PHENIXFIN : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion and analysis should be read in conjunction with our
financial statements and related notes and other financial information appearing
elsewhere in this quarterly report on Form 10-Q.

Except as otherwise specified, references to "we," "us," "our," or the "Company," refer to PhenixFIN Corporation (f/k/a Medley Capital Corporation).

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 our 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:

? the introduction, withdrawal, success and timing of business initiatives and

   strategies;

? changes in political, economic or industry conditions, the interest rate

environment or conditions affecting the financial and capital markets, which

could result in changes in the value of our assets;

? the impact of increased competition;

? the impact of future acquisitions and divestitures;

? our business prospects and the prospects of our portfolio companies;

? the impact of legislative and regulatory actions and reforms and regulatory,

supervisory or enforcement actions of government agencies relating to us;

? our contractual arrangements and relationships with third parties;

? any future financings by us;

? fluctuations in foreign currency exchange rates;

? the impact of changes to tax legislation and, generally, our tax position;

? the unfavorable resolution of legal proceedings;

? uncertainties associated with the impact from the COVID-19 pandemic: including

its impact on the global and U.S. capital markets and the global and U.S.

economy; the length and duration of the COVID-19 outbreak in the United States

as well as worldwide and the magnitude of the economic impact of that outbreak;

the effect of the COVID-19 pandemic on our business prospects and the

operational and financial performance of our portfolio companies, including our

and their ability to achieve their respective objectives; and the effect of the

disruptions caused by the COVID-19 pandemic on our ability to continue to

effectively manage our business; and

? risks and uncertainties relating to the possibility that the Company may

explore strategic alternatives, including, but are not limited to: the timing,

benefits and outcome of any exploration of strategic alternatives by the

Company; potential disruptions in the Company's business and stock price as a

result of our exploration of any strategic alternatives; the ability to realize

anticipated efficiencies, or strategic or financial benefits; potential

transaction costs and risks; and the risk that any exploration of strategic

alternatives may have an adverse effect on our existing business arrangements

or relationships, including our ability to retain or hire key personnel. There

is no assurance that any exploration of strategic alternatives will result in a

   transaction or other strategic change or outcome.




Such forward-looking statements may include statements preceded by, followed by
or that otherwise include the words "trend," "opportunity," "pipeline,"
"believe," "comfortable," "expect," "anticipate," "current," "intention,"
"estimate," "position," "assume," "potential," "outlook," "continue," "remain,"
"maintain," "sustain," "seek," "achieve," and similar expressions, or future or
conditional verbs such as "will," "would," "should," "could," "may," or similar
expressions. The forward looking statements contained in this quarterly report
on Form 10-Q involve risks and uncertainties. Our actual results could differ
materially from those implied or expressed in the forward-looking statements for
any reason, including the factors set forth as "Risk Factors" in this quarterly
report on Form 10-Q.



We have based the forward-looking statements included in this report on
information available to us on the date of this report, and we assume no
obligation to update any such forward-looking statements. Actual results could
differ materially from those anticipated in our forward-looking statements, and
future results could differ materially from historical performance. Although we
undertake no obligation to revise or update any forward-looking statements,
whether as a result of new information, future events or otherwise, you are
advised to consult any additional disclosures that we may make directly to you
or through reports that we have filed or in the future may file with the SEC,
including quarterly reports on Form 10-Q, registration statements on Form N-2,
annual reports on Form 10-K, and current reports on Form 8-K.



                                       49





COVID-19 Developments



On March 11, 2020, the World Health Organization declared the novel coronavirus
("COVID-19") as a pandemic, and, on March 13, 2020, the United States declared a
national emergency with respect to COVID-19. The outbreak of COVID-19 has
severely impacted global economic activity and caused significant volatility and
negative pressure in financial markets. The global impact of the outbreak has
been rapidly evolving and many countries, including the United States, have
reacted by instituting quarantines, restricting travel, and temporarily closing
or limiting capacity at many corporate offices, retail stores, restaurants,
fitness clubs and manufacturing facilities and factories in affected
jurisdictions. Such actions are creating disruption in global supply chains and
adversely impacting a number of industries. The outbreak has had and could
continue to have an adverse impact on economic and market conditions and trigger
a period of global economic slowdown.



We are closely monitoring the impact of the outbreak of COVID-19 on all aspects
of our business, including how it will impact our portfolio companies,
employees, due diligence and underwriting processes, and financial markets.
Given the rapid development and fluidity of this situation, we cannot estimate
the long-term impact of COVID-19 on our business, future results of operations,
financial position or cash flows at this time. Further, the operational and
financial performance of the portfolio companies in which we make investments
may be significantly impacted by COVID-19, which may in turn impact the
valuation of our investments. We believe our portfolio companies have taken
immediate actions to effectively and efficiently respond to the challenges posed
by COVID-19 and related orders imposed by state and local governments, including
developing liquidity plans supported by internal cash reserves, shareholder
support, and, as appropriate, accessing their ability to participate in the
government Paycheck Protection Program. The Company's performance was negatively
impacted during the the pandemic. The longer-term impact of COVID-19 on the
operations and the performance of the Company (including certain portfolio
companies) is difficult to predict, but may also be adverse. The longer-term
potential impact on such operations and performance could depend to a large
extent on future developments and actions taken by authorities and other
entities to contain COVID-19 and its economic impact. The impacts, as well as
the uncertainty over impacts to come, of COVID-19 have adversely affected the
performance of the Company (including certain portfolio companies) and may
continue to do so in the future. Furthermore, the impacts of a potential
worsening of global economic conditions and the continued disruptions to and
volatility in the financial markets remain unknown. COVID-19 presents material
uncertainty and risks with respect to the underlying value of the Company's
portfolio companies, the Company's business, financial condition, results of
operations and cash flows, such as the potential negative impact to financing
arrangements, increased costs of operations, changes in law and/or regulation,
and uncertainty regarding government and regulatory policy.



We have evaluated subsequent events from December 31, 2020 through February 16,
2020, the filing date of this quarterly report on Form 10-Q. However, as the
discussion in this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations relates to the Company's financial
statements for the quarterly period end December 31, 2020, the analysis
contained herein may not fully account for impacts relating to the COVID-19
pandemic. In that regard, for example, as of December 31, 2020, the Company
valued its portfolio investments in conformity with U.S. GAAP based on the facts
and circumstances known by the Company at that time, or reasonably expected to
be known at that time. Due to the overall volatility that the COVID-19 pandemic
has caused during the months that followed our December 31, 2020 valuation, any
valuations conducted now or in the future in conformity with U.S. GAAP could
result in a lower fair value of our portfolio. The longer-term impact of
COVID-19 on the operations and the performance of the Company (including certain
portfolio companies) is difficult to predict, but may also be adverse. The
longer-term potential impact on such operations and performance could depend to
a large extent on future developments and actions taken by authorities and other
entities to contain COVID-19 and its economic impact. The impacts, as well as
the uncertainty over impacts to come, of COVID-19 have adversely affected the
performance of the Company and may continue to do so in the future.



Overview

We are a non-diversified closed-end management investment company that has
elected to be regulated as a BDC under the 1940 Act. In addition, we have
elected, and intend to qualify annually, to be treated for U.S. federal income
tax purposes as a RIC under Subchapter M of the Code. Through the end of the
quarter, December 31, 2020, we were an externally managed company. On November
18, 2020, the board of directors of the Company approved the adoption of an
internalized management structure, effective January 1, 2021.



We commenced operations and completed our initial public offering on January 20,
2011. Our activities are managed by our senior professionals and are supervised
by our board of directors, of which a majority of the members are independent of
us.



The Company's investment objective is to generate current income and capital
appreciation primarily through loans to privately-held middle market companies.
The portfolio generally consists of senior secured first lien term loans, senior
secured second lien term loans, preferred equity and common equity.
Occasionally, we will receive warrants or other equity participation features
which we believe will have the potential to increase the total investment
returns. These investments are primarily rated below investment grade or are
unrated. Investments in below investment grade securities are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal when due.



As a BDC, we are required to comply with certain regulatory requirements. For
instance, we generally have to invest at least 70% of our total assets in
"qualifying assets," including securities of private or thinly traded public
U.S. companies, cash, cash equivalents, U.S. government securities and
high-quality debt investments that mature in one year or less. In addition, we
are only allowed to borrow money such that our asset coverage, as defined in the
1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain
requirements are met) after such borrowing, with certain limited exceptions. To
maintain our RIC tax treatment, we must meet specified source-of-income and
asset diversification requirements. In addition, to maintain our RIC tax
treatment, we must timely distribute at least 90% of our net ordinary income and
realized net short-term capital gains in excess of realized net long-term
capital losses, if any, for the taxable year.

