UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

OR

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

COMMISSION FILE NUMBER: 1-35730

STELLUS CAPITAL INVESTMENT CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

4400 Post Oak Parkway, Suite 2200

Houston, Texas 77027

(Address of Principal Executive Offices) (Zip Code)

(713) 292-5400

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

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

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

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

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of August 03, 2022 was 19,545,935.

STELLUS CAPITAL INVESTMENT CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Assets and Liabilities as of June 30, 2022 (unaudited) and December 31, 2021	1
	Consolidated Statements of Operations for the three and six-month periods ended June 30, 2022 and 2021 (unaudited)	2
	Consolidated Statements of Changes in Net Assets for the three and six-month periods ended June 30, 2022 and 2021 (unaudited)	3
	Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2022 and 2021 (unaudited)	4
	Consolidated Schedules of Investments as of June 30, 2022 (unaudited) and December 31, 2021	5
	Notes to Unaudited Financial Statements	23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	72
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	75

PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

	June 30,
	2022		December 31,
	(unaudited)		2021
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $873,575,942 and $785,005,957, respectively)	$	852,000,318	$	772,873,326
Cash and cash equivalents		26,462,108		44,174,856
Receivable for sales and repayments of investments		770,998		536,105
Interest receivable		2,973,110		2,944,599
Other receivables		177,533		54,752
Deferred tax asset		—		151,278
Related party receivable		187,132		—
Deferred offering costs		89,158		14,888
Prepaid expenses		286,039		512,214
Total Assets	$	882,946,396	$	821,262,018
LIABILITIES
Notes payable	$	98,324,497	$	98,102,973
Credit Facility payable		201,845,293		175,451,116
SBA-guaranteed debentures		287,743,263		244,615,903
Dividends payable		2,214,557		1,171,059
Management fees payable		3,705,053		3,454,225
Income incentive fees payable		289,188		1,749,130
Capital gains incentive fees payable		2,362,360		3,388,151
Interest payable		3,953,225		3,693,662
Unearned revenue		510,842		529,726
Administrative services payable		399,741		386,368
Income tax payable		725,295		3,269,514
Deferred tax liability		30,535		—
Other accrued expenses and liabilities		976,429		338,958
Total Liabilities	$	603,080,278	$	536,150,785
Commitments and contingencies (Note 7)
Net Assets	$	279,866,118	$	285,111,233
NET ASSETS
Common stock, par value $0.001 per share (100,000,000 shares authorized; 19,545,935 and 19,517,595 issued and outstanding, respectively)	$	19,546	$	19,518
Paid-in capital		274,864,296		274,559,121
Accumulated undistributed surplus		4,982,276		10,532,594
Net Assets	$	279,866,118	$	285,111,233
Total Liabilities and Net Assets	$	882,946,396	$	821,262,018
Net Asset Value Per Share	$	14.32	$	14.61

1

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	For the three months ended		For the three months ended		For the six months ended		For the six months ended
	June 30,		June 30,		June 30,		June 30,
	2022		2021		2022		2021
INVESTMENT INCOME
Interest income	$	15,658,018	$	14,846,398	$	30,774,969	$	28,359,175
Other income		451,027		257,976		828,480		733,063
Total Investment Income	$	16,109,045	$	15,104,374	$	31,603,449	$	29,092,238
OPERATING EXPENSES
Management fees	$	3,705,053	$	3,278,479	$	7,197,766	$	6,242,340
Valuation fees		30,029		20,082		169,617		148,435
Administrative services expenses		466,903		463,102		941,221		916,491
Income incentive fees		—		55,899		—		55,899
Capital gains incentive (reversal) fees		(983,575)		14,387		(1,025,792)		97,668
Professional fees		217,404		236,212		529,466		505,177
Directors’ fees		74,500		74,500		171,000		166,000
Insurance expense		125,890		118,813		250,397		236,320
Interest expense and other fees		5,524,378		4,691,968		10,415,975		9,015,446
Income tax expense		426,236		286,276		705,653		526,257
Other general and administrative expenses		347,656		329,641		559,392		586,559
Total Operating Expenses	$	9,934,474	$	9,569,359	$	19,914,695	$	18,496,592
Net Investment Income	$	6,174,571	$	5,535,015	$	11,688,754	$	10,595,646
Net realized (loss) gain on non-controlled, non-affiliated investments	$	(352,723)	$	(1,781,665)	$	3,105,367	$	(1,319,437)
Net realized loss on foreign currency translation		—		—		(7,350)		—
Loss on debt extinguishment		—		—		—		(539,250)
Net change in unrealized (depreciation) appreciation on non-controlled, non-affiliated investments		(4,289,591)		1,665,877		(8,011,193)		1,787,860
Net change in unrealized depreciation on foreign currency translations		(35,754)		—		(35,754)		—
(Provision) benefit for taxes on net unrealized (appreciation) depreciation on investments		(160,656)		187,721		(181,813)		19,917
Net Increase in Net Assets Resulting from Operations		1,335,847		5,606,948		6,558,011		10,544,736
Net Investment Income Per Share—basic and diluted	$	0.32	$	0.28	$	0.60	$	0.54
Net Increase in Net Assets Resulting from Operations Per Share—basic and diluted	$	0.07	$	0.29	$	0.34	$	0.54
Weighted Average Shares of Common Stock Outstanding—basic and diluted		19,543,117		19,486,003		19,530,509		19,486,003
Distributions Per Share—basic and diluted	$	0.34	$	0.25	$	0.62	$	0.50

2

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

	Common Stock					Accumulated
	Number	Par		Paid-in		undistributed
	of shares	value		capital		surplus (deficit)		Net Assets
Balances at December 31, 2020	19,486,003	$	19,486	$	276,026,667	$	(2,685,504)	$	273,360,649
Net investment income	—		—		—		5,060,631		5,060,631
Net realized gain on non-controlled, non-affiliated investments	—		—		—		462,228		462,228
Loss on debt extinguishment							(539,250)		(539,250)
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		121,983		121,983
Provision for taxes on unrealized appreciation on investments	—		—		—		(167,804)		(167,804)
Distributions from net investment income	—		—		—		(4,869,552)		(4,869,552)
Balances at March 31, 2021	19,486,003	$	19,486	$	276,026,667	$	(2,617,268)	$	273,428,885
Net investment income	—		—		—		5,535,015		5,535,015
Net realized loss on non-controlled, non-affiliated investments	—		—		—		(1,781,665)		(1,781,665)
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		1,665,877		1,665,877
Benefit for taxes on unrealized depreciation on investments	—		—		—		187,721		187,721
Distributions from net investment income	—		—		—		(4,869,552)		(4,869,552)
Balances at June 30, 2021	19,486,003	$	19,486	$	276,026,667	$	(1,879,872)	$	274,166,281
Balances at December 31, 2021	19,517,595	$	19,518	$	274,559,121	$	10,532,594	$	285,111,233
Net investment income	—		—		—		5,514,183		5,514,183
Net realized gain on non-controlled, non-affiliated investments	—		—		—		3,458,090		3,458,090
Net realized loss on foreign currency translation	—		—		—		(7,350)		(7,350)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(3,721,602)		(3,721,602)
Provision for taxes on unrealized appreciation on investments	—		—		—		(21,157)		(21,157)
Distributions from net investment income	—		—		—		(5,464,666)		(5,464,666)
Issuance of common stock, net of offering costs	14,924		15		167,655		—		167,670
Balances at March 31, 2022	19,532,519	$	19,533	$	274,726,776	$	10,290,092	$	285,036,401
Net investment income	—		—		—		6,174,571		6,174,571
Net realized loss on non-controlled, non-affiliated investments	—		—		—		(352,723)		(352,723)
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(4,289,591)		(4,289,591)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(35,754)		(35,754)
Provision for taxes on unrealized appreciation on investments	—		—		—		(160,656)		(160,656)
Distributions from net investment income	—		—		—		(6,643,663)		(6,643,663)
Issuance of common stock, net of offering costs	13,416		13		137,520		—		137,533
Balances at June 30, 2022	19,545,935	$	19,546	$	274,864,296	$	4,982,276	$	279,866,118

3

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	For the		For the
	six months ended		six months ended
	June 30,		June 30,
	2022		2021
Cash flows from operating activities
Net increase in net assets resulting from operations	$	6,558,011	$	10,544,736
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(142,053,995)		(182,822,853)
Proceeds from sales and repayments of investments		58,182,238		55,963,858
Net change in unrealized depreciation (appreciation) on investments		8,011,193		(1,787,860)
Net change in unrealized depreciation on foreign currency translations		35,754		—
Increase in investments due to PIK		(653,534)		(360,003)
Amortization of premium and accretion of discount, net		(1,174,220)		(1,107,347)
Deferred tax provision (benefit)		181,813		(19,917)
Amortization of loan structure fees		272,959		239,700
Amortization of deferred financing costs		221,524		233,846
Amortization of loan fees on SBA-guaranteed debentures		589,020		501,885
Net realized (gain) loss on investments		(3,105,367)		1,326,105
Loss on debt extinguishment		—		539,250
Changes in other assets and liabilities
Increase in interest receivable		(28,511)		(522,772)
Increase in other receivables		(122,781)		—
Increase in related party receivable		(187,132)		—
Decrease in prepaid expenses		226,175		186,172
Increase (decrease) in management fees payable		250,828		(546,843)
Decrease in income incentive fees payable		(1,459,942)		(503,262)
(Decrease) increase in capital gains incentive fees payable		(1,025,791)		97,668
Increase in administrative services payable		13,373		2,584
Increase in interest payable		259,771		2,390,424
Decrease in unearned revenue		(18,860)		(9,626)
Decrease in income tax payable		(2,544,219)		(361,788)
Increase in other accrued expenses and liabilities		637,471		1,474,936
Net Cash Used In Operating Activities	$	(76,934,222)	$	(114,541,107)
Cash flows from Financing Activities
Proceeds from the issuance of common stock	$	420,004	$	—
Sales load for commons stock issued		(5,957)		—
Offering costs paid for common stock issued		(183,114)		—
Stockholder distributions paid		(11,064,831)		(8,115,917)
Repayment of Notes		—		(48,875,000)
Proceeds from issuance of Notes		—		100,000,000
Financing costs paid on Notes		—		(2,237,835)
Proceeds from SBA-guaranteed debentures		43,600,000		57,500,000
Financing costs paid on SBA-guaranteed debentures		(1,061,660)		(2,200,125)
Repayments of Credit Facility		(131,768)		(4,843)
Borrowings under Credit Facility		89,588,800		161,800,000
Repayments of Credit Facility		(61,940,000)		(143,200,000)
Net Cash Provided by Financing Activities	$	59,221,474	$	114,666,280
Net (Decrease) Increase in Cash and Cash Equivalents	$	(17,712,748)	$	125,173
Cash and Cash Equivalents balance at beginning of period		44,174,856		18,477,602
Cash and Cash Equivalents Balance at End of Period	$	26,462,108	$	18,602,775
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	9,072,909	$	5,649,592
Income and excise tax paid		3,132,755		870,000
Increase in dividends payable		1,043,498		1,623,187
Increase (decrease) in deferred offering costs		74,270		(90,000)
Gain on conversion of equity investment		—		6,668

4

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

													Principal						% of
										Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK	Date	Maturity	Industry	Shares(3)		Cost		Value(1)		Assets
Non-controlled, non-affiliated investments	(4)(5)
Ad.Net Acquisition, LLC	(9)											Los Angeles, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%		5/7/2021	5/7/2026	Services: Business	$	15,432,353		15,246,637		15,123,706	5.39	%
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)	(5)	Equity								5/7/2021				7,794		77,941		79,193	0.03	%
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity								5/7/2021				7,015		701,471		712,736	0.25	%
Total															$	16,026,049	$	15,915,635	5.67	%
ADS Group Opco, LLC												Lakewood, CO
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.75	%	1.00	%	9.00	%		6/4/2021	6/4/2026	Aerospace & Defense	$	14,700,000		14,458,807		14,259,000	5.08	%
Revolver	(9)(11)	First Lien	3M LIBOR+6.75	%	1.00	%	8.98	%		6/4/2021	6/4/2026			71,853		71,853		69,697	0.02	%
Pluto Aggregator, LLC Class A Units		Equity								6/4/2021				77,626		288,691		183,690	0.07	%
Pluto Aggregator, LLC Class B Units		Equity								6/4/2021				56,819		211,309		134,454	0.05	%
Pluto Aggregator, LLC Class Z Units		Equity								6/15/2022				72,043		267,929		269,882	0.10	%
Total															$	15,298,589	$	14,916,723	5.32	%
Advanced Barrier Extrusions, LLC												Rhinelander, WI
Term Loan B (SBIC)	(4)(11)	First Lien	1M LIBOR+7.50	%	1.00	%	9.17	%		11/30/2020	11/30/2026	Containers, Packaging, & Glass	$	17,237,500		16,968,512		16,720,376	5.97	%
GP ABX Holdings Partnership, L.P. Partner Interests		Equity								8/8/2018				644,737		528,395		193,862	0.07	%
Total															$	17,496,907	$	16,914,238	6.04	%
AIP ATCO Buyer, LLC												Sterling Heights, MI
Term Loan	(11)	First Lien	6M SOFR+6.50	%	1.00	%	8.40	%		5/17/2022	5/17/2028	Services: Business	$	100,000		98,021		98,021	0.04	%
Revolver	(9)(11)	First Lien	1M SOFR+6.50	%	1.00	%	8.08	%		5/17/2022	5/17/2028			26,667		26,667		26,139	0.01	%
Total															$	124,688	$	124,160	0.05	%
Anne Lewis Strategies, LLC	(9)											Washington, DC
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%		3/5/2021	3/5/2026	Services: Business	$	10,781,250		10,613,792		10,781,250	3.85	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%		4/15/2022	3/5/2026			6,475,840		6,353,210		6,475,840	2.31	%
SG AL Investment, LLC Common Units	(6)	Equity								3/5/2021				1,000		703,354		3,198,406	1.14	%
Total															$	17,670,356	$	20,455,496	7.30	%
APE Holdings, LLC												Deer Park, TX
Class A Units		Equity								9/5/2014		Chemicals, Plastics, & Rubber	$	375,000		375,000		44,159	0.02	%
Total															$	375,000	$	44,159	0.02	%
Atmosphere Aggregator Holdings II, L.P.												Atlanta, GA
Common Units		Equity								1/26/2016		Services: Business	$	254,250		0		1,912,633	0.68	%
Stratose Aggregator Holdings, L.P. Common Units		Equity								6/30/2015				750,000		0		5,641,984	2.02	%
Total															$	0	$	7,554,617	2.70	%
ArborWorks Acquisition LLC												Oakhurst, CA
Term Loan	(11)	First Lien	3M LIBOR+7.00	%	1.00	%	8.37	%		11/23/2021	11/9/2026	Environmental Industries	$	14,775,000		14,640,856		14,184,000	5.07	%
Revolver	(9)(11)	First Lien	3M LIBOR+7.00	%	1.00	%	8.00	%		11/23/2021	11/9/2026			1,384,615		1,384,615		1,329,230	0.47	%
ArborWorks Holdings LLC Units		Equity								12/29/2021				115		115,385		0	0.00	%
Total															$	16,140,856	$	15,513,230	5.54	%
ASC Communications, LLC	(9)											Chicago, IL
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+5.00	%	1.00	%	6.67	%		6/29/2017	6/29/2023	Healthcare & Pharmaceuticals	$	3,055,556		3,049,771		3,055,556	1.09	%
Term Loan	(11)	First Lien	1M LIBOR+5.00	%	1.00	%	6.67	%		2/4/2019	6/29/2023			5,194,444		5,177,811		5,194,444	1.86	%
ASC Communications Holdings, LLC Class A Units (SBIC)	(4)(6)	Equity								6/29/2017				73,529		0		1,750,487	0.63	%
Total															$	8,227,582	$	10,000,487	3.58	%
Axis Portable Air, LLC	(9)											Phoenix, AZ
Term Loan (SBIC II)	(5)(11)	First Lien	3M SOFR+5.75	%	1.00	%	7.95	%		3/22/2022	3/22/2028	Capital Equipment	$	12,000,000		11,768,082		11,820,000	4.22	%
Axis Air Parent, LLC Preferred Units		Equity								3/22/2022				4,436		443,636		555,298	0.20	%
Total															$	12,211,718	$	12,375,298	4.42	%
BDS Solutions Intermediateco, LLC												Tampa Bay, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M SOFR+6.50	%	1.00	%	7.95	%		2/24/2022	2/7/2027	Services: Business	$	13,456,087		13,328,653		13,388,807	4.78	%
Revolver	(9)(11)	First Lien	3M SOFR+6.50	%	1.00	%	7.78	%		2/24/2022	2/7/2027			83,398		83,398		82,981	0.03	%
Total															$	13,412,051	$	13,471,788	4.81	%
BLP Buyer, Inc.												Houston, TX
Term Loan	(11)	First Lien	3M LIBOR+6.25	%	1.00	%	7.54	%		2/1/2022	2/1/2027	Capital Equipment	$	6,209,867		6,094,122		6,054,620	2.16	%
Revolver	(9)(11)	First Lien	1M LIBOR+6.25	%	1.00	%	7.37	%		2/1/2022	2/1/2027			36,566		36,566		35,652	0.01	%
BL Products Parent, L.P. Class A Units		Equity								2/1/2022				754,598		754,598		679,082	0.24	%
Total															$	6,885,286	$	6,769,354	2.41	%
Café Valley, Inc.												Phoenix, AZ
Term Loan	(11)	First Lien	1M LIBOR+7.00	%	1.25	%	8.67	%		8/28/2019	8/28/2024	Beverage, Food, & Tobacco	$	15,813,095		15,660,576		15,101,506	5.40	%
CF Topco LLC Units		Equity								8/28/2019				9,160		916,015		376,152	0.13	%
Total															$	16,576,591	$	15,477,658	5.53	%

