & Pharmaceuticals	$	12,544,000		12,381,687		12,355,840	4.01	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	12.05	%		6/25/2021	6/25/2026			43,500		43,500		42,848	0.01	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.50	%	1.00	%	11.89	%		6/25/2021	6/25/2026			2,209,963		2,194,396		2,176,814	0.71	%
Pure TopCo, LLC Class A Units		Equity									6/25/2021				442,133		1,053,478		924,675	0.30	%
Total																$	15,673,061	$	15,500,177	5.03	%
Total Non-controlled, non-affiliated investments																$	922,796,573	$	881,666,450	285.95	%
Net Investments																$	922,796,573	$	881,666,450	285.95	%
LIABILITIES IN EXCESS OF OTHER ASSETS																		$	(573,341,422)	(185.95)	%
NET ASSETS																		$	308,325,028	100.00	%

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)

(1)

See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio.

(2)

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

(3)

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

(4)

Investments held by the SBIC subsidiary (as defined in Note 1), which include $3,664,515 of cash and $227,367,557 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment Corporation’s (the “Company”) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1).

(5)

Investments held by the SBIC II subsidiary (as defined in Note 1), which include $8,551,166 of cash and $255,175,084 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries.

(6)

Security is income producing through dividends or distributions.

(7)

The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 97.2% of the Company’s total assets as of June 30, 2023.

(8)

Represents a PIK interest security. At the option of the issuer, interest can be paid in cash or cash and PIK interest. The percentage of PIK interest shown is the maximum PIK interest that can be elected by the issuer.

(9)

June 30, 2023, the Company had the following outstanding revolver and delayed draw term loan commitments:

(10)


				Unused
		Unfunded		Commitment
Investments	Security	Commitment		Fee	Maturity
2X LLC	Revolver	$	100,000	0.50%	June 5, 2028
Ad.Net Acquisition, LLC	Revolver		389,706	0.50%	May 7, 2026
ADS Group Opco, LLC	Revolver		10,000	0.50%	June 4, 2026
American Refrigeration, LLC	Revolver		90,000	0.50%	March 31, 2028
American Refrigeration, LLC	Delayed Draw Term Loan		100,000	1.00%	March 31, 2028
Anne Lewis Strategies, LLC	Revolver		70,000	0.50%	May 9, 2028
ArborWorks Acquisition LLC	Revolver		1,030,921	0.50%	November 9, 2026
Archer Systems, LLC	Revolver		100,000	0.50%	August 11, 2027
Axis Portable Air, LLC	Revolver		100,000	0.50%	March 22, 2028
BLP Buyer, Inc.	Revolver		23,434	0.50%	February 1, 2027
Camp Profiles LLC	Revolver		100,000	0.50%	September 3, 2026
CEATI International Inc.	Revolver		100,000	0.50%	February 19, 2026
Cerebro Buyer, LLC	Revolver		100,000	0.50%	March 15, 2029
CF512, Inc.	Revolver		100,000	0.50%	September 1, 2026
Channel Partners Intermediateco, LLC	Revolver		36,602	0.50%	February 7, 2027
CompleteCase, LLC	Revolver		166,667	0.50%	December 21, 2025
COPILOT Provider Support Services, LLC	Revolver		100,000	0.50%	November 22, 2027
Craftable Intermediate II Inc.	Revolver		100,000	0.50%	June 30, 2028
Credit Connection, LLC	Revolver		100,000	0.50%	July 30, 2026
DRS Holdings III, Inc.	Revolver		909,091	0.50%	November 1, 2025
Elliott Aviation, LLC	Revolver B		500,000	0.50%	September 1, 2023
Equine Network, LLC	Revolver		100,000	0.50%	May 22, 2028
Equine Network, LLC	Delayed Draw Term Loan		100,000	1.00%	May 22, 2028
Evriholder Acquisition, Inc.	Revolver		100,000	0.50%	January 24, 2028
Exacta Land Surveyors, LLC^(a)	Revolver		1,500,000	0.50%	February 8, 2024
Exigo, LLC	Revolver		100,000	0.50%	March 16, 2027
Exigo, LLC	Delayed Draw Term Loan		100,000	0.50%	March 16, 2027
Florachem Corporation	Revolver		30,000	0.50%	April 29, 2028
Florachem Corporation	Delayed Draw Term Loan		100,000	0.50%	April 29, 2028
GS HVAM Intermediate, LLC	Revolver		2,651,515	0.50%	October 2, 2024
Heartland Business Systems, LLC	Delayed Draw Term Loan		50,000	0.50%	August 26, 2027
Heat Makes Sense Shared Services, LLC	Revolver		100,000	0.50%	July 1, 2028
HV Watterson Holdings, LLC	Revolver		36,000	0.50%	December 17, 2026
HV Watterson Holdings, LLC	Delayed Draw Term Loan		2,555,354	1.00%	December 17, 2026
Impact Home Services LLC	Revolver		87,500	0.50%	April 28, 2028
Infolinks Media Buyco, LLC	Delayed Draw Term Loan		990,000	0.50%	November 1, 2026

Table of Contents

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2023

(unaudited)


				Unused
		Unfunded		Commitment
Investments	Security	Commitment		Fee	Maturity
Inoapps Bidco, LLC	Revolver	$	100,000	0.50%	February 15, 2027
Inoapps Bidco, LLC	Delayed Draw Term Loan		16,667	0.50%	February 15, 2027
Integrated Oncology Network, LLC	Revolver		55,352	0.50%	June 24, 2025
Invincible Boat Company LLC	Revolver		425,532	0.50%	August 28, 2025
Ledge Lounger, Inc.	Revolver		100,000	0.50%	November 9, 2026
Lightning Intermediate II, LLC	Revolver		100,000	0.50%	June 6, 2027
MacKenzie-Childs Acquisition, Inc.	Revolver		13,333	0.50%	September 2, 2027
Madison Logic Holdings, Inc.	Revolver		100,000	0.50%	December 30, 2027
Microbe Formulas LLC	Revolver		100,000	0.50%	April 3, 2028
MOM Enterprises, LLC	Revolver		100,000	0.50%	May 19, 2026
Naumann/Hobbs Material Handling Corporation II, Inc.	Revolver – Working Capital		1,763,033	0.50%	August 30, 2024
NINJIO, LLC	Delayed Draw Term Loan		100,000	0.50%	October 12, 2027
NINJIO, LLC	Revolver		33,333	0.50%	October 12, 2027
Nutritional Medicinals, LLC	Revolver		2,000,000	0.50%	November 15, 2025
PCS Software, Inc.	Revolver		1,318,143	0.50%	July 1, 2024
Pearl Media Holdings, LLC	Delayed Draw Term Loan		100,000	0.50%	August 31, 2027
Pearl Media Holdings, LLC	Revolver		100,000	0.50%	August 31, 2027
Peltram Plumbing Holdings, LLC	Revolver		57,500	0.50%	December 30, 2026
Premiere Digital Services, Inc.	Revolver		576,923	0.50%	November 3, 2026
RIA Advisory Borrower, LLC	Revolver		77,886	0.50%	August 2, 2027
Rogers Mechanical Contractors, LLC	Revolver		83,333	0.75%	September 9, 2025
Sales Benchmark Index, LLC	Revolver		1,331,461	0.50%	January 7, 2025
Service Minds Company, LLC	Revolver		30,000	0.50%	February 7, 2028
SIB Holdings, LLC	Revolver		26,667	0.50%	October 29, 2026
Tilley Distribution, Inc.	Revolver		100,000	0.50%	December 31, 2026
TradePending, LLC	Revolver		100,000	0.50%	March 2, 2026
Unicat Catalyst Holdings, LLC^(a)	Revolver		2,000,000	0.50%	April 27, 2026
U.S. Expediters, LLC	Revolver		100,000	0.50%	December 22, 2026
Xanitos, Inc.	Revolver		56,500	0.50%	June 25, 2026

(a)

The Company has full discretion to fund this revolver commitment.

(10)

This loan is a unitranche investment.

(11)

These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floor is not in effect.

(12)

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

(13)

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

(14)

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

(15)

Investment has been on non-accrual since April 1, 2022.

(16)

This loan is convertible to common units at maturity or at the election of the issuer.

(17)

Excluded from the investment is an uncalled capital commitment in an amount not to exceed $300,631.

(18)

Term Loan A-1, Term Loan A-2, and Term Loan A-3 have been on non-accrual since January 1, 2023, April 3, 2023, and June 7, 2023, respectively.