NYSE Continued Listing Status

On April 10, 2020, the Company received written notification, from the NYSE that
it was not in compliance with an NYSE continued listing standard in Section
802.01C of the NYSE Listed Company Manual ("Section 802.01C") because the
average closing price of the Company's common stock over a period of 30
consecutive trading days was below $1.00 per share. The Company can regain
compliance with Section 802.01C at any time during the six-month cure period if,
on the last trading day of any calendar month during the cure period, it has (i)
a closing share price of at least $1.00 per share and (ii) an average closing
price of at least $1.00 per share over the 30 trading-day period ending on the
last trading day of that month. As described in detail below, the Company
effected the Reverse Stock Split (as defined below), effective as of July 24,
2020, which is intended to bring the Company into compliance with Section
802.01C.

                                       50

Reverse Stock Split; Authorized Share Reduction

At the Company's 2020 Annual Meeting of Stockholders held on June 30, 2020 (the
"Annual Meeting"), stockholders approved a proposal to grant discretionary
authority to the Company's board of directors to amend the Company's Certificate
of Incorporation (the "Certificate of Incorporation") to effect a reverse stock
split of its common stock, of 1-20 (the "Reverse Stock Split") and with the
Reverse Stock Split to be effective at such time and date, if at all, as
determined by the board of directors, but not later than 60 days after
stockholder approval thereof and, if and when the reverse stock split is
effected, reduce the number of authorized shares of common stock by the approved
reverse stock split ratio (the "Authorized Share Reduction").



Following the Annual Meeting, on July 7, 2020, the board of directors determined
that it was in the best interests of the Company and its stockholders to
implement the Reverse Stock Split and the Authorized Share Reduction.
Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the
"Certificate of Amendment") to the Certificate of Incorporation with the
Secretary of State of the State of Delaware to effect the Reverse Stock Split
and the Authorized Share Reduction.



Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern
Time, on July 24, 2020 (the "Effective Time"), each twenty (20) shares of common
stock issued and outstanding, immediately prior to the Effective Time,
automatically and without any action on the part of the respective holders
thereof, were combined and converted into one (1) share of common stock. In
connection with the Reverse Stock Split, the Certificate of Amendment provided
for a reduction in the number of authorized shares of common stock from
100,000,000 to 5,000,000 shares of common stock. No fractional shares were
issued as a result of the Reverse Stock Split. Instead, any stockholder who
would have been entitled to receive a fractional share as a result of the
Reverse Stock Split received cash payments in lieu of such fractional shares
(without interest and subject to backup withholding and applicable withholding
taxes).



On December 21, 2020, the Company announced that it completed the application
process for and was authorized to transfer the listing of its shares of common
stock to the NASDAQ Global Market. The listing and trading of the common stock
on the NYSE ceased at the close of trading on December 31, 2020. Effective
January 4, 2021, the common stock trades on the NASDAQ Global Market under

the
trading symbol "PFX."



Revenues

We generate revenue in the form of interest income on the debt that we hold and
capital gains, if any, on warrants or other equity interests that we may acquire
in portfolio companies. We invest our assets primarily in privately held
companies with enterprise or asset values between $25 million and $250 million
and focus on investment sizes of $10 million to $50 million. We believe that
pursuing opportunities of this size offers several benefits including reduced
competition, a larger investment opportunity set and the ability to minimize the
impact of financial intermediaries. We expect our debt investments to bear
interest at either a fixed or floating rate. Interest on debt will be payable
generally either monthly or quarterly. In some cases our debt investments may
provide for a portion of the interest to be PIK. To the extent interest is PIK,
it will be payable through the increase of the principal amount of the
obligation by the amount of interest due on the then-outstanding aggregate
principal amount of such obligation. The principal amount of the debt and any
accrued but unpaid interest will generally become due at the maturity date. In
addition, we may generate revenue in the form of commitment, origination,
structuring or diligence fees, fees for providing managerial assistance or
investment management services and possibly consulting fees. Any such fees will
be generated in connection with our investments and recognized as earned.



Expenses



For the quarter ended December 31, 2020 our primary operating expenses included
the payment of management and incentive fees pursuant to the investment
management agreement we had with MCC Advisors and overhead expenses, including
our allocable portion of our administrator's overhead under the administration
agreement. Our management and incentive fees compensated MCC Advisors for its
work in identifying, evaluating, negotiating, closing and monitoring our
investments. On November 18, 2020, the board of directors adopted an internally
managed structure, effective January 1, 2021, under which we will continue to
bear all costs and expenses of our operations and transactions, including those
relating to:

? our organization and continued corporate existence;

? calculating our NAV (including the cost and expenses of any independent

   valuation firms);

? salaries, compensation and benefits for our employees and any consultants,

including investment professionals;

 ? interest payable on debt, if any, incurred to finance our investments;




 ? the costs of all offerings of common stock and other securities, if any;

? the base management fee and any incentive fee;

? distributions on our shares;

? administration fees payable under our administration agreement with U.S.

   Bancorp;

? amounts payable to third parties relating to, or associated with, making

   investments;

? transfer agent and custodial fees;

? registration fees and listing fees;

                                       51

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

? independent director fees and expenses;

? costs of preparing and filing reports or other documents with the SEC or other

   regulators;

? the costs of any reports, proxy statements or other notices to our

stockholders, including printing costs;

 ? our fidelity bond;

? directors and officers/errors and omissions liability insurance, and any other

   insurance premiums;




 ? indemnification payments;

? direct costs and expenses of administration, including audit and legal costs;

   and

? all other expenses reasonably incurred by us in connection with administering

   our business, such as rent for our office space.




Expense Support Agreement



On June 12, 2020, the Company entered into an expense support agreement (the
"Expense Support Agreement") with MCC Advisors and Medley LLC, pursuant to which
MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management
fee and all of the Company's other operating expenses (except interest expenses,
certain extraordinary strategic transaction expenses, and other expenses
approved by the Special Committee of the Board (as described in Note 10)), at
$667,000 per month (the "Cap"). Under the Expense Support Agreement, the Cap
became effective on June 1, 2020 and was to expire on September 30, 2020. On
September 29, 2020, the board of directors, including all of the independent
directors, extended the term of the Expense Support Agreement through the end of
quarter ending December 31, 2020. The Expense Support Agreement expired by its
terms at the close of business on December 31, 2020, in connection with the
adoption of the internalized management structure by the board of directors.



For the three months ended December 31, 2020, the total management fee and the
other operating expenses subject to the Cap (as described above) were $2.5
million, which resulted in $0.3 million of expense support due from MCC
Advisors. The $0.3 million of expense support due has been netted against
Administrator expenses payable in the accompanying Consolidated Statements of
Assets and Liabilities. See "Note 6" for more information.

Portfolio and Investment Activity

As of December 31, 2020 and September 30, 2020, our portfolio had a fair market value of approximately $159.5 million and $246.7 million, respectively. The following table summarizes our portfolio and investment activity during the three months ended December 31, 2020 and 2019 (dollars in thousands):

                                                                 For the three months ended
                                                                        December 31,
                                                                    2020               2019

Investments made in new portfolio companies                    $            -       $    5,000
Investments made in existing portfolio companies                          167            1,665
Aggregate amount in exits and repayments                              (72,020 )        (65,000 )
Net investment activity                                        $      

(71,853 ) $ (58,335 )

Portfolio Companies, at beginning of period                                42               51
Number of new portfolio companies                                           0                1
Number of exited portfolio companies                                       (4 )             (6 )
Portfolio companies, at end of period                                      38               46

Number of investments in existing portfolio companies                      

2                5

The following table summarizes the amortized cost and the fair value of our
average portfolio company, including the equity investment in the MCC Senior
Loan Strategy JV I LLC ("MCC JV"), and largest portfolio company, excluding the
equity investment in the MCC JV, as of December 31, 2020 and September 30, 2020
(dollars in thousands):



                                                   December 31, 2020                    September 30, 2020
                                            Amortized Cost       Fair Value       Amortized Cost       Fair Value

Average portfolio company                  $          3,264     $      2,417     $          7,813     $      5,875
Largest portfolio company                            19,469           34,311               37,987           40,807




                                       52

The following table summarizes the amortized cost and the fair value of investments as of December 31, 2020 (dollars in thousands):