5

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

														Principal							% of
											Investment		Headquarters/	Amount/			Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK		Date	Maturity	Industry	Shares(3)			Cost		Value(1)		Assets
Camp Profiles LLC	(9)												Boston, MA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%			9/3/2021	9/3/2026	Media: Advertising, Printing & Publishing	$	10,173,125			9,997,968		10,173,125	3.64	%
CIVC VI-A 829 Blocker, LLC Units		Equity									9/3/2021				250			250,000		356,776	0.13	%
Total																	$	10,247,968	$	10,529,901	3.77	%
CEATI International Inc.	(9)												Montreal, Canada
Term Loan	(7)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%			2/19/2021	2/19/2026	Services: Business	$	13,331,250			13,125,176		13,131,281	4.69	%
CEATI Holdings, LP Class A Units	(7)	Equity									2/19/2021				250,000			250,000		304,114	0.11	%
Total																	$	13,375,176	$	13,435,395	4.80	%
CF512, Inc.	(9)												Blue Bell, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+6.00	%	1.00	%	7.58	%			9/1/2021	9/1/2026	Media: Advertising, Printing & Publishing	$	14,252,762			14,006,745		13,753,915	4.91	%
Delayed Draw Term Loan	(9)(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%			9/1/2021	9/1/2026			3,077,558			3,049,880		2,969,843	1.06	%
StellPen Holdings, LLC Membership Interests		Equity									9/1/2021				22.09	%		220,930		238,441	0.09	%
Total																	$	17,277,555	$	16,962,199	6.06	%
Colford Capital Holdings, LLC													New York, NY
Class A Units	(7)	Equity									8/20/2015		Finance	$	38,893			195,036		22,408	0.01	%
Total																	$	195,036	$	22,408	0.01	%
CompleteCase, LLC													Seattle, WA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%			12/21/2020	12/21/2025	Services: Consumer	$	11,306,087			11,138,628		10,853,844	3.88	%
Revolver A	(9)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%			12/21/2020	12/21/2025			50,000			50,000		48,000	0.02	%
CompleteCase Holdings, Inc. Class A Common Stock (SBIC II)	(5)	Equity									12/21/2020				417			5		3	0.00	%
CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II)	(5)	Equity									12/21/2020				522			521,734		329,886	0.12	%
Total																	$	11,710,367	$	11,231,733	4.02	%
Credit Connection, LLC	(9)												Fresno, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+5.75	%	1.00	%	8.00	%			7/30/2021	7/30/2026	Software	$	9,925,000			9,757,921		9,825,750	3.51	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+5.75	%	1.00	%	8.00	%			3/31/2022	7/30/2026			7,481,250			7,339,035		7,406,438	2.65	%
Series A Units		Equity									7/30/2021				750,000			750,000		981,340	0.35	%
Total																	$	17,846,956	$	18,213,528	6.51	%
Data Centrum Communications, Inc.													Montvale, NJ
Term Loan B	(8)(11)	First Lien	3M LIBOR+8.00	%	1.00	%	8.75	%	1.50	%	5/15/2019	5/15/2024	Media: Advertising, Printing & Publishing	$	15,800,985			15,668,546		14,536,906	5.19	%
Health Monitor Holdings, LLC Series A Preferred Units		Equity									5/15/2019				1,000,000			1,000,000		461,500	0.16	%
Total																	$	16,668,546	$	14,998,406	5.35	%
Douglas Products Group, LP													Liberty, MO
Partnership Interests		Equity									12/27/2018		Chemicals, Plastics, & Rubber	$	322			139,656		793,673	0.28	%
Total																	$	139,656	$	793,673	0.28	%
Dresser Utility Solutions, LLC													Bradford, PA
Term Loan (SBIC)	(4)(11)	Second Lien	1M LIBOR+8.50	%	1.00	%	10.17	%			10/1/2018	4/1/2026	Utilities: Oil & Gas	$	10,000,000			9,911,447		9,750,000	3.48	%
Total																	$	9,911,447	$	9,750,000	3.48	%
DRS Holdings III, Inc.	(9)												St. Louis, MO
Term Loan	(11)	First Lien	1M LIBOR+5.75	%	1.00	%	7.42	%			11/1/2019	11/1/2025	Consumer Goods: Durable	$	9,537,699			9,479,241		9,394,634	3.36	%
Total																	$	9,479,241	$	9,394,634	3.36	%
DTE Enterprises, LLC	(9)												Roselle, IL
Term Loan	(11)	First Lien	1M LIBOR+7.50	%	1.50	%	9.00	%			4/13/2018	4/13/2023	Energy: Oil & Gas	$	8,634,219			8,600,169		8,504,706	3.04	%
DTE Holding Company, LLC Class A-2 Units		Equity									4/13/2018				776,316			466,204		0	0.00	%
DTE Holding Company, LLC Class AA Units		Equity									4/13/2018				723,684			723,684		703,745	0.25	%
Total																	$	9,790,057	$	9,208,451	3.29	%
EC Defense Holdings, LLC													Reston, VA
Class B Units (SBIC)	(4)	Equity									7/31/2020		Services: Business	$	20,054			500,000		990,723	0.35	%
Total																	$	500,000	$	990,723	0.35	%
EH Real Estate Services, LLC													Skokie, IL
Term Loan (SBIC)	(4)	First Lien	10.00	%			10.00	%			9/3/2021	9/3/2026	FIRE: Real Estate	$	7,914,229			7,776,483		7,320,662	2.62	%
EH Holdco, LLC Series A Preferred Units		Equity									9/3/2021				7,892			7,891,642		7,345,667	2.62	%
Total																	$	15,668,125	$	14,666,329	5.24	%
Elliott Aviation, LLC													Moline, IL
Term Loan	(8)(12)	First Lien	1M LIBOR+10.00	%	1.75	%	9.75	%	2.00	%	1/31/2020	1/31/2025	Aerospace & Defense	$	17,589,171			17,392,173		16,621,767	5.93	%
Revolver	(8)(12)	First Lien	1M LIBOR+10.00	%	1.75	%	9.75	%	2.00	%	1/31/2020	1/31/2025			1,368,178			1,368,178		1,292,928	0.46	%
SP EA Holdings LLC Class A Units		Equity									1/31/2020				900,000			900,000		0	0.00	%
Total																	$	19,660,351	$	17,914,695	6.39	%
EOS Fitness Holdings, LLC													Phoenix, AZ
Class A Preferred Units		Equity									12/30/2014		Hotel, Gaming, & Leisure	$	118			0		225,103	0.08	%
Class B Common Units		Equity									12/30/2014				3,017			0		488,012	0.17	%
Total																	$	0	$	713,115	0.25	%

6

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

													Principal						% of
										Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK	Date	Maturity	Industry	Shares(3)		Cost		Value(1)		Assets
Exacta Land Surveyors, LLC	(9)											Cleveland, OH
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+5.75	%	1.50	%	8.00	%		2/8/2019	2/8/2024	Services: Business	$	16,459,375		16,335,465		16,047,891	5.73	%
SP ELS Holdings LLC Class A Units		Equity								2/8/2019				1,069,143		1,069,143		688,978	0.25	%
Total															$	17,404,608	$	16,736,869	5.98	%
Exigo, LLC	(9)											Dallas, TX
Term Loan	(11)	First Lien	1M LIBOR+5.75	%	1.00	%	7.42	%		3/16/2022	3/16/2027	Services: Business	$	9,038,189		8,908,315		8,902,616	3.18	%
Revolver	(9)(11)	First Lien	1M LIBOR+5.75	%	1.00	%	7.42	%		3/16/2022	3/16/2027			20,000		20,000		19,700	0.01	%
Gauge Exigo Coinvest, LLC Common Units		Equity								3/16/2022				377,535		377,535		353,855	0.13	%
Total															$	9,305,850	$	9,276,171	3.32	%
Florachem Corporation	(9)											Jacksonville, FL
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%		4/29/2022	4/29/2028	Chemicals, Plastics, & Rubber	$	10,000,000		9,804,339		9,804,339	3.50	%
SK FC Holdings, L.P. Class A Units		Equity								4/29/2022				362		362,434		362,434	0.13	%
Total															$	10,166,773	$	10,166,773	3.63	%
General LED OPCO, LLC												San Antonio, TX
Term Loan	(11)(17)	Second Lien	3M LIBOR+9.00	%	1.50	%	—	%		5/1/2018	3/31/2026	Services: Business	$	4,500,000		4,458,137		3,735,000	1.33	%
Total															$	4,458,137	$	3,735,000	1.33	%
Grupo HIMA San Pablo, Inc., et al												San Juan, PR
Term Loan	(15)(20)	Second Lien	13.75	%			—	%		2/1/2013		Healthcare & Pharmaceuticals	$	4,109,524		4,109,524		0	0.00	%
Total															$	4,109,524	$	0	0.00	%
GS HVAM Intermediate, LLC												Carlsbad, CA
Term Loan	(11)	First Lien	1M LIBOR+5.75	%	1.00	%	7.42	%		10/18/2019	10/2/2024	Beverage, Food, & Tobacco	$	12,700,120		12,635,339		12,573,119	4.49	%
Revolver	(11)	First Lien	3M LIBOR+5.75	%	1.00	%	7.42	%		10/18/2019	10/2/2024			2,651,515		2,651,515		2,625,000	0.94	%
HV GS Acquisition, LP Class A Interests		Equity								10/2/2019				2,055		1,877,694		1,303,184	0.47	%
Total															$	17,164,548	$	16,501,303	5.90	%
HV Watterson Holdings, LLC	(9)											Schaumburg, IL
Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%		12/17/2021	12/17/2026	Services: Business	$	13,369,420		13,124,511		13,035,185	4.66	%
HV Acquisition VI, LLC Class A Units		Equity								12/17/2021				1,632		1,631,591		1,084,126	0.39	%
Total															$	14,756,102	$	14,119,311	5.05	%
I2P Holdings, LLC												Cleveland, OH
Series A Preferred Units	(6)	Equity								1/31/2018		Services: Business	$	750,000		0		3,315,872	1.18	%
Total															$	0	$	3,315,872	1.18	%
ICD Holdings, LLC												San Francisco, CA
Class A Units	(7)	Equity								1/1/2018		Finance	$	9,962		464,619		158,780	0.06	%
Total															$	464,619	$	158,780	0.06	%
Infolinks Media Buyco, LLC	(9)											Ridgewood, NJ
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+5.75	%	1.00	%	8.00	%		11/1/2021	11/1/2026	Media: Advertising, Printing & Publishing	$	8,482,375		8,331,490		8,312,728	2.97	%
Tower Arch Infolinks Media, LP LP Interests	(21)	Equity								10/28/2021				444,997		444,997		610,872	0.22	%
Total															$	8,776,487	$	8,923,600	3.19	%
Inoapps Bidco, LLC	(9)											Houston, TX
Term Loan B	(11)	First Lien	3M SONIA+5.75	%	1.00	%	6.84	%		2/15/2022	2/15/2027	Services: Business	£	10,000,000	$	13,302,930	$	11,953,665	4.27	%
Inoapps Holdings, LLC Series A-1 Preferred Units		Equity								2/15/2022				739,800		739,800		793,133	0.28	%
Total															$	14,042,730	$	12,746,798	4.55	%
Integrated Oncology Network, LLC	(9)											Newport Beach, CA
Term Loan	(12)	First Lien	3M SOFR+6.00	%	1.00	%	7.00	%		7/17/2019	6/24/2025	Healthcare & Pharmaceuticals	$	15,912,038		15,770,365		15,667,258	5.60	%
Term Loan	(12)	First Lien	3M SOFR+6.00	%	1.00	%	7.00	%		11/1/2021	6/24/2025			1,101,437		1,084,493		1,084,493	0.39	%
Total															$	16,854,858	$	16,751,751	5.99	%
International Designs Group LLC												Farmingville, NY
Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	7.47	%		4/1/2022	4/1/2027	Construction & Building	$	99,750		97,835		99,750	0.04	%
Revolver	(9)(11)	First Lien	3M LIBOR+6.00	%	1.00	%	7.47	%		4/1/2022	4/1/2027			20,000		20,000		20,000	0.01	%
International Designs Holdings LLC Common Units		Equity								4/1/2022				100,000		100,000		100,000	0.04	%
Total															$	217,835	$	219,750	0.09	%
Interstate Waste Services, Inc.												Amsterdam, OH
Common Stock		Equity								1/15/2020		Environmental Industries	$	21,925		946,125		639,398	0.23	%
Total															$	946,125	$	639,398	0.23	%
Intuitive Health, LLC												Plano, TX
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+5.50	%	1.00	%	7.75	%		10/18/2019	10/18/2027	Healthcare & Pharmaceuticals	$	5,865,000		5,794,068		5,865,000	2.10	%
Term Loan	(11)	First Lien	3M LIBOR+5.50	%	1.00	%	7.75	%		10/18/2019	10/18/2027			8,248,903		8,149,542		8,248,903	2.94	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+5.50	%	1.00	%	7.75	%		8/31/2021	10/18/2027			3,088,992		3,047,809		3,088,992	1.10	%
Legacy Parent, Inc. Class A Common Stock		Equity								10/30/2020				58		0		218,650	0.08	%
Total															$	16,991,419	$	17,421,545	6.22	%

7

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK		Date	Maturity	Industry	Shares(3)		Cost		Value(1)		Assets
Invincible Boat Company LLC													Opa Locka, FL
Term Loan	(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.75	%			8/28/2019	8/28/2025	Consumer Goods: Durable	$	5,381,042		5,280,617		5,300,326	1.89	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.75	%			8/28/2019	8/28/2025			4,967,116		4,908,510		4,892,609	1.75	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.75	%			6/1/2021	8/28/2025			1,104,255		1,087,063		1,087,691	0.39	%
Revolver	(9)(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.73	%			8/28/2019	8/28/2025			319,149		319,149		314,362	0.11	%
Warbird Parent Holdco, LLC Class A Units		Equity									8/28/2019				1,362,575		1,299,691		1,313,771	0.47	%
Total																$	12,895,030	$	12,908,759	4.61	%
J.R. Watkins, LLC													San Francisco
Term Loan (SBIC)	(4)(8)	First Lien	10.00	%			7.00	%	3.00	%	12/22/2017	12/22/2022	Consumer Goods: Non-Durable	$	12,628,406		12,599,586		11,176,139	3.99	%
J.R. Watkins Holdings, Inc. Class A Preferred Stock		Equity									12/22/2017				1,133		1,132,576		252,539	0.09	%
Total																$	13,732,162	$	11,428,678	4.08	%
Jurassic Acquisition Corp.													Sparks, MD
Term Loan	(11)	First Lien	3M LIBOR+5.50	%	—	%	7.75	%			12/28/2018	11/15/2024	Metals & Mining	$	16,887,500		16,773,472		16,718,626	5.97	%
Total																$	16,773,472	$	16,718,626	5.97	%
Kelleyamerit Holdings, Inc.													Walnut Creek, CA
Term Loan (SBIC)	(4)(10)(13)	First Lien	1M BSBY+6.50	%	1.00	%	9.37	%			12/24/2020	12/24/2025	Automotive	$	9,750,000		9,606,285		9,606,285	3.43	%
Term Loan	(10)(13)	First Lien	1M BSBY+6.50	%	1.00	%	9.37	%			12/24/2020	12/24/2025			1,500,000		1,477,890		1,477,890	0.53	%
Total																$	11,084,175	$	11,084,175	3.96	%
KidKraft, Inc.													Dallas, TX
Term Loan	(10)(14)	First Lien	3M LIBOR+5.00	%	1.00	%	6.00	%			4/3/2020	8/15/2022	Consumer Goods: Durable	$	1,580,768		1,580,768		1,580,768	0.56	%
KidKraft Group Holdings, LLC Preferred B Units		Equity									4/3/2020				4,000,000		4,000,000		4,000,000	1.43	%
Total																$	5,580,768	$	5,580,768	1.99	%
Ledge Lounger, Inc.	(9)												Katy, TX
Term Loan A (SBIC)	(4)(11)	First Lien	3M LIBOR+6.25	%	1.00	%	8.50	%			11/9/2021	11/9/2026	Consumer Goods: Durable	$	7,606,513		7,471,109		7,378,318	2.64	%
SP L2 Holdings LLC Class A Units (SBIC)	(4)	Equity									11/9/2021				375,000		375,000		270,776	0.10	%
Total																$	7,846,109	$	7,649,094	2.74	%
Lightning Intermediate II, LLC													Jacksonville, FL
Term Loan A (SBIC)	(4)(11)	First Lien	6M SOFR+6.50	%	1.00	%	8.60	%			6/6/2022	6/6/2027	Consumer Goods: Non-Durable	$	13,759,056		13,487,488		13,487,488	4.82	%
Revolver	(9)(11)	First Lien	6M SOFR+6.50	%	1.00	%	8.60	%			6/6/2022	6/6/2027			17,500		17,500		17,155	0.01	%
Gauge Vimergy Coinvest, LLC Units	(4)	Equity									6/6/2022				399		398,677		398,677	0.14	%
Total																$	13,903,665	$	13,903,320	4.97	%
Madison Logic, Inc.	(9)												New York, NY
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+5.50	%	1.00	%	7.17	%			2/4/2021	11/22/2026	Media: Broadcasting & Subscription	$	3,772,291		3,761,030		3,772,291	1.35	%
Term Loan	(11)	First Lien	1M LIBOR+5.50	%	1.00	%	7.17	%			11/22/2021	11/22/2026			6,840,960		6,779,359		6,840,960	2.44	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	(4)	Equity									11/30/2016				5,000		0		2,510,152	0.90	%
Total																$	10,540,389	$	13,123,403	4.69	%
Microbe Formulas LLC													Meridian, ID
Term Loan (SBIC II)	(5)(11)	First Lien	1M SOFR+6.25	%	1.00	%	7.48	%			4/4/2022	4/3/2028	Consumer Goods: Non-Durable	$	11,309,345		11,199,962		11,199,962	4.00	%
Revolver		First Lien	1M SOFR+6.25	%	1.00	%	7.48	%			4/4/2022	4/3/2028			20,000		20,000		19,807	0.01	%
Total																$	11,219,962	$	11,219,769	4.01	%
MOM Enterprises, LLC	(9)												Richmond, CA
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.25	%	1.00	%	8.50	%			5/19/2021	5/19/2026	Consumer Goods: Non-Durable	$	16,302,000		16,035,676		15,731,430	5.62	%
MBliss SPC Holdings, LLC Units		Equity									5/19/2021				933,333		933,333		828,624	0.30	%
Total																$	16,969,009	$	16,560,054	5.92	%
Monitorus Holding, LLC	(9)												London, UK
Term Loan	(7)(11)	First Lien	3M LIBOR+7.00	%	1.00	%	8.51	%			5/24/2022	5/24/2027	Media: Diversified & Production	$	100,000		99,013		99,013	0.04	%
Total																$	99,013	$	99,013	0.04	%
Naumann/Hobbs Material Handling Corporation II, Inc.	(9)												Phoenix, AZ
Term Loan	(11)	First Lien	3M LIBOR+6.25	%	1.50	%	8.50	%			8/30/2019	8/30/2024	Services: Business	$	8,648,371		8,564,651		8,518,645	3.04	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M LIBOR+6.25	%	1.50	%	8.50	%			8/30/2019	8/30/2024			5,453,695		5,400,901		5,371,890	1.92	%
CGC NH, Inc. Common Stock		Equity									8/30/2019				123		440,758		621,619	0.22	%
Total																$	14,406,310	$	14,512,154	5.18	%
NS412, LLC													Dallas, TX
Term Loan	(11)	Second Lien	3M LIBOR+8.50	%	1.00	%	10.75	%			5/6/2019	11/6/2025	Services: Consumer	$	7,615,000		7,524,819		7,348,475	2.63	%
NS Group Holding Company, LLC Class A Units		Equity									5/6/2019				782		795,002		531,811	0.19	%
Total																$	8,319,821	$	7,880,286	2.82	%

8

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

														Principal							% of
											Investment		Headquarters/	Amount/			Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK		Date	Maturity	Industry	Shares(3)			Cost		Value(1)		Assets
NuMet Machining Techniques, LLC													Birmingham, United Kingdom
Term Loan	(7)(12)(18)	Second Lien	1M LIBOR+9.00	%	2.00	%	-	%			11/5/2019	5/5/2026	Aerospace & Defense	$	12,675,000			12,507,508		10,773,750	3.85	%
Bromford Industries Limited Term Loan	(7)(12)(18)	Second Lien	1M LIBOR+9.00	%	2.00	%	-	%			11/5/2019	5/5/2026			7,800,000			7,693,592		6,630,000	2.37	%
Bromford Holdings, L.P. Class A Membership Interests	(7)	Equity									11/5/2019				0.83	%		866,629		0	0.00	%
Bromford Holdings, L.P. Class D Membership Interests	(7)	Equity									3/18/2021				0.82	%		280,078		0	0.00	%
Total																	$	21,347,807	$	17,403,750	6.22	%
NuSource Financial, LLC													Eden Prairie, MN
Term Loan (SBIC II)	(5)(11)	First Lien	1M LIBOR+9.00	%	1.00	%	10.06	%			1/29/2021	1/29/2026	Services: Business	$	11,912,500			11,726,687		11,436,000	4.09	%
NuSource Financial Acquisition, Inc. (SBIC II)	(5)(8)	Unsecured	13.75	%			4.00	%	9.75	%	1/29/2021	7/29/2026			5,367,746			5,290,633		4,723,616	1.69	%
NuSource Holdings, Inc. Warrants (SBIC II)	(5)	Equity									1/29/2021				54,966			0		0	0.00	%
Total																	$	17,017,320	$	16,159,616	5.78	%
Nutritional Medicinals, LLC	(9)												Centerville, OH
Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%			11/15/2018	11/15/2025	Healthcare & Pharmaceuticals	$	10,549,458			10,467,074		10,285,722	3.68	%
Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%			10/28/2021	11/15/2025			4,502,171			4,444,318		4,389,617	1.57	%
Functional Aggregator, LLC Units		Equity									11/15/2018				12,500			972,803		1,398,065	0.50	%
Total																	$	15,884,195	$	16,073,404	5.75	%
Onpoint Industrial Services, LLC													Deer Park, TX
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+7.25	%	1.00	%	9.50	%			3/15/2021	3/15/2026	Services: Business	$	10,368,750			10,207,226		10,057,688	3.59	%
Onpoint Parent Holdings, LLC Class A Units	(6)	Equity									3/15/2021				500,000			499,036		504,005	0.18	%
Total																	$	10,706,262	$	10,561,693	3.77	%
PCP MT Aggregator Holdings, L.P.													Oak Brook, IL
Common Units	(7)	Equity									3/29/2019		Finance	$	825,020			119,281		1,311,781	0.47	%
Total																	$	119,281	$	1,311,781	0.47	%
PCS Software, Inc.	(9)												Shenandoah, TX
Term Loan	(11)	First Lien	3M LIBOR+5.75	%	1.50	%	8.00	%			7/1/2019	7/1/2024	Transportation & Logistics	$	14,137,367			14,007,984		14,066,680	5.03	%
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+5.75	%	1.50	%	8.00	%			7/1/2019	7/1/2024			1,854,081			1,837,113		1,844,811	0.66	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+5.75	%	1.50	%	8.00	%			7/1/2019	7/1/2024			977,500			977,500		972,613	0.35	%
PCS Software Holdings, LLC Series A Preferred Units		Equity									7/1/2019				325,000			325,000		726,813	0.26	%
PCS Software Holdings, LLC Series A-2 Preferred Units		Equity									11/12/2020				63,312			63,312		141,587	0.05	%
Total																	$	17,210,909	$	17,752,504	6.35	%
Peltram Plumbing Holdings, LLC	(9)												Auburn, WA
Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%			12/30/2021	12/30/2026	Construction & Building	$	16,663,494			16,358,242		15,996,954	5.72	%
Peltram Group Holdings LLC Class A Units		Equity									12/30/2021				508,516			508,516		402,819	0.14	%
Total																	$	16,358,242	$	15,996,954	5.72	%
Premiere Digital Services, Inc.	(9)												Los Angeles, CA
Term Loan	(11)	First Lien	1M LIBOR+5.25	%	1.00	%	6.92	%			11/3/2021	11/3/2026	Media: Broadcasting & Subscription	$	14,350,962			14,287,257		14,207,452	5.08	%
Premiere Digital Holdings, Inc. Common Stock		Equity									10/18/2018				5,000			0		2,051,500	0.73	%
Total																	$	14,287,257	$	16,258,952	5.81	%
Protect America, Inc.													Austin, TX
Term Loan	(11)(16)	Second Lien	3M LIBOR+7.75	%	1.00	%	—	%			8/30/2017	9/1/2024	Services: Consumer	$	17,979,749			17,979,749		719,190	0.26	%
Total																	$	17,979,749	$	719,190	0.26	%
Rogers Mechanical Contractors, LLC	(9)												Atlanta, GA
Term Loan	(11)	First Lien	3M LIBOR+6.50	%	1.00	%	7.56	%			4/28/2021	9/9/2025	Construction & Building	$	10,271,368			10,133,150		9,911,870	3.54	%
Total																	$	10,133,150	$	9,911,870	3.54	%
Sales Benchmark Index, LLC	(9)												Dallas, TX
Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	8.25	%			1/7/2020	1/7/2025	Services: Business	$	13,147,553			13,000,282		12,753,126	4.56	%
SBI Holdings Investments LLC Class A Units		Equity									1/7/2020				66,573			665,730		580,386	0.21	%
Total																	$	13,666,012	$	13,333,512	4.77	%
Service Minds Company, LLC	(9)												Bradenton, FL
Term Loan	(11)	First Lien	3M LIBOR+5.50	%	1.00	%	6.87	%			2/7/2022	2/7/2028	Services: Consumer	$	5,384,947			5,283,274		5,250,323	1.88	%
Delayed Draw Term Loan	(9)(11)	First Lien	3M LIBOR+5.50	%	1.00	%	6.87	%			2/7/2022	2/7/2028			32,242			31,927		31,436	0.01	%
Total																	$	5,315,201	$	5,281,759	1.89	%

