OFS Capital : Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

About this update from Ofs Capital Corporation

Management's Discussion and Analysis of Financial Condition and Results of Operations The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. For additional overview information on the Company, see "Item 1. Business" in our Annual Report on Form 10-K for the year ended December 31, 2025. Overview Key performance metrics per common share are presented below: June 30, 2026 March 31, 2026 Net asset value $ 8.41 $ 8.16 Three Months Ended Six months ended June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025 Net investment income $ 0.08 $ 0.18 $ 0.26 $ 0.50 Net increase (decrease) in net assets resulting from operations 0.42 (0.86 ) (0.44 ) (1.26 ) Distributions declared 0.17 0.17 0.34 0.68 Our NAV per common share increased from $8.16 at March 31, 2026 to $8.41 at June 30, 2026, due to a net gain on investments of $0.34 per common share, partially offset by our quarterly distribution of $0.17 per common share exceeding our quarterly net investment income of $0.08 per common share. For the quarter ended June 30, 2026, total investment income decreased from $8.9 million in the prior quarter to $6.8 million, primarily due to a decrease in interest and dividend income. See "-Results of Operations" for additional information. Our total outstanding debt decreased from $202.5 million at March 31, 2026 to $185.8 million at June 30, 2026. The decrease of $16.7 million in our total outstanding debt during the quarter ended June 30, 2026 was due to net paydowns on our revolving credit facilities. For the quarter ended June 30, 2026, our weighted-average debt interest costs of 7.41% remained stable compared to 7.34% for the quarter ended March 31, 2026. See "-Results of Operations" and "-Liquidity and Capital Resources" for additional information. For the quarter ended June 30, 2026, we recognized a net gain on investments of $4.6 million due to net unrealized appreciation, net of taxes, of $10.6 million, partially offset by a net realized loss of $6.0 million. For the quarter ended June 30, 2026, our net unrealized appreciation of $10.6 million was primarily due to appreciation of $14.1 million on our common equity investment in Pfanstiehl Holdings, Inc. Our net realized loss of $6.0 million during the quarter ended June 30, 2026 was primarily related to an aggregate loss of $4.8 million on the sale of Structured Finance Securities. As of June 30, 2026, we had non-accrual loans with an aggregate fair value of $21.4 million, or 7.2% of our total investments at fair value. See "-Portfolio Composition and Investment Activity" for additional information. As of June 30, 2026, the aggregate amount outstanding of the senior securities issued by us was $185.8 million, for which our asset coverage ratio was 161%, exceeding the minimum asset coverage requirement of 150% under the 1940 Act. As of June 30, 2026, we remained in compliance with all applicable covenants under our outstanding debt facilities. As of June 30, 2026, we had unused commitments of $15.0 million under our Banc of California Credit Facility, and $43.2 million under our Natixis Facility, each of which is subject to a borrowing base and other covenants. As of June 30, 2026, we had unfunded commitments of $6.0 million to fund outstanding commitments to portfolio companies. See "-Liquidity and Capital Resources" for additional information. On July 28, 2026, the Board declared a distribution of $0.17 per share for the third quarter of 2026, payable on October 5, 2026 to stockholders of record as of September 18, 2026. Critical Accounting Policies and Significant Estimates Our critical accounting policies and estimates are those relating to revenue recognition and fair value estimates. Management has discussed the development and selection of each critical accounting policy and estimate with the Audit Committee of the Board. For descriptions of our revenue recognition and fair value policies, see "Item 8. Financial Statements-Notes to Consolidated Financial Statements-Note 2" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2025. The following table illustrates the impact of our fair value measures if we selected the low or high end of the range of estimated values for all investments as of June 30, 2026 (dollar amounts in thousands): Range of Fair Value (1) Investment Type Fair Value at June 30, 2026 Low-end High-end Debt investments: First lien $ 143,084 $ 139,711 $ 146,967 Second lien 3,944 1,857 6,334 Structured Finance Securities: Subordinated notes 31,955 29,378 34,535 Mezzanine debt 2,117 2,050 2,184 Equity investments: Preferred equity 12,574 10,567 14,650 Common equity, warrants and other 104,082 95,245 112,927 $ 297,756 $ 278,808 $ 317,597 (1) A majority of our investments are classified as Level 3 under ASC Topic 820. This means that our portfolio valuations are based on unobservable inputs and assumptions about how market participants would price the asset in question. Inputs into the determination of fair value of our portfolio investments require significant management judgment and estimation. Related Party Transactions We have entered into a number of business relationships with affiliated or related parties, including the following: • The Investment Advisory Agreement with OFS Advisor to manage our operating and investment activities. Under the Investment Advisory Agreement, we have agreed to pay OFS Advisor an annual base management fee based on the average value of our total assets (other than cash and cash equivalents, but including assets purchased with borrowed amounts and including assets owned by any consolidated entity) as well as an incentive fee based on our investment performance. See "Item 1-Financial Statements- Note 3 ". • The Administration Agreement with OFS Services, an affiliate of OFS Advisor, to provide us with the office facilities and administrative services necessary to conduct our operations. See "Item 1-Financial Statements- Note 3 ". • A license agreement with OFSAM, the parent company of OFS Advisor, under which OFSAM has agreed to grant us a non-exclusive, royalty-free license to use the name "OFS." Under this agreement, we have a right to use the "OFS" name for so long as OFS Advisor or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the "OFS" name. This license agreement will remain in effect for so long as the Investment Advisory Agreement with OFS Advisor is in effect. OFS Advisor's services under the Investment Advisory Agreement are not exclusive to us and OFS Advisor is free to furnish similar services to other entities, including other funds advised or sub-advised by OFS Advisor, so long as its services to us are not impaired. OFS Advisor also serves as the investment adviser to other funds, including HPCI and OCCI. Additionally, OFS Advisor provides sub-advisory services to: (i) CMFT Securities Investments, LLC, a wholly owned subsidiary of CIM Real Estate Finance Trust, Inc., a corporation that qualifies as a real estate investment trust; and (ii) CIM Real Assets & Credit Fund, an