                                           Amortized
                                              Cost         Percentage       Fair Value       Percentage

Senior Secured First Lien Term Loans       $  162,049             77.6 %   $     88,061             55.2 %
Senior Secured Second Lien Term Loans           7,976              3.8     

      7,586              4.8
Unsecured Debt                                  4,061              1.9            2,120              1.3
Equity/Warrants                                34,784             16.7           61,774             38.7
Total Investments                          $  208,870            100.0 %   $    159,541            100.0 %

The following table summarizes the amortized cost and the fair value of investments as of September 30, 2020 (dollars in thousands):

                                           Amortized
                                              Cost         Percentage       Fair Value       Percentage

Senior Secured First Lien Term Loans       $  178,843             54.5 %   $    106,463             43.2 %
Senior Secured Second Lien Term Loans          15,476              4.7           13,927              5.6
Unsecured Debt                                  4,601              1.4            2,669              1.1
MCC Senior Loan Strategy JV I LLC              79,888             24.4     

     41,019             16.6
Equity/Warrants                                49,327             15.0           82,666             33.5
Total                                      $  328,135            100.0 %   $    246,744            100.0 %




As of December 31, 2020, our income-bearing investment portfolio represented
57.8% of our total portfolio of which 84.66% bore interest based on floating
rates, such as the London Interbank Offering Rate ("LIBOR"), while 15.34% bore
interest at fixed rates. As of December 31, 2020, the weighted average yield
based upon cost of our total portfolio was approximately 8.9%. The weighted
average yield of our total portfolio does not represent the total return to

our
stockholders.



MCC Advisors, while serving as our investment adviser, rated the risk profile of
each of our investments based on the following categories, which was referred to
as MCC Advisors' investment credit rating. The Company's new internal management
team will reassess the investments and rating system utilized.



 Credit
 Rating    Definition
   1       Investments that are performing above expectations.
   2       Investments that are performing within expectations, with risks that
           are neutral or favorable compared to risks at the time of

origination.

           All new loans are rated '2'.

3 Investments that are performing below expectations and that require

           closer monitoring, but where no loss of interest, dividend or 

principal

           is expected.
           Companies rated '3' may be out of compliance with financial 

covenants,

           however, loan payments are generally not past due.

4 Investments that are performing below expectations and for which risk

           has increased materially since origination. Some loss of 

interest or

           dividend is expected but no loss of principal.
           In addition to the borrower being generally out of compliance with debt
           covenants, loan payments may be past due (but generally not more than
           180 days past due).
   5       Investments that are performing substantially below expectations and
           whose risks have increased substantially since origination. Most or all
           of the debt covenants are out of compliance and payments are
           substantially delinquent.
           Some loss of principal is expected.




The COVID-19 pandemic has impacted our investment ratings as of December 31,
2020, causing downgrades of certain portfolio companies. As the COVID-19
situation continues to evolve, we are maintaining close communications with our
portfolio companies to proactively assess and manage potential risks across our
investment portfolio. We have also increased oversight and analysis of credits
in vulnerable industries in an attempt to improve loan performance and reduce
credit risk.

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of December 31, 2020 and September 30, 2020 (dollars in thousands):

             December 31, 2020                September 30, 2020
        Fair Value       Percentage      Fair Value       Percentage
1       $    43,063             27.0 %   $    54,256             22.0 %
2            66,118             41.4 %       130,742             53.0 %
3            27,153             17.0 %        40,645             16.5 %
4            16,240             10.2 %        11,325              4.6 %
5             6,967              4.4 %         9,776              3.9 %
Total   $   159,541            100.0 %   $   246,744            100.0 %




                                       53





Results of Operations

Operating results for the three months ended December 31, 2020 and 2019 are as follows (dollars in thousands):

                                                                      For the three months ended
                                                                             December 31,
                                                                       2020                2019
Total investment income                                           $       12,801       $       7,491
Total expenses, net                                                        4,471               4,418
Net investment income/(loss)                                               8,330               3,073
Net realized gains/(losses) from investments                             (46,707 )            (1,745 )
Net unrealized appreciation/(depreciation) on investments                 32,061               3,731
Loss on extinguishment of debt                                              (122 )              (889 )

Net increase/(decrease) in net assets resulting from operations $ (6,438 ) $ 4,170

Investment Income



For the three months ended December 31, 2020, investment income totaled $12.8
million, of which $2.2 million was attributable to portfolio interest, $10.3
million was attributable to dividend income, and $0.3 million was attributable
to fee income. Dividend income was received primarily from one investment.

For the three months ended December 31, 2019, investment income totaled $7.5 million, of which $5.4 million was attributable to portfolio interest, $1.8 million was attributable to dividend income, and $0.3 million to fee income.

Operating Expenses

Operating expenses for the three months ended December 31, 2020 and 2019 are as follows (dollars in thousands):

                                                 For the three months ended
                                                        December 31,
                                                  2020                2019
Base management fees                          $      1,146       $        2,008
Interest and financing expenses                      2,018                5,144
General and administrative                             378                  517
Administrator expenses                                 484                  551
Insurance                                              485                  298
Directors fees                                         476                  316
Professional fees, net                                (516 )            

(4,416 ) Expenses, net of waivers and reimbursements $ 4,471 $ 4,418

For the three months ended December 31, 2020, total operating expenses before
management and incentive fee waivers and expense support reimbursements
increased by $0.9 million, or 38.0%, compared to the three months ended December
31, 2019.

For the three months ended December 31, 2020, operating expenses, net of management and incentive fee waivers and reimbursements increased by $53,047 or 1.2%, compared to the three months ended December 31, 2019.

                                       54

Interest and Financing Expenses

Interest and financing expenses for the three months ended December 31, 2020
decreased by $3.1million, or 60.8 %, compared to the three months ended December
31, 2019. The decrease in interest and financing expenses was primarily due to
the Company's $74.0 million repayment of the 2021 Notes on November 20, 2020 and
the full repayment of $120.2 million Series A Israeli Notes offered in Israel
(the "Israeli Notes") between August 12, 2019 and April 14, 2020.

Base Management Fees and Incentive Fees

Base management fees for the three months ended December 31, 2020 decreased by
$0.9 million, or 42.9%, compared to the three months ended December 31, 2019 due
to the decline in our gross assets during the period.

Professional Fees and Other General and Administrative Expenses

Professional fees and general and administrative expenses for the three months
ended December 31, 2020 increased by $3.8 million, or 96.5%, compared to the
three months ended December 31, 2019 primarily due to a decrease in the
insurance proceeds received in 2020 as compared to 2019 related to legal
expenses relating to the Delaware Action, as well as a decrease in legal
expenses, administrative expenses and valuation expenses, partially offset by an
increase in insurance expenses.

Net Realized Gains/Losses from Investments

We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized.

During the three months ended December 31, 2020, we recognized $46.7 million of
realized losses on our portfolio investments. The realized losses were primarily
due to the sale one investment.



During the three months ended December 31, 2019, we recognized $1.7 million of
realized losses on our portfolio investments. The realized losses were primarily
due to the sale of one investment.

Realized loss on extinguishment of debt

In the event that we modify or extinguish our debt prior to maturity, we account
for it in accordance with ASC 470-50, Modifications and Extinguishments, in
which we measure the difference between the reacquisition price of the debt and
the net carrying amount of the debt, which includes any unamortized debt
issuance costs.



During the three months ended December 31, 2020, the Company recognized a net
loss on extinguishment of debt of $0.1 million, which was due to the Company's
$74.0 million repayment of the 2021 Notes on November 20, 2020.



During the three months ended December 31, 2019, the Company recognized a net
loss on extinguishment of debt of $0.9 million, which was due to the company's
$34.1 million repayment of the Israeli Notes on December 31, 2019.



                                       55

Net Unrealized Appreciation/Depreciation on Investments

Net change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio.

For the three months ended December 31, 2020, we had $32.1 million of net
unrealized appreciation on investments. The net unrealized appreciation
comprised of $14.7 million of net unrealized depreciation on investments and
$46.8 million of net unrealized appreciation that resulted from the reversal of
previously recorded unrealized depreciation on investments that were realized,
partially sold, or written-off during the year.



For the three months ended December 31, 2019, we had $3.7 million of net
unrealized appreciation on investments. The net unrealized appreciation
comprised of $1.7 million of net unrealized appreciation on investments as well
as by $2.0 million of net unrealized appreciation that resulted from the
reversal of previously recorded unrealized depreciation on investments that were
realized or written-off during the year.