9

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

														Principal						% of
											Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK		Date	Maturity	Industry	Shares(3)		Cost		Value(1)		Assets
SIB Holdings, LLC													Charleston, SC
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+6.00	%	1.00	%	7.58	%			10/29/2021	10/29/2026	Services: Business	$	12,984,588		12,754,189		12,854,742	4.59	%
Term Loan (SBIC)	(4)(11)	First Lien	1M LIBOR+6.00	%	1.00	%	7.58	%			6/15/2022	10/29/2026			870,629		853,216		861,923	0.31	%
Delayed Draw Term Loan	(11)	First Lien	3M LIBOR+6.00	%	1.00	%	7.58	%			10/29/2021	10/29/2026			2,902,098		2,873,537		2,873,077	1.03	%
Revolver	(9)(11)	First Lien	1M LIBOR+6.00	%	1.00	%	7.58	%			10/29/2021	10/29/2026			40,000		40,000		39,600	0.01	%
SIB Holdings, LLC Units		Equity									10/29/2021				238,095		500,000		551,623	0.20	%
Total																$	17,020,942	$	17,180,965	6.14	%
Skopos Financial Group, LLC													Irving, TX
Series A Preferred Units	(7)	Equity									6/29/2018		Finance	$	1,120,684		1,162,544		315,186	0.11	%
Total																$	1,162,544	$	315,186	0.11	%
Spire Power Solutions, L.P.													Franklin, WI
Term Loan (SBIC II)	(5)(11)	First Lien	3M  SOFR+6.25	%	1.50	%	8.56	%			11/22/2019	8/12/2026	Capital  Equipment	$	4,862,500		4,812,610		4,777,406	1.71	%
Term Loan (SBIC II)	(5)(11)	First Lien	3M  SOFR+6.25	%	1.50	%	8.56	%			8/12/2021	8/12/2026			3,530,480		3,478,087		3,468,697	1.24	%
Total																$	8,290,697	$	8,246,103	2.95	%
TAC LifePort Purchaser, LLC	(9)												Woodland, WA
Term Loan (SBIC II)	(5)(11)	First Lien	3M  LIBOR+6.00	%	1.00	%	8.25	%			3/1/2021	3/2/2026	Aerospace &  Defense	$	9,543,742		9,396,163		9,496,023	3.39	%
TAC LifePort Holdings, LLC Common Units		Equity									3/1/2021				500,000		500,000		696,413	0.25	%
Total																$	9,896,163	$	10,192,436	3.64	%
TFH Reliability, LLC													Houston, TX
Term Loan (SBIC)	(4)(11)	Second Lien	3M  LIBOR+10.75	%	0.80	%	13.00	%			10/21/2016	9/30/2023	Chemicals,  Plastics, &  Rubber	$	5,875,000		5,853,566		5,757,500	2.06	%
Term Loan (SBIC)	(4)(11)	Second Lien	3M  LIBOR+10.75	%	0.80	%	13.00	%			3/22/2022	9/30/2023			5,000,000		4,915,326		4,900,000	1.75	%
TFH Reliability Group, LLC Class A-1 Units		Equity									6/29/2020				27,129		21,511		26,104	0.01	%
TFH Reliability Group, LLC Class A Units		Equity									10/21/2016				250,000		231,521		127,537	0.05	%
Total																$	11,021,924	$	10,811,141	3.87	%
Tilley Distribution, Inc.													Baltimore, MD
Term Loan	(11)	First Lien	3M SOFR+6.00	%	1.00	%	7.67	%			4/1/2022	12/31/2026	Chemicals,  Plastics, &  Rubber	$	99,748		98,296		98,296	0.04	%
Revolver	(9)(11)	First Lien	PRIME+5.00	%	2.00	%	9.00	%			4/1/2022	12/31/2026			53,878		53,878		53,094	0.02	%
Total																$	152,174	$	151,390	0.06	%
Trade Education Acquisition, L.L.C.	(9)												Austin, TX
Term Loan (SBIC)	(4)(11)	First Lien	1M  LIBOR+6.25	%	1.00	%	7.92	%			12/28/2021	12/28/2027	Education	$	10,549,545		10,352,681		10,180,311	3.64	%
Trade Education Holdings, L.L.C. Class A Units		Equity									12/28/2021				662,660		662,660		592,965	0.21	%
Total																$	11,015,341	$	10,773,276	3.85	%
TradePending, LLC	(9)												Carrboro, NC
Term Loan (SBIC II)	(5)(11)	First Lien	3M  LIBOR+6.25	%	1.00	%	8.50	%			3/2/2021	3/2/2026	Software	$	9,775,253		9,623,870		9,530,872	3.41	%
TradePending Holdings, LLC Series A Units		Equity									3/2/2021				829,167		868,750		1,062,482	0.38	%
Total																$	10,492,620	$	10,593,354	3.79	%
Unicat Catalyst Holdings, LLC	(9)												Alvin, TX
Term Loan	(11)	First Lien	3M  LIBOR+6.50	%	1.00	%	8.75	%			4/27/2021	4/27/2026	Chemicals, Plastics, &  Rubber	$	7,312,500		7,195,365		6,946,875	2.48	%
Unicat Catalyst, LLC Class A Units		Equity									4/27/2021				7,500		750,000		228,334	0.08	%
Total																$	7,945,365	$	7,175,209	2.56	%
U.S. Auto Sales, Inc. et al													Lawrenceville, GA
USASF Blocker II LLC Units	(7)	Equity									6/8/2015		Finance	$	441		441,000		560,325	0.20	%
USASF Blocker III LLC 2018 Series Units	(7)	Equity									2/13/2018				50		50,000		100,000	0.04	%
USASF Blocker III LLC 2019 Series Units	(7)	Equity									12/27/2019				75		75,000		150,000	0.05	%
USASF Blocker IV LLC Units	(7)	Equity									5/27/2020				110		110,000		330,000	0.12	%
USASF Blocker LLC Units	(7)	Equity									6/8/2015				9,000		9,000		0	0.00	%
Total																$	685,000	$	1,140,325	0.41	%
U.S. Expediters, LLC	(9)												Stafford, TX
Term Loan	(11)	First Lien	3M  LIBOR+6.00	%	1.00	%	8.25	%			12/22/2021	12/22/2026	Healthcare &  Pharmaceuticals	$	15,946,933		15,654,807		15,946,933	5.70	%
Cathay Hypnos LLC Units		Equity									12/22/2021				1,372,932		1,345,574		1,734,186	0.62	%
Total																$	17,000,381	$	17,681,119	6.32	%
Venbrook Buyer, LLC													Los Angeles, CA
Term Loan B (SBIC)	(4)(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.75	%			3/13/2020	3/13/2026	Services: Business	$	12,887,001		12,712,951		12,629,261	4.51	%
Term Loan B	(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.75	%			3/13/2020	3/13/2026			146,628		144,648		143,695	0.05	%
Revolver	(11)	First Lien	3M LIBOR+6.50	%	1.50	%	8.75	%			3/13/2020	3/13/2026			2,222,222		2,222,222		2,177,778	0.78	%
Delayed Draw Term Loan	(11)	First Lien	3M  LIBOR+6.50	%	1.50	%	8.75	%			3/13/2020	3/13/2026			4,393,333		4,358,806		4,305,466	1.54	%
Venbrook Holdings, LLC Term Loan	(8)(19)	Unsecured	10.00	%			—	%	10.00	%	3/31/2022	12/20/2028			84,936		84,936		83,237	0.03	%
Venbrook Holdings, LLC Common Units		Equity									3/13/2020				822,758		819,262		319,468	0.11	%
Total																$	20,342,825	$	19,658,905	7.02	%

10

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

													Principal						% of
										Investment		Headquarters/	Amount/		Amortized		Fair		Net
Investments	Footnotes	Security(2)	Coupon		Floor		Cash		PIK	Date	Maturity	Industry	Shares(3)		Cost		Value(1)		Assets
Vortex Companies, LLC												Houston, TX
Term Loan (SBIC II)	(5)(11)	Second Lien	3M LIBOR+9.50	%	1.00	%	11.75	%		12/21/2020	6/21/2026	Environmental Industries	$	10,000,000		9,843,225		9,550,000	3.41	%
Total															$	9,843,225	$	9,550,000	3.41	%
Whisps Holdings LP												Elgin, IL
Class A Units		Equity								4/18/2019		Beverage, Food, & Tobacco	$	500,000		500,000		338,472	0.12	%
Total															$	500,000	$	338,472	0.12	%
Xanitos, Inc.	(9)											Newtown Square, PA
Term Loan (SBIC)	(4)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%		6/25/2021	6/25/2026	Healthcare & Pharmaceuticals	$	12,672,000		12,461,516		12,228,480	4.37	%
Delayed Draw Term Loan	(9)(11)	First Lien	3M LIBOR+6.50	%	1.00	%	8.75	%		6/25/2021	6/25/2026			2,232,399		2,212,192		2,154,265	0.77	%
Pure TopCo, LLC Class A Units		Equity								6/25/2021				442,133		1,053,478		902,835	0.32	%
Total															$	15,727,186	$	15,285,580	5.46	%
Total Non-controlled, non-affiliated investments															$	873,575,942	$	852,000,318	304.43	%
Net Investments															$	873,575,942	$	852,000,318	304.43	%
LIABILITIES IN EXCESS OF OTHER ASSETS																	$	(572,135,652)	(204.43)	%
NET ASSETS																	$	279,864,666	100.00	%

(1)

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

(2)

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

(3)

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

(4)

Investments held by the SBIC subsidiary (as defined in Note 1), which include $9,457,048 of cash and $220,927,665 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment Corporation’s (the “Company”) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1).

(5)

Investments held by the SBIC II subsidiary (as defined in Note 1), which include $17,794,943 of cash and $197,954,017 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries.

(6)

Security is income producing through dividends or distributions.

(7)

The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 95.8% of the Company’s total assets as of June 30, 2022.

(8)

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

11

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

(9) At June 30, 2022, the Company had the following outstanding revolver and delayed draw term loan commitments:

				Unused
		Unfunded		Commitment
Investments	Security	Commitment		Fee	Maturity
Ad.Net Acquisition, LLC	Revolver	$	1,299,020	0.50%	May 7, 2026
ADS Group Opco, LLC	Revolver		28,148	0.50%	June 4, 2026
AIP ATCO Buyer, LLC	Revolver		73,333	0.50%	May 17, 2028
Anne Lewis Strategies, LLC	Revolver		100,000	0.50%	March 5, 2026
ArborWorks Acquisition LLC	Revolver		2,076,923	0.50%	November 9, 2026
ASC Communications, LLC	Revolver		666,667	0.50%	June 29, 2023
Axis Portable Air, LLC	Revolver		100,000	0.50%	March 22, 2028
Axis Portable Air, LLC	Delayed Draw Term Loan		100,000	0.50%	March 22, 2028
BDS Solutions Intermediateco, LLC	Revolver		16,602	0.50%	February 7, 2027
BLP Buyer, Inc.	Revolver		63,434	0.50%	February 1, 2027
Camp Profiles LLC	Delayed Draw Term Loan		3,750,000	1.00%	September 3, 2026
Camp Profiles LLC	Revolver		100,000	0.50%	September 3, 2026
CEATI International Inc.	Revolver		100,000	0.50%	February 19, 2026
CF512, Inc.	Delayed Draw Term Loan		220,930	0.50%	September 1, 2026
CF512, Inc.	Revolver		100,000	0.50%	September 1, 2026
CompleteCase, LLC	Revolver A		50,000	0.50%	December 21, 2025
Credit Connection, LLC	Revolver		100,000	0.50%	July 30, 2026
DRS Holdings III, Inc.	Revolver		909,091	0.50%	November 1, 2025
DTE Enterprises, LLC	Revolver		750,000	0.50%	April 13, 2023
Exacta Land Surveyors, LLC	Revolver		1,500,000	0.50%	February 8, 2024
Exigo, LLC	Revolver		80,000	0.50%	March 16, 2027
Exigo, LLC	Delayed Draw Term Loan		100,000	0.50%	March 16, 2027
Florachem Corporation	Revolver		100,000	0.50%	April 29, 2028
Florachem Corporation	Delayed Draw Term Loan		100,000	0.50%	April 29, 2028
HV Watterson Holdings, LLC	Revolver		100,000	0.50%	December 17, 2026
HV Watterson Holdings, LLC	Delayed Draw Term Loan		2,879,272	1.00%	December 17, 2026
Infolinks Media Buyco, LLC	Delayed Draw Term Loan		2,475,000	0.50%	November 1, 2026
Integrated Oncology Network, LLC	Revolver		553,517	0.50%	June 24, 2025
Inoapps Bidco, LLC	Revolver		100,000	0.50%	February 15, 2027
Inoapps Bidco, LLC	Delayed Draw Term Loan		100,000	0.50%	February 15, 2027
International Designs Group LLC	Revolver		80,000	0.50%	April 1, 2027
Invincible Boat Company LLC	Revolver		744,681	0.50%	August 28, 2025
Ledge Lounger, Inc.	Revolver		100,000	0.50%	November 9, 2026
Lightning Intermediate II, LLC	Revolver		82,500	0.50%	June 6, 2027
Madison Logic, Inc.	Revolver		542,169	0.50%	November 22, 2026
Microbe Formulas LLC	Revolver		80,000	0.50%	April 3, 2028
MOM Enterprises, LLC	Revolver		100,000	0.50%	May 19, 2026
Monitorus Holding, LLC	Revolver	€	100,000	0.50%	May 24, 2027
Monitorus Holding, LLC	Delayed Draw Term Loan	€	100,000	0.50%	May 24, 2027
Naumann/Hobbs Material Handling Corporation II, Inc.	Revolver – Working Capital		1,763,033	0.50%	August 30, 2024
Nutritional Medicinals, LLC	Revolver		2,000,000	0.50%	November 15, 2025
PCS Software, Inc.	Revolver		1,318,143	0.50%	July 1, 2024
Peltram Plumbing Holdings, LLC	Revolver		100,000	0.50%	December 30, 2026
Premiere Digital Services, Inc.	Revolver		576,923	0.50%	November 3, 2026
Rogers Mechanical Contractors, LLC	Revolver		100,000	0.75%	September 9, 2025
Rogers Mechanical Contractors, LLC	Delayed Draw Term Loan		100,000	1.00%	September 9, 2025
Sales Benchmark Index, LLC	Revolver		1,331,461	0.50%	January 7, 2025
Service Minds Company, LLC	Revolver		100,000	0.50%	February 7, 2028
Service Minds Company, LLC	Delayed Draw Term Loan		67,677	1.00%	February 7, 2028
SIB Holdings, LLC	Revolver		60,000	0.50%	October 29, 2026
TAC LifePort Purchaser, LLC	Revolver		100,000	0.50%	March 2, 2026
Tilley Distribution, Inc.	Revolver		46,122	0.50%	December 31, 2026
Trade Education Acquisition, L.L.C.	Revolver		100,000	0.50%	December 28, 2027
TradePending, LLC	Revolver		100,000	0.50%	March 2, 2026
Unicat Catalyst Holdings, LLC	Revolver		2,000,000	0.50%	April 27, 2026
U.S. Expediters, LLC	Revolver		100,000	0.50%	December 22, 2026
Xanitos, Inc.	Revolver		100,000	0.50%	June 25, 2026
Xanitos, Inc.	Delayed Draw Term Loan		1,556,383	1.00%	June 25, 2026

Unused 

Unfunded 

Commitment 

Investments

Security

Commitment

Fee

Maturity

Ad.Net Acquisition, LLC

Revolver

$

1,299,020

0.50%

May 7, 2026

ADS Group Opco, LLC

Revolver

28,148

0.50%

June 4, 2026

AIP ATCO Buyer, LLC

Revolver

73,333

0.50%

May 17, 2028

Anne Lewis Strategies, LLC

Revolver

100,000

0.50%

March 5, 2026

ArborWorks Acquisition LLC

Revolver

2,076,923

0.50%

November 9, 2026

ASC Communications, LLC

Revolver

666,667

0.50%

June 29, 2023

Axis Portable Air, LLC

Revolver

100,000

0.50%

March 22, 2028

Axis Portable Air, LLC

Delayed Draw Term Loan

100,000

0.50%

March 22, 2028

BDS Solutions Intermediateco, LLC

Revolver

16,602

0.50%

February 7, 2027

BLP Buyer, Inc.

Revolver

63,434

0.50%

February 1, 2027

Camp Profiles LLC

Delayed Draw Term Loan

3,750,000

1.00%

September 3, 2026

Camp Profiles LLC

Revolver

100,000

0.50%

September 3, 2026

CEATI International Inc.

Revolver

100,000

0.50%

February 19, 2026

CF512, Inc.

Delayed Draw Term Loan

220,930

0.50%

September 1, 2026

CF512, Inc.

Revolver

100,000

0.50%

September 1, 2026

CompleteCase, LLC

Revolver A

50,000

0.50%

December 21, 2025

Credit Connection, LLC

Revolver

100,000

0.50%

July 30, 2026

DRS Holdings III, Inc.