Abbreviation Legend

BSBY — Bloomberg Short-Term Bank Yield Index

LIBOR — London Interbank Offered Rate

PIK — Payment-In-Kind

SOFR — Secured Overnight Financing Rate

SONIA — Sterling Overnight Index Average

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Non-controlled, non-affiliated investments	(4)(5)
Ad.Net Acquisition, LLC	(9)												Los Angeles, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.00	%	1.00	%	10.84	%		5/7/2021	5/7/2026	Services: Business	$	15,354,412		15,190,375		15,124,097	5.48	%
Revolver	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	10.84	%		5/7/2021	5/7/2026		$	1,039,216		1,039,216		1,023,628	0.37	%
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)	(5)	Equity									5/7/2021				7,794		77,941		85,488	0.03	%
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity									5/7/2021				7,015		701,471		769,393	0.28	%
Total																$	17,009,003	$	17,002,606	6.16	%
ADS Group Opco, LLC													Lakewood, CO
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.75	%	1.00	%	11.48	%		6/4/2021	6/4/2026	Aerospace & Defense	$	14,550,000		14,337,005		13,822,500	5.01	%
Revolver	(11)	First Lien	3M LIBOR+	6.75	%	1.00	%	11.48	%		6/4/2021	6/4/2026			100,000		100,000		95,000	0.03	%
ADS Group Topco, LLC Class A Units		Equity									6/4/2021				77,626		288,691		48,571	0.02	%
ADS Group Topco, LLC Class B Units		Equity									6/4/2021				56,819		211,309		35,552	0.01	%
ADS Group Topco, LLC Class Z Units		Equity									6/15/2022				72,043		267,929		293,847	0.11	%
Total																$	15,204,934	$	14,295,470	5.18	%
Advanced Barrier Extrusions, LLC													Rhinelander, WI
Term Loan B (SBIC)	(4)(11)	First Lien	3M SOFR+	7.50	%	1.00	%	11.88	%		11/30/2020	11/30/2026	Containers, Packaging, & Glass	$	17,150,000		16,908,205		13,977,250	5.07	%
GP ABX Holdings Partnership, L.P. Partner Interests		Equity									8/8/2018				644,737		528,395		-	0.00	%
Total																$	17,436,600	$	13,977,250	5.07	%
AIP ATCO Buyer, LLC	(9)												Sterling Heights, MI
Term Loan	(11)	First Lien	6M SOFR+	6.50	%	1.00	%	11.31	%		5/17/2022	5/17/2028	Automotive	$	99,750		97,906		99,251	0.04	%
Revolver	(11)	First Lien	1M SOFR+	6.50	%	1.00	%	10.93	%		5/17/2022	5/17/2028			50,000		50,000		49,750	0.02	%
Total																$	147,906	$	149,001	0.06	%
Anne Lewis Strategies, LLC	(9)												Washington, DC
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%		3/5/2021	3/5/2026	Services: Business	$	10,493,750		10,349,704		10,493,750	3.81	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%		4/15/2022	3/5/2026			6,311,895		6,206,222		6,311,895	2.29	%
SG AL Investment, LLC Common Units	(6)	Equity									3/5/2021				1,000		680,630		4,318,702	1.57	%
Total																$	17,236,556	$	21,124,347	7.67	%
APE Holdings, LLC													Deer Park, TX
Class A Units		Equity									9/5/2014		Chemicals, Plastics, & Rubber		375,000		375,000		29,209	0.01	%
Total																$	375,000	$	29,209	0.01	%
Atmosphere Aggregator Holdings II, L.P.													Atlanta, GA
Common Units		Equity									1/26/2016		Services: Business		254,250		-		2,134,220	0.77	%
Stratose Aggregator Holdings, L.P. Common Units		Equity									6/30/2015				750,000		-		6,295,635	2.28	%
Total																$	-	$	8,429,855	3.05	%
ArborWorks Acquisition LLC	(9)												Oakhurst, CA
Term Loan	(11)	First Lien	3M LIBOR+	9.00	%	1.00	%	13.56	%		11/23/2021	11/9/2026	Environmental Industries	$	14,662,500		14,543,314		13,636,125	4.94	%
Revolver	(11)	First Lien	3M LIBOR+	9.00	%	1.00	%	13.41	%		11/23/2021	11/9/2026			2,307,692		2,307,692		2,146,154	0.78	%
ArborWorks Holdings LLC Units		Equity									12/29/2021				115		115,385		-	0.00	%
Total																$	16,966,391	$	15,782,279	5.72	%
Archer Systems, LLC	(9)												Houston, TX
Term Loan	(11)	First Lien	1M SOFR+	6.50	%	1.00	%	10.92	%		8/11/2022	8/11/2027	Services: Business	$	1,000,000		981,305		985,000	0.36	%
CF Arch Holdings LLC Class A Units		Equity									8/10/2022				100,000		100,000		106,221	0.04	%
Total																$	1,081,305	$	1,091,221	0.40	%
Axis Portable Air, LLC	(9)												Phoenix, AZ
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	5.75	%	1.00	%	10.48	%		3/22/2022	3/22/2028	Capital Equipment	$	12,000,000		11,784,686		11,940,000	4.33	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	5.75	%	1.00	%	10.48	%		3/22/2022	3/22/2028		$	100,000		99,050		99,500	0.04	%
Axis Air Parent, LLC Preferred Units		Equity									3/22/2022				4,436		443,636		686,447	0.25	%
Total																$	12,327,372	$	12,725,947	4.62	%
Baker Manufacturing Company, LLC													Evansville, IN
Term Loan (SBIC II)	(5)(10)(12)	First Lien	3M SOFR+	5.25	%	1.00	%	10.75	%		7/5/2022	7/5/2027	Capital Equipment	$	13,863,087		13,602,312		13,655,141	4.95	%
BSC Blue Water Holdings, LLC Series A Units (SBIC II)	(5)	Equity									7/5/2022				743,770		743,770		590,291	0.21	%
Total																$	14,346,082	$	14,245,432	5.16	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
BDS Solutions Intermediateco, LLC	(9)												Tampa Bay, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.71	%		2/24/2022	2/7/2027	Retail	$	13,388,469		13,273,471		13,187,642	4.78	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.55	%		2/24/2022	2/7/2027			30,065		30,065		29,614	0.01	%
Total																$	13,303,536	$	13,217,256	4.79	%
BLP Buyer, Inc.	(9)												Houston, TX
Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.49	%		2/1/2022	2/1/2027	Capital Equipment	$	6,178,740		6,074,029		6,024,272	2.18	%
Revolver	(11)	First Lien	1M SOFR+	6.25	%	1.00	%	10.67	%		2/1/2022	2/1/2027			36,566		36,566		35,652	0.01	%
BL Products Parent, L.P. Class A Units		Equity									2/1/2022				754,598		754,598		770,648	0.28	%
Total																$	6,865,193	$	6,830,572	2.47	%
Café Valley, Inc.													Phoenix, AZ
Term Loan	(11)	First Lien	3M SOFR+	7.24	%	2.00	%	11.82	%		8/28/2019	8/28/2024	Beverage, Food, & Tobacco	$	15,725,000		15,606,117		15,410,501	5.60	%
CF Topco LLC Units		Equity									8/28/2019				9,160		916,015		976,521	0.35	%
Total																$	16,522,132	$	16,387,022	5.95	%
Camp Profiles LLC	(9)												Boston, MA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	5.25	%	1.00	%	9.98	%		9/3/2021	9/3/2026	Media: Advertising, Printing & Publishing	$	10,121,875		9,965,356		10,121,875	3.67	%
CIVC VI-A 829 Blocker, LLC Units		Equity									9/3/2021				250		250,000		405,784	0.15	%
Total																$	10,215,356	$	10,527,659	3.82	%
CEATI International Inc.	(7)(9)												Montreal, Canada
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%		2/19/2021	2/19/2026	Services: Business	$	13,263,750		13,083,737		12,998,475	4.71	%
CEATI Holdings, LP Class A Units		Equity									2/19/2021				250,000		250,000		268,194	0.10	%
Total																$	13,333,737	$	13,266,669	4.81	%
CF512, Inc.	(9)												Blue Bell, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.76	%		9/1/2021	9/1/2026	Media: Advertising, Printing & Publishing	$	14,180,959		13,961,673		13,684,625	4.96	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.73	%		9/1/2021	9/1/2026			3,062,093		3,037,434		2,954,920	1.07	%
StellPen Holdings, LLC Membership Interests		Equity									9/1/2021				22.09%		220,930		218,292	0.08	%
Total																$	17,220,037	$	16,857,837	6.11	%
CompleteCase, LLC	(9)												Seattle, WA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%		12/21/2020	12/21/2025	Services: Consumer	$	11,248,696		11,103,143		10,967,479	3.98	%
Revolver A	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%		12/21/2020	12/21/2025			40,000		40,000		39,000	0.01	%
CompleteCase Holdings, Inc. Class A Common Stock (SBIC II)	(5)	Equity									12/21/2020				417		5		4	0.00	%
CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity									12/21/2020				522		521,734		403,084	0.15	%
Total																$	11,664,882	$	11,409,567	4.14	%
COPILOT Provider Support Services, LLC	(9)												Maitland, FL
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	2.00	%	11.23	%		11/22/2022	11/22/2027	Healthcare & Pharmaceuticals	$	4,987,500		4,888,742		4,888,742	1.77	%
QHP Project Captivate Blocker, Inc. Common Stock		Equity									11/22/2022				4		285,714		285,714	0.10	%
Total																$	5,174,456	$	5,174,456	1.87	%
Credit Connection, LLC	(9)												Fresno, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	10.48	%		7/30/2021	7/30/2026	Software	$	9,875,000		9,726,674		9,776,250	3.54	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	10.48	%		3/31/2022	7/30/2026			7,443,750		7,317,403		7,369,313	2.67	%
Series A Units		Equity									7/30/2021				804,384		804,384		961,718	0.35	%
Total																$	17,848,461	$	18,107,281	6.56	%
Curion Holdings, LLC	(9)												Chicago, IL
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.98	%		7/29/2022	7/29/2027	Services: Business	$	13,027,351		12,784,145		12,701,667	4.61	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.98	%		7/29/2022	7/29/2027			70,000		70,000		68,250	0.02	%
SP CS Holdings LLC Class A Units		Equity									7/29/2022				739,999		739,999		590,535	0.21	%
Total																$	13,594,144	$	13,360,452	4.84	%
Data Centrum Communications, Inc.													Montvale, NJ
Term Loan B	(11)	First Lien	3M SOFR+	8.50	%	1.00	%	13.29	%		5/15/2019	5/15/2024	Media: Advertising, Printing & Publishing	$	15,760,360		15,661,301		15,445,154	5.61	%
Health Monitor Holdings, LLC Series A Preferred Units		Equity									5/15/2019				1,000,000		1,000,000		458,500	0.17	%
Total																$	16,661,301	$	15,903,654	5.78	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Douglas Products Group, LP														Liberty, MO
Partnership Interests	(6)	Equity										12/27/2018		Chemicals, Plastics, & Rubber		322		-		695,072	0.25	%
Total																	$	-	$	695,072	0.25	%
Dresser Utility Solutions, LLC														Bradford, PA
Term Loan (SBIC)	(4)(11)	Second Lien	1M LIBOR+	8.50	%	1.00	%	12.88	%			10/1/2018	4/1/2026	Utilities: Oil & Gas	$	10,000,000		9,921,469		9,800,000	3.55	%
Total																	$	9,921,469	$	9,800,000	3.55	%
DRS Holdings III, Inc.	(9)													St. Louis, MO
Term Loan	(11)	First Lien	1M LIBOR+	5.75	%	1.00	%	10.13	%			11/1/2019	11/1/2025	Consumer Goods: Durable	$	9,190,990		9,142,111		8,961,215	3.25	%
Total																	$	9,142,111	$	8,961,215	3.25	%
DTE Enterprises, LLC	(9)													Roselle, IL
Term Loan	(11)	First Lien	3M LIBOR+	7.50	%	1.50	%	12.24	%			4/13/2018	4/13/2023	Energy: Oil & Gas	$	6,134,219		6,124,342		6,134,219	2.22	%
DTE Holding Company, LLC Class A-2 Units		Equity										4/13/2018				776,316		466,204		706,459	0.26	%
DTE Holding Company, LLC Class AA Units		Equity										4/13/2018				723,684		723,684		514,396	0.19	%
Total																	$	7,314,230	$	7,355,074	2.67	%
EH Real Estate Services, LLC														Skokie, IL
Term Loan (SBIC)	(4)	First Lien		10.00	%			10.00	%			9/3/2021	9/3/2026	FIRE: Real Estate	$	7,874,359		7,750,451		5,866,397	2.13	%
EH Holdco, LLC Series A Preferred Units		Equity										9/3/2021				7,892		7,891,642		-	0.00	%
Total																	$	15,642,093	$	5,866,397	2.13	%
Elliott Aviation, LLC														Moline, IL
Term Loan	(11)	First Lien	1M LIBOR+	8.00	%	2.00	%	10.38	%	2.00	%	1/31/2020	1/31/2025	Aerospace & Defense	$	10,010,654		9,920,657		8,959,535	3.25	%
Revolver	(11)	First Lien	1M LIBOR+	8.00	%	2.00	%	10.38	%	2.00	%	1/31/2020	1/31/2025			1,382,146		1,382,146		1,237,021	0.45	%
SP EA Holdings LLC Class A Units		Equity										1/31/2020				900,000		900,000		146,541	0.05	%
Total																	$	12,202,803	$	10,343,097	3.75	%
EOS Fitness Holdings, LLC														Phoenix, AZ
Class A Preferred Units		Equity										12/30/2014		Hotel, Gaming, & Leisure		118		-		232,320	0.08	%
Class B Common Units		Equity										12/30/2014				3,017		-		567,579	0.21	%
Total																	$	-	$	799,899	0.29	%
Exacta Land Surveyors, LLC	(9)													Cleveland, OH
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	5.75	%	1.50	%	10.48	%			2/8/2019	2/8/2024	Services: Business	$	16,374,375		16,286,433		16,128,760	5.86	%
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	10.48	%			7/15/2022	2/8/2024		$	995,000		980,742		980,075	0.36	%
SP ELS Holdings LLC Class A Units		Equity										2/8/2019				1,122,250		1,122,250		969,726	0.35	%
Total																	$	18,389,425	$	18,078,561	6.57	%
Exigo, LLC	(9)													Dallas, TX
Term Loan	(11)	First Lien	1M LIBOR+	5.75	%	1.00	%	10.13	%			3/16/2022	3/16/2027	Software	$	8,992,885		8,875,308		8,857,992	3.21	%
Revolver	(11)	First Lien	1M LIBOR+	5.75	%	1.00	%	10.13	%			3/16/2022	3/16/2027			20,000		20,000		19,700	0.01	%
Gauge Exigo Coinvest, LLC Common Units		Equity										3/16/2022				377,535		377,535		341,050	0.12	%
Total																	$	9,272,843	$	9,218,742	3.34	%
Florachem Corporation	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%			4/29/2022	4/29/2028	Chemicals, Plastics, & Rubber	$	9,950,000		9,768,170		9,751,000	3.54	%
SK FC Holdings, L.P. Class A Units		Equity										4/29/2022				362		362,434		365,198	0.13	%
Total																	$	10,130,604	$	10,116,198	3.67	%
General LED OPCO, LLC														San Antonio, TX
Term Loan	(11)(14)	Second Lien	3M LIBOR+	9.00	%	1.50	%	-	%			5/1/2018	3/31/2026	Services: Business	$	4,500,000		4,462,793		4,140,000	1.50	%
Total																	$	4,462,793	$	4,140,000	1.50	%
GS HVAM Intermediate, LLC	(9)													Carlsbad, CA
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.24	%			10/18/2019	10/2/2024	Beverage, Food, & Tobacco	$	12,523,234		12,472,183		12,398,002	4.50	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.24	%			10/18/2019	10/2/2024			2,539,470		2,539,470		2,514,075	0.91	%
HV GS Acquisition, LP Class A Interests		Equity										10/2/2019				2,144		1,967,133		1,455,955	0.53	%
Total																	$	16,978,786	$	16,368,032	5.94	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK	Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Heartland Business Systems, LLC	(9)												Little Chute, WI
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.79	%		8/26/2022	8/26/2027	Services: Business	$	9,975,000		9,785,984		9,825,375	3.56	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.91	%		8/26/2022	8/26/2027			25,000		24,753		24,625	0.01	%
AMCO HBS Holdings, LP Class A Units		Equity									8/26/2022				2,861		286,065		444,511	0.16	%
Total																$	10,096,802	$	10,294,511	3.73	%
Heat Makes Sense Shared Services, LLC	(9)												Brooklyn, NY
Term Loan	(11)	First Lien	6M SOFR+	5.50	%	0.75	%	9.63	%		7/1/2022	7/1/2029	Consumer Goods: Non-Durable	$	99,750		97,814		98,254	0.04	%
Revolver	(11)	First Lien	6M SOFR+	5.50	%	0.75	%	10.37	%		7/1/2022	7/1/2028			20,000		20,000		19,700	0.01	%
Ishtar Co-Invest-B LP Partnership Interests		Equity									7/1/2022				77,778		77,778		88,684	0.03	%
Oshun Co-Invest-B LP Partnership Interests		Equity									7/1/2022				22,222		22,222		25,338	0.01	%
Total																$	217,814	$	231,976	0.09	%
HV Watterson Holdings, LLC	(9)												Schaumburg, IL
Term Loan	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%		12/17/2021	12/17/2026	Services: Business	$	13,302,236		13,081,774		12,903,169	4.68	%
Revolver	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%		12/17/2021	12/17/2026			16,000		16,000		15,520	0.01	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%		12/17/2021	12/17/2026			323,108		320,082		313,415	0.11	%
HV Acquisition VI, LLC Class A Units		Equity									12/17/2021				1,632		1,631,591		1,374,844	0.50	%
Total																$	15,049,447	$	14,606,948	5.30	%
I2P Holdings, LLC													Cleveland, OH
Series A Preferred Units	(6)	Equity									1/31/2018		Services: Business		750,000		-		3,238,328	1.17	%
Total																$	-	$	3,238,328	1.17	%
ICD Holdings, LLC	(7)												San Francisco, CA
Class A Units		Equity									1/1/2018		Finance		9,962		464,619		1,033,332	0.37	%
Total																$	464,619	$	1,033,332	0.37	%
Infolinks Media Buyco, LLC	(9)												Ridgewood, NJ
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	10.23	%		11/1/2021	11/1/2026	Media: Advertising, Printing & Publishing	$	8,439,750		8,304,246		8,439,750	3.06	%
Tower Arch Infolinks Media, LP LP Interests	(6)(17)	Equity									10/28/2021				447,183		429,507		796,939	0.29	%
Total																$	8,733,753	$	9,236,689	3.35	%
Inoapps Bidco, LLC	(9)												Houston, TX
Term Loan B	(11)	First Lien	3M SONIA+	5.75	%	1.00	%	9.09	%		2/15/2022	2/15/2027	High Tech Industries	£	9,950,000	$	13,260,842	$	11,801,635	4.28	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	5.75	%	1.00	%	10.19	%		2/15/2022	2/15/2027		$	83,125		82,356		81,463	0.03	%
Inoapps Holdings, LLC Series A-1 Preferred Units		Equity									2/15/2022				739,844		783,756		765,249	0.28	%
Total																$	14,126,954	$	12,648,347	4.59	%
Integrated Oncology Network, LLC	(9)												Newport Beach, CA
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	9.71	%		7/17/2019	6/24/2025	Healthcare & Pharmaceuticals	$	15,832,478		15,724,809		15,357,505	5.58	%
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	9.71	%		11/1/2021	6/24/2025			1,095,930		1,083,042		1,063,052	0.39	%
Total																$	16,807,851	$	16,420,557	5.97	%
International Designs Holdings LLC													Farmingville, NY
Common Units		Equity									4/1/2022		Construction & Building		200,000		200,000		195,412	0.07	%
Total																$	200,000	$	195,412	0.07	%
Interstate Waste Services, Inc.													Amsterdam, OH
Common Stock		Equity									1/15/2020		Environmental Industries		21,925		946,125		615,657	0.22	%
Total																$	946,125	$	615,657	0.22	%
Intuitive Health, LLC													Plano, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	10.23	%		10/18/2019	10/18/2027	Healthcare & Pharmaceuticals	$	5,835,000		5,769,877		5,835,000	2.12	%
Term Loan	(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	10.23	%		10/18/2019	10/18/2027			8,206,709		8,115,519		8,206,709	2.98	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	5.50	%	1.00	%	10.23	%		8/31/2021	10/18/2027			3,073,431		3,035,678		3,073,431	1.11	%
Legacy Parent, Inc. Class A Common Stock		Equity									10/30/2020				58		-		191,375	0.07	%
Total																$	16,921,074	$	17,306,515	6.28	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Invincible Boat Company LLC	(9)													Opa Locka, FL
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	11.23	%			8/28/2019	8/28/2025	Consumer Goods: Durable	$	5,381,042		5,294,704		5,219,611	1.89	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	11.23	%			8/28/2019	8/28/2025			4,967,116		4,916,760		4,818,103	1.75	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	11.23	%			6/1/2021	8/28/2025			1,104,255		1,089,478		1,071,127	0.39	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.50	%	11.23	%			8/28/2019	8/28/2025			319,149		319,149		309,575	0.11	%
Warbird Parent Holdco, LLC Class A Units		Equity										8/28/2019				1,362,575		1,299,691		733,149	0.27	%
Total																	$	12,919,782	$	12,151,565	4.41	%
J.R. Watkins, LLC														San Francisco
Term Loan (SBIC)	(4)	First Lien		12.00	%			7.00	%	5.00	%	12/22/2017	3/31/2024	Consumer Goods: Non-Durable	$	12,764,441		12,764,441		11,168,886	4.05	%
J.R. Watkins Holdings, Inc. Class A Preferred Stock		Equity										12/22/2017				1,133		1,132,576		149,640	0.05	%
Total																	$	13,897,017	$	11,318,526	4.10	%
Jurassic Acquisition Corp.														Sparks, MD
Term Loan	(11)	First Lien	1M SOFR+	5.50	%	-	%	9.92	%			12/28/2018	11/15/2024	Metals & Mining	$	16,800,000		16,708,750		16,464,001	5.98	%
Total																	$	16,708,750	$	16,464,001	5.98	%
Kelleyamerit Holdings, Inc.														Walnut Creek, CA
Term Loan (SBIC)	(4)(10)(12)	First Lien	1M BSBY+	6.75	%	1.00	%	12.36	%			12/24/2020	12/24/2025	Automotive	$	9,750,000		9,624,052		9,701,250	3.52	%
Term Loan	(10)(12)	First Lien	1M BSBY+	6.75	%	1.00	%	12.36	%			12/24/2020	12/24/2025			1,500,000		1,480,623		1,492,500	0.54	%
Total																	$	11,104,675	$	11,193,750	4.06	%
KidKraft, Inc.														Dallas, TX
Term Loan	(10)(12)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.72	%			4/3/2020	6/30/2023	Consumer Goods: Durable	$	1,580,768		1,580,768		1,580,768	0.57	%
KidKraft Group Holdings, LLC Preferred B Units		Equity										4/3/2020				4,000,000		4,000,000		4,000,000	1.45	%
Total																	$	5,580,768	$	5,580,768	2.02	%
Ledge Lounger, Inc.	(9)													Katy, TX
Term Loan A (SBIC)	(4)(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.98	%			11/9/2021	11/9/2026	Consumer Goods: Durable	$	7,568,289		7,446,619		7,416,923	2.69	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.00	%	10.98	%			11/9/2021	11/9/2026			33,333		33,333		32,666	0.01	%
SP L2 Holdings LLC Class A Units (SBIC)	(4)	Equity										11/9/2021				375,000		375,000		302,593	0.11	%
Total																	$	7,854,952	$	7,752,182	2.81	%
Lightning Intermediate II, LLC	(9)													Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	6M SOFR+	6.50	%	1.00	%	11.54	%			6/6/2022	6/6/2027	Consumer Goods: Non-Durable	$	13,587,067		13,340,843		13,179,455	4.78	%
Gauge Vimergy Coinvest, LLC Units		Equity										6/6/2022				399		398,677		298,376	0.11	%
Total																	$	13,739,520	$	13,477,831	4.89	%
MacKenzie-Childs Acquisition, Inc.	(9)													Aurora, NY
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	10.73	%			9/2/2022	9/2/2027	Consumer Goods: Durable	$	99,750		98,331		98,254	0.04	%
Revolver	(11)	First Lien	3M SOFR+	6.00	%	1.00	%	10.73	%			9/2/2022	9/2/2027			86,667		86,667		85,367	0.03	%
MacKenzie-Childs Investment, LP Partnership Interests		Equity										9/2/2022				100,000		100,000		91,659	0.03	%
Total																	$	284,998	$	275,280	0.10	%
Madison Logic Holdings, Inc.	(9)													New York, NY
Term Loan	(11)	First Lien	3M SOFR+	7.00	%	1.00	%	11.58	%			12/30/2022	12/30/2028	Media: Broadcasting & Subscription	$	4,529,217		4,393,340		4,393,340	1.59	%
Total																	$	4,393,340	$	4,393,340	1.59	%
Microbe Formulas LLC	(9)													Meridian, ID
Term Loan (SBIC II)	(5)(11)	First Lien	1M SOFR+	6.25	%	1.00	%	10.67	%			4/4/2022	4/3/2028	Consumer Goods: Non-Durable	$	9,962,730		9,873,093		9,863,103	3.58	%
Total																	$	9,873,093	$	9,863,103	3.58	%
MOM Enterprises, LLC	(9)													Richmond, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%			5/19/2021	5/19/2026	Consumer Goods: Non-Durable	$	16,219,667		15,984,825		15,651,980	5.69	%
Revolver	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%			5/19/2021	5/19/2026			37,500		37,500		36,188	0.01	%
MBliss SPC Holdings, LLC Units		Equity										5/19/2021				933,333		933,333		700,989	0.25	%
Total																	$	16,955,658	$	16,389,157	5.95	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Monitorus Holding, LLC	(7)(9)													London, UK
Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	11.73	%			5/24/2022	5/24/2027	Media: Diversified & Production	$	100,000		99,095		99,000	0.04	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	7.00	%	1.00	%	11.73	%			5/24/2022	5/24/2027		€	100,000		100,931		106,132	0.04	%
Sapphire Aggregator S.a r.l. Class A Shares		Equity										9/1/2022				557,689		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class B Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class C Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class D Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class E Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class F Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class G Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class H Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Sapphire Aggregator S.a r.l. Class I Shares		Equity										9/1/2022				557,682		11,156		12,511	0.00	%
Total																	$	300,430	$	317,731	0.08	%
Naumann/Hobbs Material Handling Corporation II, Inc.	(9)													Phoenix, AZ
Term Loan	(11)	First Lien	3M SOFR+	6.75	%	1.50	%	11.33	%			8/30/2019	8/30/2024	Services: Business	$	8,552,022		8,487,053		8,423,742	3.05	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.75	%	1.50	%	11.33	%			8/30/2019	8/30/2024			5,392,937		5,351,968		5,312,043	1.93	%
Naumann Hobbs Holdings, L.P. Class A-1 Units		Equity										9/29/2022				123		220,379		314,486	0.11	%
Naumann Hobbs Holdings, L.P. Class A-2 Units		Equity										9/29/2022				123		220,379		314,486	0.11	%
Total																	$	14,279,779	$	14,364,757	5.20	%
NINJIO, LLC	(9)													Westlake Village, CA
Term Loan	(11)	First Lien	3M SOFR+	6.50	%	1.50	%	11.33	%			10/12/2022	10/12/2027	Media: Diversified & Production	$	5,000,000		4,903,726		4,903,726	1.78	%
NINJIO Holdings, LLC Units		Equity										10/12/2022				184		313,253		313,253	0.11	%
Total																	$	5,216,979	$	5,216,979	1.89	%
NS412, LLC														Dallas, TX
Term Loan	(11)	Second Lien	3M LIBOR+	8.50	%	1.00	%	13.23	%			5/6/2019	11/6/2025	Services: Consumer	$	7,615,000		7,536,527		7,386,550	2.68	%
NS Group Holding Company, LLC Class A Units		Equity										5/6/2019				782		795,002		536,120	0.19	%
Total																	$	8,331,529	$	7,922,670	2.87	%
NuMet Machining Techniques, LLC	(7)													Birmingham, United Kingdom
Term Loan	(11)(15)	Second Lien	PRIME+	8.00	%	-	%	-	%			11/5/2019	5/5/2026	Aerospace & Defense	$	12,675,000		12,524,972		8,745,750	3.17	%
Bromford Industries Limited Term Loan	(11)(15)	Second Lien	PRIME+	8.00	%	-	%	-	%			11/5/2019	5/5/2026			7,800,000		7,704,685		5,382,000	1.95	%
Total																	$	20,229,657	$	14,127,750	5.12	%
NuSource Financial, LLC														Eden Prairie, MN
Term Loan (SBIC II)	(5)(11)	First Lien	1M LIBOR+	9.00	%	1.00	%	13.12	%			1/29/2021	1/29/2026	Services: Business	$	11,562,548		11,403,406		11,215,672	4.07	%
NuSource Financial Acquisition, Inc. (SBIC II)	(5)	Unsecured		13.75	%			2.00	%	11.75	%	1/29/2021	7/29/2026			5,638,571		5,568,680		4,736,400	1.72	%
NuSource Holdings, Inc. Warrants (SBIC II)	(5)	Equity										1/29/2021				54,966		-		-	0.00	%
Total																	$	16,972,086	$	15,952,072	5.79	%
Nutritional Medicinals, LLC	(9)													Centerville, OH
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.73	%			11/15/2018	11/15/2025	Healthcare & Pharmaceuticals	$	9,848,290		9,781,484		9,700,566	3.52	%
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.73	%			10/28/2021	11/15/2025			4,180,294		4,133,615		4,117,590	1.49	%
Functional Aggregator, LLC Units		Equity										11/15/2018				12,500		972,803		1,582,534	0.57	%
Total																	$	14,887,902	$	15,400,690	5.58	%
Onpoint Industrial Services, LLC														Deer Park, TX
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	7.00	%	1.75	%	11.58	%			11/16/2022	11/16/2027	Services: Business	$	12,893,258		12,638,571		12,638,571	4.58	%
Spearhead TopCo, LLC Class A Units		Equity										11/16/2022				606,742		606,742		606,742	0.22	%
Total																	$	13,245,313	$	13,245,313	4.80	%
PCP MT Aggregator Holdings, L.P.	(7)													Oak Brook, IL
Common Units		Equity										3/29/2019		Finance		825,020		119,281		1,686,647	0.61	%
Total																	$	119,281	$	1,686,647	0.61	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
PCS Software, Inc.	(9)													Shenandoah, TX
Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.50	%	10.73	%			7/1/2019	7/1/2024	Transportation & Logistics	$	14,064,493		13,964,812		13,923,848	5.05	%
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+	6.00	%	1.50	%	10.73	%			7/1/2019	7/1/2024			1,844,524		1,831,451		1,826,079	0.66	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	6.00	%	1.50	%	10.73	%			7/1/2019	7/1/2024			972,500		972,500		962,775	0.35	%
PCS Software Parent, LLC Class A Common Units		Equity										9/16/2022				461,216		-		449,270	0.16	%
Total																	$	16,768,763	$	17,161,972	6.22	%
Pearl Media Holdings, LLC	(9)													Garland, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+	6.25	%	1.50	%	10.98	%			8/31/2022	8/31/2027	Consumer Goods: Durable	$	9,975,000		9,785,984		9,775,500	3.54	%
Revolver	(11)	First Lien	3M SOFR+	6.25	%	1.50	%	10.93	%			8/31/2022	8/31/2027			33,333		33,333		32,666	0.01	%
Total																	$	9,819,317	$	9,808,166	3.55	%
Peltram Plumbing Holdings, LLC	(9)													Auburn, WA
Term Loan	(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%			12/30/2021	12/30/2026	Construction & Building	$	16,579,758		16,304,977		15,999,467	5.81	%
Peltram Group Holdings LLC Class A Units		Equity										12/30/2021				508,516		508,516		311,668	0.11	%
Total																	$	16,813,493	$	16,311,135	5.92	%
Premiere Digital Services, Inc.	(9)													Los Angeles, CA
Term Loan	(11)	First Lien	1M LIBOR+	5.25	%	1.00	%	9.64	%			11/3/2021	11/3/2026	Media: Broadcasting & Subscription	$	14,278,846		14,221,712		14,278,846	5.18	%
Premiere Digital Holdings, Inc. Common Stock		Equity										10/18/2018				5,000		-		2,773,121	1.01	%
Total																	$	14,221,712	$	17,051,967	6.19	%
Protect America, Inc.														Austin, TX
Term Loan	(11)(13)	Second Lien	3M LIBOR+	7.75	%	1.00	%	-	%			8/30/2017	9/1/2024	Services: Consumer	$	17,979,749		17,979,749		-	0.00	%
Total																	$	17,979,749	$	-	0.00	%
Rogers Mechanical Contractors, LLC	(9)													Atlanta, GA
Term Loan	(11)	First Lien	6M SOFR+	8.00	%	1.00	%	11.70	%	1.00	%	4/28/2021	9/9/2025	Construction & Building	$	10,001,068		9,884,999		9,851,052	3.57	%
Delayed Draw Term Loan	(11)	First Lien	6M SOFR+	8.00	%	1.00	%	11.70	%	1.00	%	4/28/2021	9/9/2025			50,000		49,643		49,250	0.02	%
Total																	$	9,934,642	$	9,900,302	3.59	%
Sales Benchmark Index, LLC	(9)													Dallas, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.73	%			1/7/2020	1/7/2025	Services: Business	$	12,481,823		12,366,809		12,169,777	4.41	%
SBI Holdings Investments LLC Class A Units		Equity										1/7/2020				66,573		665,730		390,822	0.14	%
Total																	$	13,032,539	$	12,560,599	4.55	%
Service Minds Company, LLC	(9)													Bradenton, FL
Term Loan	(11)	First Lien	1M LIBOR+	5.00	%	1.00	%	9.29	%			2/7/2022	2/7/2028	Services: Consumer	$	5,357,887		5,264,150		5,223,940	1.89	%
Revolver	(11)	First Lien	1M SOFR+	5.00	%	1.00	%	9.44	%			2/7/2022	2/7/2028			30,000		30,000		29,250	0.01	%
Delayed Draw Term Loan	(11)	First Lien	1M LIBOR+	5.00	%	1.00	%	9.29	%			2/7/2022	2/7/2028			32,081		31,791		31,279	0.01	%
Total																	$	5,325,941	$	5,284,469	1.91	%
SIB Holdings, LLC	(9)													Charleston, SC
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	11.01	%			10/29/2021	10/29/2026	Services: Business	$	12,789,331		12,584,996		12,405,651	4.50	%
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	11.01	%			6/15/2022	10/29/2026			859,747		842,658		833,955	0.30	%
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	11.01	%			7/20/2022	10/29/2026			2,292,657		2,250,559		2,223,877	0.81	%
Delayed Draw Term Loan	(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	11.01	%			10/29/2021	10/29/2026			2,865,822		2,840,406		2,779,847	1.01	%
Revolver	(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	11.01	%			10/29/2021	10/29/2026			70,754		70,754		68,631	0.02	%
SIB Holdings, LLC Units		Equity										10/29/2021				238,095		500,000		342,821	0.12	%
Total																	$	19,089,373	$	18,654,782	6.76	%
TAC LifePort Holdings, LLC														Woodland, WA
Common Units		Equity										3/1/2021		Aerospace & Defense		500,000		500,000		759,769	0.28	%
Total																	$	500,000	$	759,769	0.28	%
Tilley Distribution, Inc.	(9)													Baltimore, MD
Term Loan	(11)	First Lien	3M SOFR+	5.50	%	1.00	%	10.14	%			4/1/2022	12/31/2026	Chemicals, Plastics, & Rubber	$	99,245		97,936		95,771	0.03	%
Revolver	(11)	First Lien	3M SOFR+	5.50	%	1.00	%	10.14	%			4/1/2022	12/31/2026			17,391		17,391		16,782	0.01	%
Total																	$	115,327	$	112,553	0.04	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