externally managed registered investment company that operates as an interval fund that invests primarily in a combination of real estate, credit and related investments. On April 17, 2026 and June 23, 2026, OFS Advisor agreed to waive a portion of its base management fee for the quarters ended March 31, 2026 and June 30, 2026, respectively, attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (other than cash and cash equivalents, but including assets purchased with borrowed amounts) at the end of the two most recently completed calendar quarters. These waivers differ from prior periods where OFS Advisor had contractually agreed to reduce its base management fee for the entire year at the beginning of the year. As of June 30, 2026, there is no active ongoing fee waiver or reduction agreement in place with OFS Advisor for the remainder of 2026. For the year ended December 31, 2025, OFS Advisor agreed to reduce its base management fee attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (other than cash and cash equivalents, but including assets purchased with borrowed amounts) at the end of the two most recently completed calendar quarters. OFS Advisor is not entitled to recoup the amount of the base management fee waived or reduced with respect to the OFSCC-FS Assets. The fee waivers and reductions were provided at OFS Advisor's discretion; there can be no assurance that similar fee waivers or reductions will be provided in future periods. The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so. On August 4, 2020, we received our existing Order, which superseded a previous order that we received on October 12, 2016, and provides us with greater flexibility to enter into co-investment transactions with certain Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions. We are generally permitted to co-invest with Affiliated Funds if, under the terms of the Order, a "required majority" (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that: (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned; (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies; (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing; and (4) the proposed investment by us would not benefit OFS Advisor, the other Affiliated Funds that are participating in the investment, or any affiliated person of any of them (other than parties to the transaction), except to the extent permitted by the exemptive relief and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act. In addition, we have submitted a new application for exemptive relief that, if granted, will supersede our existing Order and permit us to co-invest pursuant to a different set of conditions than those in our existing Order. However, there is no guarantee that the SEC will grant such application. Conflicts may arise when we make an investment in conjunction with an investment being made by an Affiliated Account, or in a transaction where an Affiliated Account has already made an investment. Investment opportunities are, from time to time, appropriate for more than one account in the same, different or overlapping securities of a portfolio company's capital structure. Conflicts arise in determining the terms of investments, particularly where these accounts may invest in different types of securities in a single portfolio company. Potential conflicts arise when addressing, among other things, questions as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced. For a discussion of the risks associated with conflicts of interest, see "Item 1. Business-Regulation-Conflicts of Interest" and "Item 1A. Risk Factors-Risks Related to OFS Advisor and its Affiliates-We have potential conflicts of interest related to the purchases and sales that OFS Advisor makes on our behalf and/or on behalf of Affiliated Accounts" in our Annual Report on Form 10-K for the year ended December 31, 2025. Portfolio Composition and Investment Activity Portfolio Composition As of June 30, 2026, the fair value of our debt investment portfolio totaled $147.0 million in 33 portfolio companies, of which approximately 97% and 3% were first lien and second lien debt investments, respectively. We also had equity investments in 13 portfolio companies with a fair value of approximately $116.7 million and 10 investments in Structured Finance Securities with a fair value of approximately $34.1 million. As of June 30, 2026, we had unfunded commitments of $6.0 million to fund outstanding commitments to 12 portfolio companies. Set forth in the tables and charts below is selected information with respect to our portfolio as of June 30, 2026 and December 31, 2025. The following table presents our ten largest investments by issuer based on fair value as of June 30, 2026 (dollar amounts in thousands): Issuer Name Type Amortized Cost Fair Value % of Total Portfolio, at Fair Value % of Net Assets, at Fair Value Pfanstiehl Holdings, Inc. Equity $ 217 $ 94,550 31.8 % 84.0 % Kreg LLC Debt 18,211 18,004 6.0 % 16.0 % SS Acquisition, LLC Debt 17,146 17,377 5.8 % 15.4 % Inergex Holdings, LLC Debt 17,327 17,345 5.8 % 15.4 % Contract Datascan Holdings, Inc. Equity 13,443 12,205 4.1 % 10.8 % One GI LLC Debt 12,532 10,364 3.5 % 9.2 % Boca Home Care Holdings, Inc. Debt and Equity 10,690 10,204 3.4 % 9.1 % Tolemar Acquisition, Inc. Debt 15,470 9,210 3.1 % 8.3 % 24 Seven Holdco, LLC Debt 8,325 8,298 2.8 % 7.4 % PSB Group, LLC Debt 7,808 7,799 2.6 % 6.9 % Total $ 121,169 $ 205,356 68.9 % 182.5 % As of June 30, 2026, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 31.8% and 84.0% of our total portfolio at fair value and our total net assets, respectively. The value of this investment is substantially comprised of unrealized appreciation of $94.3 million. The valuation's unobservable inputs incorporate discounts for the minority-interest and illiquid nature of the security; however, the valuation, in accordance with fair value concepts, is based on assumptions applicable to an orderly transaction between market participants and does not reflect the impact of a forced sale or entity-specific liquidity constraints. As a result, there can be no assurance that we would be able to realize this value in a timely manner, or at all. A deterioration or improvement in the operating performance of these portfolio investments, or other factors underlying the valuation of these investments, could have a material impact on our NAV. Portfolio Yields The following table presents weighted-average yield metrics for our portfolio as of June 30, 2026 and March 31, 2026: For the Three Months Ended June 30, 2026 March 31, 2026 Weighted-average performing income yield (1) : Debt investments 11.1 % 11.5 % Structured Finance Securities 14.6 % 14.9 % Interest-bearing investments 12.1 % 12.5 % Weighted-average realized yield (2) : Interest-bearing investments 10.1 % 10.9 % (1) Performing income yield is calculated as (a) the actual amount earned on performing interest-bearing investments, including interest, prepayment fees and amortization of Net Loan Fees, divided by (b) the weighted-average of total performing interest-bearing