Revolver

909,091

0.50%

November 1, 2025

DTE Enterprises, LLC

Revolver

750,000

0.50%

April 13, 2023

Exacta Land Surveyors, LLC

Revolver

1,500,000

0.50%

February 8, 2024

Exigo, LLC

Revolver

80,000

0.50%

March 16, 2027

Exigo, LLC

Delayed Draw Term Loan

100,000

0.50%

March 16, 2027

Florachem Corporation

Revolver

100,000

0.50%

April 29, 2028

Florachem Corporation

Delayed Draw Term Loan

100,000

0.50%

April 29, 2028

HV Watterson Holdings, LLC

Revolver

100,000

0.50%

December 17, 2026

HV Watterson Holdings, LLC

Delayed Draw Term Loan

2,879,272

1.00%

December 17, 2026

Infolinks Media Buyco, LLC

Delayed Draw Term Loan

2,475,000

0.50%

November 1, 2026

Integrated Oncology Network, LLC

Revolver

553,517

0.50%

June 24, 2025

Inoapps Bidco, LLC

Revolver

100,000

0.50%

February 15, 2027

Inoapps Bidco, LLC

Delayed Draw Term Loan

100,000

0.50%

February 15, 2027

International Designs Group LLC

Revolver

80,000

0.50%

April 1, 2027

Invincible Boat Company LLC

Revolver

744,681

0.50%

August 28, 2025

Ledge Lounger, Inc.

Revolver

100,000

0.50%

November 9, 2026

Lightning Intermediate II, LLC

Revolver

82,500

0.50%

June 6, 2027

Madison Logic, Inc.

Revolver

542,169

0.50%

November 22, 2026

Microbe Formulas LLC

Revolver

80,000

0.50%

April 3, 2028

MOM Enterprises, LLC

Revolver

100,000

0.50%

May 19, 2026

Monitorus Holding, LLC

Revolver

€

100,000

0.50%

May 24, 2027

Monitorus Holding, LLC

Delayed Draw Term Loan

€

100,000

0.50%

May 24, 2027

Naumann/Hobbs Material Handling Corporation II, Inc.

Revolver – Working Capital

1,763,033

0.50%

August 30, 2024

Nutritional Medicinals, LLC

Revolver

2,000,000

0.50%

November 15, 2025

PCS Software, Inc.

Revolver

1,318,143

0.50%

July 1, 2024

Peltram Plumbing Holdings, LLC

Revolver

100,000

0.50%

December 30, 2026

Premiere Digital Services, Inc.

Revolver

576,923

0.50%

November 3, 2026

Rogers Mechanical Contractors, LLC

Revolver

100,000

0.75%

September 9, 2025

Rogers Mechanical Contractors, LLC

Delayed Draw Term Loan

100,000

1.00%

September 9, 2025

Sales Benchmark Index, LLC

Revolver

1,331,461

0.50%

January 7, 2025

Service Minds Company, LLC

Revolver

100,000

0.50%

February 7, 2028

Service Minds Company, LLC

Delayed Draw Term Loan

67,677

1.00%

February 7, 2028

SIB Holdings, LLC

Revolver

60,000

0.50%

October 29, 2026

TAC LifePort Purchaser, LLC

Revolver

100,000

0.50%

March 2, 2026

Tilley Distribution, Inc.

Revolver

46,122

0.50%

December 31, 2026

Trade Education Acquisition, L.L.C.

Revolver

100,000

0.50%

December 28, 2027

TradePending, LLC

Revolver

100,000

0.50%

March 2, 2026

Unicat Catalyst Holdings, LLC

Revolver

2,000,000

0.50%

April 27, 2026

U.S. Expediters, LLC

Revolver

100,000

0.50%

December 22, 2026

Xanitos, Inc.

Revolver

100,000

0.50%

June 25, 2026

Xanitos, Inc.

Delayed Draw Term Loan

1,556,383

1.00%

June 25, 2026

Unused 

Unfunded 

Commitment 

Investments

Security

Commitment

Fee

Maturity

Ad.Net Acquisition, LLC

Revolver

$

1,299,020

0.50%

May 7, 2026

ADS Group Opco, LLC

Revolver

28,148

0.50%

June 4, 2026

AIP ATCO Buyer, LLC

Revolver

73,333

0.50%

May 17, 2028

Anne Lewis Strategies, LLC

Revolver

100,000

0.50%

March 5, 2026

ArborWorks Acquisition LLC

Revolver

2,076,923

0.50%

November 9, 2026

ASC Communications, LLC

Revolver

666,667

0.50%

June 29, 2023

Axis Portable Air, LLC

Revolver

100,000

0.50%

March 22, 2028

Axis Portable Air, LLC

Delayed Draw Term Loan

100,000

0.50%

March 22, 2028

BDS Solutions Intermediateco, LLC

Revolver

16,602

0.50%

February 7, 2027

BLP Buyer, Inc.

Revolver

63,434

0.50%

February 1, 2027

Camp Profiles LLC

Delayed Draw Term Loan

3,750,000

1.00%

September 3, 2026

Camp Profiles LLC

Revolver

100,000

0.50%

September 3, 2026

CEATI International Inc.

Revolver

100,000

0.50%

February 19, 2026

CF512, Inc.

Delayed Draw Term Loan

220,930

0.50%

September 1, 2026

CF512, Inc.

Revolver

100,000

0.50%

September 1, 2026

CompleteCase, LLC

Revolver A

50,000

0.50%

December 21, 2025

Credit Connection, LLC

Revolver

100,000

0.50%

July 30, 2026

DRS Holdings III, Inc.

Revolver

909,091

0.50%

November 1, 2025

DTE Enterprises, LLC

Revolver

750,000

0.50%

April 13, 2023

Exacta Land Surveyors, LLC

Revolver

1,500,000

0.50%

February 8, 2024

Exigo, LLC

Revolver

80,000

0.50%

March 16, 2027

Exigo, LLC

Delayed Draw Term Loan

100,000

0.50%

March 16, 2027

Florachem Corporation

Revolver

100,000

0.50%

April 29, 2028

Florachem Corporation

Delayed Draw Term Loan

100,000

0.50%

April 29, 2028

HV Watterson Holdings, LLC

Revolver

100,000

0.50%

December 17, 2026

HV Watterson Holdings, LLC

Delayed Draw Term Loan

2,879,272

1.00%

December 17, 2026

Infolinks Media Buyco, LLC

Delayed Draw Term Loan

2,475,000

0.50%

November 1, 2026

Integrated Oncology Network, LLC

Revolver

553,517

0.50%

June 24, 2025

Inoapps Bidco, LLC

Revolver

100,000

0.50%

February 15, 2027

Inoapps Bidco, LLC

Delayed Draw Term Loan

100,000

0.50%

February 15, 2027

International Designs Group LLC

Revolver

80,000

0.50%

April 1, 2027

Invincible Boat Company LLC

Revolver

744,681

0.50%

August 28, 2025

Ledge Lounger, Inc.

Revolver

100,000

0.50%

November 9, 2026

Lightning Intermediate II, LLC

Revolver

82,500

0.50%

June 6, 2027

Madison Logic, Inc.

Revolver

542,169

0.50%

November 22, 2026

Microbe Formulas LLC

Revolver

80,000

0.50%

April 3, 2028

MOM Enterprises, LLC

Revolver

100,000

0.50%

May 19, 2026

Monitorus Holding, LLC

Revolver

€

100,000

0.50%

May 24, 2027

Monitorus Holding, LLC

Delayed Draw Term Loan

€

100,000

0.50%

May 24, 2027

Naumann/Hobbs Material Handling Corporation II, Inc.

Revolver – Working Capital

1,763,033

0.50%

August 30, 2024

Nutritional Medicinals, LLC

Revolver

2,000,000

0.50%

November 15, 2025

PCS Software, Inc.

Revolver

1,318,143

0.50%

July 1, 2024

Peltram Plumbing Holdings, LLC

Revolver

100,000

0.50%

December 30, 2026

Premiere Digital Services, Inc.

Revolver

576,923

0.50%

November 3, 2026

Rogers Mechanical Contractors, LLC

Revolver

100,000

0.75%

September 9, 2025

Rogers Mechanical Contractors, LLC

Delayed Draw Term Loan

100,000

1.00%

September 9, 2025

Sales Benchmark Index, LLC

Revolver

1,331,461

0.50%

January 7, 2025

Service Minds Company, LLC

Revolver

100,000

0.50%

February 7, 2028

Service Minds Company, LLC

Delayed Draw Term Loan

67,677

1.00%

February 7, 2028

SIB Holdings, LLC

Revolver

60,000

0.50%

October 29, 2026

TAC LifePort Purchaser, LLC

Revolver

100,000

0.50%

March 2, 2026

Tilley Distribution, Inc.

Revolver

46,122

0.50%

December 31, 2026

Trade Education Acquisition, L.L.C.

Revolver

100,000

0.50%

December 28, 2027

TradePending, LLC

Revolver

100,000

0.50%

March 2, 2026

Unicat Catalyst Holdings, LLC

Revolver

2,000,000

0.50%

April 27, 2026

U.S. Expediters, LLC

Revolver

100,000

0.50%

December 22, 2026

Xanitos, Inc.

Revolver

100,000

0.50%

June 25, 2026

Xanitos, Inc.

Delayed Draw Term Loan

1,556,383

1.00%

June 25, 2026

(10)

This loan is a unitranche investment.

(11)

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

12

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

June 30, 2022

(unaudited)

(12)

These loans include an interest rate floor feature which is higher than the current applicable rates; therefore, the floors are in effect.

(13)

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

(14)

These loans are last-out term loans with contractual rates lower than the applicable rates; therefore, the floors are in effect.

(15)

Investment has been on non-accrual since October 31, 2017.

(16)

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

(17)

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

(18)

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

(19)

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

(20)

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

(21)

Excluded from the investment is an uncalled capital commitment in an amount not to exceed $305,003.

Abbreviation Legend

BSBY —  Bloomberg Short-Term Bank Yield Index

LIBOR —  London Interbank Offered Rate

PIK — Payment-In-Kind

SOFR —  Secured Overnight Financing Rate

13

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

													Principal						% of
					LIBOR					Investment		Headquarters/	Amount/		Amortized				Net
Investments	Footnotes	Security(3)	Coupon		floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value(1)		Assets
Non-controlled, non-affiliated investments	(2)(9)​
Ad.Net Acquisition, LLC	(19)​											Los Angeles, CA
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%		5/7/2021	5/7/2026	Services: Business	$	15,510,294		15,303,443		15,277,640	5.36	%
Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)	(9)​	Equity								5/7/2021				7,794		77,941		81,692	0.03	%
Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)	(9)​	Equity								5/7/2021				7,015		701,471		735,229	0.26	%
Total															$	16,082,855	$	16,094,561	5.65	%
ADS Group Opco, LLC												Lakewood, CO
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.75	%	1.00	%	7.75	%		6/4/2021	6/4/2026	Aerospace & Defense	$	14,850,000		14,581,135		14,478,750	5.08	%
Revolver	(33)(35)​	First Lien	3M L+6.75	%	1.00	%	7.75	%		6/4/2021	6/4/2026		$	70,000		70,000		68,250	0.02	%
Pluto Aggregator, LLC Class A Units		Equity								6/4/2021				77,626		288,691		250,169	0.09	%
Pluto Aggregator, LLC Class B Units		Equity								6/4/2021				56,819		211,309		183,114	0.06	%
Total															$	15,151,135	$	14,980,283	5.25	%
Advanced Barrier Extrusions, LLC												Rhinelander, WI
Term Loan B (SBIC)	(2)(35)​	First Lien	1M L+7.00	%	1.00	%	8.00	%		11/30/2020	11/30/2026	Containers, Packaging, & Glass	$	17,325,000		17,028,817		17,151,749	6.02	%
GP ABX Holdings Partnership, L.P. Partner Interests	(4)​	Equity								8/8/2018				644,737		528,395		559,158	0.20	%
Total															$	17,557,212	$	17,710,907	6.22	%
Anne Lewis Strategies, LLC	(20)​											Washington, DC
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.75	%	1.00	%	7.75	%		3/5/2021	3/5/2026	Services: Business	$	11,068,750		10,877,646		11,068,750	3.88	%
SG AL Investment, LLC Common Units	(4)​	Equity								3/5/2021				1,000		920,488		2,069,142	0.73	%
Total															$	11,798,134	$	13,137,892	4.61	%
APE Holdings, LLC												Deer Park, TX
Class A Units		Equity								9/5/2014		Chemicals, Plastics, & Rubber		375,000		375,000		83,576	0.03	%
Total															$	375,000	$	83,576	0.03	%
Atmosphere Aggregator Holdings II, L.P.												Atlanta, GA
Common Units		Equity								1/26/2016		Services: Business		254,250		—		1,919,315	0.67	%
Stratose Aggregator Holdings, L.P. Common Units		Equity								6/30/2015				750,000		—		5,661,697	1.99	%
Total															$	—	$	7,581,012	2.66	%
ArborWorks Acquisition LLC												Oakhurst, CA
Term Loan	(35)​	First Lien	3M L+7.00	%	1.00	%	8.00	%		11/23/2021	11/9/2026	Environmental Industries	$	15,000,000		14,852,082		14,852,082	5.21	%
Revolver	(31)(35)​	First Lien	3M L+7.00	%	1.00	%	8.00	%		11/23/2021	11/9/2026		$	1,084,615		1,084,615		1,073,920	0.38	%
ArborWorks Holdings LLC Units		Equity								12/29/2021				115		115,385		115,385	0.04	%
Total															$	16,052,082	$	16,041,387	5.63	%
ASC Communications, LLC	(17)​											Chicago, IL
Term Loan (SBIC)	(2)(35)​	First Lien	1M L+5.00	%	1.00	%	6.00	%		6/29/2017	6/29/2023	Healthcare & Pharmaceuticals	$	3,395,062		3,385,618		3,395,062	1.19	%
Term Loan	(35)​	First Lien	1M L+5.00	%	1.00	%	6.00	%		2/4/2019	6/29/2023		$	5,771,605		5,744,381		5,771,605	2.02	%
ASC Communications Holdings, LLC Class A Units (SBIC)	(2)(4)​	Equity								6/29/2017				73,529		—		1,304,094	0.46	%
Total															$	9,129,999	$	10,470,761	3.67	%
Café Valley, Inc.												Phoenix, AZ
Term Loan	(35)​	First Lien	1M L+7.00	%	1.25	%	8.25	%		8/28/2019	8/28/2024	Beverage, Food, & Tobacco	$	15,901,190		15,715,924		15,344,649	5.38	%
CF Topco LLC Units		Equity								8/28/2019				9,160		916,015		320,352	0.11	%
Total															$	16,631,939	$	15,665,001	5.49	%

14

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

														Principal							% of
					LIBOR						Investment		Headquarters/	Amount/			Amortized				Net
Investments	Footnotes	Security	Coupon		floor		Cash		PIK		Date	Maturity	Industry	Shares			Cost		Fair Value(1)		Assets
Camp Profiles LLC	(8)(16) ​												Boston, MA
Term Loan (SBIC)	(2)(35) ​	First Lien	3M L+6.00	%	1.00	%	7.00	%			9/3/2021	9/3/2026	Media: Advertising, Printing & Publishing	$	10,224,375			10,031,055		10,071,009	3.53	%
CIVC VI-A 829 Blocker, LLC Units		Equity									9/3/2021				250			250,000		277,332	0.10	%
Total																	$	10,281,055	$	10,348,341	3.63	%
CEATI International Inc.	(39)​												Montreal, Canada
Term Loan	(5)(35) ​	First Lien	3M L+6.50	%	1.00	%	7.50	%			2/19/2021	2/19/2026	Services: Business	$	13,398,750			13,168,371		12,996,788	4.56	%
CEATI Holdings, LP Class A Units	(5)​	Equity									2/19/2021				250,000			250,000		268,536	0.09	%
Total																	$	13,418,371	$	13,265,324	4.65	%
CF512, Inc.	(49)​												Blue Bell, PA
Term Loan (SBIC)	(2)(35) ​	First Lien	3M L+6.00	%	1.00	%	7.00	%			9/1/2021	9/1/2026	Media: Advertising, Printing & Publishing	$	14,324,564			14,053,719		13,966,450	4.90	%
Delayed Draw Term Loan	(35)(50) ​	First Lien	3M L+6.00	%	1.00	%	7.00	%			9/1/2021	9/1/2026			3,093,023			3,062,540		3,015,698	1.06	%
StellPen Holdings, LLC Membership Interests		Equity									9/1/2021				22.09	%		220,930		246,500	0.09	%
Total																	$	17,337,189	$	17,228,648	6.05	%
Colford Capital Holdings, LLC													New York, NY
Class A Units	(5)​	Equity									8/20/2015		Finance		38,893			195,036		22,408	0.01	%
Total																	$	195,036	$	22,408	0.01	%
CompleteCase, LLC													Seattle, WA
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%			12/21/2020	12/21/2025	Services: Consumer	$	11,363,478			11,174,252		11,079,391	3.89	%
Revolver A	(21)(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%			12/21/2020	12/21/2025			50,000			50,000		48,750	0.02	%
Revolver B	(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%			11/18/2021	8/17/2022			2,000,000			2,000,000		1,950,000	0.68	%
CompleteCase Holdings, Inc. Class A Common Stock (SBIC II)	(9)​	Equity									12/21/2020				417			5		4	0.00	%
CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II)	(9)​	Equity									12/21/2020				522			521,734		375,747	0.13	%
Total																	$	13,745,991	$	13,453,892	4.72	%
Credit Connection, LLC	(36) ​												Fresno, CA
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+5.50	%	1.00	%	6.50	%			7/30/2021	7/30/2026	Software	$	9,975,000			9,789,605		9,775,500	3.43	%
Series A Units		Equity									7/30/2021				750,000			750,000		842,326	0.30	%
Total																	$	10,539,605	$	10,617,826	3.73	%
Data Centrum Communications, Inc.													Montvale, NJ
Term Loan B	(35) ​	First Lien	3M L+9.00	%	1.00	%	10.00	%			5/15/2019	5/15/2024	Media: Advertising, Printing & Publishing	$	15,882,235			15,717,629		14,532,245	5.10	%
Health Monitor Holdings, LLC Series A Preferred Units		Equity									5/15/2019				1,000,000			1,000,000		215,580	0.08	%
Total																	$	16,717,629	$	14,747,825	5.18	%
Douglas Products Group, LP													Liberty, MO
Partnership Interests		Equity									12/27/2018		Chemicals, Plastics, & Rubber		322			139,656		800,866	0.28	%
Total																	$	139,656	$	800,866	0.28	%
Dresser Utility Solutions, LLC													Bradford, PA
Term Loan (SBIC)	(2)(35) ​	Second Lien	1M L+8.50	%	1.00	%	9.50	%			10/1/2018	4/1/2026	Utilities: Oil & Gas	$	10,000,000			9,901,900		9,800,000	3.44	%
Total																	$	9,901,900	$	9,800,000	3.44	%
DRS Holdings III, Inc.	(10)​												St. Louis, MO
Term Loan	(35)​	First Lien	3M L+5.75	%	1.00	%	6.75	%			11/1/2019	11/1/2025	Consumer Goods: Durable	$	9,800,000			9,732,277		9,800,000	3.44	%
Total																	$	9,732,277	$	9,800,000	3.44	%
DTE Enterprises, LLC	(18)​												Roselle, IL
Term Loan	(6)(35) ​	First Lien	1M L+8.50	%	1.50	%	9.50	%	0.50	%	4/13/2018	4/13/2023	Energy: Oil & Gas	$	9,368,725			9,310,842		9,087,663	3.19	%
DTE Holding Company, LLC Class A-2 Units		Equity									4/13/2018				776,316			466,204		—	0.00	%
DTE Holding Company, LLC Class AA Units		Equity									4/13/2018				723,684			723,684		605,420	0.21	%
Total																	$	10,500,730	$	9,693,083	3.40	%
EC Defense Holdings, LLC													Reston, VA
Class B Units (SBIC)	(2) ​	Equity									7/31/2020		Services: Business		20,054			500,000		616,212	0.22	%
Total																	$	500,000	$	616,212	0.22	%
EH Real Estate Services, LLC													Skokie, IL
Term Loan (SBIC)	(2) ​	First Lien	10.00	%			10.00	%			9/3/2021	9/3/2026	FIRE: Real Estate	$	7,954,099			7,803,059		7,834,788	2.75	%
EH Holdco, LLC Series A Preferred Units		Equity									9/3/2021				7,892			7,891,642		7,990,210	2.80	%
Total																	$	15,694,701	$	15,824,998	5.55	%
Elliott Aviation, LLC													Moline, IL
Term Loan	(6)(35) ​	First Lien	1M L+8.00	%	1.75	%	7.75	%	2.00	%	1/31/2020	1/31/2025	Aerospace & Defense	$	17,641,992			17,408,385		17,024,522	5.97	%
Revolver	(6)(35) ​	First Lien	1M L+8.00	%	1.75	%	7.75	%	2.00	%	1/31/2020	1/31/2025			1,354,425			1,354,425		1,307,020	0.46	%
SP EA Holdings, LLC Class A Units		Equity									1/31/2020				900,000			900,000		233,145	0.08	%
Total																	$	19,662,810	$	18,564,687	6.51	%