															Principal						% of
												Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security⁽²⁾	Coupon			Floor		Cash		PIK		Date	Maturity	Industry	Shares⁽³⁾		Cost		Value⁽¹⁾		Assets
Trade Education Acquisition, L.L.C.	(9)													Austin, TX
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	10.63	%			12/28/2021	12/28/2027	Education	$	10,496,533		10,315,261		9,919,224	3.60	%
Revolver	(11)	First Lien	1M LIBOR+	6.25	%	1.00	%	10.52	%			12/28/2021	12/28/2027			80,000		80,000		75,600	0.03	%
Trade Education Holdings, L.L.C. Class A Units		Equity										12/28/2021				662,660		662,660		503,936	0.18	%
Total																	$	11,057,921	$	10,498,760	3.81	%
TradePending, LLC	(9)													Carrboro, NC
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+	6.25	%	1.00	%	10.98	%			3/2/2021	3/2/2026	Software	$	9,725,758		9,592,801		9,531,243	3.46	%
TradePending Holdings, LLC Series A Units		Equity										3/2/2021				829,167		868,750		1,117,989	0.41	%
Total																	$	10,461,551	$	10,649,232	3.87	%
Unicat Catalyst Holdings, LLC	(9)													Alvin, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%			4/27/2021	4/27/2026	Chemicals, Plastics, & Rubber	$	7,218,750		7,116,275		6,821,719	2.47	%
Unicat Catalyst, LLC Class A Units		Equity										4/27/2021				7,500		750,000		129,248	0.05	%
Total																	$	7,866,275	$	6,950,967	2.52	%
U.S. Auto Sales, Inc. et al	(7)													Lawrenceville, GA
USASF Blocker II LLC Units		Equity										6/8/2015		Finance		441		441,000		-	0.00	%
USASF Blocker III LLC 2018 Series Units		Equity										2/13/2018				50		50,000		53,040	0.02	%
USASF Blocker III LLC 2019 Series Units		Equity										12/27/2019				75		75,000		79,560	0.03	%
USASF Blocker IV LLC Units		Equity										5/27/2020				110		110,000		330,000	0.12	%
USASF Blocker IV LLC 2022 Series Units		Equity										7/28/2022				100		100,000		300,000	0.11	%
USASF Blocker V LLC Units		Equity										12/20/2022				200		200,000		600,000	0.22	%
USASF Blocker LLC Units		Equity										6/8/2015				9,000		9,000		-	0.00	%
Total																	$	985,000	$	1,362,600	0.50	%
U.S. Expediters, LLC	(9)													Stafford, TX
Term Loan	(11)	First Lien	3M LIBOR+	6.00	%	1.00	%	10.73	%			12/22/2021	12/22/2026	Healthcare & Pharmaceuticals	$	15,866,798		15,603,833		15,866,799	5.76	%
Cathay Hypnos LLC Units	(6)	Equity										12/22/2021				1,372,932		1,316,740		2,702,795	0.98	%
Total																	$	16,920,573	$	18,569,594	6.74	%
Venbrook Buyer, LLC														Los Angeles, CA
Term Loan B (SBIC)	(4)(11)	First Lien	3M SOFR+	8.00	%	1.50	%	5.73	%	7.00	%	3/13/2020	3/13/2026	Services: Business	$	12,872,663		12,719,565		12,615,210	4.57	%
Term Loan B	(11)	First Lien	3M SOFR+	8.00	%	1.50	%	5.73	%	7.00	%	3/13/2020	3/13/2026			146,465		144,723		143,536	0.05	%
Revolver	(11)	First Lien	3M SOFR+	8.00	%	1.50	%	5.73	%	7.00	%	3/13/2020	3/13/2026			2,231,119		2,231,119		2,186,497	0.79	%
Delayed Draw Term Loan	(11)	First Lien	3M SOFR+	8.00	%	1.50	%	5.73	%	7.00	%	3/13/2020	3/13/2026			4,388,645		4,358,279		4,300,872	1.56	%
Venbrook Holdings, LLC Term Loan	(16)	Unsecured		10.00	%			-	%	10.00	%	3/31/2022	12/20/2028			89,284		89,284		87,498	0.03	%
Venbrook Holdings, LLC Common Units		Equity										3/13/2020				822,758		819,262		121,938	0.04	%
Total																	$	20,362,232	$	19,455,551	7.04	%
Vortex Companies, LLC														Houston, TX
Term Loan (SBIC II)	(5)(11)	Second Lien	3M SOFR+	9.50	%	1.00	%	14.18	%			12/21/2020	6/21/2026	Environmental Industries	$	10,000,000		9,859,282		9,850,000	3.57	%
Total																	$	9,859,282	$	9,850,000	3.57	%
Whisps Holdings LP														Elgin, IL
Class A Units		Equity										4/18/2019		Beverage, Food, & Tobacco		500,000		500,000		-	0.00	%
Total																	$	500,000	$	-	0.00	%
Xanitos, Inc.	(9)													Newtown Square, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%			6/25/2021	6/25/2026	Healthcare & Pharmaceuticals	$	12,608,000		12,421,258		12,166,720	4.41	%
Revolver	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.24	%			6/25/2021	6/25/2026			80,000		80,000		77,200	0.03	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+	6.50	%	1.00	%	11.23	%			6/25/2021	6/25/2026			2,221,181		2,203,262		2,143,440	0.78	%
Pure TopCo, LLC Class A Units		Equity										6/25/2021				442,133		1,053,478		844,147	0.31	%
Total																	$	15,757,998	$	15,231,507	5.53	%
Total Non-controlled, non-affiliated investments																	$	875,823,177	$	844,733,638	306.31	%
Net Investments																	$	875,823,177	$	844,733,638	306.31	%
LIABILITIES IN EXCESS OF OTHER ASSETS																			$	(563,881,593)	(206.31)	%
NET ASSETS																			$	280,852,045	100.00	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022

(1)

See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio.

(2)

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

(3)

(4)

Investments held by the SBIC subsidiary (as defined in Note 1), which include $19,716,893 of cash and $207,971,244 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment Corporation’s (the “Company”) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1).

(5)

Investments held by the SBIC II subsidiary (as defined in Note 1), which include $26,303,849 of cash and $224,768,652 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries.

(6)

Security is income producing through dividends or distributions.

(7)

The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 95.7% of the Company’s total assets as of June 30, 2023.

(8)

(9)

At December 31, 2022, the Company had the following outstanding revolver and delayed draw term loan commitments:


				Unused
		Unfunded		Commitment
Investments	Security	Commitment		Fee	Maturity
Ad.Net Acquisition, LLC	Revolver	$	259,804	0.50%	May 7, 2026
AIP ATCO Buyer, LLC	Revolver		50,000	0.50%	May 17, 2028
Anne Lewis Strategies, LLC	Revolver		100,000	0.50%	March 5, 2026
ArborWorks Acquisition LLC (a)	Revolver		1,153,846	0.50%	November 9, 2026
Archer Systems, LLC	Revolver		100,000	0.50%	August 11, 2027
Axis Portable Air, LLC	Revolver		100,000	0.50%	March 22, 2028
BDS Solutions Intermediateco, LLC	Revolver		69,935	0.50%	February 7, 2027
BLP Buyer, Inc.	Revolver		63,434	0.50%	February 1, 2027
Camp Profiles LLC	Delayed Draw Term Loan		3,750,000	1.00%	September 3, 2026
Camp Profiles LLC	Revolver		100,000	0.50%	September 3, 2026
CEATI International Inc.	Revolver		100,000	0.50%	February 19, 2026
CF512, Inc.	Delayed Draw Term Loan		220,930	0.50%	September 1, 2026
CF512, Inc.	Revolver		100,000	0.50%	September 1, 2026
CompleteCase, LLC	Revolver A		60,000	0.50%	December 21, 2025
COPILOT Provider Support Services, LLC	Revolver		100,000	0.50%	November 22, 2027
Credit Connection, LLC	Revolver		100,000	0.50%	July 30, 2026
Curion Holdings, LLC	Delayed Draw Term Loan		100,000	0.50%	July 29, 2027
Curion Holdings, LLC	Revolver		30,000	0.50%	July 29, 2027
DRS Holdings III, Inc.	Revolver		909,091	0.50%	November 1, 2025
DTE Enterprises, LLC	Revolver		750,000	0.50%	April 13, 2023
Exacta Land Surveyors, LLC	Revolver		1,500,000	0.50%	February 8, 2024
Exigo, LLC	Revolver		80,000	0.50%	March 16, 2027
Exigo, LLC	Delayed Draw Term Loan		100,000	0.50%	March 16, 2027
Florachem Corporation	Revolver		100,000	0.50%	April 29, 2028
Florachem Corporation	Delayed Draw Term Loan		100,000	0.50%	April 29, 2028
GS HVAM Intermediate, LLC	Revolver		112,045	0.50%	October 2, 2024
Heartland Business Systems, LLC	Delayed Draw Term Loan		75,000	0.50%	August 26, 2027
Heat Makes Sense Shared Services, LLC	Revolver		80,000	0.50%	July 1, 2028
HV Watterson Holdings, LLC	Revolver		84,000	0.50%	December 17, 2026
HV Watterson Holdings, LLC	Delayed Draw Term Loan		2,555,354	1.00%	December 17, 2026
Infolinks Media Buyco, LLC	Delayed Draw Term Loan		2,475,000	0.50%	November 1, 2026
Inoapps Bidco, LLC	Revolver		100,000	0.50%	February 15, 2027
Inoapps Bidco, LLC	Delayed Draw Term Loan		16,667	0.50%	February 15, 2027
Integrated Oncology Network, LLC	Revolver		553,517	0.50%	June 24, 2025
Invincible Boat Company LLC	Revolver		744,681	0.50%	August 28, 2025
Ledge Lounger, Inc.	Revolver		66,667	0.50%	November 9, 2026

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2022


				Unused
		Unfunded		Commitment
Investments	Security	Commitment		Fee	Maturity
Lightning Intermediate II, LLC	Revolver	$	100,000	0.50%	June 6, 2027
MacKenzie-Childs Acquisition, Inc.	Revolver		13,333	0.50%	September 2, 2027
Madison Logic Holdings, Inc.	Revolver		100,000	0.50%	December 30, 2027
Microbe Formulas LLC	Revolver		100,000	0.50%	April 3, 2028
MOM Enterprises, LLC	Revolver		62,500	0.50%	May 19, 2026
Monitorus Holding, LLC	Revolver	€	100,000	0.50%	May 24, 2027
Naumann/Hobbs Material Handling Corporation II, Inc.	Revolver – Working Capital		1,763,033	0.50%	August 30, 2024
NINJIO, LLC	Delayed Draw Term Loan		100,000	0.50%	October 12, 2027
NINJIO, LLC	Revolver		100,000	0.50%	October 12, 2027
Nutritional Medicinals, LLC	Revolver		2,000,000	0.50%	November 15, 2025
PCS Software, Inc.	Revolver		1,318,143	0.50%	July 1, 2024
Pearl Media Holdings, LLC	Delayed Draw Term Loan		100,000	0.50%	August 31, 2027
Pearl Media Holdings, LLC	Revolver		66,667	0.50%	August 31, 2027
Peltram Plumbing Holdings, LLC	Revolver		100,000	0.50%	December 30, 2026
Premiere Digital Services, Inc.	Revolver		576,923	0.50%	November 3, 2026
Rogers Mechanical Contractors, LLC	Revolver		83,333	0.75%	September 9, 2025
Rogers Mechanical Contractors, LLC	Delayed Draw Term Loan		50,000	1.00%	September 9, 2025
Sales Benchmark Index, LLC	Revolver		1,331,461	0.50%	January 7, 2025
Service Minds Company, LLC	Revolver		70,000	0.50%	February 7, 2028
Service Minds Company, LLC	Delayed Draw Term Loan		67,677	1.00%	February 7, 2028
SIB Holdings, LLC	Revolver		29,246	0.50%	October 29, 2026
Tilley Distribution, Inc.	Revolver		82,609	0.50%	December 31, 2026
Trade Education Acquisition, L.L.C.	Revolver		20,000	0.50%	December 28, 2027
TradePending, LLC	Revolver		100,000	0.50%	March 2, 2026
Unicat Catalyst Holdings, LLC	Revolver		2,000,000	0.50%	April 27, 2026
U.S. Expediters, LLC	Revolver		100,000	0.50%	December 22, 2026
Xanitos, Inc.	Revolver		20,000	0.50%	June 25, 2026

(a)

The Company has full discretion to fund this revolver commitment.

(10)

This loan is a unitranche investment.

(11)

These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floor is not in effect.

(12)

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

(13)

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

(14)

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

(15)

Investment has been on non-accrual since April 1, 2022.

(16)

This loan is convertible to common units at maturity or at the election of the issuer.

(17)

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

(18)

Excluded from the investment is an uncalled capital commitment in an amount not to exceed $302,817.

Abbreviation Legend

BSBY — Bloomberg Short-Term Bank Yield Index

LIBOR — London Interbank Offered Rate

PIK — Payment-In-Kind

SOFR — Secured Overnight Financing Rate

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 1 — NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Stellus Capital Investment Corporation (“we”, “us”, “our” and the “Company”) was formed as a Maryland corporation on May 18, 2012 (“Inception”) and is an externally managed, closed-end, non-diversified investment management company. The Company is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies (“ASC Topic 946”). The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes. The Company’s investment activities are managed by our investment adviser, Stellus Capital Management, LLC (“Stellus Capital” or the “Advisor”).