Changes in Net Assets from Operations(1)

For the three months ended December 31, 2020, we recorded a net decrease in net
assets resulting from operations of $6.4 million compared to a net increase in
net assets resulting from operations of $4.2 million for the three months ended
December 31, 2019 as a result of the factors discussed above. Based on 2,723,709
weighted average common shares outstanding for the three months ended December
31, 2020 and 2019, our per share net decrease in net assets resulting from
operations was $(2.36) for the three months ended December 31, 2020 and an
increase of $1.53 for the three months ended December 31, 2019.

(1) Per share data has been adjusted for 2019 to reflect the one-for-twenty

     reverse stock split effected on July 24, 2020 on a retroactive basis.

Financial Condition, Liquidity and Capital Resources

As a RIC, we distribute substantially all of our net income to our stockholders
and have an ongoing need to raise additional capital for investment purposes. To
fund growth, we have a number of alternatives available to increase capital,
including raising equity, increasing debt, and funding from operational cash
flow.

Our liquidity and capital resources have been generated primarily from the net
proceeds of public offerings of common stock, advances from the Revolving Credit
Facility and net proceeds from the issuance of notes as well as cash flows from
operations. In the future, we may generate cash from future offerings of
securities, future borrowings and cash flows from operations, including interest
earned from the temporary investment of cash in U.S. government securities and
other high-quality debt investments that mature in one year or less. Our primary
use of funds is investments in our targeted asset classes, cash distributions to
our stockholders, and other general corporate purposes.



As of December 31, 2020, we had $62.4 million in cash and cash equivalents.



In order to maintain our RIC tax treatment under the Code, we intend to
distribute to our stockholders substantially all of our taxable income, but we
may also elect to periodically spill over certain excess undistributed taxable
income from one tax year into the next tax year. In addition, as a BDC, we
generally are required to meet a coverage ratio of total assets to total senior
securities, which include borrowings and any preferred stock we may issue in the
future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain
requirements are met). This requirement limits the amount that we may borrow.



Unsecured Notes



2021 Notes



On December 17, 2015, the Company issued $70.8 million in aggregate principal
amount of 6.50% unsecured notes that mature on January 30, 2021 (the "2021
Notes"). On January 14, 2016, the Company closed an additional $3.25 million in
aggregate principal amount of the 2021 Notes, pursuant to the partial exercise
of the underwriters' option to purchase additional notes. The 2021 Notes bore
interest at a rate of 6.50% per year, payable quarterly on January 30, April 30,
July 30 and October 30 of each year, beginning January 30, 2016.



On October 21, 2020, the Company caused notices to be issued to the holders of
the 2021 Notes regarding the Company's exercise of its option to redeem, in
whole, the issued and outstanding 2021 Notes, pursuant to Section 1104 of the
Indenture dated as of February 7, 2012, between the Company and U.S. Bank
National Association, as trustee, and Section 101(h) of the Third Supplemental
Indenture dated as of December 17, 2015. The Company redeemed $74,012,825 in
aggregate principal amount of the issued and outstanding 2021 Notes on November
20, 2020 (the "Redemption Date"). The 2021 Notes were redeemed at 100% of their
principal amount ($25 per 2021 Note), plus the accrued and unpaid interest
thereon from October 31, 2020, through, but excluding, the Redemption Date. The
Company funded the redemption of the 2021 Notes with cash on hand.

                                       56





2023 Notes

On March 18, 2013, the Company issued $60.0 million in aggregate principal
amount of 2023 Notes. As of March 30, 2016, the 2023 Notes may be redeemed in
whole or in part at any time or from time to time at the Company's option. On
March 26, 2013, the Company closed an additional $3.5 million in aggregate
principal amount of 2023 Notes, pursuant to the partial exercise of the
underwriters' option to purchase additional notes. The 2023 Notes bear interest
at a rate of 6.125% per year, payable quarterly on March 30, June 30, September
30 and December 30 of each year, beginning June 30, 2013.



On December 12, 2016, the Company entered into an "At-The-Market" ("ATM") debt
distribution agreement with FBR Capital Markets & Co., through which the Company
could offer for sale, from time to time, up to $40.0 million in aggregate
principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes
at an average price of $25.03 per note, and raised $38.6 million in net
proceeds, through the ATM debt distribution agreement.



On March 10, 2018, the Company redeemed $13.0 million in aggregate principal
amount of the 2023 Notes. The redemption was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.4 million and was recorded on the
Consolidated Statements of Operations as a loss on extinguishment of debt.



On December 31, 2018, the Company redeemed $12.0 million in aggregate principal
amount of the 2023 Notes. The redemption was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.2 million and was recorded on the
Consolidated Statements of Operations as a loss on extinguishment of debt.



On December 21, 2020, the Company announced that it completed the application
process for and was authorized to transfer the listing of the 2023 Notes to the
NASDAQ Global Market. The listing and trading of the 2023 Notes on the NYSE
ceased at the close of trading on December 31, 2020. Effective January 4, 2021,
the 2023 Notes trade on the NASDAQ Global Market under the trading symbol
"PFXNL."



Secured Notes



Israeli Notes

On January 26, 2018, the Company priced a debt offering in Israel of $121.3 million of Israeli Notes. The Israeli Notes were listed on the TASE and denominated in New Israeli Shekels, but linked to the US Dollar at a fixed exchange rate which mitigates any currency exposure to the Company.

                                       57

On June 5, 2018, the Company announced that on June 1, 2018, its board of directors authorized the Company to repurchase and retire up to $20 million of the Company's outstanding Israeli Notes on the TASE.

During the quarter ended December 31, 2018, the Company exchanged $1.0 million
United States Dollars to New Israeli Shekels at a rate of 3.73 USD/NIS in order
to repurchase the Israeli Notes on the TASE. As the Israeli Notes were trading
below par at the time of the repurchase, and the USD/NIS (foreign currency) spot
rate was higher than the fixed exchange rate agreed upon in the deed of trust,
the Company was able to repurchase and retire 3,812,000 units, which resulted in
$1,119,201 aggregate principal amount of the Israeli Notes being retired. The
redemption was accounted for as a debt extinguishment in accordance with ASC
470-50, Modifications and Extinguishments, which resulted in a realized gain of
$0.1 million and was recorded on the Consolidated Statements of Operations as a
gain on extinguishment of debt.



On December 31, 2019 in addition to the scheduled 12.5% quarterly amortization
payment, the Company used proceeds from its principal collections in PhenixFIN
SLF and PhenixFIN Small Business Fund to pre-pay an additional $19.1 million of
the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in
accordance with ASC 470-50, Modifications and Extinguishments, which resulted in
a realized loss of $0.9 million and was recorded on the Consolidated Statements
of Operations as a net loss on extinguishment of debt.



On March 31, 2020, in addition to the scheduled 12.5% quarterly amortization
payment, the Company used proceeds from its principal repayments in assets held
by PhenixFIN SLF and PhenixFIN Small Business Fund to pre-pay an additional
$19.8 million of the Israeli Notes. The pre-payment was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.9 million and was recorded on the
Consolidated Statements of Operations as a net loss on extinguishment of debt.



On April 14, 2020, the Company repaid the remaining $21.1 million of Israeli
Notes outstanding, and as such is no longer subject to any covenants relating
thereto. The Israeli Notes were redeemed at 100% of their principal amount, plus
the accrued interest thereon, through April 14, 2020.



SBA Debentures



On March 26, 2013, SBIC LP received a SBIC license from the SBA. The SBIC
license allowed SBIC LP to obtain leverage by issuing SBA-guaranteed debentures
("SBA Debentures"), subject to the issuance of a capital commitment by the SBA
and other customary procedures. SBA Debentures were non-recourse, interest only
debentures with interest payable semi-annually and had a ten year maturity.



On September 1, 2018, the Company repaid $15.0 million in aggregate principal
amount of the SBA Debentures. The repayment was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.2 million and was recorded on the
Consolidated Statements of Operations as a loss on extinguishment of debt.