investments at amortized cost. (2) Realized yield is calculated as (a) the actual amount earned on interest-bearing investments, including interest, prepayment fees and amortization of Net Loan Fees, divided by (b) the weighted-average of total interest-bearing investments at amortized cost, in each case, including debt investments on non-accrual status and non-performing Structured Finance Securities. For the three months ended June 30, 2026, the weighted-average performing income yield on interest-bearing investments decreased to 12.1% from 12.5% during the prior quarter. This decrease was primarily attributable to the reversal of previously accrued interest income on debt investments to one portfolio company placed on non-accrual status during the quarter and a decrease in the effective yields of our Structured Finance Securities. Weighted-average yields of our investments are not the same as a return on investment for our stockholders, but rather the gross investment income from our investment portfolio before the payment of all of our fees and expenses. There can be no assurance that the weighted average yields will remain at their current levels. As of June 30, 2026, 93% of our total loan portfolio, at fair value, consisted of variable rate investments, generally indexed to SOFR. See additional information under "Item 3. Quantitative and Qualitative Disclosures About Market Risk". Portfolio Company Investments The following table summarizes the composition of our Portfolio Company Investments as of June 30, 2026 and December 31, 2025 (dollar amounts in thousands): June 30, 2026 December 31, 2025 Amortized Cost Fair Value Amortized Cost Fair Value First lien debt investments (1) $ 163,493 $ 143,084 $ 188,236 $ 170,405 Second lien debt investments 18,340 3,944 24,924 9,409 Preferred equity 15,114 12,574 14,287 12,567 Common equity, warrants and other 18,599 104,082 23,320 88,029 Total Portfolio Company Investments $ 215,546 $ 263,684 $ 250,767 $ 280,410 Number of portfolio companies 41 41 43 43 (1) As of June 30, 2026 and December 31, 2025, first lien debt investments include unitranche investments (which are loans that combine both senior and subordinated debt, in a first lien position) with an amortized cost and fair value of $123.4 million and $106.4 million, respectively, and $130.3 million and $116.3 million, respectively. Unitranche loans generally provide leverage levels comparable to a combination of first lien and second lien or subordinated loans. Investments in "last out" pieces of unitranche loans will be similar to second lien loans in that such investments will be junior in priority to the "first out" piece of the same unitranche loan with respect to payment of principal and interest. As of June 30, 2026, 100% of our loan portfolio and 49% of our total portfolio consisted of first lien and second lien loans, based on fair value. As of June 30, 2026, the three largest industries of our Portfolio Company Investments by fair value, were: (1) Manufacturing (40.9%); (2) Health Care and Social Assistance (15.4%); and (3) Real Estate and Rental and Leasing (8.4%), totaling an aggregate of approximately 64.7% of our Portfolio Company Investment portfolio. For a full summary of our investment portfolio by industry, see "Item 1-Financial Statements- Note 4 ." Structured Finance Securities The following table summarizes the composition of our Structured Finance Securities as of June 30, 2026 and December 31, 2025 (dollar amounts in thousands): June 30, 2026 December 31, 2025 Amortized Cost Fair Value Amortized Cost Fair Value Subordinated notes $ 57,323 $ 31,955 $ 68,670 $ 53,531 Mezzanine debt 2,968 2,117 8,963 8,074 Total Structured Finance Securities $ 60,291 $ 34,072 $ 77,633 $ 61,605 Number of Structured Finance Securities 10 10 14 14 Non-performing Structured Finance Securities are securities that have not been optionally redeemed and have an effective yield of 0.0%, as remaining residual distributions are anticipated to be recognized as a return of capital. As of June 30, 2026, the aggregate amortized cost and fair value of non-performing Structured Finance Securities were $7.2 million and $1.1 million, respectively. During the six months ended June 30, 2026, we sold Structured Finance Securities for net proceeds of $11.0 million, resulting in an aggregate net realized loss of $6.1 million. Investment Activity The following is a summary of our investment activity for the three months ended June 30, 2026 and March 31, 2026, and the six months ended June 30, 2026 and 2025 (dollar amounts in thousands): For the Three Months Ended For the Six Months Ended June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025 Investments in debt and equity securities $ 2,147 $ 2,109 $ 4,256 $ 13,390 Investments in Structured Finance Securities - - - 9,528 Total investment purchases and originations $ 2,147 $ 2,109 $ 4,256 $ 22,918 Proceeds from principal payments $ 959 $ 8,996 $ 9,955 $ 8,165 Proceeds from investments sold or redeemed 16,456 14,056 30,512 18,413 Proceeds from distributions received from portfolio investments 2,381 2,478 4,859 6,934 Total proceeds from principal payments, sales or redemptions, and distributions received from portfolio investments $ 19,796 $ 25,530 $ 45,326 $ 33,512 Non-Cash Investment Activity During the six months ended June 30, 2026, our first lien debt investment in Redstone HoldCo 2 LP (F/K/A RSA Security) underwent a restructuring through which our first lien debt investment was exchanged for a combination of new first lien debt investments in the portfolio company at a price equal to 63% of par. In connection with the transaction, we recognized a realized loss of $0.6 million on the debt restructure corresponding to the amount forgiven upon the exchange. As of June 30, 2026, our new first lien debt investments had an aggregate amortized cost of and fair value of $1.1 million and $1.0 million, respectively. Risk Monitoring We categorize debt investments into seven risk categories based on relevant information about the ability of borrowers to service their debt. For additional information regarding our risk categories, see "Item 1. Business-Portfolio Review/Risk Monitoring" in our Annual Report on Form 10-K for the year ended December 31, 2025, filed on March 3, 2026. The following table shows the classification of our debt investments, excluding Structured Finance Securities, by credit risk rating as of June 30, 2026 and December 31, 2025 (dollar amounts in thousands): Debt Investments as of June 30, 2026 December 31, 2025 Risk Category Amortized Cost Fair Value % of Debt Investments, at Fair Value Amortized Cost Fair Value % of Debt Investments, at Fair Value 1 (Low Risk) $ - $ - - % $ - $ - - % 2 (Below Average Risk) - - - % - - - % 3 (Average) 119,759 113,743 77.4 % 131,812 128,363 71.4 % 4 (Special Mention) 46,462 24,547 16.7 % 67,235 44,209 24.6 % 5 (Substandard) 15,612 8,738 5.9 % 14,113 7,242 4.0 % 6 (Doubtful) - - - % - - - % 7 (Loss) - - - % - - - % $ 181,833 $ 147,028 100.0 % $ 213,160 $ 179,814 100.0 % Non-Accrual Loans Management reviews, for placement on non-accrual status, all loans and CLO mezzanine debt investments that become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected. When a loan is placed on non-accrual status, accrued and unpaid cash interest is reversed. PIK income that has been contractually capitalized to the principal balance of the investment prior to the non-accrual designation date is not reserved against interest or dividend income, but rather is assessed through the valuation of the investment with corresponding adjustments to unrealized appreciation/depreciation, as applicable. Additionally, Net Loan Fees are no longer recognized as of the date the loan is placed on non-accrual status. Depending upon management's judgment, interest payments subsequently received on non-accrual investments may be recognized as interest income or applied as a reduction to amortized cost. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal and interest payments or until a restructuring occurs and, in the judgment of management, it is probable that we will collect all principal and interest from the investment. As of June 30, 2026 The following table shows the classification of our debt investments on non-accrual status (dollar amounts in thousands): June 30, 2026 Amortized Cost Fair Value First lien debt $ 28,333 $ 19,352 Second lien debt 15,657 2,034 Total $ 43,990 $ 21,386 For the three months ended June 30, 2026, our first lien debt investments in One GI LLC with an aggregate amortized cost and fair value of $12.5 million and $10.4 million, respectively, were placed on non-accrual status. As of December 31, 2025 The following table shows the classification of our debt investments on non-accrual status (dollar amounts in thousands): December 31, 2025 Amortized Cost Fair Value First lien debt $ 14,326 $ 7,491 Second lien debt 22,241 6,909 Total $ 36,567 $ 14,400 Results of Operations Our key financial measures are described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Key Financial Measures" in our Annual Report on Form 10-K for the year ended December 31, 2025, filed on March 3, 2026. The following is a discussion of the key financial measures that management employs in reviewing the performance of our operations. We do not believe that our historical operating performance is necessarily indicative of our future results of operations. We are primarily focused on debt investments in middle-market and larger companies in the United States and, to a lesser extent, equity investments, including warrants and other minority equity securities, and Structured Finance Securities. Moreover, as a BDC and a RIC, we are also subject to certain constraints on our operations, including, but not limited to, limitations imposed by the 1940 Act and the Code. For the reasons described above, the results of operations described below may not necessarily be indicative of the results we expect to report in future periods. Net increase (decrease) in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, annual comparisons of net increase (decrease) in net assets resulting from operations may not be meaningful. The following analysis compares our quarterly results of operations to the preceding quarter, as well as our year-to-date results of operations to the corresponding period in the prior year. We believe a comparison of our current quarterly results to the preceding quarter is more meaningful and transparent than a comparison to the corresponding prior-year quarter as our results of operations are not influenced by seasonal factors that the latter comparison is designed to elicit and highlight. Comparison of the three months ended June 30, 2026 and March 31, 2026 and comparison of the six months ended June 30, 2026 and 2025 Consolidated operating results for the three months ended June 30, 2026 and March 31, 2026, and the six months ended June 30, 2026 and 2025 are as follows (in thousands): Three Months Ended Six Months Ended June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025 Investment income Interest income: Cash interest income $ 4,022 $ 4,763 $ 8,785 $ 12,840 PIK interest income 176 175 351 786 Net Loan Fee amortization 131 114 245 402 Accretion of interest income on CLO subordinated notes 2,041 2,492 4,533 5,844 Other interest income 19 42 61 115 Total interest income 6,389 7,586 13,975 19,987 Dividend income: Cash dividends 11 885 896 21 PIK dividends 423 412 835 584 Total dividend income 434 1,297 1,731 605 Fee income: Syndication fees - - - 121 Prepayment and other fees 14 21 35 58 Total fee income 14 21 35 179 Total investment income 6,837 8,904 15,741 20,771 Total expenses, net of base management fee waiver 5,829 6,440 12,269 14,023 Net investment income 1,008 2,464 3,472 6,748 Net gain (loss) on investments 4,559 (13,922 ) (9,363 ) (23,666 ) Loss on extinguishment of debt - (130 ) (130 ) - Net increase (decrease) in net assets resulting from operations $ 5,567 $ (11,588 ) $ (6,021 ) $ (16,918 ) Investment Income Comparison of the three months ended June 30, 2026 and March 31, 2026 For the three months ended June 30, 2026, total investment income decreased from $8.9 million in the prior quarter to $6.8 million, primarily due to decreases in interest income of $1.2 million and dividend income of $0.9 million. For the three months ended June 30, 2026, interest income decreased by $1.2 million compared to the prior quarter, primarily due to a smaller average debt investment portfolio, at cost, the placement of loans to a portfolio company on non-accrual status and a decrease in the effective yields on our Structured Finance Securities. For the three months ended June 30, 2026, dividend income decreased by $0.9 million compared to the prior quarter, primarily due to a non-recurring cash dividend of $0.9 million from our common equity investment in Pfanstiehl Holdings, Inc. recognized during the prior quarter. Fee income is primarily comprised of unused fees, prepayment fees and syndication fees that generally result from periodic transactions rather than from holding portfolio investments, and are considered non-recurring. We receive syndication fees on investments where OFS Advisor sources, structures and arranges the lending group. Comparison of the six months ended June 30, 2026 and 2025 Total investment income for the six months ended June 30, 2026 decreased $5.0 million compared to the corresponding period in the prior year, primarily due to a decrease in total interest income of $6.0 million, partially offset by an increase in total dividend income of $1.1 million. Expenses Operating expenses for the three months ended June 30, 2026 and March 31, 2026, and the six months ended June 30, 2026 and 2025 are presented below (in thousands): Three Months Ended Six Months Ended June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025 Interest expense $ 3,734 $ 3,889 $ 7,623 $ 7,700 Base management fee 1,340 1,435 2,775 3,028 Income Incentive Fee - 408 408 1,151 Professional fees 345 363 708 839 Administration fee 367 326 693 776 Other expenses 246 239 485 529 Total expenses before base management fee waiver 6,032 6,660 12,692 