As of June 30, 2023, the Company had issued a total of 22,557,904 shares and raised $330,122,125 in gross proceeds since Inception, incurring $10,590,466 in offering expenses and sales load fees. Additionally, the Company has received $672,917 in offering expenses reimbursements from the Advisor for net proceeds from offerings of $320,204,576. The Company’s shares are currently listed on the New York Stock Exchange under the symbol “SCM”. See Note 4 for further details.

The Company has established the following wholly owned subsidiaries: SCIC — Consolidated Blocker, Inc., SCIC — ICD Blocker 1, Inc., SCIC — Invincible Blocker 1, Inc., SCIC — SKP Blocker 1, Inc., SCIC — APE Blocker 1, Inc., SCIC — Venbrook Blocker, Inc., SCIC — CC Blocker 1, Inc., SCIC — ERC Blocker 1, Inc., and SCIC — Hollander Blocker 1, Inc., which are structured as Delaware entities, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities) (collectively, the “Taxable Subsidiaries”). The Taxable Subsidiaries are consolidated for U.S. generally accepted accounting principles (“U.S. GAAP”) reporting purposes, and the portfolio investments held by them are included in the consolidated financial statements.

On June 14, 2013, the Company formed Stellus Capital SBIC, LP (the “SBIC subsidiary”), a Delaware limited partnership, and its general partner, Stellus Capital SBIC GP, LLC, a Delaware limited liability company, as wholly owned subsidiaries of the Company. On June 20, 2014, the SBIC subsidiary received a license from the U.S. Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended (the “SBIC Act”). The SBIC subsidiary and its general partner are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.

On November 29, 2018, the Company formed Stellus Capital SBIC II, LP (the “SBIC II subsidiary”), a Delaware limited partnership. On August 14, 2019, the SBIC II subsidiary received a license from the SBA to operate as an SBIC under Section 301(c) of the SBIC Act. The SBIC II subsidiary is consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.

The SBIC licenses allow the SBIC subsidiary and SBIC II subsidiary (together, “the SBIC subsidiaries”) to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, will have a superior claim to the SBIC subsidiaries’ assets over the Company’s stockholders in the event the Company liquidates one or both of the SBIC subsidiaries or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the SBIC subsidiaries upon an event of default. For the SBIC subsidiary, SBA regulations currently limit the amount that a single licensee may borrow to a maximum of $150,000,000 when it has at least $75,000,000 in regulatory capital, as such term is defined by the SBA, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. For the SBIC II subsidiary, SBA regulations limit these amounts to $175,000,000 of borrowings when it has at least $87,500,000 of regulatory capital.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

As of both June 30, 2023 and December 31, 2022, the SBIC subsidiary had $75,000,000 in regulatory capital. As of both June 30, 2023 and December 31, 2022, the SBIC II subsidiary had $87,500,000 in regulatory capital.

As of both June 30, 2023 and December 31, 2022, the SBIC subsidiary had $150,000,000 of SBA-guaranteed debentures outstanding. As of both June 30, 2023 and December 31, 2022, the SBIC II subsidiary had $163,600,000 of SBA-guaranteed debentures outstanding. See footnote (2) of the Consolidated Schedule of Investments for additional information regarding the treatment of investments in the SBIC subsidiaries with respect to the Credit Facility (as defined in Note 9).

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

On April 4, 2018, the Company’s board of directors (the “Board”), including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At the Company’s 2018 annual meeting of stockholders, our stockholders also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio test applicable to the Company was decreased from 200% to 150%, effective June 29, 2018. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. As of June 30, 2023, our asset coverage ratio was 214%.

The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5,000,000 to $50,000,000 of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and unsecured debt financing, with corresponding equity co-investments. The Company sources investments primarily through the extensive network of relationships that the principals of Stellus Capital have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in conformity with generally accepted accounting principles in the U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with U.S. GAAP are omitted. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of the financial statements for the interim periods included herein. The results of operations for the three and six months ended June 30, 2023 and June 30, 2022 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022.

In accordance with Regulation S-X under the Exchange Act, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S. dollars.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Economic Developments

Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe supply chain interruptions, labor resource shortages, commodity inflation, rising interest rates, bank impairments and failures, economic sanctions in response to international conflicts and instances of geopolitical, economic and financial market instability in the United States and abroad. One or more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and worldwide financial markets.

Portfolio Investment Classification

The Company classifies its portfolio investments in accordance with the requirements of the 1940 Act as follows: (a) “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation, (b) “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation, and (c) “Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.

Cash and Cash Equivalents

As of June 30, 2023, cash balances totaling $193,166, including foreign currency of $389 (acquisition cost of $388), did not exceed the Federal Deposit Insurance Corporation insurance protection levels of $250,000. In addition, as of June 30, 2023, the Company held $14,731,216 in cash equivalents, which are carried at cost, which approximates fair value. All of the Company’s cash deposits are held at large established high credit quality financial institutions and management believes that risk of loss associated with any uninsured balances is remote.

Cash consists of bank demand deposits. We deem certain U.S. Treasury Bills and other high-quality, short-term debt securities as cash equivalents.

Fair Value Measurements

We account for all of our financial instruments at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. We believe that the carrying amounts of our financial instruments such as cash, receivables and payables approximate the fair value of these items due to the short maturity of these instruments. This is considered a Level 1 valuation technique.

The Credit Facility, SBA-guaranteed debentures, and 2026 Notes are carried at amortized cost in the Consolidated Statements of Assets and Liabilities. As of June 30, 2023, the estimated fair value of the Credit Facility approximates the carrying value because the interest rates adjust to the current market interest rate (Level 3 input). The estimated fair value of the SBA-guaranteed debentures and 2026 Notes was determined by discounting projected remaining payments using market interest rates for borrowings of the Company and entities with similar credit risks at the measurement date. At the measurement date, the estimated fair values of the SBA-guaranteed debentures and 2026 Notes as prepared for disclosure purposes was $287,630,000 and $91,730,000, respectively. See Note 6 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

Consolidation

As permitted under Regulation S-X under the Exchange Act and ASC Topic 946, we generally do not consolidate our investment in a portfolio company other than an investment company subsidiary. Accordingly, we consolidated the results of the SBIC subsidiaries and the Taxable Subsidiaries. All intercompany balances have been eliminated upon consolidation.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Use of Estimates

The preparation of the Statements of Assets and Liabilities in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. Additionally, as explained in Note 1 contained herein, the Consolidated Financial Statements includes investments in the portfolio whose values have been estimated by the Company, pursuant to procedures established by our Board, in the absence of readily ascertainable market values. Because of the inherent uncertainty of the investment portfolio valuations, those estimated values may differ materially from the values that would have been determined had a ready market for the securities existed.

Deferred Financing Costs

Deferred financing costs, prepaid loan fees on SBA-guaranteed debentures and prepaid loan structure fees consist of fees and expenses paid in connection with the closing of our Credit Facility, 2026 Notes and SBA-guaranteed debentures and are capitalized at the time of payment. These costs are amortized using the straight line method over the term of the respective instrument and presented as an offset to the corresponding debt on the Consolidated Statements of Assets and Liabilities.

Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering is consummated and shown on the Consolidated Statements of Changes in Net Assets and Liabilities as a reduction to Paid-in-capital.

Investments

In December 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted a new rule providing a framework for fund valuation practices. Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits boards, subject to board oversight and certain other conditions, to designate certain parties to perform fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. Finally, the SEC rescinded previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, and had a compliance date of September 8, 2022. While our Board has not elected to designate a valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order to comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.

As a BDC, the Company will generally invest in illiquid loans and securities including debt and equity securities of private middle-market companies. Section 2(a)(41) of the 1940 Act requires that a BDC value its assets as follows: (i) the third party price for securities for which a quotation is readily available; and (ii) for all other securities and assets, fair value, as determined in good faith by a BDC's Board. Under procedures established by our Board, the Company intends to value investments for which market quotations are readily available at such market quotations. The Company will obtain these market values from an independent pricing service or at the midpoint of the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market prices are not readily available will be valued at fair value as determined in good faith by our Board. Such determination of fair values may involve subjective judgments and estimates. The Company also engages independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least twice annually.

Debt and equity investments purchased within approximately 90 days of the valuation date will be valued at cost, plus accreted discount, or minus amortized premium, which approximates fair value. With respect to unquoted securities, our Board will value each

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board will use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Because the Company expects that there will not be a readily available market quotation for many of the investments in its portfolio, the Company expects to value most of its portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

In following these approaches, the types of factors that will be taken into account in fair value pricing investments will include, as relevant, but not be limited to:

●

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

●

applicable market yields and multiples;

●

financial covenants;

●

call protection provisions;

●

information rights;

●

the nature and realizable value of any collateral;

●

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

●

comparisons of financial ratios of peer companies that are public;

●

comparable merger and acquisition transactions; and

●

the principal market and enterprise values.

Revenue Recognition

We record interest income on an accrual basis to the extent such interest is deemed collectible. Payment-in-kind (“PIK”) interest, represents contractual interest accrued and added to the loan balance that generally becomes due at maturity. We will not accrue any form of interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fee is recorded as interest income. We record prepayment premiums on loans and debt securities as other income. Dividend income, if any, will be recognized on the declaration date.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

A presentation of the interest income we have received from portfolio companies for the three and six months ended June 30, 2023 and 2022 is as follows:


	For the three months ended				For the six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Loan interest	$	23,514,608	$	14,620,267	$	45,399,697	$	28,732,340
PIK income		1,134,900		323,423		1,904,853		653,534
Fee amortization income⁽¹⁾		760,023		670,324		1,482,846		1,301,461
Fee income acceleration⁽²⁾		253,364		44,004		284,103		87,634
Total Interest Income	$	25,662,895	$	15,658,018	$	49,071,499	$	30,774,969

(1)	Includes amortization of fees on unfunded commitments.

(2)	Unamortized loan origination fees recognized upon full or partial realization of investment.

To maintain our treatment as a RIC, substantially all of this income must be paid to stockholders in the form of distributions, even if we have not collected any cash.

Management considers portfolio company specific circumstances as well as other economic factors in determining collectability. As of June 30, 2023, we had four loans on non-accrual status, which represented approximately 5.9% of our loan portfolio at cost and 1.3% at fair value. As of December 31, 2022, we had three loans on non-accrual status, which represented approximately 5.2% of our loan portfolio at cost and 2.3% at fair value. As of June 30, 2023 and December 31, 2022, $8,730,251 and $4,828,880, respectively, of income from investments on non-accrual has not been accrued. If a loan or debt security’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, or if a loan or debt security is sold or written off, we will remove it from non-accrual status.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

Realized gains or losses are measured by the difference between the net proceeds from the repayment, sale or disposition and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Investment Transaction Costs

Costs that are material and associated with an investment transaction, including legal expenses, are included in the cost basis of purchases and deducted from the proceeds of sales unless such costs are reimbursed by the borrower.

Receivables and Payables for Unsettled Securities Transaction

The Company records all investments on a trade date basis.

U.S. Federal Income Taxes

The Company has elected, qualified, and intends to continue to qualify annually to be treated as a RIC under Subchapter M of the Code, and to operate in a manner to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the Company represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements of the Company.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

To avoid a 4% U.S federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending December 31 (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no federal income tax or the Excise Tax Avoidance Requirement. For this purpose, however, any net ordinary income or capital gain net income retained by the Company that is subject to corporate income tax for the tax year ending in that calendar year will be considered to have been distributed by year end (or earlier if estimated taxes are paid). The Company, at its discretion, may choose not to distribute all of its taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned. Income tax expense for the three and six months ended June 30, 2023 of $371,786 and $746,549, respectively, was mostly related to excise and franchise taxes. Income tax expense for the three and six months ended June 30, 2022 of $426,236 and $705,653, respectively, was mostly related to excise and franchise taxes.

The Company evaluates tax positions taken or expected to be taken while preparing its tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the applicable period. As of June 30, 2023 and December 31, 2022, the Company had not recorded a liability for any unrecognized tax positions. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. The Company’s policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses. Any expenses for the three and six months ended June 30, 2023 and 2022 were de minimis.

The Taxable Subsidiaries are direct wholly-owned subsidiaries of the Company that have elected to be taxable entities. The Taxable Subsidiaries permit the Company to hold equity investments in portfolio companies that are “pass through” entities for tax purposes and continue to comply with the “source-of-income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial statements.

The Taxable Subsidiaries use the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

For the three and six months ended June 30, 2023, the Company recorded deferred income tax provision of $65,353 and $144,113, respectively, related to the Taxable Subsidiaries. For the three and six months ended June 30, 2022, the Company recorded deferred income tax provision of $160,656 and $181,813, respectively, related to the Taxable Subsidiaries. In addition, as of June 30, 2023 and December 31, 2022, the Company had a deferred tax liability of $206,049 and $61,936, respectively.

Earnings per Share

Basic per share calculations are computed utilizing the weighted average number of shares of the Company’s common stock outstanding for the period. The Company has no common stock equivalents. As a result, there is no difference between diluted earnings per share and basic per share amounts.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Paid In Capital

The Company records the proceeds from the sale of shares of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions and marketing support fees.

Distributable Earnings (Loss)

The components that make up distributable earnings (loss) on the Statements of Assets and Liabilities as of June 30, 2023 and December 31, 2022 are as follows:


	June 30, 2023		December 31, 2022
Accumulated net realized gain from investments, net of cumulative dividends of $29,361,648 for both periods	$	2,349,482	$	2,675,719
Net unrealized depreciation on non-controlled, non-affiliated investments and cash equivalents, net of deferred tax liability of $206,049 and $61,936, respectively		(40,425,785)		(29,736,797)
Net unrealized (depreciation) appreciation on foreign currency translations		(12,409)		6,040
Accumulated undistributed net investment income		30,567,700		27,697,264
Total distributable (loss) earnings	$	(7,521,012)	$	642,226

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. The Company has agreements that have the London Interbank Offered Rate (“LIBOR”) as a reference rate with certain portfolio companies and with certain lenders. Many of these agreements include language for choosing an alternative successor rate if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The Company adopted this amendment in March 2020 and plans to apply the amendments in this update to account for contract modifications as contracts are amended to include a new reference rate or when LIBOR reference is no longer used. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three and six months ended June 30, 2023.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. We believe the impact of the recently issued standards and any that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

NOTE 2 — RELATED PARTY ARRANGEMENTS

Investment Advisory Agreement

The Company has entered into an investment advisory agreement with Stellus Capital pursuant to which Stellus Capital serves as its investment adviser. Pursuant to this agreement, the Company has agreed to pay to Stellus Capital an annual base management fee of 1.75% of gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents, and an incentive fee.

For the three and six months ended June 30, 2023, the Company recorded an expense for base management fees of $3,865,588 and $7,600,690, respectively. For the three and six months ended June 30, 2022, the Company recorded an expense for base management fees of $3,705,053 and $7,197,766, respectively. As of June 30, 2023 and December 31, 2022, $1,865,589 and $7,150,407 of such management fess, respectively, were payable to Stellus Capital.

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

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Investment Income Incentive Fee

The investment income component (“Income Incentive Fee”) is calculated, and payable to the Advisor, quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The pre-incentive fee net investment income, which is expressed as a rate of return on the value of the Company’s net assets attributable to the Company’s common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as the “Hurdle”). Pre-incentive fee net investment income means interest income, dividend income and any other income accrued during the calendar quarter, minus the Company’s operating expenses for the quarter excluding the incentive fee. Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the Hurdle. Subject to the cumulative total return requirement described below, the Advisor receives 100% of the Company’s pre-incentive fee net investment income for any calendar quarter with respect to that portion of the pre-incentive net investment income for such quarter, if any, that exceeds the Hurdle but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “Catch-up”) and 20.0% of the Company’s pre-incentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets.

The foregoing Income Incentive Fee is subject to a total return requirement, which provides that no Income Incentive Fee in respect of the Company’s pre-incentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative Income Incentive Fees accrued and/or paid for the 11 preceding quarters. In other words, any Income Incentive Fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which the Company’s pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the Catch-up, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation of the Company for the then current and 11 preceding calendar quarters. In addition, the Advisor is not paid the portion of such Income Incentive Fee that is attributable to deferred interest until the Company actually receives such interest in cash.

For the three and six months ended June 30, 2023, the Company incurred $2,603,004 and $4,727,839 of Income Incentive Fees, respectively. For both the three and six months ended June 30, 2022, the Company incurred $0 of Income Incentive Fees. As of June 30, 2023 and December 31, 2022, $3,176,395 and $2,464,408, respectively, of such Income Incentive Fees were payable to the Advisor, of which $2,823,046 and $2,083,928, respectively, are currently payable (as explained below). As of June 30, 2023 and December 31, 2022, $353,349 and $380,480, respectively, of Income Incentive Fees incurred but not paid by the Company were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received by the Company in cash.

Capital Gains Incentive Fee

The Company also pays the Advisor an incentive fee based on capital gains (the “Capital Gains Incentive Fee”). The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). The Capital Gains Incentive Fee is equal to 20.0% of the Company’s cumulative aggregate realized capital gains from Inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid Capital Gain Incentive Fees is subtracted from such Capital Gain Incentive Fees calculated.

U.S. GAAP requires that the Capital Gains Incentive Fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments and other financial instruments in the calculation, as an incentive fee would be payable if such realized gains and losses and unrealized capital appreciation or depreciation were realized, even though such realized gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the Capital Gains Incentive Fee actually payable under the investment advisory agreement. There can be no assurance that unrealized appreciation or

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

depreciation will be realized in the future. Accordingly, such fees, as calculated and accrued, may not necessarily be payable under the investment advisory agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.

For the three months ended June 30, 2023, the Company did not incur any Capital Gains Incentive Fees. For the six months ended June 30, 2023, the Company reversed $569,528 related to the Capital Gains Incentive Fee. For the three and six months ended June 30, 2022, the Company reversed $983,575 and $1,025,792, respectively, related to the Capital Gains Incentive Fee. As of June 30, 2023 and December 31, 2022, $0 and $569,528, respectively, of Capital Gains Incentive Fees were accrued but not currently payable to the Advisor.

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


	For the three months ended				For the six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Investment income incentive fees incurred	$	2,603,004	$	—	$	4,727,839	$	—
Capital gains incentive fees reversed		—		(983,575)		(569,528)		(1,025,792)
Incentive fees expense (reversal)	$	2,603,004	$	(983,575)	$	4,158,311	$	(1,025,792)


	June 30, 2023		December 31, 2022
Investment income incentive fee currently payable	$	2,823,046	$	2,083,928
Investment income incentive fee deferred		353,349		380,480
Capital gains incentive fee deferred		—		569,528
Incentive fee payable	$	3,176,395	$	3,033,936

Director Fees

For the three and six months ended June 30, 2023, the Company recorded an expense relating to independent director fees of $93,250 and $210,500, respectively. For the three and six months ended June 30, 2022, the Company recorded an expense relating to director fees of $74,500 and $171,000, respectively. As of both June 30, 2023 and December 31, 2022, the Company had no unpaid independent director fees.