SBIC LP's management submitted an orderly wind-down plan to the SBA to prepay
the remaining $135.0 million of outstanding SBA Debentures using available cash
at SBIC LP as well as the sale of assets to third parties or affiliates of SBIC
LP. On March 28, 2019, SBIC LP agreed and made a repayment of $50.0 million of
outstanding SBA Debentures by April 3, 2019 using available cash at SBIC LP and
the cure period was extended to April 19, 2019. On April 18, 2019, SBIC LP
agreed and made a repayment of $20.0 million of outstanding SBA Debentures on
April 23, 2019 and an additional $30.0 million of outstanding SBA Debentures on
April 30, 2019 using proceeds from the sale of certain assets and the cure
period was extended to May 10, 2019. On May 10, 2019, SBIC LP made the final
repayment of the remaining $35.0 million of outstanding SBA Debentures using
proceeds from the sale of certain assets. In connection therewith, effective
July 1, 2019, SBIC LP surrendered its SBIC license. It currently operates as
PhenixFIN Small Business Fund.

                                       58





The $135.0 million in aggregate repayments made in connection with the orderly
wind-down plan was accounted for as debt extinguishments in accordance with ASC
470-50, Modifications and Extinguishments, which resulted in a cumulative
realized loss of $1.8 million and was recorded on the Consolidated Statements of
Operations as a loss on extinguishment of debt.

Contractual Obligations and Off-Balance Sheet Arrangements

The Company has a guarantee to issue up to $5.7 million in standby letters of
credit through a financial intermediary on behalf of a certain portfolio
company. Under this arrangement, if the standby letters of credit were to be
issued, the Company would be required to make payments to third parties if the
portfolio company was to default on its related payment obligations. The
guarantee will renew annually until cancellation. As of December 31, 2020 and
September 30, 2020, the Company had not issued any standby letters of credit
under the commitment on behalf of the portfolio company.



As of December 31, 2020 and September 30, 2020, we had commitments under loan
and financing agreements to fund up to $4.8 million to six portfolio companies
and $3.9 million to five portfolio companies, respectively. These commitments
are primarily composed of senior secured term loans and revolvers, and the
determination of their fair value is included in the Consolidated Schedule of
Investments. The commitments are generally subject to the borrowers meeting
certain criteria such as compliance with covenants and certain operational
metrics. The terms of the borrowings and financings subject to commitment are
comparable to the terms of other loan and equity securities in our portfolio. A
summary of the composition of the unfunded commitments as of December 31, 2020
and September 30, 2020 is shown in the table below (dollars in thousands):

                                                               December 31,       September 30,
                                                                   2020               2020
Redwood Services Group, LLC - Revolver                         $       1,575     $         1,050
1888 Industrial Services, LLC - Revolver                               1,078               1,078
Kemmerer Operations, LLC - Delayed Draw Term Loan                        908                 908
NVTN LLC - Super Priority DDTL                                           500                 500
Black Angus Steakhouses, LLC - Super Priority DDTL                       444                   -
NVTN LLC - DDTL                                                          220                 220
DataOnline Corp. - Revolver                                              107                 179
Total unfunded commitments                                     $       4,832     $         3,935

We have certain contracts under which we have material future commitments. We
entered into an investment management agreement with MCC Advisors (the
"Investment Management Agreement") in accordance with the 1940 Act. The
Investment Management Agreement became effective upon the pricing of our initial
public offering. Under the Investment Management Agreement, MCC Advisors agreed
to provide us with investment advisory and management services. For these
services, we agreed to pay a base management fee equal to a percentage of our
gross assets and an incentive fee based on our performance.



We also entered into an administration agreement with MCC Advisors as our
administrator. The administration agreement became effective upon the pricing of
our initial public offering. Under the administration agreement, MCC Advisors
agreed to furnish us with office facilities and equipment, provide us clerical,
bookkeeping and record keeping services at such facilities and provide us with
other administrative services necessary to conduct our day-to-day operations.
MCC Advisors also provided on our behalf significant managerial assistance to
those portfolio companies to which we are required to provide such assistance.

The Investment Management Agreement and administration agreement expired at the close of business on December 31, 2020, in connection with the Company's adoption of an internalized management structure.

The following table shows our payment obligations for repayment of debt and other contractual obligations at December 31, 2020 (dollars in thousands):

                                                                Payment Due by Period
                                                  Less than                                              More than
                                    Total          1 year          1 - 3 years       3 - 5 years          5 years
2021 Notes                        $       -     $           -     $           -     $            -     $           -
2023 Notes                           77,847                 -            77,847                  -                 -
Total contractual obligations     $  77,847     $           -     $      77,847     $            -     $           -

On March 27, 2015, the Company and Great American Life Insurance Company ("GALIC") entered into a limited liability company operating agreement to co-manage MCC Senior Loan Strategy JV I LLC ("MCC JV"). The Company and GALIC had committed to provide $100 million of equity to MCC JV, with the Company providing $87.5 million and GALIC providing $12.5 million.

                                       59





MCC JV commenced operations on July 15, 2015. On August 4, 2015, MCC JV entered
into a senior secured revolving credit facility (the "JV Facility") led by
Credit Suisse, AG with commitments of $100 million. On March 30, 2017, the
Company amended the JV Facility previously administered by CS and facilitated
the assignment of all rights and obligations of CS under the JV Facility to
Deutsche Bank AG, New York Branch, ("DB") and increased the total loan
commitments to $200 million. The JV Facility bears interest at a rate of LIBOR
(with no minimum + 2.75% per annum. On March 29, 2019, the JV Facility
reinvestment period was extended to June 28, 2019 from March 30, 2019. On June
28, 2019, the JV Facility reinvestment period was extended to October 28, 2019.
On October 28, 2019, the JV Facility reinvestment period was further extended
from October 28, 2019 to March 31, 2020, the maturity date was extended to March
31, 2023 and the interest rate was modified from bearing an interest rate of
LIBOR (with no minimum) + 2.50% per annum to LIBOR (with no minimum) + 2.75% per
annum.



The Company has determined that MCC JV is an investment company under ASC 946,
however in accordance with such guidance, the Company will generally not
consolidate its investment in a company other than a wholly owned investment
company subsidiary or a controlled operating company whose business consists of
providing services to the Company. Accordingly, the Company does not consolidate
its interest in MCC JV.



On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub
entered into a Membership Interest Purchase Agreement pursuant to which a fund
affiliated with and managed by Golub concurrently purchased all of the Company's
interest in the MCC JV and all of GALIC's interest in the MCC JV for a
pre-adjusted gross purchase price of $156.4 million and an adjusted gross
purchase price (which constitutes the aggregate consideration for the membership
interests) of $145.3 million (giving effect to adjustments primarily for
principal and interest payments from portfolio companies of MCC JV from July 1,
2020 through October 7, 2020), resulting in net proceeds (before transaction
expenses) of $41.0 million and $6.6 million for MCC and GALIC, respectively, on
the terms and subject to the conditions set forth in the Membership Interest
Purchase Agreement, including the representations, warranties, covenants and
indemnities contained therein. In connection with the closing of the transaction
on October 8, 2020, MCC JV repaid in full all outstanding borrowings under, and
terminated, its senior secured revolving credit facility, dated as of August 4,
2015, as amended, administered by Deutsche Bank AG, New York Branch.



Distributions



We have elected, and intend to qualify annually, to be treated for U.S. federal
income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any
taxable year with respect to which we timely distribute at least 90 percent of
the sum of our (i) investment company taxable income (which is generally our net
ordinary income plus the excess of realized net short-term capital gains over
realized net long-term capital losses) determined without regard to the
deduction for dividends paid and (ii) net tax exempt interest income (which is
the excess of our gross tax exempt interest income over certain disallowed
deductions), we (but not our stockholders) generally will not be subject to U.S.
federal income tax on investment company taxable income and net capital gains
that we distribute to our stockholders. We intend to distribute annually all or
substantially all of such income, but we may also elect to periodically spill
over certain excess undistributed taxable income from one tax year to the next
tax year. To the extent that we retain our net capital gains or any investment
company taxable income, we will be subject to U.S. federal income tax. We may
choose to retain our net capital gains or any investment company taxable income,
and pay the associated federal corporate income tax, including the federal
excise tax described below.



Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% U.S. federal excise
tax payable by us. To avoid this tax, we must distribute (or be deemed to have
distributed) during each calendar year an amount equal to the sum of:

1) at least 98.0% of our ordinary income (not taking into account any capital

    gains or losses) for the calendar year;

2) at least 98.2% of the amount by which our capital gains exceed our capital

losses (adjusted for certain ordinary losses) for a one-year period ending on

October 31st of the calendar year; and

3) income realized, but not distributed, in preceding years and on which we did

    not pay federal income tax.




While we intend to distribute any income and capital gains in the manner
necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient
amounts of our taxable income and capital gains may not be distributed to avoid
entirely the imposition of the tax. In that event, we will be liable for the tax
only on the amount by which we do not meet the foregoing distribution
requirement.