14,023 Base management fee waiver (203 ) (220 ) (423 ) - Total expenses, net of base management fee waiver $ 5,829 $ 6,440 $ 12,269 $ 14,023 Comparison of the three months ended June 30, 2026 and March 31, 2026 Interest expense for the three months ended June 30, 2026 decreased $0.2 million compared to the prior quarter, primarily due to a decrease of $13.0 million in our average outstanding debt balances compared to the prior quarter. During the quarter ended June 30, 2026, we reduced the aggregate outstanding balance of our revolving credit facilities by $16.7 million. Income Incentive Fees for the three months ended June 30, 2026 decreased $0.4 million compared to the prior quarter, primarily due to a decrease in our net investment income return on net assets in the current quarter. For the three months ended June 30, 2026, the base management fee waiver of $0.2 million was due to OFS Advisor agreeing to waive its base management fee attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (other than cash and cash equivalents, but including assets purchased with borrowed amounts) at the end of the two most recently completed calendar quarters. Comparison of the six months ended June 30, 2026 and 2025 Total expenses, net of the base management fee waivers, for the six months ended June 30, 2026 decreased $1.8 million compared to the corresponding period in the prior year. Base management fees, net of the fee waivers, for the six months ended June 30, 2026 decreased $0.7 million compared to the corresponding period in the prior year, primarily due to a decrease in our total investment portfolio, at fair value. Income Incentive Fees for the six months ended June 30, 2026 decreased $0.7 million compared to the corresponding period in the prior year, primarily due to a decrease in our net investment income of $3.3 million. Net realized and unrealized gain (loss) on investments Net gain (loss) on investments, inclusive of realized and unrealized gains (losses), and net of current and deferred income taxes, by investment type for the three months ended June 30, 2026 and March 31, 2026, and the six months ended June 30, 2026 and 2025 were as follows (in thousands): Three Months Ended Six Months Ended June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025 Debt investments $ (2,879 ) $ (5,122 ) $ (8,003 ) $ (10,332 ) Equity investments 13,343 1,888 15,232 (10,315 ) Structured Finance Securities (5,901 ) (10,344 ) (16,244 ) (3,265 ) Current/deferred income tax (expense) benefit (4 ) (344 ) (348 ) 246 Total net gain (loss) on investments $ 4,559 $ (13,922 ) $ (9,363 ) $ (23,666 ) Net gain (loss) on investments for the three months ended June 30, 2026 and March 31, 2026 Three months ended June 30, 2026 For the three months ended June 30, 2026, we recognized a net gain on investments of $4.6 million due to net unrealized appreciation, net of taxes of $10.6 million, partially offset by a net realized loss of $6.0 million. For the three months ended June 30, 2026, net unrealized appreciation, net of taxes, of $10.6 million was primarily due to appreciation of $14.1 million on our common equity investment in Pfanstiehl Holdings, Inc. For the three months ended June 30, 2026, we recognized a net realized loss of $6.0 million, primarily due to an aggregate loss of $4.8 million on the sale of Structured Finance Securities. Three months ended March 31, 2026 For the three months ended March 31, 2026, we recognized a net loss on investments of $13.9 million due to a net realized loss of $11.3 million and net unrealized depreciation, net of taxes, of $2.6 million. For the quarter ended March 31, 2026, our net realized and unrealized loss on investments of $13.9 million was primarily attributable to $10.3 million of net realized and unrealized losses on our Structured Finance Securities. Net gain (loss) on investments for the six months ended June 30, 2026 and 2025 Six months ended June 30, 2026 For the six months ended June 30, 2026, we recognized a net loss on investments of $9.4 million, comprised of net realized losses of $17.3 million, partially offset by net unrealized appreciation of $8.0 million. Six months ended June 30, 2025 For the six months ended June 30, 2025, we recognized a net loss on investments of $23.7 million, comprised of net unrealized depreciation of $17.1 million and net realized losses of $6.8 million. The net unrealized depreciation during the period was primarily due to depreciation of $6.3 million on our common equity investment in Pfanstiehl Holdings, Inc. and $5.6 million on our non-accrual debt investments. Loss on Extinguishment of Debt Six months ended June 30, 2026 During the six months ended June 30, 2026, we fully repaid and terminated the BNP Facility, and, as a result, we recognized a loss on extinguishment of debt of $0.1 million related to the acceleration of deferred financing costs. During the six months ended June 30, 2026, we amended the Banc of California Credit Facility to, among other things, reduce the maximum facility amount from $25.0 million to $15.0 million, and, as a result, we recognized a loss on extinguishment of debt of less than $0.1 million related to the acceleration of deferred financing costs. Liquidity and Capital Resources As of June 30, 2026, we held cash and cash equivalents of $4.0 million, which included $2.9 million held by OFSCC-FS. Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the Natixis Facility. On February 18, 2026, OFSCC-FS entered into the Natixis Facility, which provides for borrowings in an aggregate principal amount up to $80.0 million. See "Borrowings-Natixis Facility" for additional information. On February 18, 2026, in connection with the closing of the Natixis Facility, OFSCC-FS repaid in full all outstanding obligations due, and terminated all commitments, under the BNP Facility. All liens securing the BNP Facility were released upon such repayment. As of June 30, 2026, we had an unused commitment of $15.0 million under our Banc of California Credit Facility, as well as an unused commitment of $43.2 million under our Natixis Facility, both of which are subject to borrowing base requirements and other covenants. As of June 30, 2026, we had unfunded commitments of $6.0 million to fund outstanding commitments to portfolio companies. As of June 30, 2026, the aggregate amount outstanding of the senior securities issued by us was $185.8 million, for which our asset coverage was 161%, exceeding our minimum asset coverage requirement of 150% under the 1940 Act. The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness. Sources and Uses of Cash We generate operating cash flows from net investment income and the net proceeds from the liquidation of portfolio investments, and use cash in our operations in the net purchase of portfolio investments and payment of expenses. Significant variations may exist between net investment income and cash from net investment income, primarily due to the recognition of non-cash investment income, including certain Net Loan Fee amortization, PIK interest and PIK dividends, which generally will not be fully realized in cash until we exit the investment, as well as accreted interest income on Structured Finance Securities, which may not coincide with cash distributions from these investments. As discussed in "Item 1.