Co-Investment Pursuant to SEC Order

On October 23, 2013, the Company received an exemptive order as superseded by a new exemptive relief order on December 18, 2018 (the “Prior Order”) from the SEC to co-invest with private funds managed by Stellus Capital where doing so is consistent with the Company’s investment strategy as well as applicable law (including the terms and conditions of the exemptive order issued by the SEC). On May 9, 2022, the Company received a new exemptive order (the “Order”) that superseded the Prior Order and permits the Company greater flexibility to enter into co-investment transactions. The Order expands on the Prior Order and allows the Company to co-invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital, subject to the conditions included therein. Additionally, the Order provided added relief which allows the Company, subject to the satisfaction of certain conditions, to co-invest in existing portfolio companies with certain affiliates that are private funds if such private funds did not have an existing co-investment in such existing portfolio company. Pursuant to the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching of the Company or its stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with its investment objectives and strategies. The Company co-invests, subject to the conditions in the Order, with private credit funds and a BDC managed by Stellus Capital or its affiliate that have an investment strategy that is similar or identical to the Company’s investment strategy, and the Company may co-invest with other BDCs, and registered investment companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital in the future. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Administrative Agent

The Company serves as the administrative agent on certain investment transactions, including co-investments with its affiliates under the Order. As of June 30, 2023 and December 31, 2022, there was $389,329 and $0, respectively, due to other investment funds related to interest paid by a borrower to the Company as administrative agent which is included in “Other accrued expenses and liabilities” on the Consolidated Statements of Assets and Liabilities. Additionally, as of June 30, 2023 and December 31, 2022, there was $775,794 and $1,060,321, respectively, due to related parties related to interest paid by a borrower to the Company as administrative agent which is included in “Related party payable” on the Consolidated Statement of Assets and Liabilities.

License Agreement

The Company has entered into a license agreement with Stellus Capital under which Stellus Capital has agreed to grant the Company a non-exclusive, royalty-free license to use the name “Stellus Capital.” Under this agreement, the Company has a right to use the “Stellus Capital” name for so long as Stellus Capital or one of its affiliates remains its investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Stellus Capital” name. This license agreement will remain in effect for so long as the investment advisory agreement with Stellus Capital is in effect.

Administration Agreement

The Company entered into an administration agreement with Stellus Capital pursuant to which Stellus Capital will furnish the Company with office facilities and equipment and will provide the Company with the clerical, bookkeeping, recordkeeping and other administrative services necessary to conduct day-to-day operations. Under this administration agreement, Stellus Capital will perform, or oversee the performance of, its required administrative services, which includes, among other things, being responsible for the financial records which the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC.

For the three and six months ended June 30, 2023, the Company recorded expenses of $390,410 and $773,846, respectively, related to the administration agreement and are included in “Administrative services expenses” on our Consolidated Statements of Operations. For the three and six months ended June 30, 2022, the Company recorded expenses of $392,430 and $793,318, respectively, related to the administration agreement and are included in “Administrative services expenses” on our Consolidated Statements of Operations. As of June 30, 2023 and December 31, 2022, $390,410 and $343,817, respectively, remained payable to Stellus Capital related to the administration agreement and were included in administrative services payable on our Consolidated Statements of Assets and Liabilities.

Indemnifications

The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the investment advisory agreement, Stellus Capital and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Stellus Capital’s services under the investment advisory agreement or otherwise as our investment adviser.

The Company has also entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the Company’s directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Company shall indemnify the director who is a party to the agreement (an “Indemnitee”), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, other than a proceeding by or in the right of the Company.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 3 — DISTRIBUTIONS

Distributions are generally declared by the Company’s Board each calendar quarter and recognized as distribution liabilities on the declaration date. The stockholder distributions, if any, will be determined by the Board. Any distribution to stockholders are declared out of assets legally available for distribution.

For the three and six months ended June 30, 2023 and 2022, the Company declared aggregate distributions of $0.40 and $0.80 per share on its common stock, respectively. For the three and six months ended June 30, 2022, the Company has declared aggregate distributions of $0.34 and $0.62 per share on its common stock, respectively. The Company has declared aggregate distributions of $14.15 per share on its common stock since Inception:


Date Declared	Record Date	Payment Date	Per Share⁽¹⁾
Fiscal 2012			$	0.18
Fiscal 2013			$	1.36
Fiscal 2014			$	1.42
Fiscal 2015			$	1.36
Fiscal 2016			$	1.36
Fiscal 2017	Various		$	1.36
Fiscal 2018			$	1.36
Fiscal 2019			$	1.36
Fiscal 2020			$	1.15
Fiscal 2021			$	1.14
Fiscal 2022			$	1.30
Fiscal 2023
January 11, 2023	January 31, 2023	February 15, 2023	$	0.1333
January 11, 2023	February 28, 2023	March 15, 2023	$	0.1333
January 11, 2023	March 31, 2023	April 14, 2023	$	0.1333
April 19, 2023	May 1, 2023	May 15, 2023	$	0.1333
April 19, 2023	May 31, 2023	June 15, 2023	$	0.1333
April 19, 2023	June 30, 2023	July 14, 2023	$	0.1333
Total			$	14.15

(1)	Distributions for fiscal years 2012 through 2022 are shown in aggregate amounts.

The Company has adopted an “opt out” dividend reinvestment plan (“DRIP”) pursuant to which a stockholder whose shares are held in his own name will receive distributions in shares of the Company’s common stock under the Company’s DRIP unless it elects to receive distributions in cash. Stockholders whose shares are held in the name of a broker or the nominee of a broker may have distributions reinvested only if such service is provided by the broker or the nominee, or if the broker of the nominee permits participation in the Company’s DRIP.

Although distributions paid in the form of additional shares of the Company’s common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, investors participating in the Company’s DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. Any distributions reinvested through the issuance of shares through the Company’s DRIP will increase the Company’s gross assets on which the base management fee and the incentive fee are determined and paid to Stellus Capital. The Company did not issue shares through the DRIP during either of the three and six months ended June 30, 2023 or 2022.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 4 — EQUITY OFFERINGS AND RELATED EXPENSES

The table below illustrates the number of common stock shares the Company issued since Inception through various equity offerings and pursuant to the Company’s DRIP.


												Average
	Number of	Gross		Underwriting		Offering		Fees Covered		Net		Offering
Issuance of Common Stock	Shares	Proceeds⁽¹⁾⁽²⁾		fees		Expenses		by Advisor		Proceeds⁽³⁾		Price
Year ended December 31, 2012	12,035,023	$	180,522,093	$	4,959,720	$	835,500	$	—	$	174,726,873	$	14.90
Year ended December 31, 2013	63,998		899,964		—		—		—		899,964		14.06
Year ended December 31, 2014	380,936		5,485,780		75,510		29,904		—		5,380,366		14.47
Year ended December 31, 2017	3,465,922		48,741,406		1,358,880		307,021		—		47,075,505		14.06
Year ended December 31, 2018	7,931		93,737		—		—		—		93,737		11.85
Year ended December 31, 2019	3,177,936		45,862,995		1,015,127		559,261		37,546		44,326,153		14.43
Year ended December 31, 2020	354,257		5,023,843		5,680		84,592		66,423		4,999,994		14.40
Year ended December 31, 2021	31,592		449,515		6,744		53,327		4,255		393,699		14.23
Year ended December 31, 2022	149,174		2,070,935		31,066		530,842		87,605		1,596,632		13.88
Three months ended March 31, 2023	581,614		8,418,160		126,303		70,255		68,967		8,290,569		14.47
Three months ended June 30, 2023	2,309,521		32,553,697		488,418		52,316		408,121		32,421,084		14.10
Total	22,557,904	$	330,122,125	$	8,067,448	$	2,523,018	$	672,917	$	320,204,576

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

(2)

Includes common shares issued under the DRIP of $228,943 and $94,788 during the year ended December 31, 2020 and 2018, respectively; $0 for the three and six months ended June 30, 2023 and years ended 2022, 2021, 2019, 2017, 2016 and 2015, and $390,505, $938,385, $113,000 for the years ended 2014, 2013, and 2012, respectively.

(3)

Net Proceeds per this equity table will differ from the Statements of Assets and Liabilities as of June 30, 2023 and December 31, 2022 in the amount of $4,358,536 which represents a tax reclassification of stockholders’ equity in accordance with U.S. GAAP. This reclassification reduces paid-in capital and increases (decreases) distributable earnings (loss) (by increasing (decreasing) accumulated undistributed gain (deficit)).

On November 16, 2021, the Company entered into an equity distribution agreement, as amended and restated on August 29, 2022 (the “Equity Distribution Agreement”), with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the Equity Distribution Agreement, the Company may, issue and sell, from time to time, up to $50,000,000 in aggregate offering price of shares of common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program (the “ATM Program”) to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with its investment objective and strategies.

The Company issued 2,309,521 shares during the three months ended June 30, 2023 under the ATM Program, for gross proceeds of $32,421,084 and underwriting fees and other expenses of $540,734. The average per share offering price of shares issued in the ATM Program during the three months ended June 30, 2023 was $14.10. The Company issued 2,891,135 shares during the six months ended June 30, 2023 under the ATM Program, for gross proceeds of $40,971,857 and underwriting fees and other expenses of $737,292. The average per share offering price of shares issued under the ATM Program during the six months ended June 30, 2023 was $14.17. The Advisor agreed to reimburse the Company for underwriting fees to the extent the per share price of the shares to the public, less underwriting fees, was less then net asset value per share. For the three months ended June 30, 2023, the Advisor reimbursed the Company $408,121, which resulted in net proceeds of $32,473,400, or $14.06 per share, excluding the impact of offering expenses. For the six months ended June 30, 2023, the Advisor reimbursed the Company $477,088, which resulted in net proceeds of $40,834,244, or $14.12 per share, excluding the impact of offering expenses.

The Company issued 0 shares of common stock through the DRIP for both the three and six months ended June 30, 2023 and 2022.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 5 — NET INCREASE IN NET ASSETS PER COMMON SHARE

The following information sets forth the computation of net increase in net assets resulting from operations per common share for the three and six months ended June 30, 2023 and June 30, 2022.


	For the three months ended				For the six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net increase in net assets resulting from operations	$	3,711,043	$	1,335,847	$	8,447,190	$	6,558,011
Weighted average common shares		21,231,979		19,543,117		20,509,995		19,530,509
Net increase in net assets resulting from operations per share	$	0.17	$	0.07	$	0.41	$	0.34

NOTE 6 — PORTFOLIO INVESTMENTS AND FAIR VALUE

In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 — Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

At June 30, 2023, the Company had investments in 93 portfolio companies. The total cost and fair value of the investments were $922,796,573 and $881,666,450, respectively. The composition of our investments as of June 30, 2023 is as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	792,661,767	$	779,447,364
Senior Secured – Second Lien		70,064,404		33,918,725
Unsecured Debt		5,979,572		5,708,477
Equity		54,090,830		62,591,884
Total Investments	$	922,796,573	$	881,666,450

(1)

Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for 6.2% of our portfolio at fair value.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

At December 31, 2022, the Company had investments in 85 portfolio companies. The total cost and fair value of the investments were $875,823,177 and $844,733,638, respectively. The composition of our investments as of December 31, 2022 was as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	750,527,999	$	735,555,508
Senior Secured – Second Lien		69,989,477		45,304,300
Unsecured Debt		5,657,964		4,823,898
Equity		49,647,737		59,049,932
Total Investments	$	875,823,177	$	844,733,638

(1)

The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2023 and December 31, 2022, the Company had 55 and 52 of such investments with aggregate unfunded commitments of $21,187,851 and $27,824,917, respectively. The Company maintains sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded loan commitments should the need arise.

The aggregate gross unrealized appreciation and depreciation and the aggregate cost and fair value of the Company’s portfolio company securities as of June 30, 2023 and December 31, 2022 were as follows:


	2023		2022
Aggregate cost of portfolio company securities	$	922,796,573	$	875,823,177
Gross unrealized appreciation of portfolio company securities		34,656,786		28,927,746
Gross unrealized depreciation of portfolio company securities		(74,876,522)		(58,602,607)
Gross unrealized appreciation on foreign currency translations of portfolio company securities		9,166		—
Gross unrealized depreciation on foreign currency translations of portfolio company securities		(919,553)		(1,414,678)
Aggregate fair value of portfolio company securities	$	881,666,450	$	844,733,638

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of June 30, 2023 are as follows:


	Quoted Prices
	in Active
	Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Senior Secured – First Lien	$	—	$	—	$	779,447,364	$	779,447,364
Senior Secured – Second Lien		—		—		33,918,725		33,918,725
Unsecured Debt		—		—		5,708,477		5,708,477
Equity		—		—		62,591,884		62,591,884
Total Investments	$	—	$	—	$	881,666,450	$	881,666,450

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2022 are as follows:


	Quoted Prices
	in Active
	Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Senior Secured – First Lien	$	—	$	—	$	735,555,508	$	735,555,508
Senior Secured – Second Lien		—		—		45,304,300		45,304,300
Unsecured Debt		—		—		4,823,898		4,823,898
Equity		—		—		59,049,932		59,049,932
Total Investments	$	—	$	—	$	844,733,638	$	844,733,638

The aggregate values of Level 3 portfolio investments change during the six months ended June 30, 2023 are as follows:


	Senior Secured		Senior Secured
	Loans-First		Loans-Second		Unsecured
	Lien		Lien		Debt		Equity		Total
Fair value at beginning of period	$	735,555,508	$	45,304,300	$	4,823,898	$	59,049,932	$	844,733,638
Purchases of investments		83,194,907		—		—		4,546,572		87,741,479
Payment-in-kind interest		1,591,000		—		313,853		—		1,904,853
Sales and redemptions		(43,929,215)		—		—		(160,549)		(44,089,764)
Realized (losses) gains		(870)		—		—		57,068		56,198
Change in unrealized (depreciation) appreciation included in earnings⁽¹⁾		1,255,813		(11,460,501)		562,973		(903,160)		(10,544,875)
Change in unrealized appreciation on foreign currency included in earnings		502,271		—		—		2,021		504,292
Amortization of premium and accretion of discount, net		1,277,950		74,926		7,753		—		1,360,629
Fair value at end of period	$	779,447,364	$	33,918,725	$	5,708,477	$	62,591,884	$	881,666,450

(1)	Includes reversal of positions during the six months ended June 30, 2023.

There were no Level 3 transfers during the six months ended June 30, 2023.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

The aggregate values of Level 3 portfolio investments change during the year ended December 31, 2022 are as follows:


	Senior Secured		Senior Secured
	Loans-First		Loans-Second		Unsecured
	Lien		Lien		Debt		Equity		Total
Fair value at beginning of period	$	646,352,935	$	56,733,110	$	4,883,854	$	64,903,427	$	772,873,326
Purchases of investments		196,925,873		4,900,000		83,511		9,101,485		211,010,869
Payment-in-kind interest		826,816		—		530,361		—		1,357,177
Sales and redemptions		(98,160,329)		(10,809,276)		—		(18,873,195)		(127,842,800)
Realized (losses) gains		(3,929,334)		(4,109,525)		—		11,811,371		3,772,512
Change in unrealized depreciation included in earnings⁽¹⁾		(7,342,462)		(1,611,688)		(687,778)		(7,900,302)		(17,542,230)
Change in unrealized (depreciation) appreciation on foreign currency included in earnings		(1,421,824)		—		—		7,146		(1,414,678)
Amortization of premium and accretion of discount, net		2,303,833		201,679		13,950		—		2,519,462
Fair value at end of period	$	735,555,508	$	45,304,300	$	4,823,898	$	59,049,932	$	844,733,638

(1)	Includes reversal of positions during the twelve months ended December 31, 2022.

There were no Level 3 transfers during the twelve months ended December 31, 2022.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

The following is a summary of geographical concentration of our investment portfolio as of June 30, 2023:


					% of Total
	Cost		Fair Value		Investments
Texas	$	206,004,010	$	182,903,863	20.74	%
California		179,278,481		177,882,024	20.17	%
Florida		83,269,639		82,798,145	9.39	%
Pennsylvania		48,569,282		48,352,773	5.48	%
Arizona		44,823,978		46,868,463	5.32	%
Illinois		59,329,153		46,656,232	5.29	%
Ohio		33,676,009		36,978,837	4.19	%
Wisconsin		27,476,373		25,008,264	2.84	%
Washington		24,371,956		24,362,084	2.76	%
South Carolina		23,876,474		23,476,376	2.66	%
Colorado		20,046,931		19,410,156	2.20	%
Georgia		10,276,132		18,395,202	2.09	%
Maryland		16,742,023		16,640,662	1.89	%
Minnesota		16,740,672		16,605,656	1.88	%
District of Columbia		14,099,046		16,505,944	1.87	%
Indiana		14,369,701		14,585,360	1.65	%
Canada		12,679,688		12,698,047	1.44	%
New Jersey		11,169,394		11,600,921	1.32	%
Tennessee		11,419,666		11,507,745	1.31	%
North Carolina		10,410,606		11,156,286	1.27	%
Massachusetts		10,183,236		10,557,554	1.20	%
Missouri		9,100,052		9,743,747	1.11	%
Idaho		9,140,420		9,216,892	1.05	%
New York		5,074,532		5,174,244	0.59	%
United Kingdom		20,669,119		2,580,973	0.29	%
	$	922,796,573	$	881,666,450	100.00	%

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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


					% of Total
					Investments
	Cost		Fair Value		at fair value
Texas	$	191,422,143	$	171,165,597	20.26	%
California		167,833,384		165,340,017	19.57	%
Florida		60,593,839		59,421,775	7.03	%
Illinois		64,421,998		53,218,615	6.30	%
Arizona		43,129,283		44,277,625	5.24	%
Pennsylvania		42,899,504		41,889,344	4.96	%
Ohio		34,223,452		37,333,236	4.42	%
Washington		28,978,375		28,480,471	3.37	%
New Jersey		25,395,054		25,140,343	2.98	%
Wisconsin		27,533,402		24,271,761	2.87	%
District of Columbia		17,236,556		21,124,347	2.50	%
Georgia		10,919,642		19,692,757	2.33	%
South Carolina		19,089,373		18,654,782	2.21	%
Maryland		16,824,077		16,576,554	1.96	%
Minnesota		16,972,086		15,952,072	1.89	%
United Kingdom		20,530,087		14,445,481	1.71	%
Colorado		15,204,934		14,295,470	1.69	%
Indiana		14,346,082		14,245,432	1.69	%
Canada		13,333,737		13,266,669	1.57	%
North Carolina		10,461,551		10,649,232	1.26	%
Massachusetts		10,215,356		10,527,659	1.25	%
Idaho		9,873,093		9,863,103	1.17	%
Missouri		9,142,111		9,656,287	1.14	%
New York		5,096,152		5,096,008	0.61	%
Michigan		147,906		149,001	0.02	%
	$	875,823,177	$	844,733,638	100.00	%

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

The following is a summary of industry concentration of our investment portfolio as of June 30, 2023:


					% of Total
	Cost		Fair Value		Investments
Services: Business	$	226,995,642	$	238,878,500	27.08	%
Healthcare & Pharmaceuticals		91,205,161		93,077,808	10.55	%
Consumer Goods: Durable		59,270,223		54,567,910	6.19	%
Consumer Goods: Non-Durable		53,958,284		51,766,867	5.87	%
Beverage, Food, & Tobacco		42,884,147		43,786,560	4.97	%
Media: Advertising, Printing & Publishing		38,363,033		39,057,251	4.43	%
Capital Equipment		37,366,328		38,468,901	4.36	%
Software		37,337,635		38,288,078	4.34	%
Services: Consumer		50,281,462		32,320,593	3.67	%
Aerospace & Defense		48,298,034		27,295,618	3.10	%
Construction & Building		26,044,832		25,825,768	2.93	%
Environmental Industries		28,202,747		25,420,361	2.88	%
High Tech Industries		24,592,803		23,803,603	2.70	%
Media: Broadcasting & Subscription		17,629,649		20,591,975	2.34	%
Chemicals, Plastics, & Rubber		18,425,715		17,735,387	2.01	%
Transportation & Logistics		16,715,873		17,160,188	1.95	%
Metals & Mining		16,644,442		16,545,375	1.88	%
Retail		14,953,930		14,921,785	1.69	%
Containers, Packaging, & Glass		17,412,372		14,424,156	1.64	%
Automotive		11,126,155		11,250,000	1.28	%
Utilities: Oil & Gas		9,931,992		10,000,000	1.13	%
Education		10,288,745		9,402,698	1.07	%
Media: Diversified & Production		5,676,087		5,776,237	0.66	%
Finance		1,562,775		4,779,849	0.54	%
FIRE: Real Estate		16,438,619		4,202,469	0.48	%
Energy: Oil & Gas		1,189,888		1,487,383	0.17	%
Hotel, Gaming, & Leisure		-		831,130	0.09	%
Total	$	922,796,573	$	881,666,450	100.00	%

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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


					% of Total
					Investments
	Cost		Fair Value		at fair value
Services: Business	$	207,234,534	$	218,866,572	25.91	%
Healthcare & Pharmaceuticals		86,469,854		88,103,319	10.43	%
Media: Advertising, Printing & Publishing		52,830,447		52,525,839	6.22	%
Consumer Goods: Non-Durable		54,683,102		51,280,593	6.07	%
Consumer Goods: Durable		45,601,928		44,529,176	5.27	%
Aerospace & Defense		48,137,394		39,526,086	4.68	%
Software		37,582,855		37,975,255	4.50	%
Capital Equipment		33,538,647		33,801,951	4.00	%
Beverage, Food, & Tobacco		34,000,918		32,755,054	3.88	%
Construction & Building		26,948,135		26,406,849	3.13	%
Environmental Industries		27,771,798		26,247,936	3.11	%
Services: Consumer		43,302,101		24,616,706	2.92	%
Media: Broadcasting & Subscription		18,615,052		21,445,307	2.54	%
Chemicals, Plastics, & Rubber		18,487,206		17,903,999	2.12	%
Transportation & Logistics		16,768,763		17,161,972	2.03	%
Metals & Mining		16,708,750		16,464,001	1.95	%
Containers, Packaging, & Glass		17,436,600		13,977,250	1.65	%
Retail		13,303,536		13,217,256	1.56	%
High Tech Industries		14,126,954		12,648,347	1.50	%
Automotive		11,252,581		11,342,751	1.34	%
Education		11,057,921		10,498,760	1.24	%
Utilities: Oil & Gas		9,921,469		9,800,000	1.16	%
Energy: Oil & Gas		7,314,230		7,355,074	0.87	%
FIRE: Real Estate		15,642,093		5,866,397	0.69	%
Media: Diversified & Production		5,517,409		5,534,710	0.66	%
Finance		1,568,900		4,082,579	0.48	%
Hotel, Gaming, & Leisure		—		799,899	0.09	%
	$	875,823,177	$	844,733,638	100.00	%

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

The following provides quantitative information about Level 3 fair value measurements as of June 30, 2023:


Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)⁽¹⁾⁽³⁾
First lien debt	$	779,447,364	Income/Market	HY credit spreads,	-2.67% to 7.94% (-0.03%)
			approach⁽²⁾	Risk free rates	-0.05% to 4.32% (0.97%)
				Market multiples	5.0x to 17.0x (10.4x)⁽⁴⁾

Second lien debt	$	33,918,725	Income/Market	HY credit spreads,	-0.97% to 8.70% (1.65%)
			approach⁽²⁾	Risk free rates	0.00% to 3.06% (1.38%)
				Market multiples	5.7x to 14.1x (11.5x)⁽⁴⁾

Unsecured debt	$	5,708,477	Income/Market	HY credit spreads,	5.30% to 5.30% (5.30%)
			approach⁽²⁾	Risk free rates	4.06% to 4.06% (4.06%)
				Market multiples	9.3x to 9.3x (9.3x)⁽⁴⁾

Equity investments	$	62,591,884	Market approach⁽⁵⁾	Underwriting multiple/
				EBITDA Multiple	1.4x to 24.4x (12.5x)
Total Long Term Level 3 Investments	$	881,666,450

(1)	Weighted average based on fair value as of June 30, 2023.

(2)	Included but not limited to (a) the market approach, which is used to determine sufficient enterprise value, and (b) the income approach which is based on discounting future cash flows using an appropriate market yield.

(3)

The Company calculates the price of the loan by discounting future cash flows, which include forecasted future BSBY, LIBOR, SOFR, or SONIA rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors could result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -2.67% (-267 basis points) to 7.94% (794 basis points). The average of all changes was -0.03% (-3 basis points).

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

(5)

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation could result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

The following provides quantitative information about Level 3 fair value measurements as of December 31, 2022:

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)



Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)⁽¹⁾⁽³⁾
First lien debt	$	735,555,508	Income/Market	HY credit spreads,	-2.29% to 6.53% (1.52%)
			approach⁽²⁾	Risk free rates	-1.43% to 4.31% (2.31%)
				Market multiples	4.5x to 19.3x (10.1x)⁽⁴⁾

Second lien debt	$	45,304,300	Income/Market	HY credit spreads,	-0.17% to 5.18% (2.39%)
			approach⁽²⁾	Risk free rates	-0.02% to 3.91% (1.94%)
				Market multiples	5.6x to 15.1x (11.4x)⁽⁴⁾

Unsecured debt	$	4,823,898	Income/Market	HY credit spreads,	7.97% to 7.97% 7.97%)
			approach⁽²⁾	Risk free rates	3.63% to 3.63% (3.63%)
				Market multiples	9.1x to 9.1x (9.1x)⁽⁴⁾

Equity investments	$	59,049,932	Market approach⁽⁵⁾	Underwriting multiple/
				EBITDA Multiple	1.3x to 24.8x (11.7x)
Total Long Term Level 3 Investments	$	844,733,638

(1)	Weighted average based on fair value as of December 31, 2022.

(2)	Inclusive of but not limited to (a) the market approach, which is used to determine sufficient enterprise value, and (b) the income approach which is based on discounting future cash flows using an appropriate market yield.

(3)

The Company calculates the price of the loan by discounting future cash flows, which include forecasted future LIBOR rates based on the published forward LIBOR curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for a first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -2.29% (-229 basis points) to 6.53% (653 basis points). The average of all changes was 1.52% (152 basis points).

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

(5)

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

The Company is currently not subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations.

As of June 30, 2023, the Company had $20,492,453 in unfunded debt commitments and $695,398 in unfunded equity commitments to 55 existing portfolio companies. As of December 31, 2022, the Company had $27,522,100 in unfunded debt commitments and $302,817 in unfunded equity commitments to 52 existing portfolio companies. As of June 30, 2023, the Company had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded loan commitments should the need arise.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 8 — FINANCIAL HIGHLIGHTS


	For the six months ended
	June 30, 2023			June 30, 2022
	(unaudited)			(unaudited)
Per Share Data:⁽¹⁾
Net asset value at beginning of period	$	14.02		$	14.61
Net investment income		0.95			0.60
Change in unrealized depreciation on investments		(0.51)			(0.41)
Net realized (loss) gain		(0.02)			0.16
Provision for taxes on net unrealized appreciation on investments		(0.01)			(0.01)
Total from operations	$	0.41		$	0.34
Sales load		(0.03)			—
Offering costs		(0.01)			(0.01)
Stockholder distributions from:
Net investment income		(0.81)			(0.62)
Accretive effect of stock offerings (issuing shares above net asset value per share)		0.07			—
Other⁽⁶⁾		0.02			—
Net asset value at end of period	$	13.67		$	14.32
Per share market value at end of period	$	14.07		$	11.13
Total return based on market value⁽²⁾		11.1	%		(11.2)	%
Weighted average shares outstanding for the period		20,509,995			19,530,509
Ratio/Supplemental Data:⁽¹⁾
Net assets at end of period	$	308,325,028		$	279,866,118
Weighted average net assets	$	286,407,662		$	285,044,632
Annualized ratio of gross operating expenses to net assets⁽⁵⁾		22.00	%		14.15	%
Annualized ratio of interest expense and other fees to net assets		11.26	%		7.37	%
Annualized ratio of net investment income to net assets⁽⁵⁾		13.72	%		8.27	%
Portfolio turnover⁽³⁾		10.29	%		7.09	%
Notes payable	$	100,000,000		$	100,000,000
Credit Facility payable	$	171,455,223		$	203,592,986
SBA-guaranteed debentures	$	313,600,000		$	293,600,000
Asset coverage ratio⁽⁴⁾		2.14	x		1.92	x

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

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

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

(4)	Asset coverage ratio is equal to total assets less all liabilities and indebtedness not represented by senior securities over the aggregate amount of the senior securities. SBA-guaranteed debentures are excluded from the numerator and denominator.

(5)

These ratios include the impact of income tax provision on net unrealized appreciation in Taxable Subsidiaries of $144,113 and $21,157, respectively, which are not reflected in total operating expenses or net investment income. The impact of the tax provision on net unrealized appreciation to weighted average net assets for the six months ended June 30, 2023 and 2022 is 0.10% and 0.03%, respectively.

(6)	Includes the impact of different share amounts as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of the period end.

NOTE 9 — CREDIT FACILITY

On October 11, 2017, the Company entered into a senior secured revolving credit agreement, as amended, dated as of October 10, 2017, that was amended and restated on December 21, 2021, February 28, 2022 and May 13, 2022, with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (the “Credit Facility”).

The Credit Facility provides for borrowings up to a maximum of $265,000,000 on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $280,000,000, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

Pursuant to the Third Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement, the Credit Facility will bear interest, subject to the Company’s election, on a per annum basis equal to (i) term SOFR plus 2.50% (or 2.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus a SOFR credit spread adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR floor, or (ii) 1.50% (or 1.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus an alternate base rate based on the highest of the prime rate (subject to a 3% floor), Federal Funds Rate plus 0.50% and one month term SOFR plus 1.00%. The Company pays unused commitment fees of 0.50% per annum on the unused lender commitments under the Credit Facility. Interest is payable monthly or quarterly in arrears. The commitment to fund the revolver expires on September 18, 2024, after which the Company may no longer borrow under the Credit Facility and must begin repaying principal equal to 1/12 of the aggregate amount outstanding under the Credit Facility each month. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 18, 2025.

The Company’s obligations to the lenders are secured by a first priority security interest in its portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10,000,000, including cash, liquid investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 2.00 to 1.00. As of June 30, 2023 and December 31, 2022, the Company was in compliance with these covenants.

As of June 30, 2023 and December 31, 2022, $171,455,223 and $199,200,425, respectively, was outstanding under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair value of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company has incurred costs of $3,967,284 in connection with the current Credit Facility, which are being amortized over the life of the facility. Additionally, $341,979 of costs from a prior credit facility will continue to be amortized over the life of the Credit Facility. As of June 30, 2023 and December 31, 2022, $1,225,902 and $1,515,144 of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on our Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the Credit Facility, net of prepaid loan structure fees:


	June 30, 2023		December 31, 2022
Credit Facility payable	$	171,455,223	$	199,200,425
Prepaid loan structure fees		(1,225,902)		(1,515,144)
Credit Facility payable, net of prepaid loan structure fees	$	170,229,321	$	197,685,281

Interest is paid monthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the three and six months ended June 30, 2023 and 2022:


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Interest expense	$	3,870,571		$	1,805,978		$	7,566,047		$	3,223,712
Loan fee amortization		145,421			140,420			289,243			272,959
Total interest and financing expenses	$	4,015,992		$	1,946,398		$	7,855,290		$	3,496,671
Weighted average interest rate		7.8	%		3.4	%		7.6	%		3.1	%
Effective interest rate (including fee amortization)		8.1	%		3.8	%		7.9	%		3.5	%
Average debt outstanding	$	198,482,726		$	206,467,162		$	200,490,808		$	199,729,366
Cash paid for interest and unused fees	$	3,953,000		$	1,856,900		$	7,586,518		$	3,230,338

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 10 — SBA-GUARANTEED DEBENTURES

Due to the SBIC subsidiaries’ status as licensed SBICs, the Company has the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding debentures guaranteed by the SBA subject to a regulatory leverage limit, up to two times the amount of “regulatory capital”, as such term is defined by the SBA. As of both June 30, 2023 and December 31, 2022, the SBIC subsidiary had $75,000,000 in regulatory capital, as such term is defined by the SBA, and $150,000,000 of SBA-guaranteed debentures outstanding.

As of both June 30, 2023 and December 31, 2022, the SBIC II subsidiary had $87,500,000 both in regulatory capital, as such term is defined by the SBA, and $163,600,000 of SBA-guaranteed debentures outstanding, respectively.

On August 12, 2014, the Company obtained exemptive relief from the SEC to permit it to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from its asset coverage test under the 1940 Act. The exemptive relief provides the Company with increased flexibility under the asset coverage test by permitting it to borrow up to $325,000,000 more than it would otherwise be able to absent the receipt of this exemptive relief.

On a stand-alone basis, the SBIC subsidiaries held $482,542,641 and $470,659,123 in assets at June 30, 2023 and December 31, 2022, respectively, which accounted for approximately 53.5% and 52.4% of the Company’s total consolidated assets, respectively.

Debentures guaranteed by the SBA have fixed interest rates that equal prevailing 10-year U.S. Treasury Note rates plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty. SBA-guaranteed debentures drawn before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

The following table summarizes the SBIC subsidiaries’ aggregate SBA-guaranteed debentures outstanding as of June 30, 2023:


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

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)


Issuance Date	Licensee	Maturity Date	Debenture Amount		Interest Rate		SBA Annual Charge
October 17, 2019	SBIC II	March 1, 2030	$	6,000,000	2.08	%	0.09	%
November 15, 2019	SBIC II	March 1, 2030		5,000,000	2.08	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		9,000,000	1.67	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		6,500,000	1.67	%	0.27	%
February 16, 2021	SBIC II	March 1, 2031		13,500,000	1.67	%	0.27	%
February 26, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
March 2, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
April 21, 2021	SBIC II	September 1, 2031		10,000,000	1.30	%	0.27	%
May 14, 2021	SBIC II	September 1, 2031		6,700,000	1.30	%	0.27	%
May 28, 2021	SBIC II	September 1, 2031		7,300,000	1.30	%	0.27	%
July 23, 2021	SBIC II	September 1, 2031		16,000,000	1.30	%	0.27	%
February 25, 2022	SBIC II	March 1, 2032		10,000,000	2.94	%	0.27	%
March 29, 2022	SBIC II	September 1, 2032		10,000,000	4.26	%	0.27	%
April 1, 2022	SBIC II	September 1, 2032		6,670,000	4.26	%	0.27	%
April 12, 2022	SBIC II	September 1, 2032		6,665,000	4.26	%	0.27	%
April 21, 2022	SBIC II	September 1, 2032		6,665,000	4.26	%	0.27	%
June 30, 2022	SBIC II	September 1, 2032		3,600,000	4.26	%	0.27	%
July 28, 2022	SBIC II	September 1, 2032		6,400,000	4.26	%	0.27	%
September 9, 2022	SBIC II	March 1, 2033		6,000,000	5.17	%	0.27	%
November 9, 2022	SBIC II	March 1, 2033		7,600,000	5.17	%	0.27	%
Total SBIC II Subsidiary SBA-guaranteed Debentures			$	163,600,000
Total SBA-guaranteed Debentures			$	313,600,000

As of June 30, 2023 and December 31, 2022, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of both June 30, 2023 and December 31, 2022, the Company has incurred $10,871,160 in financing costs related to the SBA-guaranteed debentures since receiving its licenses, which were recorded as prepaid loan fees. As of June 30, 2023 and December 31, 2022, $5,080,447 and $5,704,805 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the SBA-guaranteed debentures, net of prepaid loan fees:


	June 30, 2023		December 31, 2022
SBA debentures payable	$	313,600,000	$	313,600,000
Prepaid loan fees		(5,080,447)		(5,704,805)
SBA Debentures, net of prepaid loan fees	$	308,519,553	$	307,895,195

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and six months ended June 30, 2023 and 2022:


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Interest expense	$	2,443,009		$	1,941,979		$	4,843,727		$	3,666,260
Debenture fee amortization		306,850			305,877			624,358			589,020
Total interest and financing expenses	$	2,749,859		$	2,247,856		$	5,468,085		$	4,255,280
Weighted average interest rate		3.1	%		2.7	%		3.1	%		2.7	%
Effective interest rate (including fee amortization)		3.5	%		3.1	%		3.5	%		3.2	%
Average debt outstanding	$	313,600,000		$	287,769,066		$	313,600,000		$	271,088,315
Cash paid for interest	$	—		$	—		$	4,680,999		$	3,405,071

NOTE 11 — NOTES

On January 14, 2021, the Company issued $100,000,000 in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the “2026 Notes”). The 2026 Notes will mature on March 30, 2026 and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2025, at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest on the 2026 Notes is payable semi-annually beginning June 30, 2022. As of both June 30, 2023 and December 31, 2022, the aggregate carrying amount of the 2026 Notes was approximately $100,000,000. The 2026 Notes are institutional, non-traded notes.

In connection with the issuance and maintenance of the 2026 Notes, the Company incurred $2,327,835 of fees which are being amortized over the term of the 2026 Notes. As of June 30, 2023 and December 31, 2022, $1,228,784 and $1,450,308 of prepaid financing costs had yet to be amortized, respectively. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following table summarizes the interest expense and deferred financing costs on the 2026 Notes for the three and six months ended June 30, 2023 and 2022:


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Interest expense	$	1,224,750		$	1,218,750		$	2,443,500		$	2,442,500
Deferred financing costs		111,374			111,374			221,524			221,524
Total interest and financing expenses	$	1,336,124		$	1,330,124		$	2,665,024		$	2,664,024
Weighted average interest rate		4.9	%		4.9	%		4.9	%		4.9	%
Effective interest rate (including fee amortization)		5.4	%		5.3	%		5.4	%		5.4	%
Average debt outstanding	$	100,000,000		$	100,000,000		$	100,000,000		$	100,000,000
Cash paid for interest	$	6,000		$	—		$	2,443,500		$	2,437,500

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


	June 30, 2023		December 31, 2022
Notes payable	$	100,000,000	$	100,000,000
Deferred financing costs		(1,228,784)		(1,450,308)
Notes payable, net of deferred financing costs	$	98,771,216	$	98,549,692

The indenture and supplements thereto relating to the 2026 Notes contain certain covenants, including but not limited to (i) a requirement that the Company comply with the asset coverage requirements of the 1940 Act or any successor provisions, and (ii) a requirement to provide financial information to the holders of the notes and the trustee under the indenture if the Company should no longer be subject to the reporting requirements under the Exchange Act. As of June 30, 2023 and 2022, the Company was in compliance with these covenants.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE 12 — SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that require recognition or disclosure in these financial statements except for the following described below.