15

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

													Principal						% of
					LIBOR					Investment		Headquarters/	Amount/		Amortized				Net
Investments	Footnotes	Security	Coupon		floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value(1)		Assets
Energy Labs Holding Corp.												Houston, TX
Common Stock		Equity								9/29/2016		Energy: Oil & Gas	$	598		598,182		768,334	0.27	%
Total															$	598,182	$	768,334	0.27	%
EOS Fitness Holdings, LLC												Phoenix, AZ
Class A Preferred Units		Equity								12/30/2014		Hotel, Gaming, & Leisure	$	118		—		218,008	0.08	%
Class B Common Units		Equity								12/30/2014				3,017		—		266,242	0.09	%
Total															$	—	$	484,250	0.17	%
Exacta Land Surveyors, LLC	(23) ​											Cleveland, OH
Term Loan (SBIC)	(2)(35) ​	First Lien	3M L+5.75	%	1.50	%	7.25	%		2/8/2019	2/8/2024	Services: Business	$	16,544,375		16,385,082		16,048,044	5.63	%
SP ELS Holdings LLC, Class A Units		Equity								2/8/2019				1,069,143		1,069,143		452,649	0.16	%
Total															$	17,454,225	$	16,500,693	5.79	%
General LED OPCO, LLC												San Antonio, TX
Term Loan	(35)(40) ​	Second Lien	3M L+9.00	%	1.50	%	0.00	%		5/1/2018	3/31/2026	Services: Business	$	4,500,000		4,453,726		3,690,000	1.29	%
Total															$	4,453,726	$	3,690,000	1.29	%
Grupo HIMA San Pablo, Inc., et al	(25) ​											San Juan, PR
Term Loan B	(27)(35)(41) ​	First Lien	3M L+7.00	%	1.50	%	0.00	%		2/1/2013		Healthcare & Pharmaceuticals	$	4,061,688		4,061,688		670,178	0.24	%
Term Loan	(15)(27) ​	Second Lien	13.75	%			0.00	%		2/1/2013				4,109,524		4,109,524		0	0.00	%
Term Loan	(38)(51) ​	First Lien	12.00	%			0.00	%		11/24/2021				147,344		147,344		147,344	0.05	%
Term Loan	(35)(38)(51) ​	First Lien	3M L+7.00	%	1.50	%	0.00	%		11/24/2021				442,033		442,033		331,525	0.12	%
Total															$	8,760,589	$	1,149,047	0.41	%
GS HVAM Intermediate, LLC												Carlsbad, CA
Term Loan	(35) ​	First Lien	1M L+5.75	%	1.00	%	6.75	%		10/18/2019	10/2/2024	Beverage, Food, & Tobacco	$	12,765,248		12,687,507		12,765,248	4.48	%
Revolver	(35) ​	First Lien	1M L+5.75	%	1.00	%	6.75	%		10/18/2019	10/2/2024			2,651,515		2,651,515		2,651,515	0.93	%
HV GS Acquisition, LP Class A Interests		Equity								10/2/2019				1,796		1,618,844		2,266,541	0.79	%
Total															$	16,957,866	$	17,683,304	6.20	%
HV Watterson Holdings, LLC	(37) ​											Schaumburg, IL
Term Loan	(35) ​	First Lien	3M L+6.00	%	1.00	%	7.00	%		12/17/2021	12/17/2026	Services: Business	$	13,436,603		13,167,870		13,167,870	4.62	%
Revolver	(34)(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%		12/17/2021	12/17/2026			40,000		40,000		39,200	0.01	%
HV Acquisition VI, LLC Class A Units		Equity								12/17/2021				1,084		1,084,126		1,084,126	0.38	%
Total															$	14,291,996	$	14,291,196	5.01	%
I2P Holdings, LLC												Cleveland, OH
Series A Preferred Units		Equity								1/31/2018		Services: Business	$	750,000		750,000		3,523,110	1.24	%
Total															$	750,000	$	3,523,110	1.24	%
ICD Holdings, LLC												San Francisco, CA
Class A Units	(4)(5) ​	Equity								1/1/2018		Finance	$	9,962		464,619		834,320	0.29	%
Total															$	464,619	$	834,320	0.29	%

16

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

														Principal						% of
					LIBOR						Investment		Headquarters/	Amount/		Amortized				Net
Investments	Footnotes	Security	Coupon		floor		Cash		PIK		Date	Maturity	Industry	Shares		Cost		Fair Value(1)		Assets
Infolinks Media Buyco, LLC	(43)​												Ridgewood, NJ
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%			11/1/2021	11/1/2026	Media: Advertising, Printing & Publishing	$	8,525,000		8,359,127		8,359,127	2.93	%
Tower Arch Infolinks Media, LP LP Interests	(60)​	Equity									10/28/2021				441,718		441,718		441,718	0.15	%
Total																$	8,800,845	$	8,800,845	3.08	%
Integrated Oncology Network, LLC	(30)​												Newport Beach, CA
Term Loan	(35)​	First Lien	3M L+5.50	%	1.50	%	7.00	%			7/17/2019	6/24/2024	Healthcare & Pharmaceuticals	$	15,993,848		15,819,044		15,993,848	5.61	%
Term Loan	(35)​	First Lien	3M L+5.50	%	1.50	%	7.00	%			11/1/2021	6/24/2024			1,107,034		1,084,893		1,107,034	0.39	%
Total																$	16,903,937	$	17,100,882	6.00	%
Interstate Waste Services, Inc.													Amsterdam, OH
Common Stock		Equity									1/15/2020		Environmental Industries		21,925		946,125		514,402	0.18	%
Total																$	946,125	$	514,402	0.18	%
Intuitive Health, LLC													Plano, TX
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+5.75	%	1.00	%	6.75	%			10/18/2019	10/18/2027	Healthcare & Pharmaceuticals	$	5,895,000		5,818,411		5,895,000	2.07	%
Term Loan	(35)​	First Lien	3M L+5.75	%	1.00	%	6.75	%			10/18/2019	10/18/2027			11,298,750		11,151,955		11,298,750	3.96	%
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+5.75	%	1.00	%	6.75	%			8/31/2021	10/18/2027			3,104,554		3,060,021		3,104,554	1.09	%
Legacy Parent, Inc. Class A Common Stock	(4)​	Equity									10/30/2020				58		—		230,224	0.08	%
Total																$	20,030,387	$	20,528,528	7.20	%
Invincible Boat Company LLC	(28)​												Opa Locka, FL
Term Loan	(35) ​	First Lien	3M L+6.50	%	1.50	%	8.00	%			8/28/2019	8/28/2025	Consumer Goods: Durable	$	5,579,004		5,460,897		5,551,109	1.95	%
Term Loan (SBIC II)	(9)(35) ​	First Lien	3M L+6.50	%	1.50	%	8.00	%			8/28/2019	8/28/2025			5,149,850		5,080,887		5,124,101	1.80	%
Term Loan (SBIC II)	(9)(35) ​	First Lien	3M L+6.50	%	1.50	%	8.00	%			6/1/2021	8/28/2025			1,144,879		1,124,655		1,139,155	0.40	%
Warbird Parent Holdco, LLC Class A Units	(4) ​	Equity									8/28/2019				1,362,575		1,299,691		1,405,979	0.49	%
Total																$	12,966,130	$	13,220,344	4.64	%
J.R. Watkins, LLC													San Francisco
Term Loan (SBIC)	(2)(6)​	First Lien	10.00	%			7.00	%	3.00	%	12/22/2017	12/22/2022	Consumer Goods: Non-Durable	$	12,500,354		12,443,581		11,937,838	4.19	%
J.R. Watkins Holdings, Inc. Class A Preferred Stock		Equity									12/22/2017				1,133		1,132,576		316,397	0.11	%
Total																$	13,576,157	$	12,254,235	4.30	%
Jurassic Acquisition Corp.													Sparks, MD
Term Loan	(12)​	First Lien	3M L+5.50	%	0.00	%	5.72	%			12/28/2018	11/15/2024	Metals & Mining	$	16,975,000		16,838,603		16,974,999	5.95	%
Total																$	16,838,603	$	16,974,999	5.95	%
Kelleyamerit Holdings, Inc.													Walnut Creek, CA
Term Loan (SBIC)	(2)(13)(22)​	First Lien	3M L+6.50	%	1.00	%	8.82	%			12/24/2020	12/24/2025	Automotive	$	9,750,000		9,589,330		9,360,000	3.28	%
Term Loan	(13)(22)​	First Lien	3M L+6.50	%	1.00	%	8.82	%			12/24/2020	12/24/2025			1,500,000		1,475,282		1,440,000	0.51	%
Total																$	11,064,612	$	10,800,000	3.79	%
KidKraft, Inc.													Dallas, TX
Term Loan	(22)(29)​	First Lien	3M L+5.00	%	1.00	%	6.00	%			4/3/2020	8/15/2022	Consumer Goods: Durable	$	1,580,768		1,580,768		1,580,768	0.55	%
KidKraft Group Holdings, LLC Preferred B Units		Equity									4/3/2020				4,000,000		4,000,000		4,000,000	1.40	%
Total																$	5,580,768	$	5,580,768	1.95	%
Ledge Lounger, Inc.													Katy, TX
Term Loan A (SBIC)	(2)(35)​	First Lien	3M L+6.25	%	1.00	%	7.25	%			11/9/2021	11/9/2026	Consumer Goods: Durable	$	7,644,737		7,495,964		7,495,964	2.63	%
Revolver	(35)(52)​	First Lien	3M L+6.25	%	1.00	%	7.25	%			11/9/2021	11/9/2026			66,667		66,667		65,369	0.02	%
SP L2 Holdings LLC Class A Units (SBIC)	(2)​	Equity									11/9/2021				375,000		375,000		375,000	0.13	%
Total																$	7,937,631	$	7,936,333	2.78	%
Madison Logic, Inc.	(53)​												New York, NY
Term Loan (SBIC)	(2)(35)​	First Lien	1M L+5.75	%	1.00	%	6.75	%			2/4/2021	11/22/2026	Media: Broadcasting & Subscription	$	3,791,247		3,778,850		3,753,335	1.32	%
Term Loan	(35)​	First Lien	1M L+5.75	%	1.00	%	6.75	%			11/22/2021	11/22/2026			6,875,337		6,807,544		6,806,583	2.39	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	(2)(4)​	Equity									11/30/2016				5,000		—		1,773,443	0.62	%
Total																$	10,586,394	$	12,333,361	4.33	%

17

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

														Principal
					LIBOR						Investment		Headquarters/	Amount/			Amortized
Investments	Footnotes	Security(3)	Coupon		floor		Cash		PIK		Date	Maturity	Industry	Shares			Cost		Value(1)		Assets
Mobile Acquisition Holdings, LP													Santa Clara, CA
Class A2 Units		Equity									11/1/2016		Software	$	750			455,385		2,863,270	1.00	%
Total																	$	455,385	$	2,863,270	1.00	%
MOM Enterprises, LLC	(54)​												Richmond, CA
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.25	%	1.00	%	7.25	%			5/19/2021	5/19/2026	Consumer Goods: Non-Durable	$	16,384,333			16,087,954		16,138,568	5.66	%
MBliss SPC Holdings, LLC Units		Equity									5/19/2021				933,333			933,333		1,054,829	0.37	%
Total																	$	17,021,287	$	17,193,397	6.03	%
Naumann/Hobbs Material Handling Corporation II, Inc.	(32)​												Phoenix, AZ
Term Loan	(35)​	First Lien	3M L+6.25	%	1.50	%	7.75	%			8/30/2019	8/30/2024	Services: Business	$	8,744,721			8,642,580		8,700,997	3.05	%
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.25	%	1.50	%	7.75	%			8/30/2019	8/30/2024			5,514,453			5,450,043		5,486,881	1.92	%
CGC NH, Inc. Common Stock		Equity									8/30/2019				123			440,758		780,155	0.27	%
Total																	$	14,533,381	$	14,968,033	5.24	%
NS412, LLC													Dallas, TX
Term Loan	(35)​	Second Lien	3M L+8.50	%	1.00	%	9.50	%			5/6/2019	11/6/2025	Services: Consumer	$	7,615,000			7,513,674		7,462,700	2.62	%
NS Group Holding Company, LLC Class A Units		Equity									5/6/2019				782			795,002		686,742	0.24	%
Total																	$	8,308,676	$	8,149,442	2.86	%
NuMet Machining Techniques, LLC													Birmingham, United Kingdom
Term Loan	(5)(35)​	Second Lien	1M L+9.00	%	2.00	%	11.00	%			11/5/2019	5/5/2026	Aerospace & Defense	$	12,675,000			12,491,009		11,851,125	4.16	%
Bromford Industries Limited Term Loan	(5)(35)​	Second Lien	1M L+9.00	%	2.00	%	11.00	%			11/5/2019	5/5/2026			7,800,000			7,683,112		7,293,000	2.56	%
Bromford Holdings, L.P. Class A Membership Interests	(5)​	Equity									11/5/2019				0.83	%		866,629		—	0.00	%
Bromford Holdings, L.P. Class D Membership Interests	(5)​	Equity									3/18/2021				0.82	%		280,078		393,106	0.14	%
Total																	$	21,320,828	$	19,537,231	6.86	%
NuSource Financial, LLC													Eden Prairie, MN
Term Loan (SBIC II)	(9)(35) ​	First Lien	1M L+9.00	%	1.00	%	10.00	%			1/29/2021	1/29/2026	Services: Business	$	11,081,250			10,892,077		10,804,219	3.79	%
NuSource Financial Acquisition, Inc. (SBIC II)	(6)(9) ​	Unsecured	13.75	%			4.00	%	9.75	%	1/29/2021	7/29/2026			5,113,983			5,030,143		4,883,854	1.71	%
NuSource Holdings, Inc. Warrants (SBIC II)	(9) ​	Equity									1/29/2021				54,966			—		—	0.00	%
Total																	$	15,922,220	$	15,688,073	5.50	%
Nutritional Medicinals, LLC	(24)​												Centerville, OH
Term Loan	(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%			11/15/2018	11/15/2025	Healthcare & Pharmaceuticals	$	11,627,085			11,524,782		11,452,678	4.02	%
Term Loan	(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%			10/28/2021	11/15/2025			4,975,866			4,903,854		4,901,228	1.72	%
Functional Aggregator, LLC Units	(4)​	Equity									11/15/2018				12,500			972,803		1,326,406	0.47	%
Total																	$	17,401,439	$	17,680,312	6.21	%
Onpoint Industrial Services, LLC													Deer Park, TX
Term Loan (SBIC)	(2)(35) ​	First Lien	3M L+7.25	%	1.00	%	8.25	%			3/15/2021	3/15/2026	Services: Business	$	10,421,250			10,240,997		10,160,719	3.56	%
Onpoint Parent Holdings, LLC Class A Units		Equity									3/15/2021				500,000			500,000		448,143	0.16	%
Total																	$	10,740,997	$	10,608,862	3.72	%
PCP MT Aggregator Holdings, L.P.													Oak Brook, IL
Common Units		Equity									3/29/2019		Finance	$	750,000			—		1,779,415	0.62	%
Total																	$	—	$	1,779,415	0.62	%
PCS Software, Inc.													Shenandoah, TX
Term Loan	(35)​	First Lien	3M L+5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024	Transportation & Logistics	$	14,210,240			14,051,962		14,210,240	4.98	%
Term Loan (SBIC)	(2)(35)​	First Lien	3M L+5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024			1,863,638			1,842,880		1,863,638	0.65	%
Delayed Draw Term Loan	(35)​	First Lien	3M L+5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024			982,500			982,500		982,500	0.34	%
Revolver	(35)​	First Lien	3M L+5.75	%	1.50	%	7.25	%			7/1/2019	7/1/2024			1,318,143			1,318,143		1,318,143	0.46	%
PCS Software Holdings, LLC Series A Preferred Units		Equity									7/1/2019				325,000			325,000		468,263	0.16	%
PCS Software Holdings, LLC Series A-2 Preferred Units		Equity									11/12/2020				63,312			63,312		91,220	0.03	%
Total																	$	18,583,797	$	18,934,004	6.62	%

18

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

													Principal						%
					LIBOR					Investment		Headquarters/	Amount/		Amortized				of Net
Investments	Footnotes	Security	Coupon		floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value(1)		Assets
Peltram Plumbing Holdings, LLC												Auburn, WA
Term Loan	(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%		12/30/2021	12/30/2026	Construction & Building	$	16,747,230		16,412,285		16,412,285	5.76	%
Revolver	(11)(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%		12/30/2021	12/30/2026			31,500		31,500		30,870	0.01	%
Peltram Group Holdings LLC Class A Units		Equity								12/30/2021				508,516		508,516		508,516	0.18	%
Total															$	16,952,301	$	16,951,671	5.95	%
Premiere Digital Services, Inc.	(55)​											Los Angeles, CA
Term Loan	(35)​	First Lien	1M L+5.75	%	1.00	%	6.75	%		11/3/2021	11/3/2026	Media: Broadcasting & Subscription	$	14,423,077		14,352,950		14,350,962	5.03	%
Premiere Digital Holdings, Inc., Common Stock	(4)​	Equity								10/18/2018				5,000		0		1,228,760	0.43	%
Total															$	14,352,950	$	15,579,722	5.46	%
Protect America, Inc.												Austin, TX
Term Loan (SBIC)	(2)(26)(35)​	Second Lien	3M L+7.75	%	1.00	%	0.00	%		8/30/2017	9/1/2024	Services: Consumer	$	17,979,749		17,979,748		1,078,785	0.38	%
Total															$	17,979,748	$	1,078,785	0.38	%
Rogers Mechanical Contractors, LLC	(44)(45)​											Atlanta, GA
Term Loan	(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%		4/28/2021	9/9/2025	Construction & Building	$	10,541,667		10,381,059		10,330,833	3.62	%
Total															$	10,381,059	$	10,330,833	3.62	%
Sales Benchmark Index, LLC	(7)​											Dallas, TX
Term Loan	(35)​	First Lien	3M L+6.00	%	1.75	%	7.75	%		1/7/2020	1/7/2025	Services: Business	$	13,222,835		13,049,505		13,090,606	4.59	%
SBI Holdings Investments, LLC Class A Units		Equity								1/7/2020				66,573		665,730		532,800	0.19	%
Total															$	13,715,235	$	13,623,406	4.78	%
SIB Holdings, LLC	(57)​											Charleston, SC
Term Loan (SBIC)	(2)(35)​	First Lien	1M L+6.00	%	1.00	%	7.00	%		10/29/2021	10/29/2026	Services: Business	$	13,017,131		12,763,993		12,763,993	4.48	%
Revolver	(35)(56)​	First Lien	1M L+6.00	%	1.00	%	7.00	%		10/29/2021	10/29/2026			6,667		6,667		6,537	0.00	%
SIB Holdings, LLC Units		Equity								10/29/2021				238,095		500,000		500,000	0.18	%
Total															$	13,270,660	$	13,270,530	4.66	%
Skopos Financial Group, LLC												Irving, TX
Series A Preferred Units	(5)​	Equity								6/29/2018		Finance		1,120,684		1,162,544		338,616	0.12	%
Total															$	1,162,544	$	338,616	0.12	%
Spire Power Solutions, L.P.												Franklin, WI
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.25	%	1.50	%	7.75	%		11/22/2019	8/12/2026	Capital Equipment	$	4,887,500		4,832,386		4,740,875	1.66	%
Term Loan (SBIC II)	(9)(35)​	First Lien	6M L+6.25	%	1.50	%	7.75	%		8/12/2021	8/12/2026			3,548,310		3,490,420		3,441,861	1.21	%
Total															$	8,322,806	$	8,182,736	2.87	%
SQAD LLC												Tarrytown, NY
Term Loan (SBIC)	(2)(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%		12/22/2017	12/22/2022	Media: Broadcasting & Subscription	$	14,179,594		14,162,082		14,179,594	4.97	%
SQAD Holdco, Inc. Series A Preferred Stock (SBIC)	(2)​	Equity								10/31/2013				5,624		156,001		715,621	0.25	%
SQAD Holdco, Inc. Common Stock (SBIC)	(2)​	Equity								10/31/2013				5,800		62,485		83,839	0.03	%
Total															$	14,380,568	$	14,979,054	5.25	%
TAC LifePort Purchaser, LLC	(42)​											Woodland, WA
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%		3/1/2021	3/2/2026	Aerospace & Defense	$	10,042,067		9,869,166		9,791,015	3.43	%
TAC LifePort Holdings, LLC Common Units		Equity								3/1/2021				500,000		500,000		594,363	0.21	%
Total															$	10,369,166	$	10,385,378	3.64	%
TFH Reliability, LLC												Houston, TX
Term Loan (SBIC)	(2)(35)​	Second Lien	3M L+10.75	%	0.80	%	11.55	%		10/21/2016	9/30/2023	Chemicals, Plastics, & Rubber	$	5,875,000		5,845,883		5,757,500	2.02	%
TFH Reliability Group, LLC Class A-1 Units		Equity								6/29/2020				27,129		21,511		24,883	0.01	%
TFH Reliability Group, LLC Class A Units		Equity								10/21/2016				250,000		231,521		85,123	0.03	%
Total															$	6,098,915	$	5,867,506	2.06	%
Trade Education Acquisition, L.L.C.	(58)​											Austin, TX
Term Loan (SBIC)	(2)(35)​	First Lien	1M L+6.25	%	1.00	%	7.25	%		12/28/2021	12/28/2027	Education	$	10,602,558		10,390,507		10,390,507	3.64	%
Trade Education Holdings, L.L.C. Class A Units		Equity								12/28/2021				662,660		662,660		662,660	0.23	%
Total															$	11,053,167	$	11,053,167	3.87	%
TradePending, LLC	(14)​											Carrboro, NC
Term Loan (SBIC II)	(9)(35)​	First Lien	3M L+6.25	%	1.00	%	7.25	%		3/2/2021	3/2/2026	Software	$	9,925,000		9,753,957		9,676,875	3.39	%
TradePending Holdings, LLC Series A Units		Equity								3/2/2021				750,000		750,000		683,646	0.24	%
Total															$	10,503,957	$	10,360,521	3.63	%
Unicat Catalyst Holdings, LLC	(46)​											Alvin, TX
Term Loan	(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%		4/27/2021	4/27/2026	Chemicals, Plastics, & Rubber	$	7,406,250		7,274,639		7,221,094	2.53	%
Unicat Catalyst, LLC Class A Units		Equity								4/27/2021				7,500		750,000		315,280	0.11	%
Total															$	8,024,639	$	7,536,374	2.64	%
U.S. Auto Sales, Inc. et al												Lawrenceville, GA
USASF Blocker II LLC Units	(5)​	Equity								6/8/2015		Finance	$	441		441,000		553,597	0.19	%
USASF Blocker III LLC 2018 Series Units	(5)​	Equity								2/13/2018				50		50,000		100,000	0.04	%
USASF Blocker III LLC 2019 Series Units	(5)​	Equity								12/27/2019				75		75,000		150,000	0.05	%
USASF Blocker IV LLC Units	(5)​	Equity								5/27/2020				110		110,000		330,000	0.12	%
USASF Blocker LLC Units	(5)​	Equity								6/8/2015				9,000		9,000		0	0.00	%
Total															$	685,000	$	1,133,597	0.40	%