We intend to pay quarterly dividends to our stockholders out of assets legally
available for distribution. We cannot assure you that we will achieve investment
results that will allow us to pay a specified level of dividends or year-to-year
increases in dividends. In addition, the inability to satisfy the asset coverage
test applicable to us as a BDC could limit our ability to pay dividends. All
dividends will be paid at the discretion of our board of directors and will
depend on our earnings, our financial condition, maintenance of our RIC tax
treatment, compliance with applicable BDC regulations and such other factors as
our board of directors may deem relevant from time to time. We cannot assure you
that we will pay dividends to our stockholders in the future.



To the extent our taxable earnings fall below the total amount of our
distributions for a taxable year, a portion of those distributions may be deemed
a return of capital to our stockholders for U.S. federal income tax purposes.
Stockholders should read any written disclosure accompanying a distribution
carefully and should not assume that the source of any distribution is our
ordinary income or gains.



We have adopted an "opt out" dividend reinvestment plan for our common
stockholders. As a result, if we declare a cash dividend or other distribution,
each stockholder that has not "opted out" of our dividend reinvestment plan will
have their dividends automatically reinvested in additional shares of our common
stock rather than receiving cash dividends. Stockholders who receive
distributions in the form of shares of common stock will be subject to the same
federal, state and local tax consequences as if they received cash
distributions.

                                       60

There were no dividend distributions during the three months ended December 31, 2020.

Related Party Transactions

Concurrent with the pricing of our IPO, we entered into a number of business relationships with affiliated or related parties, including the following:

? We entered into the Investment Management Agreement with MCC Advisors. Mr.

Brook Taube, Chairman and Chief Executive Officer through December 31, 2020 and

director through January 21, 2021, is a managing partner and senior portfolio

manager of MCC Advisors, and Mr. Seth Taube, director through January 21, 2021,

is a managing partner of MCC Advisors.

? Through December 31, 2020, MCC Advisors provided us with the office facilities

and administrative services necessary to conduct day-to-day operations pursuant

to our administration agreement. We reimbursed MCC Advisors for the allocable

portion (subject to the review and approval of our board of directors) of

overhead and other expenses incurred by it in performing its obligations under

the administration agreement, including rent, the fees and expenses associated

with performing compliance functions, and our allocable portion of the cost of

our Chief Financial Officer and Chief Compliance Officer and their respective

   staffs.




On June 12, 2020, the Company entered into the Expense Support Agreement with
MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC
agreed (jointly and severally) to cap the management fee and all of the
Company's other operating expenses (except interest expenses, certain
extraordinary strategic transaction and expenses, and other expenses approved by
the Special Committee) at $667,000 per month (the "Cap"). Under the Expense
Support Agreement, the Cap became effective on June 1, 2020 and was to expire on
September 30, 2020. On September 29, 2020, the board of directors, including all
of the independent directors, extended the term of the Expense Support Agreement
through the end of quarter ending December 31, 2020. The Expense Support
Agreement expired by its terms at the close of business on December 31, 2020, in
connection with the adoption of the internalized management structure by the
board of directors.

On November 25, 2013, the Company obtained an exemptive order from the SEC that
permits us to participate in negotiated co-investment transactions with certain
affiliates, each of whose investment adviser is Medley, LLC or an investment
adviser controlled by Medley, LLC in a manner consistent with our investment
objective, strategies and restrictions, as well as regulatory requirements and
other pertinent factors (the "Prior Exemptive Order"). On March 29, 2017, the
Company, MCC Advisors and certain other affiliated funds and investment advisers
received an exemptive order (the "Exemptive Order") that supersedes the Prior
Exemptive Order and allows affiliated registered investment companies to
participate in co-investment transactions with us that would otherwise have been
prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1
thereunder. On October 4, 2017, the Company, MCC Advisors and certain of our
affiliates received an exemptive order that supersedes the Exemptive Order (the
"Current Exemptive Order") and allows, in addition to the entities already
covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital
LLC, to the extent they hold financial assets in a principal capacity, and any
direct or indirect, wholly or majority owned subsidiary of Medley LLC that is
formed in the future, to participate in co-investment transactions with us that
would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4)
of the 1940 Act. However, neither we nor the affiliated funds are obligated to
invest or co-invest when investment opportunities are referred to us or them.
The Company does not expect to avail itself of the current exemptive order,
given the internalization and termination of the Investment Management
Agreement.



In addition, we have adopted a formal code of ethics that governs the conduct of
our officers, directors, employees and certain other individuals. Our officers
and directors also remain subject to the duties imposed by both the 1940 Act and
the Delaware General Corporation Law.

Investment Management Agreement

We entered into an investment management agreement with MCC Advisors (the
"Investment Management Agreement"). Mr. Brook Taube, Chairman and Chief
Executive Officer through December 31, 2020 and director through January 21,
2021, is a managing partner and senior portfolio manager of MCC Advisors, and
Mr. Seth Taube, director through January 21, 2021, is a managing partner of

MCC
Advisors.

Under the terms of the Investment Management Agreement, MCC Advisors:

? determined the composition of our portfolio, the nature and timing of the

changes to our portfolio and the manner of implementing such changes;

? identified, evaluated and negotiated the structure of the investments we made

(including performing due diligence on our prospective portfolio companies);

   and

? executed, closed, monitored and administered the investments we made, including

   the exercise of any voting or consent rights.

MCC Advisors' services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to other entities so long as its services to us were not impaired.

Pursuant to the Investment Management Agreement, we paid MCC Advisors a fee for
investment advisory and management services consisting of a base management

fee
and a two-part incentive fee.

On December 3, 2015, MCC Advisors recommended and, in consultation with the
Board, agreed to reduce fees under the Investment Management Agreement.
Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross
assets above $1 billion. In addition, MCC Advisors reduced its incentive fee
from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5%
on pre-incentive fee net investment income over a 6% hurdle. Moreover, the
revised incentive fee includes a netting mechanism and is subject to a rolling
three-year look back from January 1, 2016 forward. Under no circumstances would
the new fee structure result in higher fees to MCC Advisors than fees under the
prior investment management agreement.



                                       61

The following discussion of our base management fee and two-part incentive fee
reflect the terms of the fee waiver agreement executed by MCC Advisors on
February 8, 2016 (the "Fee Waiver Agreement"). The terms of the Fee Waiver
Agreement were effective as of January 1, 2016, and were a permanent reduction
in the base management fee and incentive fee on net investment income payable to
MCC Advisors for the investment advisory and management services it provided
under the Investment Management Agreement. The Fee Waiver Agreement did not
change the second component of the incentive fee, which was the incentive fee on
capital gains.

On January 15, 2020, the Company's board of directors, including all of the
independent directors, approved the renewal of the Investment Management
Agreement through the later of April 1, 2020 or so long as the Amended and
Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the "Amended
MCC Merger Agreement"), by and between the Company and Sierra (the "Amended MCC
Merger Agreement") was in effect, but no longer than a year; provided that, if
the Amended MCC Merger Agreement is terminated by Sierra, then the termination
of the Investment Management Agreement would be effective on the 30th day
following receipt of Sierra's notice of termination to the Company. On May 1,
2020, the Company received a notice of termination of the Amended MCC Merger
Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was
permitted, subject to certain conditions, to terminate the Amended MCC Merger
Agreement if the merger was not consummated by March 31, 2020. Sierra elected to
do so on May 1, 2020. As result of the termination by Sierra of the Amended MCC
Merger Agreement on May 1, 2020, the Investment Management Agreement would have
been terminated effective as of May 31, 2020. On May 21, 2020, the Board,
including all of the independent directors, extended the term of the Investment
Management Agreement through the end of the then-current quarter, June 30, 2020.
On June 15, 2020, the Board, including all of the independent directors,
extended the term of the Investment Management Agreement through the end of the
then-current quarter, September 30, 2020. On September 29, the Board, including
all of the independent directors, extended the term of the Investment Management
Agreement through December 31, 2020.



On November 18, 2020, the Board approved the adoption of an internalized
management structure effective January 1, 2021. The new management structure
replaces the current Investment Management and Administration Agreements with
MCC Advisors LLC, which expired on December 31, 2020. To lead the internalized
management team, the Board approved the appointment of David Lorber, who has
served as an independent director of the Company since April 2019, as interim
Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the
Company, each effective January 1, 2021. In connection with his appointment, Mr.
Lorber stepped down from the Compensation Committee of the Board, the Nominating
and Corporate Governance Committee of the Board, and the Special Committee

of
the Board.