Investment Portfolio

The Company invested in the following portfolio companies subsequent to June 30, 2023:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
New Investment	July 7, 2023	Madison Logic, Inc.*	Provider of B2B account based marketing services	$	394,767	Equity
Add-On Investment	July 12, 2023	EH Real Estate Services, LLC*	Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyers and sellers	$	501,846	Senior Secured – First Lien



New Investment	July 31, 2023	EHI Buyer, Inc.	Provider of design, engineering, installation, and maintenance services for building management systems	$	6,111,343	Senior Secured – First Lien
				$	3,055,671	Delayed Draw Term Loan Commitment
				$	100,000	Revolver Commitment
				$	617,801	Equity
New Investment	August 2, 2023	Compost 360 Acquisition, LLC	Organic waste recycler and producer of compost, mulch, and engineered soils	$	9,595,100	Senior Secured – First Lien
				$	4,096,741	Delayed Draw Term Loan Commitment
				$	100,000	Revolver Commitment
				$	250,761	Equity
New Investment	August 3, 2023	Morgan Electrical Group Intermediate Holdings, Inc.	Provider of commercial electrical services	$	4,439,439	Senior Secured – First Lien
				$	2,864,154	Delayed Draw Term Loan Commitment
				$	100,000	Revolver Commitment
				$	356,800	Equity
Add-On Investment	August 4, 2023	TradePending OpCo Aggregator, LLC*	Provider of vehicle trade-in and merchandising intelligence solutions for auto dealerships	$	2,473,227	Senior Secured – First Lien
				$	687,007	Delayed Draw Term Loan Commitment
				$	325,379	Equity
New Investment	August 7, 2023	The Hardenbergh Group, Inc.	Provider of temporary professional staffing of Medical Services Professionals, external peer review, consulting and physician leadership solutions	$	10,501,898	Senior Secured – First Lien
				$	100,000	Revolver Commitment
				$	434,504	Equity
New Investment	August 8, 2023	Green Intermediateco II, Inc.	Cyber-security focused value-added reseller and associated service provider	$	11,170,252	Senior Secured – First Lien
				$	500,000	Delayed Draw Term Loan Commitment
				$	271,401	Equity

* Existing portfolio company

The Company realized the following portfolio company subsequent to June 30, 2023:


Activity Type	Date	Company Name	Company Description	Proceeds Received	Instrument Type
Full Repayment	July 31, 2023	NuSource Financial, LLC*	Provider of technology integration and installation of Automated Teller Machines/Integrated Teller Machines, maintenance services, and security solutions	$10,984,910	Senior Secured – First Lien

* Existing portfolio company

Effective July 1, 2023, the ArborWorks Acquisition, LLC term loan and revolver were placed on non-accrual status.

Credit Facility

The outstanding balance under the Credit Facility as of August 9, 2023 was $187,200,000.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

SBA-guaranteed Debentures

The total balance of SBA-guaranteed debentures outstanding as of August 9, 2023 was $322,720,000.

Dividends Declared

On July 14, 2023, the Board declared a regular monthly dividend for each of July 2023, August 2023, and September 2023 as follows:


	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
7/14/2023	7/28/2023	7/31/2023	8/15/2023	$	0.1333
7/14/2023	8/30/2023	8/31/2023	9/15/2023	$	0.1333
7/14/2023	9/28/2023	9/29/2023	10/13/2023	$	0.1333

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

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or Stellus Capital Investment Corporation’s (“we”, “us”, “our” and the “Company”) future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

●

our future operating results;

●

our business prospects and the prospects of our portfolio companies;

●

the effect of investments that we expect to make;

●

our contractual arrangements and relationships with third parties;

●

actual and potential conflicts of interest with Stellus Capital Management, LLC (“Stellus Capital” or the “Advisor”);

●

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

●

the impact of interest rate volatility, including the decommissioning of London Interbank Offered Rate ("LIBOR") and rising interest rates, on our business and our portfolio companies;

●

the ability of our portfolio companies to achieve their objectives;

●

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

●

the adequacy of our financing sources and working capital;

●

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

●

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

●

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

●

our ability to maintain our qualification as a regulated investment company (“RIC”) and as a business development company (“BDC”); and

●

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

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.

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

Overview

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

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment activities are managed by our investment adviser, Stellus Capital.

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

We have elected, qualified, and intend to continue to qualify annually to be treated for tax purposes as a RIC under Subchapter M of the internal Revenue Code of 1986, as amended (the “Code”). To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of June 30, 2023, we were in compliance with the RIC requirements. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income we distribute to our stockholders.

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

On April 4, 2018, the board of directors of the Company (the “Board”), including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At our 2018 annual meeting of stockholders our stockholders also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio applicable to us was decreased from 200% to 150%, effective June 29, 2018, which effectively increased the amount of leverage we may incur. As of June 30, 2023, our asset coverage ratio was 214%. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

Economic Developments

Portfolio Composition and Investment Activity

Portfolio Composition

We originate and invest primarily in privately-held middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche), second lien, and unsecured debt financing, often times with a corresponding equity investment.

As of June 30, 2023, we had $881.7 million (at fair value) invested in 93 portfolio companies. As of June 30, 2023, our portfolio included approximately 88% of first lien debt, 4% of second lien debt, 1% of unsecured debt and 7% of equity investments at fair value. The composition of our investments at cost and fair value as of June 30, 2023 was as follows:


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	792,661,767	$	779,447,364
Senior Secured – Second Lien		70,064,404		33,918,725
Unsecured Debt		5,979,572		5,708,477
Equity		54,090,830		62,591,884
Total Investments	$	922,796,573	$	881,666,450

(1)

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


	Cost		Fair Value
Senior Secured – First Lien⁽¹⁾	$	750,527,999	$	735,555,508
Senior Secured – Second Lien		69,989,477		45,304,300
Unsecured Debt		5,657,964		4,823,898
Equity		49,647,737		59,049,932
Total Investments	$	875,823,177	$	844,733,638

(1)

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms and conditions of the underlying loan agreements. As of June 30, 2023 and December 31, 2022, we had unfunded commitments of $21.2 million and $27.8 million, respectively, to provide debt financing to 55 and 52 portfolio companies, respectively. As of June 30, 2023, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility (as defined below)) to fund such unfunded commitments should the need arise.

The following is a summary of geographical concentration of our investment portfolio as of June 30, 2023:


					% of Total
	Cost		Fair Value		Investments
Texas	$	206,004,010	$	182,903,863	20.74	%
California		179,278,481		177,882,024	20.17	%
Florida		83,269,639		82,798,145	9.39	%
Pennsylvania		48,569,282		48,352,773	5.48	%
Arizona		44,823,978		46,868,463	5.32	%
Illinois		59,329,153		46,656,232	5.29	%
Ohio		33,676,009		36,978,837	4.19	%
Wisconsin		27,476,373		25,008,264	2.84	%
Washington		24,371,956		24,362,084	2.76	%
South Carolina		23,876,474		23,476,376	2.66	%
Colorado		20,046,931		19,410,156	2.20	%
Georgia		10,276,132		18,395,202	2.09	%
Maryland		16,742,023		16,640,662	1.89	%
Minnesota		16,740,672		16,605,656	1.88	%
District of Columbia		14,099,046		16,505,944	1.87	%
Indiana		14,369,701		14,585,360	1.65	%
Canada		12,679,688		12,698,047	1.44	%
New Jersey		11,169,394		11,600,921	1.32	%
Tennessee		11,419,666		11,507,745	1.31	%
North Carolina		10,410,606		11,156,286	1.27	%
Massachusetts		10,183,236		10,557,554	1.20	%
Missouri		9,100,052		9,743,747	1.11	%
Idaho		9,140,420		9,216,892	1.05	%
New York		5,074,532		5,174,244	0.59	%
United Kingdom		20,669,119		2,580,973	0.29	%
	$	922,796,573	$	881,666,450	100.00	%

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


					% of Total
					Investments
	Cost		Fair Value		at fair value
Texas	$	191,422,143	$	171,165,597	20.26	%
California		167,833,384		165,340,017	19.57	%
Florida		60,593,839		59,421,775	7.03	%
Illinois		64,421,998		53,218,615	6.30	%
Arizona		43,129,283		44,277,625	5.24	%
Pennsylvania		42,899,504		41,889,344	4.96	%
Ohio		34,223,452		37,333,236	4.42	%
Washington		28,978,375		28,480,471	3.37	%
New Jersey		25,395,054		25,140,343	2.98	%
Wisconsin		27,533,402		24,271,761	2.87	%
District of Columbia		17,236,556		21,124,347	2.50	%
Georgia		10,919,642		19,692,757	2.33	%
South Carolina		19,089,373		18,654,782	2.21	%
Maryland		16,824,077		16,576,554	1.96	%
Minnesota		16,972,086		15,952,072	1.89	%
United Kingdom		20,530,087		14,445,481	1.71	%
Colorado		15,204,934		14,295,470	1.69	%
Indiana		14,346,082		14,245,432	1.69	%
Canada		13,333,737		13,266,669	1.57	%
North Carolina		10,461,551		10,649,232	1.26	%
Massachusetts		10,215,356		10,527,659	1.25	%
Idaho		9,873,093		9,863,103	1.17	%
Missouri		9,142,111		9,656,287	1.14	%
New York		5,096,152		5,096,008	0.61	%
Michigan		147,906		149,001	0.02	%
	$	875,823,177	$	844,733,638	100.00	%

The following is a summary of industry concentration of our investment portfolio as of June 30, 2023:


					% of Total
	Cost		Fair Value		Investments
Services: Business	$	226,995,642	$	238,878,500	27.08	%
Healthcare & Pharmaceuticals		91,205,161		93,077,808	10.55	%
Consumer Goods: Durable		59,270,223		54,567,910	6.19	%
Consumer Goods: Non-Durable		53,958,284		51,766,867	5.87	%
Beverage, Food, & Tobacco		42,884,147		43,786,560	4.97	%
Media: Advertising, Printing & Publishing		38,363,033		39,057,251	4.43	%
Capital Equipment		37,366,328		38,468,901	4.36	%
Software		37,337,635		38,288,078	4.34	%
Services: Consumer		50,281,462		32,320,593	3.67	%
Aerospace & Defense		48,298,034		27,295,618	3.10	%
Construction & Building		26,044,832		25,825,768	2.93	%
Environmental Industries		28,202,747		25,420,361	2.88	%
High Tech Industries		24,592,803		23,803,603	2.70	%
Media: Broadcasting & Subscription		17,629,649		20,591,975	2.34	%
Chemicals, Plastics, & Rubber		18,425,715		17,735,387	2.01	%
Transportation & Logistics		16,715,873		17,160,188	1.95	%
Metals & Mining		16,644,442		16,545,375	1.88	%
Retail		14,953,930		14,921,785	1.69	%
Containers, Packaging, & Glass		17,412,372		14,424,156	1.64	%
Automotive		11,126,155		11,250,000	1.28	%
Utilities: Oil & Gas		9,931,992		10,000,000	1.13	%
Education		10,288,745		9,402,698	1.07	%
Media: Diversified & Production		5,676,087		5,776,237	0.66	%
Finance		1,562,775		4,779,849	0.54	%
FIRE: Real Estate		16,438,619		4,202,469	0.48	%
Energy: Oil & Gas		1,189,888		1,487,383	0.17	%
Hotel, Gaming, & Leisure		—		831,130	0.09	%
Total	$	922,796,573	$	881,666,450	100.00	%

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


					% of Total
					Investments
	Cost		Fair Value		at fair value
Services: Business	$	207,234,534	$	218,866,572	25.91	%
Healthcare & Pharmaceuticals		86,469,854		88,103,319	10.43	%
Media: Advertising, Printing & Publishing		52,830,447		52,525,839	6.22	%
Consumer Goods: Non-Durable		54,683,102		51,280,593	6.07	%
Consumer Goods: Durable		45,601,928		44,529,176	5.27	%
Aerospace & Defense		48,137,394		39,526,086	4.68	%
Software		37,582,855		37,975,255	4.50	%
Capital Equipment		33,538,647		33,801,951	4.00	%
Beverage, Food, & Tobacco		34,000,918		32,755,054	3.88	%
Construction & Building		26,948,135		26,406,849	3.13	%
Environmental Industries		27,771,798		26,247,936	3.11	%
Services: Consumer		43,302,101		24,616,706	2.92	%
Media: Broadcasting & Subscription		18,615,052		21,445,307	2.54	%
Chemicals, Plastics, & Rubber		18,487,206		17,903,999	2.12	%
Transportation & Logistics		16,768,763		17,161,972	2.03	%
Metals & Mining		16,708,750		16,464,001	1.95	%
Containers, Packaging, & Glass		17,436,600		13,977,250	1.65	%
Retail		13,303,536		13,217,256	1.56	%
High Tech Industries		14,126,954		12,648,347	1.50	%
Automotive		11,252,581		11,342,751	1.34	%
Education		11,057,921		10,498,760	1.24	%
Utilities: Oil & Gas		9,921,469		9,800,000	1.16	%
Energy: Oil & Gas		7,314,230		7,355,074	0.87	%
FIRE: Real Estate		15,642,093		5,866,397	0.69	%
Media: Diversified & Production		5,517,409		5,534,710	0.66	%
Finance		1,568,900		4,082,579	0.48	%
Hotel, Gaming, & Leisure		—		799,899	0.09	%
	$	875,823,177	$	844,733,638	100.00	%

At June 30, 2023, our average portfolio company investment at amortized cost and fair value was approximately $9.9 million and $9.5 million, respectively, and our largest portfolio company investment at amortized cost and fair value was $21.0 million and $19.0 million, respectively. At December 31, 2022, our average portfolio company investment at amortized cost and fair value was approximately $10.3 million and $9.9 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $21.3 million and $20.5 million, respectively.

At both June 30, 2023 and December 31, 2022, 97% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 3% bore interest at fixed rates.

The weighted average yield on all of our debt investments as of June 30, 2023 and December 31, 2022 was approximately 11.7% and 11.1%, respectively. The weighted average yield on all of our investments, including non-income producing equity positions, as of June 30, 2023 and December 31, 2022 was approximately 11.0% and 10.4%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of original issue discount. The weighted average yield of our debt investments is not the same as a return on investment for our stockholders, but rather relates to a portion of our investment portfolio and is calculated before the payment of all of our subsidiaries’ fees and expenses.

As of June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $14.9 million and $48.0 million, respectively.

Investment Activity

During the six months ended June 30, 2023, we made an aggregate of $87.7 million of investments in eleven new portfolio companies and thirteen existing portfolio companies. During the six months ended June 30, 2023, we received an aggregate of $44.3 million in proceeds from repayments of our investments.

Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital to middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.

Asset Quality

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

●

Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.

●

Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2.

●

Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.

●

Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected.

●

Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in work out. Investments with a rating of 5 are those for which some loss of return and principal is expected.


	As of June 30, 2023					As of December 31, 2022
	(dollars in millions)					(dollars in millions)
					Number of					Number of
			% of Total		Portfolio			% of Total		Portfolio
Investment Category	Fair Value		Portfolio		Companies⁽¹⁾	Fair Value		Portfolio		Companies
1	$	218.4	25	%	24	$	146.6	17	%	17
2		542.3	61	%	51		553.2	66	%	52
3		110.5	13	%	13		120.7	14	%	13
4		8.4	1	%	2		18.3	2	%	2
5		2.1	—	%	5		5.9	1	%	1
Total	$	881.7	100	%	95	$	844.7	100	%	85

(1)	Two portfolio companies appear in two categories as of June 30, 2023.

Loans and Debt Securities on Non-Accrual Status

We will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As of June 30, 2023, we had loans to four portfolio companies that were on non-accrual status, which represented approximately 5.9% of our loan portfolio at cost and 1.3% at fair value. As of December 31, 2022, we had loans to three portfolio companies that were on non-accrual status, which represented approximately 5.2% of our loan portfolio at cost and 2.3% at fair value. As of June 30, 2023 and December 31, 2022, $8.7 million and $4.8 million of income from investments on non-accrual has not been accrued, respectively.

Results of Operations

An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses including interest on borrowed funds. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.

Comparison of the three and six months ended June 30, 2023 and 2022

Revenues

We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest primarily at floating rates. Interest on our debt securities is generally payable quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind, or PIK interest. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn will increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.

The following shows the breakdown of investment income for the three and six months ended June 30, 2023 and 2022 (in millions).


	For the three months ended				For the six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Interest income⁽¹⁾	$	24.3	$	15.3	$	46.9	$	30.0
PIK interest		1.1		0.3		1.9		0.7
Miscellaneous fees⁽¹⁾		1.2		0.5		1.9		0.9
Total	$	26.6	$	16.1	$	50.7	$	31.6

(1)

For the three and six months ended June 30, 2023 and 2022, we recognized $0.4 million and $0.7 million, respectively, of non-recurring income related to early repayments and amendments to specific loan positions. For the three and six months ended June 30, 2022, we recognized ($0.2) million and ($0.1) million, respectively, of non-recurring income related to early repayments, interest write-offs and amendments to specific loan positions.

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

Expenses

Our primary operating expenses include the payment of fees to Stellus Capital under the investment advisory agreement, our allocable portion of overhead expenses under the administration agreement and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include:

●

organization and offering costs;

●

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

●

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

●

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

●

offerings of our commons stock and other securities;

●

base management and incentive fees;

●

administration fees and expenses, if any, payable under the administration agreement (including our allocable portion of Stellus Capital’s overhead in performing its obligations under the administration agreement, including rent and the allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs);

●

transfer agent and custodial fees and expenses;

●

U.S. federal and state registration fees;

●

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

●

U.S. federal, state and local taxes;

●

independent directors’ fees and expenses;

●

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

●

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

●

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

●

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

●

proxy voting expenses; and

●

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

The following shows the breakdown of operating expenses for the three and six months ended June 30, 2023 and 2022 (in millions).


	For the three months ended				For the six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Operating Expenses
Management fees	$	3.9	$	3.7	$	7.6	$	7.2
Valuation fees		—		—		0.2		0.2
Administrative services expenses		0.5		0.5		1.0		0.9
Income incentive fees		2.6		—		4.7		—
Capital gains incentive fee reversal		—		(1.0)		(0.6)		(1.0)
Professional fees		0.2		0.2		0.6		0.5
Directors’ fees		0.1		0.1		0.2		0.2
Insurance expense		0.1		0.1		0.2		0.3
Interest expense and other fees		8.1		5.5		16.0		10.4
Income tax expense		0.4		0.4		0.8		0.7
Other general and administrative expenses		0.3		0.4		0.5		0.5
Total Operating Expenses	$	16.2	$	9.9	$	31.2	$	19.9

The increase in operating expenses for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures, as well as rising interest rates, (2) higher management fees due to a larger investment portfolio and (3) higher incentive fees due to portfolio performance, offset by the capital gains incentive fee reversal.

Net Investment Income

For the three months ended June 30, 2023, net investment income was $10.4 million, or $0.49 per common share (based on 21,231,979 weighted average shares outstanding for the three months ended June 30, 2023).

For the three months ended June 30, 2022, net investment income was $6.1 million, or $0.32 per common share (based on 19,543,117 weighted average shares outstanding for the three months ended June 30, 2022).

For the six months ended June 30, 2023, net investment income was $19.5 million, or $0.95 per common share (based on 20,509,995 weighted average shares outstanding for the six months ended June 30, 2023).

For the six months ended June 30, 2022, net investment income was $11.7 million, or $0.60 per common share (based on 19,530,509 weighted average shares outstanding for the six months ended June 30, 2022).