-Financial Statements-Note 3," we pay OFS Advisor a quarterly incentive fee with respect to our pre-incentive fee net investment income, which may include investment income that we have not received in cash. In addition, we must distribute substantially all of our taxable income, which approximates, but will not always equal, the cash we generate from net investment income to maintain our RIC tax treatment. We also obtain cash to fund investments or general corporate activities from the issuance of securities and our revolving lines of credit. These principal sources and uses of cash and liquidity are presented below (in thousands): Six Months Ended June 30, 2026 2025 Cash from net investment income (1) $ 2,888 $ 6,036 Net repayments and sales of portfolio investments (1) 36,257 12,195 Net cash provided by operating activities 39,145 18,231 Distributions paid to stockholders (2) (2,278 ) (9,111 ) Net repayments under revolving lines of credit (18,650 ) (4,950 ) Redemption of Unsecured Notes (16,000 ) - Payment of deferred financing costs (1,594 ) - Net cash used in financing activities (38,522 ) (14,061 ) Net increase in cash and cash equivalents $ 623 $ 4,170 (1) Cash from net investment income includes all other cash flows from operating activities reported in our statements of cash flows. Net purchases and originations/repayments and sales of portfolio investments includes the purchase and origination of portfolio investments, proceeds from principal payments on portfolio investments, proceeds from sale or redemption of portfolio investments, changes in receivable for investments sold, payable from investments purchased as reported in our statements of cash flows, as well as differences in proceeds from distributions received from Structured Finance Securities relative to accretion of interest income on Structured Finance Securities. (2) We currently estimate that a portion of our distributions for the year ending December 31, 2026 will be characterized as a tax return of capital. The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our ICTI for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. Net cash provided by operating activities For the six months ended June 30, 2026, net cash from operating activities increased by $20.9 million compared to the six months ended June 30, 2025, primarily due to an increase of $24.1 million in net repayments and sales of portfolio investments, which were primarily used for the repayment of outstanding debt. Net cash used in financing activities For the six months ended June 30, 2026, net cash used in financing activities increased $24.5 million compared to the six months ended June 30, 2025, primarily due to the redemption of Unsecured Notes and net repayments on our revolving lines of credit, partially offset by a reduction in distributions paid to stockholders. Borrowings As of June 30, 2026, we had $185.8 million of outstanding debt with a weighted-average effective interest rate of 7.40%. As of June 30, 2026, 100% of our outstanding debt matures in more than two years and 80% of our outstanding debt is unsecured. Banc of California Credit Facility We are party to the BLA with Banc of California, as lender, to provide us with a senior secured revolving credit facility, or the Banc of California Credit Facility, which is available for general corporate purposes including investment funding and is scheduled to mature on February 28, 2028. The Banc of California Credit Facility currently bears interest at a variable Prime Rate plus a 0.25% margin, with a 5.00% floor, and an annual commitment fee of 0.50% based on the maximum principal amount of the facility. As of June 30, 2026, the effective interest rate on the Banc of California Credit Facility was 7.52% . The maximum availability of the Banc of California Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which typically excludes Structured Finance Securities, foreign loans, and non-performing loans, and as otherwise specified in the BLA. The Banc of California Credit Facility is guaranteed by OFSCC-MB and secured by all of our and OFSCC-MB's current and future assets, excluding assets held by OFSCC-FS and our partnership interests in SBIC I LP. On January 9, 2026, we amended the Banc of California Credit Facility to extend the maturity date from February 28, 2026 to February 28, 2028. On March 27, 2026, we amended the Banc of California Credit Facility to, among other things: (i) reduce the minimum tangible net asset value covenant from $100.0 million to $75.0 million; (ii) reduce the covenant requiring minimum quarterly net investment income after management/incentive fees from $2.0 million to $1.0 million for each of the quarters ending March 31, 2026, June 30, 2026 and September 30, 2026, after which the minimum quarterly net investment income after management/incentive fees covenant shall return to $2.0 million; and (iii) decrease our maximum commitment amount from $25.0 million to $15.0 million. The BLA contains customary terms and conditions, including, without limitation, affirmative and negative covenants, such as information reporting requirements, a minimum tangible net asset value, a minimum quarterly net investment income after incentive fees and a debt/worth ratio. The BLA also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change in investment advisor, and the occurrence of a material adverse change in our financial condition. As of June 30, 2026, we were in compliance in all material respects with the applicable covenants under the Banc of California Credit Facility. As of June 30, 2026, we had no outstanding debt and an unused commitment of $15.0 million under the Banc of California Credit Facility, subject to the terms of the borrowing base and other covenants. Unsecured Notes As of June 30, 2026 and December 31, 2025, we had $149.0 million and $165.0 million, respectively, in outstanding Unsecured Notes. The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all of our current and future unsecured indebtedness. Because the Unsecured Notes are not secured by any of our assets, they are effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the Banc of California Credit Facility and Natixis Facility. In order to, among other things, reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase the Unsecured Notes for cash in open market purchases and/or privately negotiated transactions. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity, prospects for future access to capital, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. During the six months ended June 30, 2026, no outstanding Unsecured Notes were repurchased. Redemption of Unsecured Notes On January 8, 2026, we issued notices to the holders of the Unsecured Notes Due February 2026 regarding the exercise of our option to redeem on February 9, 2026 $16.0 million, which was equal to the remainder of the outstanding Unsecured Notes Due February 2026, plus accrued interest of $0.4 million. As of June 30, 2026, the Unsecured Notes had the following terms and balances (dollar amounts in thousands): Unsecured Notes Principal Stated Interest Rate Effective Interest Rate (1) Optional Redemption Date Maturity Unsecured Notes Due July 2028 $ 69,000 7.50 % 8.34 % July 31, 2026 July 31, 2028 Unsecured Notes Due October 2028 55,000 4.95 5.32 Callable October 31, 2028 Unsecured Note Due August 2029 25,000 8.00 8.80 Callable August 8, 2029 Total / Weighted-Average $ 149,000 6.64 % 7.30 % (1) The effective interest rate on the Unsecured Notes includes deferred debt issuance cost amortization. Natixis Facility On February 18, 2026, OFSCC-FS entered into the Natixis Facility, which provides for borrowings in an aggregate principal amount up to $80.0 million. Borrowings under the Natixis Facility bear interest at a rate based on SOFR plus a margin of 2.35%. The Natixis Facility also includes a fee of 0.40% on the unused amount of the facility, as well as an arranger fee of 0.20% on the total commitment amount of the facility. The reinvestment period during which OFSCC-FS is permitted to borrow terminates on February 18, 2029, and the facility is scheduled to mature on February 18, 2031. As of June 30, 2026, the Natixis Facility had outstanding debt of $36.8 million, the unused commitment under the Natixis Facility was $43.2 million, subject to a borrowing base and other covenants, and the stated interest rate on the Natixis Facility was 6.08%. Borrowings under the Natixis Facility are secured by substantially all of the assets held by OFSCC-FS, which were $107.0 million at June 30, 2026. Our use of cash and cash equivalents held by OFSCC-FS is limited by the terms and conditions of the Natixis Facility, including but not limited to, the payment of interest expense and principal on the outstanding borrowings. As of June 30, 2026 and December 31, 2025, OFSCC-FS had cash and cash equivalents of $2.9 million and $2.4 million, respectively. BNP Facility On June 20, 2019, OFSCC-FS entered into the BNP Facility, which provided for borrowings in an aggregate principal amount up to $80.0 million during its reinvestment period. Borrowings under the BNP Facility bore interest at a variable rate of SOFR plus a variable margin (2.65% floor), which was determined on the basis of industry-recognized portfolio company metrics at the time of funding. On February 18, 2026, in connection with the closing of the Natixis Facility, OFSCC-FS repaid in full all outstanding obligations due, and terminated all commitments, under the BNP Facility. All liens securing the BNP Facility were released upon such repayment. The following table shows the scheduled maturities of the principal balances of our outstanding borrowings as of June 30, 2026 (in thousands): Payments due by period Total Less than 1 year 1 to 3 years 3 to 5 years After 5 years Banc of California Credit Facility (1) $ - $ - $ - $ - $ - Natixis Facility 36,800 - - 36,800 - Unsecured Notes 149,000 - 124,000 25,000 - Total $ 185,800 $ - $ 124,000 $ 61,800 $ - (1) As of June 30, 2026, the Banc of California Credit Facility had no outstanding balance and is scheduled to mature on February 28, 2028. Other Liquidity Matters We expect to fund the growth of our investment portfolio utilizing our current borrowings, follow-on equity offerings, and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act. We cannot assure stockholders that our plans to raise capital will be successful or available to us on favorable terms, if at all. In addition, we intend to distribute to our stockholders substantially all of our taxable income 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 or make additional investments in our portfolio companies. The illiquidity of our portfolio investments, in particular, equity 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 and incur a capital loss. 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 assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions). Qualifying assets include investments in "eligible portfolio companies." Under the relevant SEC rules, the term "eligible portfolio company" includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public 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 in the United States. Conversely, we may invest up to 30% of our portfolio in opportunistic investments not otherwise eligible under BDC regulations. Specifically, as part of this 30% basket, we may consider investments in investment funds that are operating pursuant to certain exceptions to the 1940 Act and in advisers to similar investment funds, as well as in debt or equity of middle-market portfolio companies located outside of the United States and debt and equity of public companies that do not meet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for in the 1940 Act. We have, and may continue to, make opportunistic investments in Structured Finance Securities and other non-qualifying assets, consistent with our investment strategy. Investments in Structured Finance Securities are generally made in non-U.S. entities and are not operating companies and, therefore, are generally deemed to be non-qualifying. As of June 30, 2026, approximately 87% of our investments were qualifying assets. On May 3, 2018, our Board, including a required majority (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, effective May 3, 2019, our minimum required asset coverage ratio decreased from 200% to 150%. As of June 30, 2026, our asset coverage ratio of 161% exceeded the minimum asset coverage requirement of 150% under the 1940 Act. On May 22, 2018, the Board authorized the Stock Repurchase Program under which we could acquire up to $10.0 million of our outstanding common stock through the two-year period ended May 22, 2020. On each of May 4, 2020, May 3, 2022 and April 30, 2024, our Board extended the Stock Repurchase Program for additional two-year periods. On April 28, 2026, our Board extended the Stock Repurchase Program for the two-year period ending on May 22, 2028. Under the extended Stock Repurchase Program, we are authorized to repurchase shares in open-market transactions, including through block purchases, depending on prevailing market conditions and other factors. We expect the Stock Repurchase Program to be in place through May 22, 2028, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not obligate us to acquire any specific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases. The Stock Repurchase Program may be extended, modified or discontinued at any time for any reason. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We retire all shares of common stock that we purchased in connection with the Stock Repurchase Program. During the six months ended June 30, 2026, we did not make any repurchases of common stock on the open market under the Stock Repurchase Program. As of June 30, 2026, the approximate dollar value of shares remaining that may be purchased under the program was $9.6 million. As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if the Board determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve such sale. On July 30, 2025, our stockholders approved a proposal to authorize us, with approval of our Board, to sell or otherwise issue shares of our common stock (during a twelve-month period) at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations (including that the cumulative number of shares sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale). We did not sell any shares below net asset value pursuant to the proposal approved by our stockholders. We continue to monitor the current banking environment. If the banks and financial institutions with whom we have credit facilities enter into receivership, undergo consolidation or become insolvent in the future, our liquidity may be reduced significantly. At various times, our cash balances at third-party financial institutions exceed the federally insured limit. Our cash and cash equivalent balances are retained in custodian accounts with U.S. Bank Trust Company, National Association and Citibank N.A., and we do not believe they are exposed to any significant credit risk. Contractual Obligations and Off-Balance Sheet Arrangements Contractual Obligations As of June 30, 2026, we had $4.0 million of cash and cash equivalents, as well as unused commitments of $15.0 million under our Banc of California Credit Facility and $43.2 million under our Natixis Facility, respectively, to meet our short-term contractual obligations, subject to contractual requirements and regulatory asset coverage requirements. As of June 30, 2026, we had $6.0 million in unfunded commitments to fund portfolio investments that can be funded with our current cash or credit facilities. Following the maturity extension of our Banc of California Credit Facility in January 2026, the final repayment of our 4.75% Unsecured Notes Due February 2026, and the execution of our Natixis Facility in February 2026, we do not have any debt maturities until February 2028. Long-term contractual obligations, such as our Natixis Facility that matures in 2031 and had $36.8 million outstanding as of June 30, 2026, could be repaid by selling OFSCC-FS portfolio investments that have a fair value of $102.2 million as of June 30, 2026. A portion of the OFSCC-FS portfolio includes broadly syndicated loans in larger portfolio companies that generally can be sold over a relatively short period to generate cash. As of June 30, 2026, the broadly syndicated loan investments in the OFSCC-FS portfolio totaled $14.6 million at fair value. We cannot, however, be certain that this source of funds will be available and upon terms acceptable to us in sufficient amounts in the future. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than its current fair value and incur significant realized losses on our invested capital. As of June 30, 2026, we had $149.0 million of outstanding Unsecured Notes, of which $124.0 million matures in 2028 and $25.0 million matures in 2029. The Unsecured Notes can be repaid by issuing additional senior securities to refinance the debt or by selling portfolio investments, although there is no guarantee that there would be a market for additional senior securities. Off-Balance Sheet Arrangements We have entered into contracts with third parties under which we have material future commitments - the Investment Advisory Agreement, pursuant to which OFS Advisor has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which OFS Services has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations. We may become 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. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized on the balance sheet. There is no guarantee that these amounts will be funded to the borrowing party now or in the future. We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and will meet these unfunded commitments by using our cash on hand or utilizing our available borrowing capacity under the Banc of California Credit Facility and Natixis Facility. Distributions We are taxed as a RIC under the Code. In order to maintain our tax treatment as a RIC, we are required to distribute annually to our stockholders at least 90% of our ICTI, as defined by the Code. Additionally, to avoid a 4% excise tax on undistributed earnings we are required to distribute each calendar year the sum of: (i) 98% of our ordinary income for such calendar year; (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year; and (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. Maintenance of our RIC status requires adherence to certain source of income and asset diversification requirements. Generally, a RIC is entitled to deduct dividends it pays to its stockholders from its income to determine "taxable income". Taxable income includes our taxable interest, dividend and fee income, and taxable net capital gains. 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, as gains or losses are not included in taxable income until they are realized. In addition, gains realized for financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains using installment sale treatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow received as consideration from the sale of investments, are collected in cash. Taxable income includes non-cash income, such as changes in accrued and reinvested interest and dividends, which includes contractual PIK interest, and the amortization of discounts and fees. Cash collections of income resulting from contractual PIK interest and dividends or the amortization of discounts and fees generally occur upon the repayment of the loans or debt securities that include such items. Non-cash taxable income is reduced by non-cash expenses, such as realized losses and depreciation, and amortization expense. Our Board maintains a variable dividend policy with the objective of distributing quarterly distributions in an amount not less than 90% of our taxable quarterly income or potential annual income for a particular year. In addition, during the year, we may pay a special dividend, such that we may distribute approximately all of our annual taxable income in the year it was earned, while maintaining the option to spill over our excess taxable income to a following year. We may choose to retain a portion of our taxable income in any year and pay the 4% U.S. federal excise tax on the retained amounts. Distributions in excess of our current and accumulated ICTI would be treated first as a return of capital to the extent of the stockholder's adjusted tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our estimated ICTI for the full year and distributions paid for the full year. Each year, a statement on Form 1099-DIV identifying the source of the distribution is mailed to our stockholders. Recent Developments Declaration of a Distribution On July 28, 2026, our Board declared a distribution of $0.17 per share for the third quarter of 2026, payable on October 5, 2026 to stockholders of record as of September 18, 2026.

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