Base Management Fee

Through December 31, 2020, for providing investment advisory and management
services to us, MCC Advisors received a base management fee. The base management
fee was calculated at an annual rate of 1.75% (0.4375% per quarter) of up to
$1.0 billion of the Company's gross assets and 1.50% (0.375% per quarter) of any
amounts over $1.0 billion of the Company's gross assets and was payable
quarterly in arrears. The base management fee was to be calculated based on the
average value of the Company's gross assets at the end of the two most recently
completed calendar quarters and was to be appropriately pro-rated for any
partial quarter.



Incentive Fee

Through December 31, 2020, the incentive fee had two components, as follows:

Incentive Fee Based on Income

The first component of the incentive fee was payable quarterly in arrears and
was based on our pre-incentive fee net investment income earned during the
calendar quarter for which the incentive fee was being calculated. MCC Advisors
was entitled to receive the incentive fee on net investment income from us if
our Ordinary Income (as defined below) exceeded a quarterly "hurdle rate" of
1.5%. The hurdle amount was calculated after making appropriate adjustments to
the Company's net assets, as determined as of the beginning of each applicable
calendar quarter, in order to account for any capital raising or other capital
actions as a result of any issuances by the Company of its common stock
(including issuances pursuant to our dividend reinvestment plan), any repurchase
by the Company of its own common stock, and any dividends paid by the Company,
each as may have occurred during the relevant quarter.



Beginning with the calendar quarter that commenced on January 1, 2016, the
incentive fee on net investment income was determined and paid quarterly in
arrears at the end of each calendar quarter by reference to our aggregate net
investment income, as adjusted as described below, from the calendar quarter
then ending and the eleven preceding calendar quarters (or if shorter, the
number of quarters that have occurred since January 1, 2016). We refer to such
period as the "Trailing Twelve Quarters."



The hurdle amount for the incentive fee on net investment income was determined
on a quarterly basis and was equal to 1.5% multiplied by the Company's net asset
value at the beginning of each applicable calendar quarter comprising the
relevant Trailing Twelve Quarters. The hurdle amount was calculated after making
appropriate adjustments to the Company's net assets, as determined as of the
beginning of each applicable calendar quarter, in order to account for any
capital raising or other capital actions as a result of any issuances by the
Company of its common stock (including issuances pursuant to our dividend
reinvestment plan), any repurchase by the Company of its own common stock, and
any dividends paid by the Company, each as may have occurred during the relevant
quarter. The incentive fee for any partial period was to be appropriately
pro-rated. Any incentive fee on net investment income was to be paid to MCC
Advisors on a quarterly basis and was to be based on the amount by which (A)
aggregate net investment income ("Ordinary Income") in respect of the relevant
Trailing Twelve Quarters exceeded (B) the hurdle amount for such Trailing Twelve
Quarters. The amount of the excess of (A) over (B) described in this paragraph
for such Trailing Twelve Quarters is referred to as the "Excess Income Amount."
For the avoidance of doubt, Ordinary Income was net of all fees and expenses,
including the reduced base management fee but excluding any incentive fee on
Pre-Incentive Fee net investment income or on the Company's capital gains.

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Determination of Quarterly Incentive Fee Based on Income

The incentive fee on net investment income for each quarter was determined as follows:

? No incentive fee on net investment income was payable to MCC Advisors for any

calendar quarter for which there was no Excess Income Amount;

? 100% of the Ordinary Income, if any, that exceeded the hurdle amount, but was

less than or equal to an amount, which we refer to as the "Catch-up Amount,"

determined as the sum of 1.8182% multiplied by the Company's net assets at the

beginning of each applicable calendar quarter, as adjusted as noted above,

comprising the relevant Trailing Twelve Quarters was included in the

calculation of the incentive fee on net investment income; and

? 17.5% of the Ordinary Income that exceeds the Catch-up Amount was included in

   the calculation of the incentive fee on net investment income.




The amount of the incentive fee on net investment income that was to be paid to
MCC Advisors for a particular quarter would equal the excess of the incentive
fee so calculated minus the aggregate incentive fees on net investment income
that were paid in respect of the first eleven calendar quarters (or the portion
thereof) included in the relevant Trailing Twelve Quarters but not in excess of
the Incentive Fee Cap (as described below).



The incentive fee on net investment income that was paid to MCC Advisors for a
particular quarter was subject to a cap (the "Incentive Fee Cap"). The Incentive
Fee Cap for any quarter was an amount equal to (a) 17.5% of the Cumulative Net
Return (as defined below) during the relevant Trailing Twelve Quarters minus (b)
the aggregate incentive fees on net investment income that were paid in respect
of the first eleven calendar quarters (or the portion thereof) included in the
relevant Trailing Twelve Quarters.



"Cumulative Net Return" means (x) the Ordinary Income in respect of the relevant
Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if
any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter,
the Incentive Fee Cap was zero or a negative value, the Company would pay no
incentive fee on net investment income to MCC Advisors for such quarter. If, in
any quarter, the Incentive Fee Cap for such quarter was a positive value but is
less than the incentive fee on net investment income that was payable to MCC
Advisors for such quarter (before giving effect to the Incentive Fee Cap)
calculated as described above, the Company would pay an incentive fee on net
investment income to MCC Advisors equal to the Incentive Fee Cap for such
quarter. If, in any quarter, the Incentive Fee Cap for such quarter was equal to
or greater than the incentive fee on net investment income that was payable to
MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap)
calculated as described above, the Company would pay an incentive fee on net
investment income to MCC Advisors, calculated as described above, for such
quarter without regard to the Incentive Fee Cap.



"Net Capital Loss" in respect of a particular period means the difference, if
positive, between (i) aggregate capital losses, whether realized or unrealized,
and dilution to the Company's net assets due to capital raising or capital
actions, in such period and (ii) aggregate capital gains, whether realized or
unrealized and accretion to the Company's net assets due to capital raising or
capital action, in such period.



Dilution to the Company's net assets due to capital raising was calculated, in
the case of issuances of common stock, as the amount by which the net asset
value per share was adjusted over the transaction price per share, multiplied by
the number of shares issued. Accretion to the Company's net assets due to
capital raising was calculated, in the case of issuances of common stock
(including issuances pursuant to our dividend reinvestment plan), as the excess
of the transaction price per share over the amount by which the net asset value
per share was adjusted, multiplied by the number of shares issued. Accretion to
the Company's net assets due to other capital action was calculated, in the case
of repurchases by the Company of its own common stock, as the excess of the
amount by which the net asset value per share was adjusted over the transaction
price per share multiplied by the number of shares repurchased by the Company.



For the avoidance of doubt, the purpose of the incentive fee calculation under
the Fee Waiver Agreement was to permanently reduce aggregate fees payable to MCC
Advisors by the Company, effective as of January 1, 2016. In order to ensure
that the Company would pay MCC Advisors lesser aggregate fees on a cumulative
basis, as calculated beginning January 1, 2016, we had, at the end of each
quarter, also calculated the base management fee and incentive fee on net
investment income owed by the Company to MCC Advisors based on the formula in
place prior to January 1, 2016. If, at any time beginning January 1, 2016, the
aggregate fees on a cumulative basis, as calculated based on the formula in
place after January 1, 2016, were greater than the aggregate fees on a
cumulative basis, as calculated based on the formula in place prior to January
1, 2016, MCC Advisors were only entitled to the lesser of those two amounts.



The second component of the incentive fee was 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) and equaled 20.0% of our
cumulative aggregate realized capital gains less cumulative realized capital
losses, unrealized capital depreciation (unrealized depreciation on a gross
investment-by-investment basis at the end of each calendar year) and all capital
gains upon which prior performance-based capital gains incentive fee payments
were previously made to the investment adviser.



Under GAAP, the Company calculated the second component of the incentive fee as
if the Company had realized all assets at their fair values as of the reporting
date. Accordingly, when applicable, the Company accrued a provisional capital
gains incentive fee taking into account any unrealized gains or losses. As the
provisional capital gains incentive fee was subject to the performance of
investments until there was a realization event, the amount of the provisional
capital gains incentive fee accrued at a reporting date may have varied from the
capital gains incentive that was ultimately realized and the differences could
have been material.



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Critical Accounting Policies



The preparation of financial statements and related disclosures in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified
the following items as critical accounting policies.