The increase in net investment income over the respective periods was due to higher investment income as a result of a larger investment portfolio, and rising interest rates, offset by the increase in expenses as explained in the “Expenses” section above.

Net Realized Gains and Losses

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

Proceeds from repayments of investments and amortization of certain other investments for the three months ended June 30, 2023 totaled $38.4 million and net realized losses totaled $(0.3) million.

Proceeds from repayments of investments and amortization of certain other investments for the three months ended June 30, 2022 totaled $48.2 million and net realized losses totaled ($0.4) million.

Proceeds from repayments of investments and amortization of certain other investments for the six months ended June 30, 2023 totaled $44.3 million and net realized losses totaled $(0.3) million.

Proceeds from repayments of investments and amortization of certain other investments for the six months ended June 30, 2022 totaled $58.2 million and net realized gains totaled $3.1 million.

Net Change in Unrealized Appreciation (Depreciation) of Investments

Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

Net change in unrealized depreciation on investments and cash equivalents for the three months ended June 30, 2023 and 2022 totaled ($6.3) million and ($4.3) million, respectively.

Net change in unrealized depreciation on investments and cash equivalents for the six months ended June 30, 2023 and 2022 totaled ($10.5) million and ($8.0) million, respectively.

The change in unrealized depreciation over the respective periods was due to company-specific investment write-downs, offset by company-specific write-ups.

Provision for Taxes on Unrealized Appreciation on Investments

We have direct wholly owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are “pass through” entities for U.S. federal income tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with us for U.S. federal income tax purposes and may generate U.S. federal income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The U.S. federal income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For the three months ended June 30, 2023 and 2022, we recognized a provision for income tax on unrealized investments of $65.4 thousand and $35.8 thousand for the Taxable Subsidiaries, respectively. For the six months ended June 30, 2023 and 2022, we recognized a provision for income tax on unrealized investments of $144.1 thousand and $181.8 thousand for the Taxable Subsidiaries, respectively. As of June 30, 2023 and December 31, 2022, there was $140.7 thousand and $61.9 thousand of deferred tax liabilities on the Consolidated Statements of Assets and Liabilities, respectively.

Net Increase in Net Assets Resulting from Operations

For the three months ended June 30, 2023, net increase in net assets resulting from operations totaled $3.7 million, or $0.17 per common share (based on 21,231,979 weighted average shares outstanding for the three months ended June 30, 2023).

For the three months ended June 30, 2022, net increase in net assets resulting from operations totaled $1.3 million, or $0.07 per common share (based on 19,543,117 weighted average shares outstanding for the three months ended June 30, 2022).

For the six months ended June 30, 2023, net increase in net assets resulting from operations totaled $8.4 million, or $0.41 per common share (based on 20,509,995 weighted average shares outstanding for the six months ended June 30, 2023).

For the six months ended June 30, 2022, net increase in net assets resulting from operations totaled $6.6 million, or $0.34 per common share (based on 19,530,509 weighted average shares outstanding for the six months ended June 30, 2022).

The net increase in net assets between the respective periods was due to higher net investment income, offset by unrealized depreciation recognized in the current year.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

Our operating activities used net cash of $32.0 million for the six months ended June 30, 2023, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the six months ended June 30, 2023 used cash of $1.2 million primarily from stockholder distributions and net paydowns on our Credit Facility, offset by proceeds from the issuance of common stock.

Our operating activities used net cash of $76.9 million for the six months ended June 30, 2022, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the six months ended June 30, 2022 provided cash of $59.2 million primarily from proceeds from SBA-guaranteed debentures and net borrowings on our Credit Facility.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from the Credit Facility, 2026 Notes, SBA-guaranteed debentures and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of dividends to the holders of our common stock. We used, and expect to continue to use, these capital resources as well as proceeds from turnover within our portfolio and from public and private offerings of securities to finance our investment activities.

Although we expect to fund the growth of our investment portfolio through the net proceeds from future public and private equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not

be successful. In this regard, if our common stock trades at a price below our then-current net asset value per share, we may be limited in our ability to raise equity capital given that we cannot sell our common stock at a price below net asset value per share unless our stockholders approve such a sale and our Board makes certain determinations in connection therewith. A proposal, approved by our stockholders at our 2023 annual stockholders meeting, authorizes us to sell up to 25% of our outstanding common shares at a price equal to or below the then current net asset value per share in one or more offerings. This authorization will expire on the earlier of June 22, 2024, the one-year anniversary of our 2023 annual stockholders meeting or the date of our 2024 annual stockholder meeting. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

Also, as a BDC, we generally are required to meet an asset coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of the senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 150% effective June 29, 2018 (at least 200% prior to June 29, 2018). This requirement limits the amount that we may borrow. We have received exemptive relief from the SEC to permit us to exclude the debt of the Stellus Capital SBIC, LP (the “SBIC subsidiary”) and Stellus Capital SBIC II, LP (the “SBIC II subsidiary”) (collectively, the “SBIC subsidiaries”) guaranteed by the U.S. Small Business Administration (“SBA”) from the definition of senior securities in the asset coverage test under the 1940 Act. We were in compliance with the asset coverage ratios at all times. As of June 30, 2023 and December 31, 2022, our asset coverage ratio was 214% and 192%, respectively. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. As of June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $14.9 million and $48.0 million, respectively.

Credit Facility

The Credit Facility, as amended and restated, provides for borrowings up to a maximum of $265.0 million on a committed basis with an accordion feature that allows us to increase the aggregate commitments up to $280.0 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.

Pursuant to the Third Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement the Credit Facility will bear interest, subject to the Company’s election, on a per annum basis equal to (i) term SOFR plus 2.50% (or 2.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus a SOFR credit spread adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR floor, or (ii) 1.50% (or 1.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus an alternate base rate based on the highest of the prime rate (subject to a 3% floor), Federal Funds Rate plus 0.50% and one month term SOFR plus 1.00%. The Company pays unused commitment fees of 0.50% per annum on the unused lender commitments under the Credit Facility. Interest is payable monthly or quarterly in arrears. The commitment to fund the revolver expires on September 18, 2024, after which the Company may no longer borrow under the Credit Facility and must begin repaying principal equal to 1/12 of the aggregate amount outstanding under the Credit Facility each month. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 18, 2025.

Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10.0 million, including cash, liquid investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.0, and (iii) maintaining a minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 2.00 to 1.00. As of June 30, 2023, we were in compliance with these covenants.

As of June 30, 2023 and December 31, 2022, $171.5 million and $199.2 million, respectively, was outstanding under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair values of the Credit Facility is determined in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We incurred costs of $4.0 million in connection with the current Credit Facility, which are being amortized over the life of the facility. Additionally, $0.3 million of costs from a prior credit facility will continue to be amortized over the remaining life of the Credit Facility. As of June 30, 2023 and December 31, 2022, $1.2 million and $1.5 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

Interest is paid quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the three and six months ended June 30, 2023 and 2022 (dollars in millions):


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Interest expense	$	3.9		$	1.8		$	7.6		$	3.2
Loan fee amortization		0.1			0.1			0.3			0.3
Total interest and financing expenses	$	4.0		$	1.9		$	7.9		$	3.5
Weighted average interest rate		7.8	%		3.4	%		7.6	%		3.1	%
Effective interest rate (including fee amortization)		8.1	%		3.8	%		7.9	%		3.5	%
Average debt outstanding	$	198.5		$	206.5		$	200.5		$	199.7
Cash paid for interest and unused fees	$	4.0		$	1.9		$	7.6		$	3.2

SBA-Guaranteed Debentures

Due to the SBIC subsidiaries’ status as Small Business Investment Companies (“SBICs”), we have, we have the ability to issue debentures guaranteed by the SBA at favorable interest rates (“SBA-guaranteed debentures”). Under the regulations applicable to SBIC funds, a single licensee can have outstanding SBA-guaranteed debentures, subject to a regulatory leverage limit, up to two times the amount of regulatory capital. As of both June 30, 2023 and December 31, 2022, the SBIC subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA and $150.0 million of SBA-guaranteed debentures outstanding.

As of both June 30, 2023 and December 31, 2022, the SBIC II subsidiary had $87.5 million in regulatory capital and $163.6 million of SBA-guaranteed debentures outstanding.

On August 12, 2014, we obtained exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from our 150% asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the 150% asset coverage test by permitting us to borrow up to $325.0 million more than we would otherwise be able to absent the receipt of this exemptive relief.

On a stand-alone basis, the SBIC subsidiaries held $482.5 million and $470.7 million in assets at June 30, 2023 and December 31, 2022, respectively, which accounted for approximately 53.5% and 52.4% of our total consolidated assets, respectively.

SBA-guaranteed debentures have fixed interest rates that equal prevailing 10-year U.S. Treasury Note rates plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity but may be pre-paid at any time with no prepayment penalty. SBA-guaranteed debentures drawn before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

The fair values of the SBA-guaranteed debentures are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the SBA-guaranteed debentures is estimated based upon market interest rates for our own

borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At June 30, 2023 and December 31, 2022, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of June 30, 2023, we have incurred $10.9 million in financing costs related to the SBA-guaranteed debentures since the SBIC subsidiaries received their licenses, which were recorded as prepaid loan fees. As of June 30, 2023 and December 31, 2022, $5.1 and $5.7 million of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and six months ended June 30, 2023 and 2022 (dollars in millions):


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Interest expense	$	2.4		$	1.9		$	4.8		$	3.7
Debenture fee amortization		0.3			0.3			0.7			0.6
Total interest and financing expenses	$	2.7		$	2.2		$	5.5		$	4.3
Weighted average interest rate		3.1	%		2.7	%		3.1	%		2.7	%
Effective interest rate (including fee amortization)		3.5	%		3.1	%		3.5	%		3.2	%
Average debt outstanding	$	313.6		$	287.8		$	313.6		$	271.1
Cash paid for interest	$	—		$	—		$	4.7		$	3.4

Notes Offering

On January 14, 2021, we issued $100.0 million in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the “2026 Notes”). The 2026 Notes will mature on March 30, 2026 and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2025 at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest is payable semi-annually beginning June 30, 2022.

As of both June 30, 2023 and December 31, 2022, the aggregate carrying amount of the 2026 Notes were approximately $100.0 million. The 2026 Notes are institutional, non-traded notes.

In connection with the issuance of the 2026 Notes, we have incurred $2.3 million of fees which are being amortized over the term of the 2026 Notes, of which $1.2 million and $1.5 million remains to be amortized as of June 30, 2023 and December 31, 2022, respectively. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following table summarizes the interest expense and deferred financing costs on the 2026 Notes for the three and six months ended June 30, 2023 and 2022 (dollars in millions):


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Interest expense	$	1.2		$	1.2		$	2.5		$	2.5
Deferred financing costs		0.1			0.1			0.2			0.2
Total interest and financing expenses	$	1.3		$	1.3		$	2.7		$	2.7
Weighted average interest rate		4.9	%		4.9	%		4.9	%		4.9	%
Effective interest rate (including fee amortization)		5.4	%		5.3	%		5.4	%		5.4	%
Average debt outstanding	$	100.0		$	100.0		$	100.0		$	100.0
Cash paid for interest	$	—		$	—		$	2.4		$	2.4

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of June 30, 2023, our only off-balance sheet arrangements consisted of $20.5 million of unfunded commitments to provide debt financing and $0.7 million in unfunded equity commitments to 55 existing portfolio companies. As of December 31, 2022, our only off-balance sheet arrangements consisted of $27.5 million of unfunded commitments to provide debt financing to 52 existing portfolio companies and $0.3 million in unfunded equity commitments to one existing portfolio company. As of

June 30, 2023, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.

Regulated Investment Company Status and Dividends

We have elected, have qualified, and intend to qualify annually to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. So long as we maintain our qualification as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders as dividends on a timely basis.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Distributions declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.

To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we maintain our qualification as a RIC, we must also satisfy certain distribution requirements each calendar year in order to avoid a federal excise tax on our undistributed earnings of a RIC. As of December 31, 2022, we had $28.6 million of undistributed taxable income that will be carried forward toward distributions paid during the year ending December 31, 2023.

We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). However, the covenants contained in the Credit Facility may prohibit us from making distributions to our stockholders, and, as a result, could hinder our ability to satisfy the distribution requirement. In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our dividends for that fiscal year, a portion of those dividend distributions may be deemed a return of capital to our stockholders.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and due to provisions in Credit Facility. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.

In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (the “IRS”), a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash.

If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these U.S. Treasury regulations or private letter rulings. However, we continue to monitor the Company’s liquidity position and the overall economy and will continue to assess whether it would be in our and our shareholders best interest to take advantage of the IRS rulings.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements contained herein for a description of recent accounting pronouncements, if any, including the expected dates of adoption and the anticipated impact on the financial statements.

Critical Accounting Policies

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

Subsequent Events

Investment Portfolio

The Company invested in the following portfolio companies subsequent to June 30, 2023:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
New Investment	July 7, 2023	Madison Logic, Inc.*	Provider of B2B account based marketing services	$	394,767	Equity
Add-On Investment	July 12, 2023	EH Real Estate Services, LLC*	Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyers and sellers	$	501,846	Senior Secured – First Lien



New Investment	July 31, 2023	EHI Buyer, Inc.	Provider of design, engineering, installation, and maintenance services for building management systems	$	6,111,343	Senior Secured – First Lien
				$	3,055,671	Delayed Draw Term Loan Commitment
				$	100,000	Revolver Commitment
				$	617,801	Equity
New Investment	August 2, 2023	Compost 360 Acquisition, LLC	Organic waste recycler and producer of compost, mulch, and engineered soils	$	9,595,100	Senior Secured – First Lien
				$	4,096,741	Delayed Draw Term Loan Commitment
				$	100,000	Revolver Commitment
				$	250,761	Equity
New Investment	August 3, 2023	Morgan Electrical Group Intermediate Holdings, Inc.	Provider of commercial electrical services	$	4,439,439	Senior Secured – First Lien
				$	2,864,154	Delayed Draw Term Loan Commitment
				$	100,000	Revolver Commitment
				$	356,800	Equity
Add-On Investment	August 4, 2023	TradePending OpCo Aggregator, LLC*	Provider of vehicle trade-in and merchandising intelligence solutions for auto dealerships	$	2,473,227	Senior Secured – First Lien
				$	687,007	Delayed Draw Term Loan Commitment
				$	325,379	Equity
New Investment	August 7, 2023	The Hardenbergh Group, Inc.	Provider of temporary professional staffing of Medical Services Professionals, external peer review, consulting and physician leadership solutions	$	10,501,898	Senior Secured – First Lien
				$	100,000	Revolver Commitment
				$	434,504	Equity
New Investment	August 8, 2023	Green Intermediateco II, Inc.	Cyber-security focused value-added reseller and associated service provider	$	11,170,252	Senior Secured – First Lien
				$	500,000	Delayed Draw Term Loan Commitment
				$	271,401	Equity

* Existing portfolio company

The Company realized the following portfolio company subsequent to June 30, 2023:


Activity Type	Date	Company Name	Company Description	Proceeds Received	Instrument Type
Full Repayment	July 31, 2023	NuSource Financial, LLC*	Provider of technology integration and installation of Automated Teller Machines/Integrated Teller Machines, maintenance services, and security solutions	$10,984,910	Senior Secured – First Lien

* Existing portfolio company

Effective July 1, 2023, the ArborWorks Acquisition, LLC term loan and revolver were placed on non-accrual status.

Credit Facility

The outstanding balance under the Credit Facility as of August 9, 2023 was $187.2 million.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed debentures outstanding as of August 9, 2023 was $322.7 million.

Dividend Declared

On July 14, 2023, the Board declared a regular monthly dividend for each of July 2023, August 2023, and September 2023 as follows:


	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
7/14/2023	7/28/2023	7/31/2023	8/15/2023	$	0.1333
7/14/2023	8/30/2023	8/31/2023	9/15/2023	$	0.1333
7/14/2023	9/28/2023	9/29/2023	10/13/2023	$	0.1333

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. In connection with the COVID-19 pandemic, the U.S. Federal Reserve (the "Federal Reserve") and other central banks had reduced certain interest rates. However, in March 2022, the Federal Reserve raised interest rates for the first time since December 2018, and subsequently raised interest rates several times, most recently in July 2023, bringing the target for the federal funds rate to 5.25% - 5.50%, the highest since January 2001. As of both June 30, 2023 and December 31, 2022, 97% of the loans in our portfolio bore interest at floating rates. These floating rate loans typically bear interest in reference to LIBOR and SOFR, which are indexed to 30-day or 90-day LIBOR and SOFR rates, subject to an interest rate floor. As of June 30, 2023 and December 31, 2022, the weighted average interest rate floor on our floating rate loans was 1.16% and 1.07%, respectively.

On July 1, 2023, the publication of all LIBOR settings as representative rates has ceased. As of June 30, 2023, we have facilitated an orderly transition of our investments to SOFR. Any remaining USD LIBOR-based investments will transition subsequent to June 30, 2023 or the next contract reset date.

Assuming that the Consolidated Statements of Assets and Liabilities as of June 30, 2023 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates:


	($ in millions)
	Interest			Interest		Net Interest
Change in Basis Points⁽²⁾	Income			Expense⁽³⁾		Income⁽¹⁾
Up 200 basis points	$	16.1	$	(3.4)	$	12.7
Up 150 basis points		12.1		(2.6)		9.5
Up 100 basis points		8.1		(1.7)		6.4
Up 50 basis points		4.0		(0.9)		3.1
Down 50 basis points		(4.0)		0.9		(3.1)
Down 100 basis points		(8.1)		1.7		(6.4)
Down 150 basis points		(12.1)		2.6		(9.5)
Down 200 basis points		(16.1)		3.4		(12.7)

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

(2)	At June 30, 2023, the three month LIBOR rate was 555 basis points and the three month SOFR rate was 527 basis points. This table assumes floating rates would not fall below zero.

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

Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as

futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the three and six months ended June 30, 2023 and 2022, we did not engage in hedging activities.

Item 4.Controls and Procedures

(a)	Evaluation of Disclosure Controls and Procedures

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

(b)	Changes in Internal Control Over Financial Reporting

The Company’s management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2023 that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or our subsidiaries. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A.Risk Factors

Investing in our securities involves a number of significant risks. In addition to the other information set forth in this quarterly report on Form 10-Q, including the risk factors set forth below, you should carefully consider the risk factors discussed in “Item 1A. Risk Factors” of Annual Report on Form 10-K filed with the SEC on February 28, 2023, all of which could materially affect our business, financial condition and/or results of operations. Although the risks described below and in our other SEC filings referenced above represent the principal risks associated with an investment in us, they are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, might materially and adversely affect our business, financial condition and/or results of operations.

Other than as described below, during the six months ended June 30, 2023, there have been no material changes to the risk factors discussed in our SEC filings referenced above.

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

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

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

No shares were issued under the distribution reinvestment program during either of the six months ended June 30, 2023 and 2022.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Rule 10b5-1 Trading Plans

During the fiscal quarter ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6.Exhibits.

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


Exhibit Number		Description
3.1		Articles of Amendment and Restatement (Incorporated by reference to Exhibit (a)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).

3.2		Bylaws (Incorporated by reference to Exhibit (b)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).

4.1		Form of Stock Certificate (Incorporated by reference to Exhibit (d) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).
31.1		Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

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

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

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

101.INS*		XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File — The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

*	Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 9, 2023	STELLUS CAPITAL INVESTMENT CORPORATION

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

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