19

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

													Principal						%
					LIBOR					Investment		Headquarters/	Amount/		Amortized				of Net
Investments	Footnotes	Security	Coupon		floor		Cash		PIK	Date	Maturity	Industry	Shares		Cost		Fair Value(1)		Assets
U.S. Expediters, LLC	(59)​											Stafford, TX
Term Loan	(35)​	First Lien	3M L+6.00	%	1.00	%	7.00	%		12/22/2021	12/22/2026	Healthcare & Pharmaceuticals	$	16,027,068		15,706,527		15,706,527	5.51	%
Cathay Hypnos LLC Units		Equity								12/22/2021				1,372,932		1,372,932		1,372,932	0.48	%
Total															$	17,079,459	$	17,079,459	5.99	%
Venbrook Buyer, LLC												Los Angeles, CA
Term Loan B (SBIC)	(2)(35)​	First Lien	3M L+6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026	Services: Business	$	12,952,771		12,758,396		12,952,771	4.54	%
Term Loan B	(35)​	First Lien	3M L+6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026			147,377		145,165		147,377	0.05	%
Revolver	(35)​	First Lien	3M L+6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026			2,222,222		2,222,222		2,222,222	0.78	%
Delayed Draw Term Loan	(35)​	First Lien	3M L+6.50	%	1.50	%	8.00	%		3/13/2020	3/13/2026			4,415,556		4,376,990		4,415,556	1.55	%
Venbrook Holdings, LLC Common Units		Equity								3/13/2020				822,758		819,262		645,469	0.23	%
Total															$	20,322,035	$	20,383,395	7.15	%
Vortex Companies, LLC												Houston, TX
Term Loan (SBIC II)	(9)(35)​	Second Lien	3M L+9.50	%	1.00	%	10.50	%		12/21/2020	6/21/2026	Environmental Industries	$	10,000,000		9,828,022		9,800,000	3.44	%
Total															$	9,828,022	$	9,800,000	3.44	%
Whisps Holdings LP												Elgin, IL
Class A Units		Equity								4/18/2019		Beverage, Food, & Tobacco	$	500,000		500,000		442,742	0.16	%
Total															$	500,000	$	442,742	0.16	%
Xanitos, Inc.	(47)​											Newtown Square, PA
Term Loan (SBIC)	(2)(35)​	First Lien	3M L+6.50	%	1.00	%	7.50	%		6/25/2021	6/25/2026	Healthcare & Pharmaceuticals	$	12,736,000		12,502,437		12,481,280	4.38	%
Delayed Draw Term Loan	(35)(48)​	First Lien	3M L+6.50	%	1.00	%	7.50	%		6/25/2021	6/25/2026		$	2,243,617		2,221,181		2,198,745	0.77	%
Pure TopCo, LLC Class A Units		Equity								6/25/2021				379,327		904,000		895,329	0.31	%
Total															$	15,627,618	$	15,575,354	5.46	%
Total Non-controlled, non-affiliated investments															$	785,005,957	$	772,873,326	271.08	%
Net Investments															$	785,005,957	$	772,873,326	271.08	%
LIABILITIES IN EXCESS OF OTHER ASSETS																	$	(487,762,093)	(171.08)	%
NET ASSETS																	$	285,111,233	100.00	%

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

(2) Investments held by the SBIC subsidiary (as defined in Note 1), which include $35,201,060 of cash and $211,477,384 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment Corporation’s (the “Company”) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1).

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

(4) Security is income producing through dividends or distributions.

(5) The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 91% of the Company’s total assets as of December 31, 2021.

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

(7) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,331,461, with an interest rate of LIBOR plus 6.00% and a maturity of January 7, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(8) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of September 3, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(9) Investments held by the SBIC II subsidiary (as defined in Note 1), which include $7,810,985 of cash and $161,704,501 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries.

(10) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $909,091, with an interest rate of LIBOR plus 5.75% and a maturity of November 1, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(11) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $68,500, with an interest rate of LIBOR plus 6.00% and a maturity of December 30, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

20

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

(12) These loans have LIBOR floors, which are lower than the applicable LIBOR rates; therefore, the floors are not in effect.

(13) These loans are last-out term loans with contractual rates higher than the applicable LIBOR rates; therefore, the floors are not in effect.

(14) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.25% and a maturity of March 2, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(15) Investment has been on non-accrual since October 31, 2017.

(16) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $3,750,000, with an interest rate of LIBOR plus 6.00% and a maturity of September 3, 2026. This investment is accruing an unused commitment fee of 1.00% per annum.

(17) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $666,667, with an interest rate of LIBOR plus 5.00% and a maturity of June 29, 2023. This investment is accruing an unused commitment fee of 0.50% per annum.

(18) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $750,000, with an interest rate of LIBOR plus 8.50% and a maturity of April 13, 2023. The Company has full discretion to fund the revolver commitment.

(19) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,299,020, with an interest rate of LIBOR plus 6.00% and a maturity of May 7, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(20) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.75% and a maturity of March 5, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(21) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $50,000 with an interest rate of LIBOR plus 6.50% and a maturity of December 21, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(22) This loan is a unitranche investment.

(23) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,500,000 with an interest rate of LIBOR plus 5.75% and a maturity of February 8, 2024. The Company has full discretion to fund the revolver commitment.

(24) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,000,000 with an interest rate of LIBOR plus 6.00% and a maturity of November 15, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(25) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $172,969, with an interest rate of 12.00% and maturity is at the administrative agent’s discretion. This investment has been on non-accrual since November 24, 2021.

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

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

(28) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,063,830, with an interest rate of LIBOR plus 6.50% and a maturity of August 28, 2025. This investment is accruing an unused commitment fee of 0.50% per annum.

(29) These loans are last-out term loans with contractual rates lower than the applicable LIBOR rates; therefore, the floors are in effect.

(30) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $553,517, with an interest rate of LIBOR plus 5.50% and a maturity of June 24, 2024. This investment is accruing an unused commitment fee of 0.50% per annum.

(31) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,376,923, with an interest rate of LIBOR plus 7.00% and a maturity of November 9, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(32) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,763,033, with an interest rate of LIBOR plus 6.25% and a maturity of August 30, 2024. This investment is accruing an unused commitment fee of 0.50% per annum.

(33) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $30,000, with an interest rate of LIBOR plus 6.75% and a maturity of June 4, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(34) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $60,000, with an interest rate of LIBOR plus 6.00% and a maturity of December 17, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(35) These loans have LIBOR floors, which are higher than the current applicable LIBOR rates; therefore, the floors are in effect.

(36) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 5.50% and a maturity of July 30,2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(37) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $2,879,272, with an interest rate of LIBOR plus 6.00% and a maturity of December 17, 2026. This investment is accruing an unused commitment fee of 1.00% per annum.

(38) Maturity date is at the administrative agent’s discretion.

21

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2021

(39) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of February 19, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

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

(41) Investment has been on non-accrual since January 1, 2021.

(42) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of March 2, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(43) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,475,000, with an interest rate of LIBOR plus 6.00% and a maturity of November 1, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(44) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of September 9, 2025. This investment is accruing an unused commitment fee of 1.00% per annum.

(45) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of September 9, 2025. This investment is accruing an unused commitment fee of 0.75% per annum.

(46) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,000,000, with an interest rate of LIBOR plus 6.50% and a maturity of April 27, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(47) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.50% and a maturity of June 25, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(48) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $1,556,383, with an interest rate of LIBOR plus 6.50% and a maturity of June 25, 2026. This investment is accruing an unused commitment fee of 1.00% per annum.

(49) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of September 1, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(50) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $220,930, with an interest rate of LIBOR plus 6.00% and a maturity of September 1, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(51) Investment has been on non-accrual since November 24, 2021.

(52) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $33,333, with an interest rate of LIBOR plus 6.25% and a maturity of November 9, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(53) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $542,169, with an interest rate of LIBOR plus 5.75% and a maturity of November 22, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(54) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.25% and a maturity of May 19, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(55) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $576,923, with an interest rate of LIBOR plus 5.75% and a maturity of November 3, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(56) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $93,333, with an interest rate of LIBOR plus 6.00% and a maturity of October 29, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(57) Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $2,902,098, with an interest rate of LIBOR plus 6.00% and a maturity of October 29, 2026. This investment is accruing an unused commitment fee of 0.50% per annum.

(58) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.25% and a maturity of December 28, 2027. This investment is accruing an unused commitment fee of 0.50% per annum.

(59) Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an interest rate of LIBOR plus 6.00% and a maturity of December 22, 2026. This investment is accruing an unused commitment fee of 0.50% per annum

(60) Excluded from the investment is an uncalled capital commitment in an amount not to exceed $308,282.46.

Abbreviation Legend
PIK  —  Payment-In-Kind
L  —  LIBOR

22

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

NOTE 1 — NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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

As of June 30, 2022, the Company had issued a total of 19,545,935 shares and raised $287,476,304 in gross proceeds since Inception, incurring $9,406,067 in offering expenses and sales load fees. Additionally, the Company has received $131,257 in offering expenses reimbursements from the Advisor for net proceeds from offerings of $278,201,494. The Company’s shares are currently listed on the New York Stock Exchange under the symbol “SCM”. See Note 4 for further details.

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

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

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

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

23

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

As of both June 30, 2022 and December 31, 2021, the SBIC subsidiary had $75,000,000 in regulatory capital. As of both June 30, 2022 and December 31, 2021, the SBIC II subsidiary had $87,500,000 in regulatory capital.

As of both June 30, 2022 and December 31, 2021, the SBIC subsidiary had $150,000,000 of SBA-guaranteed debentures outstanding. As of June 30, 2022 and December 31, 2021, the SBIC II subsidiary had $143,600,000 and $100,000,000 of SBA-guaranteed debentures outstanding, respectively. See footnote (2) of the Consolidated Schedule of Investments for additional information regarding the treatment of investments in the SBIC subsidiaries with respect to the Credit Facility (as defined in Note 9).

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

On April 4, 2018, the Company’s board of directors (the “Board”), including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At the Company’s 2018 annual meeting of stockholders, our stockholders also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio test applicable to the Company was decreased from 200% to 150%, effective June 29, 2018. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. As of June 30, 2022, our asset coverage ratio was 192%.

The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and unsecured debt financing, with corresponding equity co-investments. The Company sources investments primarily through the extensive network of relationships that the principals of Stellus Capital have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

Summary of Significant Accounting Policies

Basis of Presentation

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

In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of the financial statements for the interim periods included herein. The results of operations for the three and six months ended June 30, 2022 and June 30, 2021 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021.

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

24

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

COVID-19 Developments

The effect on the U.S. and global economy of the ongoing Coronavirus (also referred to as “COVID-19” or “Coronavirus”) pandemic, uncertainty relating to new variants of the Coronavirus that have emerged in the United States and globally, vaccine distribution, hesitancy and efficacy, the length of economic recovery, and policies of the U.S. presidential administration have created stress on the market and could affect our portfolio companies. Each portfolio company has been assessed on an individual basis to identify the impact of the COVID-19 pandemic on the valuation of our investments in such company. We believe that any such COVID-19 pandemic impacts have been reflected in the valuation of our investments.

The extent of the impact of the COVID-19 pandemic on the financial performance of our current and future investments will depend on future developments, including the duration and spread of the virus, related advisories and restrictions, and the health of the financial markets and economy, all of which are highly uncertain and cannot be predicted. To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments and our financial condition.

Supply Chain and Inflation

Economic activity has continued to accelerate across sectors and regions. Nevertheless, due to global supply chain issues, geopolitical events, a rise in energy prices and strong consumer demand as economies continue to reopen, inflation is showing signs of acceleration in the U.S. and globally. Inflation is likely to continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten in response, including but not limited to increases in certain interest rates by the U.S. Federal Reserve. Persistent inflationary pressures could affect our portfolio companies’ profit margins.

Portfolio Investment Classification

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

Cash and Cash Equivalents

At June 30, 2022, cash balances totaling $13,552 did not exceed FDIC insurance protection levels of $250,000. In addition, at June 30, 2022, the Company held $26,448,556 in cash equivalents, which are carried at cost, which approximates fair value. All of the Company’s cash deposits are held at large established high credit quality financial institutions and management believes that risk of loss associated with any uninsured balances is remote.

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

Fair Value Measurements

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

25

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

interest rates (Level 3 input). The carrying value of our 2026 Notes (as defined in Note 11) is based on the cost of the security, which approximates fair value (Level 2 input). See Note 6 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

The COVID-19 pandemic is an unprecedented circumstance that could materially impact the fair value of the Company’s investments. As a result, the fair value of the Company’s portfolio investments may be further negatively impacted after June 30, 2022, by circumstances and events that are not yet known. The COVID-19 pandemic may impact the Company’s portfolio companies’ ability to pay their respective contractual obligations, including principal and interest due to the Company, and some portfolio companies could require interest or principal deferrals to fulfill short-term liquidity needs. The Company works with each of its portfolio companies, as necessary, to help them access short-term liquidity through potential interest deferrals, funding on unused lines of credit, and other sources of liquidity. During the quarter ended June 30, 2022, no interest deferrals have been made related to COVID-19 or otherwise.

Consolidation

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

Use of Estimates

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

Deferred Financing Costs

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

Offering Costs

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

Investments

As a BDC, the Company will generally invest in illiquid loans and securities including debt and equity securities of private middle-market companies. Under procedures established by our Board of Directors, the Company intends to value investments for which market quotations are readily available at such market quotations. The Company will obtain these market values from an independent pricing service or at the median between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market prices are not readily

26

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

available will be valued at fair value as determined in good faith by our Board of Directors. Such determination of fair values may involve subjective judgments and estimates. The Company also engages independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least twice annually.

Investments purchased within approximately 90 days of the valuation date will be valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. With respect to unquoted securities, our Board will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board will use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Because the Company expects that there will not be a readily available market for many of the investments in its portfolio, the Company expects to value most of its portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

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

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

● applicable market yields and multiples;

● security covenants;

● call protection provisions;

● information rights;

● the nature and realizable value of any collateral;

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

● comparisons of financial ratios of peer companies that are public;

● comparable merger and acquisition transactions; and

● the principal market and enterprise values.

Revenue Recognition

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

27

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

A presentation of the interest income we have received from portfolio companies for the three and six months ended June 30, 2022 and 2021 is as follows:

	For the three months ended				For the six months ended
	June 30,		June 30,		June 30,		June 30,
	2022		2021		2022		2021
Loan interest	$	14,620,267	$	13,873,443	$	28,732,340	$	26,524,371
PIK income		323,423		241,676		653,534		360,003
Fee amortization income(1)		670,324		662,956		1,301,461		1,240,209
Fee income acceleration(2)		44,004		68,323		87,634		234,592
Total Interest Income	$	15,658,018	$	14,846,398	$	30,774,969	$	28,359,175

(1) Includes amortization of fees on unfunded commitments.

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

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

Management considers portfolio specific circumstances as well as other economic factors in determining collectability. As of June 30, 2022, we had four loans on non-accrual status, which represented approximately 5.7% of our loan portfolio at cost and 2.8% at fair value. As of December 31, 2021, we had three loans on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 0.8% at fair value. As of June 30, 2022 and December 31, 2021, $4,524,097 and $10,363,904, respectively, of income from investments on non-accrual has not been accrued. If a loan or debt security’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, or if a loan or debt security is sold or written off, we will remove it from non-accrual status.

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

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

Investment Transaction Costs

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

Receivables and Payables for Unsettled Securities Transaction

The Company records all investments on a trade date basis.

U.S. Federal Income Taxes

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

28

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

liability related to income earned by the Company represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements of the Company.

To avoid a 4% U.S federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending December 31 (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no federal income tax or the Excise Tax Avoidance Requirement. For this purpose, however, any net ordinary income or capital gain net income retained by us that is subject to corporate income tax for the tax year ending in that calendar year will be considered to have been distributed by year end (or earlier if estimated taxes are paid). The Company, at its discretion, may choose not to distribute all its taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned. Income tax expense for the three and six months ended June 30, 2022 of $426,236 and $705,653, respectively, was mostly related to excise and franchise taxes. Income tax expense for the three and six months ended June 30, 2021 of $286,276 and $526,257, respectively, was related mostly to excise tax.

The Company evaluates tax positions taken or expected to be taken while preparing its tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the applicable period. As of June 30, 2022 and December 31, 2021, the Company had not recorded a liability for any unrecognized tax positions. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. The Company’s policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses. Any expenses for the three and six months ended June 30, 2022 and 2021 were de minimis.

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

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

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

For the three and six months ended June 30, 2022, the Company recorded deferred income tax provision of $160,656 and $181,813, respectively, related to the Taxable Subsidiaries. For the three and six months ended June 30, 2021, the Company recorded deferred income tax benefit of $187,721 and $19,917, respectively, related to the Taxable Subsidiaries. In addition, as of June 30, 2022 and December 31, 2021, the Company had a deferred tax liability of $30,535 and deferred tax asset of $151,278, respectively.