Valuation of Portfolio Investments

We value investments for which market quotations are readily available at their
market quotations, which are generally obtained from an independent pricing
service or multiple broker-dealers or market makers. We weight the use of
third-party broker quotes, if any, in determining fair value based on our
understanding of the level of actual transactions used by the broker to develop
the quote and whether the quote was an indicative price or binding offer.
However, a readily available market value is not expected to exist for many of
the investments in our portfolio, and we value these portfolio investments at
fair value as determined in good faith by our board of directors under our
valuation policy and process. We may seek pricing information with respect to
certain of our investments from pricing services or brokers or dealers in order
to value such investments.



Valuation methods may include comparisons of financial ratios of the portfolio
companies that issued such private equity securities to peer companies that are
public, the nature and realizable value of any collateral, the portfolio
company's ability to make payments and its earnings and discounted cash flows,
the markets in which the portfolio company does business, and other relevant
factors. When an external event such as a purchase transaction, public offering
or subsequent equity sale occurs, we will consider the pricing indicated by the
external event to corroborate the private equity valuation. 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 the 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.



Our board of directors is ultimately and solely responsible for determining the
fair value of the investments in our portfolio that are not publicly traded,
whose market prices are not readily available on a quarterly basis or any other
situation where portfolio investments require a fair value determination.

With respect to investments for which market quotations are not readily available, our board of directors will undertake a multi-step valuation process each quarter, as described below:

? our quarterly valuation process begins with each portfolio investment being

initially valued by one or more Valuation Firms;

? preliminary valuation conclusions will then be documented and discussed with

   senior management;

? the audit committee of the board of directors reviews the preliminary

valuations with management and the Valuation Firms; and

? the board of directors discusses the valuations and determines the fair value

of each investment in the Company's portfolio in good faith based on the input

   of management, the respective Valuation Firms and the audit committee.




In following these approaches, the types of factors that are taken into account
in fair value pricing investments include available current market data,
including relevant and applicable market trading and transaction comparables;
applicable market yields and multiples; security covenants; call protection
provisions; information rights; the nature and realizable value of any
collateral; the portfolio company's ability to make payments; the portfolio
company's earnings and discounted cash flows; the markets in which the portfolio
company does business; comparisons of financial ratios of peer companies that
are public; comparable merger and acquisition transactions; and the principal
market and enterprise values.



Determination of fair values involves subjective judgments and estimates made by
management. The notes to our financial statements refer to the uncertainty with
respect to the possible effect of such valuations, and any change in such
valuations, on our consolidated financial statements.



Revenue Recognition

Our revenue recognition policies are as follows:

Investments and Related Investment Income We account for investment transactions
on a trade-date basis and interest income, adjusted for amortization of premiums
and accretion of discounts, is recorded on an accrual basis. For investments
with contractual PIK interest, which represents contractual interest accrued and
added to the principal balance that generally becomes due at maturity, we will
not accrue PIK interest if the portfolio company valuation indicates that the
PIK interest is not collectible. Origination, closing and/or commitment fees
associated with investments in portfolio companies are recognized as income when
the investment transaction closes. Other fees are capitalized as deferred
revenue and recorded into income over the respective period. Prepayment
penalties received by the Company for debt instruments paid back to the Company
prior to the maturity date are recorded as income upon receipt. Realized gains
or losses on investments are measured by the difference between the net proceeds
from the disposition and the amortized cost basis of investment, without regard
to unrealized gains or losses previously recognized. We report changes in the
fair value of investments that are measured at fair value as a component of the
net change in unrealized appreciation/(depreciation) on investments in our
Consolidated Statements of Operations.



                                       64





Non-accrual We place loans on non-accrual status when principal and interest
payments are past due by 90 days or more, or when there is reasonable doubt that
we will collect principal or interest. Accrued interest is generally reversed
when a loan is placed on non-accrual. Interest payments received on non-accrual
loans may be recognized as income or applied to principal depending upon
management's judgment. Non-accrual loans are restored to accrual status when
past due principal and interest is paid and, in our management's judgment, are
likely to remain current. At December 31, 2020, certain investments in nine
portfolio companies held by the Company were on non-accrual status with a
combined fair value of approximately $13.3 million, or 8.3% of the fair value of
our portfolio. At September 30, 2020, certain investments in eight portfolio
companies held by the Company were on non-accrual status with a combined fair
value of approximately $21.7 million, or 8.8% of the fair value of our
portfolio.



Federal Income Taxes

The Company has elected, and intends to qualify annually, to be treated for U.S.
federal income tax purposes as a RIC under Subchapter M of the Code, commencing
with its first taxable year as a corporation, and it intends to operate in a
manner so as to maintain its RIC tax treatment. As a RIC, among other things,
the Company is required to meet certain source of income and asset
diversification requirements. Once qualified as a RIC, the Company must timely
distribute to its stockholders at least 90% of the sum of investment company
taxable income ("ICTI"), as defined by the Code, including PIK interest, and net
tax-exempt interest income (which is the excess of our gross tax exempt interest
income over certain disallowed deductions) for each taxable year in order to be
eligible for tax treatment under Subchapter M of the Code. The Company will be
subject to a nondeductible U.S. federal excise tax of 4% on undistributed income
if it does not distribute at least 98% of its net ordinary income for any
calendar year and 98.2% of its capital gain net income for each one-year period
ending on October 31 of such calendar year and any income realized, but not
distributed, in preceding years and on which we did not pay federal income tax.
Depending on the level of ICTI earned in a tax year, the Company may choose to
carry forward ICTI in excess of current year dividend distributions into the
next tax year and pay a 4% excise tax on such income, as required. To the extent
that the Company determines that its estimated current year annual taxable
income will be in excess of estimated current year dividend distributions for
excise tax purposes, the Company accrues excise tax, if any, on estimated excess
taxable income as taxable income is earned. Any such carryover ICTI must be
distributed before the end of that next tax year through a dividend declared
prior to filing the final tax return related to the year which generated such
ICTI.



Because federal income tax regulations differ from GAAP, distributions in
accordance with tax regulations may differ from net investment income and
realized gains recognized for financial reporting purposes. Differences may be
permanent or temporary. Permanent differences are reclassified among capital
accounts in the consolidated financial statements to reflect their tax
character. Temporary differences arise when certain items of income, expense,
gain or loss are recognized at some time in the future. Differences in
classification may also result from the treatment of short-term gains as
ordinary income for tax purposes.



Recent Developments



On January 4, 2021, the Board of Directors approved changes to the compensation
structure for its independent directors.  Under the new structure, during
calendar year 2021, each of the independent directors will be paid an annual
retainer of $100,000.  In addition, the lead independent director will receive
an annual retainer of $30,000; the chair of the Audit Committee will receive an
annual retainer of $25,000, and each of its other members will receive an annual
retainer of $12,500; and the chairs of the Nominating and Corporate Governance
Committee and of the Compensation Committee will receive an annual retainer of
$15,000, and each of the other members of these committees will receive annual
retainers of $8,000.  Directors will also be paid a fee of $3,000 for each board
meeting and $2,500 for each committee meeting that they attend.



On January 11, 2021, the Company announced that the Board of Directors approved
a share repurchase program authorizing up to $15 million in share repurchases.
Under the share repurchase program, the Company is authorized to repurchase from
time to time its common stock in open market or other transactions, subject to
applicable regulatory requirements. The timing and number of shares to be
repurchased will be determined by the Company, based on its evaluation of market
and business conditions, share price, and other factors. The share repurchase
program does not obligate the Company to repurchase any specific number of
common shares, and may be discontinued at any time.



Effective as of January 21, 2021, Brook and Seth Taube, who are associated with
MCC Advisors, submitted their resignations as directors of the Board of
Directors of the Company. Messrs. Taube's resignations were not the result of
any disagreement with the Company on any matter relating to the operations,
policies or practices of the Company. The Board of Directors has determined not
to fill the resulting vacancies at this time.



Subsequent to quarter ended December 31, 2020, the global outbreak of the
COVID-19 pandemic continues to have adverse consequences on the U.S. and global
economies. The ultimate economic fallout from the pandemic, and the long-term
impact on economies, markets, industries and individual portfolio companies,
remains uncertain. The Company cannot predict the extent to which its financial
condition and results of operations will be affected at this time. The potential
impact to our results will depend to a large extent on future developments and
new information that may emerge regarding the duration and severity of COVID-19.
The Company continues to observe and respond to the evolving COVID-19
environment and its potential impact on areas across its business.



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