Earnings per Share

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

29

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

Paid In Capital

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

Distributable Earnings (Accumulated Undistributed Deficit)

The components that make up distributable earnings (accumulated undistributed deficit) on the Statements of Assets and Liabilities as of June 30, 2022 and December 31, 2021 are as follows:

	June 30,		December 31,
	2022		2021
Accumulated net realized gain from investments, net of cumulative dividends of $25,571,955 for both periods	$	5,908,925	$	2,810,908
Net unrealized depreciation on non-controlled non-affiliated investments and cash equivalents, net of (provision) benefit for taxes of $(30,535) and $151,278, respectively		(20,174,359)		(11,981,353)
Net unrealized depreciation on foreign currency translations		(35,754)		—
Accumulated undistributed net investment income		19,283,464		19,703,039
Accumulated undistributed surplus	$	4,982,276	$	10,532,594

Recently Issued Accounting Standards

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

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

NOTE 2 — RELATED PARTY ARRANGEMENTS

Investment Advisory Agreement

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

For the three and six months ended June 30, 2022, the Company recorded an expense for base management fees of $3,705,053 and $7,197,766, respectively. For the three and six months ended June 30, 2021, the Company recorded an expense for base management fees of $3,278,479 and $6,242,340, respectively. As of June 30, 2022 and December 31, 2021, $3,705,053 and $3,454,225, respectively, were payable to Stellus Capital.

30

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

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

Investment Income Incentive Fee

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

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

For both the three and six months ended June 30, 2022, the Company incurred $0 of Income Incentive Fees. For both the three and six months ended June 30, 2021, the Company incurred $55,899 of Income Incentive Fees. As of June 30, 2022 and December 31, 2021, $289,188 and $1,749,130, respectively, of such Income Incentive Fees were payable to the Advisor, of which $0 and $1,459,942, respectively, are currently payable (as explained below). As of both June 30, 2022 and December 31, 2021, $289,188 of Income Incentive Fees incurred but not paid by the Company were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received by the Company in cash.

Capital Gains Incentive Fee

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

U.S. GAAP requires that the Capital Gains Incentive Fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments and other financial instruments in the calculation, as an incentive fee would be payable if such realized gains and losses and unrealized capital appreciation or depreciation were realized, even though such realized

31

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the Capital Gains Incentive Fee actually payable under the investment advisory agreement. There can be no assurance that unrealized appreciation or depreciation will be realized in the future. Accordingly, such fees, as calculated and accrued, may not necessarily be payable under the investment advisory agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.

For the three and six months ended June 30, 2022, the Company reversed $983,575 and $1,025,792, respectively, related to the Capital Gains Incentive Fee. For the three and six months ended June 30, 2021, the Company accrued $14,387 and $97,668, respectively, related to the Capital Gains Incentive Fee. As of June 30, 2022 and December 31, 2021, $2,362,360 and $3,388,151, respectively, of Capital Gains Incentive Fees were accrued but not currently payable to the Advisor.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Investment income incentive fees incurred	$	—	$	55,899	$	—	$	55,899
Capital gains incentive fees (reversed) incurred		(983,575)		14,387		(1,025,792)		97,668
Incentive fees (reversal) expense	$	(983,575)	$	70,286	$	(1,025,792)	$	153,567

	June 30,		December 31,
	2022		2021
Investment income incentive fee currently payable	$	—	$	1,459,942
Investment income incentive fee deferred		289,188		289,188
Capital gains incentive fee deferred		2,362,360		3,388,151
Incentive fee payable	$	2,651,548	$	5,137,281

Director Fees

For the three and six months ended June 30, 2022, the Company recorded an expense relating to director fees of $74,500 and $171,000, respectively. For the three and six months ended June 30, 2021, the Company recorded an expense relating to director fees of $74,500 and $166,000, respectively. As of both June 30, 2022 and December 31, 2021, the Company owed its independent directors no unpaid director fees.

Co-Investment Pursuant to SEC Order

On October 23, 2013, the Company received an exemptive order (the “2013 Order”) from the SEC to co-invest with private funds managed by Stellus Capital where doing so is consistent with the Company’s investment strategy as well as applicable law (including the terms and conditions of the exemptive order issued by the SEC). On December 18, 2018, the Company received a new exemptive order (the “2018 Order”) that superseded the 2013 Order. On May 9, 2022, the Company received a new exemptive order (the “Order”) that superseded the 2018 Order and permits the Company greater flexibility to enter into co-investment transactions. The Order expands on the 2013 Order and 2018 Order and allows the Company to co-invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital, subject to the conditions included therein. Additionally, the Order provided added relief which allows the Company, subject to the satisfaction of certain conditions, to co-invest in existing portfolio companies with certain affiliates that are private funds if such private funds did not have an investment in such existing portfolio company. Without the added relief, such private funds would not be able to participate in such co-investments with the Company unless the private funds had previously acquired securities of the portfolio company in a co-investment transaction with the Company. Pursuant to the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching of the Company or its stockholders on the part of any person concerned and (2) the

32

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

transaction is consistent with the interests of the Company’s stockholders and is consistent with its investment objectives and strategies. The Company co-invests, subject to the conditions in the Order, with private credit funds managed by Stellus Capital that have an investment strategy that is similar or identical to the Company’s investment strategy, and the Company may co-invest with other BDCs and registered investment companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital in the future. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.

Administrative Agent

The Company serves as the administrative agent on certain investment transactions, including co-investments with its affiliates under the Order. As of both June 30, 2022 and December 31, 2021, there was no cash due to other investment funds related to interest paid by a borrower to the Company as administrative agent. Any such amount would be included in “Other Accrued Expenses and Liabilities” on the Consolidated Statements of Assets and Liabilities.

License Agreement

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

Administration Agreement

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

For the three months ended June 30, 2022 and 2021, the Company recorded expenses of $392,430 and $383,578, respectively, related to the administration agreement and are included in administrative services expenses on our Consolidated Statements of Operations. For the six months ended June 30, 2022 and 2021, the Company recorded expenses of $793,318 and $764,628, respectively, related to the administration agreement and are included in administrative services expenses on our Consolidated Statements of Operations. As of June 30, 2022 and December 31, 2021, $392,431 and $382,322, respectively, remained payable to Stellus Capital related to the administration agreement and are included in administrative services payable on our Consolidated Statements of Assets and Liabilities.

Indemnifications

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

The Company has also entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the Company’s directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Company shall indemnify the director who is a party to the agreement (an “Indemnitee”), including the

33

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, other than a proceeding by or in the right of the Company.

NOTE 3 — DISTRIBUTIONS

Distributions are generally declared by the Company’s Board each calendar quarter and recognized as distribution liabilities on the declaration date. The stockholder distributions, if any, will be determined by the Board. Any distribution to stockholders will be declared out of assets legally available for distribution. The Company has declared distributions of $12.67 per share on its common stock from Inception through June 30, 2022.

For the three and six months ended June 30, 2022, the Company has declared aggregate distributions of $0.34 and $0.62 per share on its common stock. The Company has declared aggregate distributions of $12.67 per share on its common stock since Inception:

Date Declared	Record Date	Payment Date	Per Share(1)
Fiscal 2012			$	0.18
Fiscal 2013			$	1.36
Fiscal 2014			$	1.42
Fiscal 2015			$	1.36
Fiscal 2016			$	1.36
Fiscal 2017	Various		$	1.36
Fiscal 2018			$	1.36
Fiscal 2019			$	1.36
Fiscal 2020			$	1.15
Fiscal 2021			$	1.14
Fiscal 2022
January 13, 2022	January 28, 2022	February 15, 2022	$	0.0933
January 13, 2022	February 25, 2022	March 15, 2022	$	0.0933
January 13, 2022	March 31, 2022	April 15, 2022	$	0.0933
April 19, 2022	April 29, 2022	May 13, 2022	$	0.1133
April 19, 2022	May 27, 2022	June 15, 2022	$	0.1133
April 19, 2022	June 30, 2022	July 15, 2022	$	0.1133
Total			$	12.67

(1) Distributions for fiscal years 2012 through 2021 are shown in aggregate amounts

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

Although distributions paid in the form of additional shares of the Company’s common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, investors participating in the Company’s DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. Any distributions reinvested through the issuance of shares through the Company’s DRIP will increase the Company’s gross assets on which the base management fee and the incentive fee are determined and paid to Stellus Capital. The Company did not issue shares through the DRIP during either of the three and six months ended June 30, 2022 or 2021.

34

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

NOTE 4 — EQUITY OFFERINGS AND RELATED EXPENSES

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

												Average
	Number of	Gross		Underwriting		Offering		Fees Covered		Net		Offering
Issuance of Common Stock	Shares	Proceeds(1)(2)		fees		Expenses		by Advisor		Proceeds(3)		Price
Year ended December 31, 2012	12,035,023	$	180,522,093	$	4,959,720	$	835,500	$	—	$	174,726,873	$	14.90
Year ended December 31, 2013	63,998		899,964		—		—		—		899,964	$	14.06
Year ended December 31, 2014	380,936		5,485,780		75,510		29,904		—		5,380,366	$	14.47
Year ended December 31, 2017	3,465,922		48,741,406		1,358,880		307,021		—		47,075,505	$	14.06
Year ended December 31, 2018	7,931		93,737		—		—		—		93,737	$	11.85
Year ended December 31, 2019	3,177,936		45,862,995		1,015,127		559,261		37,546		44,326,153	$	14.43
Year ended December 31, 2020	354,257		5,023,843		5,680		84,592		66,423		4,999,994	$	14.40
Year ended December 31, 2021	31,592		449,515		6,744		53,327		4,255		393,699	$	14.23
Quarter ended March 31,2022	14,924		209,006		3,137		50,369		12,170		167,670	$	14.00
Quarter ended June 30, 2022	13,416		187,965		2,820		58,475		10,863		137,533	$	14.01
Total	19,545,935	$	287,476,304	$	7,427,618	$	1,978,449	$	131,257	$	278,201,494

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

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

(3) Net Proceeds per this equity table will differ from the Statements of Assets and Liabilities as of June 30, 2022 and December 31, 2021 in the amount of $3,317,652 which represents a tax reclassification of stockholders’ equity in accordance with U.S. GAAP. This reclassification reduces paid-in capital and increases distributable earnings (reducing the accumulated undistributed deficit).

During the six months ending June 30, 2022, the Company issued 28,340 shares under the At-the-Market (“ATM”) Program, for gross proceeds of $396,971 not including underwriting and other expenses of $114,801. The average per share offering price of shares issued in the ATM Program during the six months ended June 30, 2022 was $14.01. The Advisor agreed to reimburse the Company for underwriting fees and expenses to the extent the issuance of shares would be dilutive in nature. For the six months ending June 30, 2022, the Advisor reimbursed the Company $23,033, which resulted in net proceeds of $414,047, or $14.61 per share, excluding the impact of offering expenses. The Company did not issue any shares during the six months ended June 30, 2021.

The Company issued 0 shares of common stock through the DRIP for both the six months ended June 30, 2022 and 2021.

NOTE 5 — NET INCREASE IN NET ASSETS PER COMMON SHARE

The following information sets forth the computation of net increase in net assets resulting from operations per common share for the three and six months ended June 30, 2022 and June 30, 2021.

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2022		2021		2022		2021
Net increase in net assets resulting from operations	$	1,335,847	$	5,606,948	$	6,558,011	$	10,544,736
Weighted average common shares		19,543,117		19,486,003		19,530,509		19,486,003
Net increase in net assets from operations per share	$	0.07	$	0.29	$	0.34	$	0.54

35

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

NOTE 6 — PORTFOLIO INVESTMENTS AND FAIR VALUE

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

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

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

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

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

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

At June 30, 2022, the Company had investments in 83 portfolio companies. The total fair value and cost of the investments were $873,575,942 and $852,000,318, respectively. The composition of our investments as of June 30, 2022 is as follows:

	Cost		Fair Value
Senior Secured – First Lien(1)	$	733,421,205	$	723,546,004
Senior Secured – Second Lien		84,796,893		59,163,915
Unsecured Debt		5,375,569		4,806,853
Equity		49,982,275		64,483,546
Total Investments	$	873,575,942	$	852,000,318

(1) Includes unitranche investments, which account for 1.5% of our portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with the second lien and subordinated loans to the extent we invest in the “last-out” tranche.

At December 31, 2021, the Company had investments in 73 portfolio companies. The total cost and fair value of the investments were $785,005,957 and $772,873,326 respectively. The composition of our investments as of December 31, 2021 was as follows:

	Cost		Fair Value
Senior Secured – First Lien(1)	$	652,561,144	$	646,352,935
Senior Secured – Second Lien		79,806,598		56,733,110
Unsecured Debt		5,030,143		4,883,854
Equity		47,608,072		64,903,427
Total Investments	$	785,005,957	$	772,873,326

36

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

(1) Includes unitranche investments, which account for 1.6% of our portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with the second lien and subordinated loans to the extent we invest in the “last-out” tranche.

The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2022 and December 31, 2021, the Company had 47 and 32 of such investments with aggregate unfunded commitments of $32,554,624 and $30,982,734, respectively. The Company maintains sufficient liquidity to fund such unfunded loan commitments should the need arise.

The aggregate gross unrealized appreciation and depreciation and the aggregate cost and fair value of the Company’s portfolio company securities as June 30, 2022 and December 31, 2021 were as follows:

	2022		2021
Aggregate cost of portfolio company securities	$	872,144,142	$	785,005,957
Gross unrealized appreciation of portfolio company securities		27,804,163		27,283,421
Gross unrealized depreciation of portfolio company securities		(47,947,987)		(39,416,052)
Aggregate fair value of portfolio company securities	$	852,000,318	$	772,873,326

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of June 30, 2022 are as follows:

	Quoted Prices
	in Active
	Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Senior Secured – First Lien	$	—	$	—	$	723,546,004	$	723,546,004
Senior Secured – Second Lien		—		—		59,163,915		59,163,915
Unsecured Debt		—		—		4,806,853		4,806,853
Equity		—		—		64,483,546		64,483,546
Total Investments	$	—	$	—	$	852,000,318	$	852,000,318

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2021 are as follows:

	Quoted Prices
	in Active
	Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Senior Secured – First Lien	$	—	$	—	$	646,352,935	$	646,352,935
Senior Secured – Second Lien		—		—		56,733,110		56,733,110
Unsecured Debt		—		—		4,883,854		4,883,854
Equity		—		—		64,903,427		64,903,427
Total Investments	$	—	$	—	$	772,873,326	$	772,873,326

37

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

The aggregate values of Level 3 portfolio investments change during the six months ended June 30, 2022 are as follows:

	Senior Secured		Senior Secured
	Loans-First		Loans-Second		Unsecured
	Lien		Lien		Debt		Equity		Total
Fair value at beginning of period	$	646,352,935	$	56,733,110	$	4,883,854	$	64,903,427	$	772,873,326
Purchases of investments		114,449,022		22,879,749		83,511		4,641,713		142,053,995
Payment-in-kind interest		398,346		—		255,188		—		653,534
Sales and redemptions		(31,134,305)		(17,979,749)		—		(9,195,766)		(58,309,820)
Realized gains		(3,930,197)		—		—		6,928,253		2,998,056
Change in unrealized depreciation included in earnings(1)		(2,235,196)		(2,559,488)		(422,428)		(2,794,081)		(8,011,193)
Change in unrealized depreciation on foreign currency included in earnings		(1,431,800)		—		—		—		(1,431,800)
Amortization of premium and accretion of discount, net		1,077,199		90,293		6,728		—		1,174,220
Fair value at end of period	$	723,546,004	$	59,163,915	$	4,806,853	$	64,483,546	$	852,000,318

(1) Includes reversal of positions during the six months ended June 30, 2022.

There were no Level 3 transfers during the six months ended June 30, 2022.

The aggregate values of Level 3 portfolio investments change during the year ended December 31, 2021 are as follows:

	Senior Secured		Senior Secured
	Loans-First		Loans-Second		Unsecured
	Lien		Lien		Debt		Equity		Total
Fair value at beginning of period	$	508,673,064	$	70,720,186	$	21,191,245	$	52,840,000	$	653,424,495
Purchases of investments		354,637,555		965,250		11,705,915		22,105,811		389,414,531
Payment-in-kind interest		521,595		—		417,435		—		939,030
Sales and redemptions		(214,319,978)		(13,161,428)		(29,384,595)		(33,210,915)		(290,076,916)
Realized gains (losses)		1,475,577		(1,781,665)		—		23,993,443		23,687,355
Change in unrealized (depreciation) appreciation included in earnings(1)		(6,821,212)		(157,390)		875,354		(824,912)		(6,928,160)
Amortization of premium and accretion of discount, net		2,186,334		148,157		78,500		—		2,412,991
Fair value at end of period	$	646,352,935	$	56,733,110	$	4,883,854	$	64,903,427	$	772,873,326

(1) Includes reversal of positions during the twelve months ended December 31, 2021.

There were no Level 3 transfers during the twelve months ended December 31, 2021.

38

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

The following is a summary of geographical concentration of our investment portfolio as of June 30, 2022:

					% of Total
	Cost		Fair Value		Investments
Texas	$	191,356,832	$	169,776,005	19.93	%
California		160,913,314		158,044,991	18.55	%
Illinois		68,721,498		67,559,526	7.93	%
Florida		55,692,720		55,732,399	6.54	%
Arizona		43,194,619		43,078,225	5.05	%
Pennsylvania		42,916,188		41,997,779	4.93	%
Washington		38,473,288		37,823,942	4.44	%
Ohio		34,234,928		36,765,543	4.31	%
Wisconsin		25,787,604		25,160,341	2.95	%
New Jersey		25,445,033		23,922,006	2.81	%
District of Columbia		17,670,356		20,455,496	2.40	%
Georgia		10,818,150		18,606,812	2.18	%
United Kingdom		21,446,820		17,502,763	2.05	%
South Carolina		17,020,942		17,180,965	2.02	%
Maryland		16,925,646		16,870,016	1.98	%
Minnesota		17,017,320		16,159,616	1.90	%
Colorado		15,298,589		14,916,723	1.75	%
Canada		13,375,176		13,435,395	1.58	%
New York		10,953,260		13,365,561	1.57	%
Idaho		11,219,962		11,219,769	1.32	%
North Carolina		10,492,620		10,593,354	1.24	%
Massachusetts		10,247,968		10,529,901	1.24	%
Missouri		9,618,897		10,188,307	1.20	%
Virginia		500,000		990,723.00	0.12	%
Michigan		124,688		124,160.00	0.01	%
Puerto Rico		4,109,524		—	—	%
	$	873,575,942	$	852,000,318	100.00	%

39

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

The following is a summary of geographical concentration of our investment portfolio as of December 31, 2021:

					% of Total
					Investments
	Cost		Fair Value		at fair value
California	$	153,793,390	$	157,446,299	20.37	%
Texas		161,550,893		142,657,160	18.46	%
Illinois		69,780,236		71,066,882	9.20	%
Pennsylvania		42,866,707		42,604,002	5.51	%
Washington		41,067,458		40,790,941	5.28	%
Ohio		36,551,789		38,218,517	4.94	%
Arizona		31,165,320		31,117,284	4.03	%
New York		25,161,998		27,334,823	3.54	%
Wisconsin		25,880,018		25,893,643	3.35	%
New Jersey		25,518,474		23,548,670	3.05	%
United Kingdom		21,320,828		19,537,231	2.53	%
Georgia		11,066,059		19,045,442	2.46	%
Maryland		16,838,603		16,974,999	2.20	%
Minnesota		15,922,220		15,688,073	2.03	%
Colorado		15,151,135		14,980,283	1.94	%
South Carolina		13,270,660		13,270,530	1.71	%
Canada		13,418,371		13,265,324	1.71	%
Florida		12,966,130		13,220,344	1.71	%
District of Columbia		11,798,134		13,137,892	1.70	%
Missouri		9,871,933		10,600,866	1.37	%
North Carolina		10,503,957		10,360,521	1.34	%
Massachusetts		10,281,055		10,348,341	1.34	%
Puerto Rico		8,760,589		1,149,047	0.15	%
Virginia		500,000		616,212	0.08	%
	$	785,005,957	$	772,873,326	100.00	%

40

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

The following is a summary of industry concentration of our investment portfolio as of June 30, 2022:

					% of Total
	Cost		Fair Value		Investments
Services: Business	$	214,235,418	$	223,284,680	26.21	%
Healthcare & Pharmaceuticals		94,795,145		93,213,886	10.94	%
Aerospace & Defense		66,202,910		60,427,604	7.09	%
Consumer Goods: Non-Durable		55,824,798		53,111,821	6.23	%
Media: Advertising, Printing & Publishing		52,970,556		51,414,106	6.04	%
Consumer Goods: Durable		35,801,148		35,533,255	4.17	%
Beverage, Food, & Tobacco		34,241,139		32,317,433	3.79	%
Media: Broadcasting & Subscription		24,827,646		29,382,355	3.45	%
Chemicals, Plastics, & Rubber		29,800,892		29,142,345	3.42	%
Software		28,339,576		28,806,882	3.38	%
Capital Equipment		27,387,701		27,390,755	3.21	%
Construction & Building		27,217,743		26,531,393	3.11	%
Environmental Industries		26,930,206		25,702,628	3.02	%
Services: Consumer		43,325,138		25,112,968	2.95	%
Transportation & Logistics		17,210,909		17,752,504	2.08	%
Containers, Packaging, & Glass		17,496,907		16,914,238	1.99	%
Metals & Mining		16,773,472		16,718,626	1.96	%
FIRE: Real Estate		15,668,125		14,666,329	1.72	%
Automotive		11,084,175		11,084,175	1.30	%
Education		11,015,341		10,773,276	1.27	%
Utilities: Oil & Gas		9,911,447		9,750,000	1.15	%
Energy: Oil & Gas		9,790,057		9,208,451	1.08	%
Finance		2,626,480		2,948,480	0.35	%
Hotel, Gaming, & Leisure		-		713,115	0.08	%
Media: Diversified & Production		99,013		99,013	0.01	%
Total	$	873,575,942	$	852,000,318	100.00	%

41

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

The following is a summary of industry concentration of our investment portfolio as of December 31, 2021:

					% of Total
					Investments
	Cost		Fair Value		at fair value
Services: Business	$	167,253,835	$	177,242,299	22.93	%
Healthcare & Pharmaceuticals		104,933,428		99,584,343	12.89	%
Aerospace & Defense		66,503,939		63,467,579	8.21	%
Media: Advertising, Printing & Publishing		53,136,718		51,125,659	6.62	%
Media: Broadcasting & Subscription		39,319,912		42,892,137	5.55	%
Consumer Goods: Durable		36,216,806		36,537,445	4.73	%
Beverage, Food, & Tobacco		34,089,805		33,791,047	4.37	%
Consumer Goods: Non-Durable		30,597,444		29,447,632	3.81	%
Construction & Building		27,333,360		27,282,504	3.53	%
Environmental Industries		26,826,229		26,355,789	3.41	%
Software		21,498,947		23,841,617	3.08	%
Services: Consumer		40,034,415		22,682,119	2.93	%
Transportation & Logistics		18,583,797		18,934,004	2.45	%
Containers, Packaging, & Glass		17,557,212		17,710,907	2.29	%
Metals & Mining		16,838,603		16,974,999	2.20	%
FIRE: Real Estate		15,694,701		15,824,998	2.05	%
Chemicals, Plastics, & Rubber		14,638,210		14,288,322	1.85	%
Education		11,053,167		11,053,167	1.43	%
Automotive		11,064,612		10,800,000	1.40	%
Energy: Oil & Gas		11,098,912		10,461,417	1.35	%
Utilities: Oil & Gas		9,901,900		9,800,000	1.27	%
Capital Equipment		8,322,806		8,182,736	1.06	%
Finance		2,507,199		4,108,356	0.53	%
Hotel, Gaming, & Leisure		—		484,250	0.06	%
	$	785,005,957	$	772,873,326	100.00	%

The following provides quantitative information about Level 3 fair value measurements as of June 30, 2022:

Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)(1)(3)
First lien debt	$	723,546,004	Income/Market	HY credit spreads,	-1.02% to 2.56% (1.48%)
			approach(2)	Risk free rates	-0.63% to 2.96% (1.75%)
				Market multiples	3.7x to 23.6x (10.6x)(4)
Second lien debt	$	59,163,915	Income/Market	HY credit spreads,	-0.92% to 2.14% (1.08%)
			approach(2)	Risk free rates	-0.01% to 2.72% (1.60%)
				Market multiples	5.8x to 18.3x (12.2x)(4)
Unsecured debt	$	4,806,853	Income/Market	HY credit spreads,	4.00% to 4.00% (4.00%)
			approach(2)	Risk free rates	2.50% to 2.50% (2.50%)
				Market multiples	9.5x to 9.5x (9.5x)(4)
Equity investments	$	64,483,546	Market approach(5)	Underwriting multiple/
				EBITDA Multiple	1.5x to 24.7x (11.4x)
Total Long Term Level 3 Investments	$	852,000,318

42

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

(1) Weighted average based on fair value as of June 30, 2022.

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

(3) The Company calculates the price of the loan by discounting future cash flows, which include forecasted future LIBOR, SOFR, or BSBY rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors could result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -1.02% (-102 basis points) to 2.56% (256 basis points). The average of all changes was 1.48% (148 basis points).

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

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

The following provides quantitative information about Level 3 fair value measurements as of December 31, 2021:

Description:	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)(1)(3)
First lien debt	$	646,352,935	Income/Market(2)	HY credit spreads,	-3.93% to 0.48% (-0.24%)
			approach	Risk free rates	-1.95% to 0.86% (-0.05%)
				Market multiples	4.5x to 25x (11.6x)(4)
Second lien debt	$	56,733,110	Income/Market(2)	HY credit spreads,	-2.54% to 0.53% (-0.53%)
			approach	Risk free rates	-1.79% to 0.94% (-0.29%)
				Market multiples	7.1x to 16.4x (12.9x)(4)
Unsecured debt	$	4,883,854	Income/Market	HY credit spreads,	0.25% to 0.25% (0.25%)
			approach(2)	Risk free rates	0.75% to 0.75% (0.75%)
				Market multiples	12.4x to 12.4x (12.4x)(4)
Equity investments	$	64,903,427	Market approach(5)	Underwriting	1.6x to 24.9x (11.5x)
				EBITDA Multiple
Total Long Term Level 3 Investments	$	772,873,326

(1) Weighted average based on fair value as of December 31, 2021.

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

(3) The Company calculates the price of the loan by discounting future cash flows, which include forecasted future LIBOR rates based on the published forward LIBOR curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher fair value measurement. As an example,

43

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

the “Range (Average)” for a first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -3.93% (-393 basis points) to 0.48% (48 basis points). The average of all changes was -0.24%.

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

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

NOTE 7 — COMMITMENTS AND CONTINGENCIES

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

As of June 30, 2022, the Company had $32,249,621 in unfunded debt commitments and $305,003 in unfunded equity commitments to 47 existing portfolio companies. As of December 31, 2021, the Company had $30,674,452 in unfunded debt commitments and $308,282 in unfunded equity commitments to 32 existing portfolio companies. As of June 30, 2022, the Company had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded loan commitments should the need arise.

NOTE 8 — FINANCIAL HIGHLIGHTS

	For the			For the
	six months ended			six months ended
	June 30,			June 30,
	2022			2021
	(unaudited)			(unaudited)
Per Share Data:(1)
Net asset value at beginning of period	$	14.61		$	14.03
Net investment income		0.60			0.54
Change in unrealized (depreciation) appreciation on investments		(0.41)			0.09
Change in unrealized (depreciation) appreciation foreign currency translation		(0.00)			—
Net realized gain		0.16			(0.07)
Loss on debt extinguishment		—			(0.03)
Provision for taxes on unrealized appreciation on investments		(0.01)			0.01
Total from operations	$	0.34		$	0.54
Sales load		(0.00)			—
Offering costs		(0.01)			—
Stockholder distributions from:
Net investment income		(0.62)			(0.50)
Net asset value at end of period	$	14.32		$	14.07
Per share market value at end of period	$	11.13		$	12.59
Total return based on market value(2)		(11.2)	%		20.4	%
Weighted average shares outstanding for the period		19,530,509			19,486,003

44

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

	For the			For the
	six months ended			six months ended
	June 30,			June 30,
	2022			2021
	(unaudited)			(unaudited)
Ratio/Supplemental Data:(1)
Net assets at end of period	$	279,866,118		$	274,166,281
Weighted average net assets	$	285,044,632		$	273,765,691
Annualized ratio of gross operating expenses to net assets(5)		14.15	%		13.62	%
Annualized ratio of interest expense and other fees to net assets		7.37	%		6.64	%
Annualized ratio of net investment income to net assets(5)		8.27	%		7.81	%
Portfolio turnover(3)		7.09	%		8.15	%
Notes payable	$	100,000,000		$	100,000,000
Credit Facility payable	$	203,592,986		$	192,600,000
SBA-guaranteed debentures	$	293,600,000		$	234,000,000
Asset coverage ratio(4)		1.92	x		1.94	x

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

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

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

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

(5) These ratios include the impact of income tax (provision) benefit on net unrealized appreciation (depreciation) in Taxable Subsidiaries of ($181,813) and $19,917, respectively, which are not reflected in total operating expenses or net investment income. The impact of the tax (provision) benefit on net unrealized appreciation (depreciation) to weighted average net assets for the six months ended June 30, 2022 and 2021 is 0.06% and (0.01%), respectively.

NOTE 9 — CREDIT FACILITY

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

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

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

45

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

under the Credit Facility each month. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 18, 2025.

The Company’s obligations to the lenders are secured by a first priority security interest in its portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10,000,000, including cash, liquid investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 2.00 to 1.00. As of June 30, 2022 and December 31, 2021, the Company was in compliance with these covenants.

As of June 30, 2022, and December 31, 2021, $203,592,986 and $177,340,000, respectively, was outstanding under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair value of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company has incurred costs of $3,905,417 in connection with the current Credit Facility, which are being amortized over the life of the facility. Additionally, $341,979 of costs from a prior credit facility will continue to be amortized over the life of the Credit Facility. As of June 30, 2022, and December 31, 2021, $1,747,693 and $1,888,884 of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on our Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

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

	June 30,		December 31,
	2022		2021
Credit Facility payable	$	203,592,986	$	177,340,000
Prepaid loan structure fees		(1,747,693)		(1,888,884)
Credit facility payable, net of prepaid loan structure fees	$	201,845,293	$	175,451,116

Interest is paid monthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the three and six months ended June 30, 2022 and 2021:

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Interest expense	$	1,805,978		$	1,378,996		$	3,223,712		$	2,470,893
Loan fee amortization		140,420			118,531			272,959			236,233
Total interest and financing expenses	$	1,946,398		$	1,497,527		$	3,496,671		$	2,707,126
Weighted average interest rate		3.4	%		2.8	%		3.1	%		2.8	%
Effective interest rate (including fee amortization)		3.8	%		3.2	%		3.5	%		3.3	%
Average debt outstanding	$	206,467,162		$	189,050,549		$	199,729,366		$	164,992,265
Cash paid for interest and unused fees	$	1,856,900		$	1,483,154		$	3,230,338		$	2,489,007

NOTE 10 — SBA-GUARANTEED DEBENTURES

Due to the SBIC subsidiaries’ status as licensed SBICs, the Company has the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding debentures guaranteed by the SBA subject to a regulatory leverage limit, up to two times the amount of “regulatory capital”, as such term is defined by the SBA. As of both June 30, 2022 and December 31, 2021, the SBIC subsidiary had $75,000,000 in regulatory capital, as such term is defined by the SBA, and $150,000,000 of SBA-guaranteed debentures outstanding.

46

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

As of June 30, 2022, and December 31, 2021, the SBIC II subsidiary had $87,500,000 both in regulatory capital, as such term is defined by the SBA and $143,600,000 and $100,000,000 of SBA-guaranteed debentures outstanding, respectively.

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

On a stand-alone basis, the SBIC subsidiaries held $446,061,432 and $403,333,676 in assets at June 30, 2022 and December 31, 2021, respectively, which accounted for approximately 50.5% and 49.1% of the Company’s total consolidated assets, respectively.

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

The following table summarizes the SBIC subsidiaries’ aggregate SBA-guaranteed debentures as of June 30, 2022:

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

47

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

Issuance Date	Licensee	Maturity Date	Debenture Amount		Interest Rate		SBA Annual Charge
October 17, 2019	SBIC II	March 1, 2030	$	6,000,000	2.08	%	0.09	%
November 15, 2019	SBIC II	March 1, 2030		5,000,000	2.08	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		9,000,000	1.67	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		6,500,000	1.67	%	0.27	%
February 16, 2021	SBIC II	March 1, 2031		13,500,000	1.67	%	0.27	%
February 26, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
March 2, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
April 21, 2021	SBIC II	September 1, 2031		10,000,000	1.30	%	0.27	%
May 14, 2021	SBIC II	September 1, 2031		6,700,000	1.30	%	0.27	%
May 28, 2021	SBIC II	September 1, 2031		7,300,000	1.30	%	0.27	%
July 23, 2021	SBIC II	September 1, 2031		16,000,000	1.30	%	0.27	%
February 25, 2022	SBIC II	March 1, 2032		10,000,000	2.94	%	0.27	%
March 29, 2022	SBIC II	September 1, 2032		10,000,000	1.62	%(1)	0.27	%
April 1, 2022	SBIC II	September 1, 2032		6,670,000	1.60	%(1)	0.27	%
April 12, 2022	SBIC II	September 1, 2032		6,665,000	1.72	%(1)	0.27	%
April 21, 2022	SBIC II	September 1, 2032		6,665,000	1.73	%(1)	0.27	%
June 30, 2022	SBIC II	September 1, 2032		3,600,000	2.41	%(1)	0.27	%
Total SBIC II SBA-guaranteed Debentures			$	143,600,000
Total SBA-guaranteed debentures			$	293,600,000

(1) Interest rate of the SBA-guaranteed debentures will be set as determined by the SBA when pooled on September 21, 2022.

As of June 30, 2022, and December 31, 2021, the carrying amount of the SBA-guaranteed debentures approximated their fair value. The fair values of the SBA-guaranteed debentures are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the SBA-guaranteed debentures are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At June 30, 2022, and December 31, 2021, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of June 30, 2022, the Company has incurred $10,384,160 in financing costs related to the SBA-guaranteed debentures since receiving its licenses, which were recorded as prepaid loan fees. As of June 30, 2022, and December 31, 2021, $5,856,737 and $5,384,097 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

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

	June 30,		December 31,
	2022		2021
SBA debentures payable	$	293,600,000	$	250,000,000
Prepaid loan fees		(5,856,737)		(5,384,097)
SBA Debentures, net of prepaid loan fees	$	287,743,263	$	244,615,903

48

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and six months ended June 30, 2022 and 2021:

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Interest expense	$	1,941,979		$	1,596,234		$	3,666,260		$	2,982,068
Debenture fee amortization		305,877			268,071			589,020			501,885
Total interest and financing expenses	$	2,247,856		$	1,864,305		$	4,255,280		$	3,483,953
Weighted average interest rate		2.7	%		2.9	%		2.7	%		2.9	%
Effective interest rate (including fee amortization)		3.1	%		3.3	%		3.2	%		3.4	%
Average debt outstanding	$	287,769,066		$	224,063,736		$	271,088,315		$	207,230,939
Cash paid for interest	$	—		$	—		$	3,405,071		$	2,706,619

NOTE 11 — NOTES

On August 21, 2017, the Company issued $42,500,000 in aggregate principal amount of 5.75% fixed-rate notes due September 15, 2022 (the “2022 Notes”). On September 8, 2017, the Company issued an additional $6,375,000 in aggregate principal amount of the 2022 Notes pursuant to a full exercise of the underwriters’ overallotment option. On January 13, 2021, the Company caused notices to be issued to the holders of its 2022 Notes regarding the Company’s exercise of its option to redeem all of the issued and outstanding 2022 Notes, pursuant to the Second Supplemental Indenture dated as of August 21, 2017, between the Company and U.S. Bank National Association, as trustee. The Company redeemed all $48,875,000 in aggregate principal amount of the 2022 Notes on February 12, 2021. The 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest thereon through the redemption date. As a result of the redemption, the Company recognized a loss on debt extinguishment of $539,250 due to the write off of the remaining deferred financing costs on the 2022 Notes. This loss is included in the Consolidated Statements of Operations for the six months ended June 30, 2021.

The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the six months ended June 30, 2021:

	For the six months ended
	June 30,
	2021
Interest expense	$	320,063
Deferred financing costs		28,232
Administration fees		9,000
Total interest and financing expenses	$	357,295
Loss on debt extinguishment(1)		539,250
Weighted average interest rate(2)		5.7	%
Effective interest rate (including fee amortization)(2)		6.4	%
Average debt outstanding(3)	$	48,875,000
Cash paid for interest	$	453,966

(1) The loss on debt extinguishment is not included in interest expense or net investment income.

(2) Excludes the loss on debt extinguishment.

(3) For the six months ended June 30, 2022, the average is calculated for the period January 1, 2021 through February 12, 2021; the repayment date of the 2022 Notes.

49

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

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

The Company used the net proceeds from the 2026 Notes offering to fully redeem the 2022 Notes and repay a portion of the amount outstanding under the Credit Facility. As of both June 30, 2022 and December 31, 2021, the aggregate carrying amount of the 2026 Notes was approximately $100,000,000.

Prior to their redemption on February 12, 2021, the 2022 Notes were listed on New York Stock Exchange under the trading symbol “SCA”. As of December 31, 2020, the fair value of the 2022 Notes was $49,168,250. The carrying value of the 2026 Notes approximates fair value.

In connection with the issuance and maintenance of the 2026 Notes, the Company incurred $2,327,835 of fees which are being amortized over the term of the 2026 Notes. As of June 30, 2022 and December 31, 2021, $1,675,503 and $1,897,027 of prepaid financing costs had yet to be amortized, respectively. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following table summarizes the interest expense and deferred financing costs on the 2026 Notes for the three and six months ended June 30, 2022 and 2021:

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Interest expense	$	1,218,750		$	1,218,750		$	2,442,500		$	2,261,458
Deferred financing costs		111,374			111,385			221,524			205,613
Total interest and financing expenses	$	1,330,124		$	1,330,135		$	2,664,024		$	2,467,071
Weighted average interest rate		4.9	%		4.9	%		4.9	%		4.9	%
Effective interest rate (including fee amortization)		5.3	%		5.3	%		5.4	%		5.4	%
Average debt outstanding	$	100,000,000		$	100,000,000(1)		$	100,000,000		$	100,000,000(1)
Cash paid for interest	$	—		$	—		$	2,437,500		$	—

(1) Calculated for the period from January 14, 2021, the date of the 2026 bond offering, through March 31, 2021.

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

	June 30,		December 31,
	2022		2021
Notes payable	$	100,000,000	$	100,000,000
Deferred financing costs		(1,675,503)		(1,897,027)
Notes payable, net of deferred financing costs	$	98,324,497	$	98,102,973

The indenture and supplements thereto relating to the 2026 Notes contain certain covenants, including but not limited to (i) a requirement that the Company comply with the asset coverage requirements of the 1940 Act or any successor provisions, and (ii) a requirement to provide financial information to the holders of the notes and the trustee under the indenture if the Company should no longer be subject to the reporting requirements under the Exchange Act. As of June 30, 2022 and 2021, the Company was in compliance with these covenants.

50

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

NOTE 12 — SUBSEQUENT EVENTS

Investment Portfolio

On July 1, 2022, we invested $100,000 in the first lien term loan and committed $100,000 in the revolver of Heat Makes Sense Shared Services, LLC, a branded haircare platform. Additionally, we invested $100,000 in the equity of the company.

On July 5, 2022, we invested $13,863,087 in the first lien term loan of Baker Manufacturing Company, LLC, a manufacturer of water well equipment, specialized filtration pumps, and custom castings. Additionally, we invested $743,770 in the equity of the company.

On July 15, 2022, we received full repayment on the first lien term loan and revolver of International Designs Group, LLC for total proceeds of $119,750.

On July 15, 2022, we received full repayment on the first lien term loan of ASC Communications, LLC for total proceeds of $8,250,000. We also received $1,750,487 in full realization on the equity of the company, resulting in a $1,750,487 realized gain.

On July 15, 2022, we invested $1,000,000 in the first lien term loan of Exacta Land Surveyors, LLC, an existing portfolio company. Additionally, we invested $53,107 in the equity of the company.

On July 20, 2022, we invested $2,321,678 in the first lien term loan of SIB Holdings, LLC, an existing portfolio company.

On July 28, 2022, we invested $100,000 in the equity of USASF Blocker IV LLC, an existing portfolio company.

On July 29, 2022, we invested $13,060,001 in the first lien term loan and committed $100,000 in the revolver and $100,000 in the delayed draw term loan of a provider of product testing and consumer insights. Additionally, we invested $739,999 in the equity of the company.

Credit Facility

The outstanding balance under the Credit Facility as of August 3, 2022 was $198,173,500.

SBA-guaranteed Debentures

On July 1, 2022, the Company contributed $5,000,000 of capital to its SBIC II subsidiary. To date, the Company has contributed $78,000,000 of its $87,500,000 regulatory capital commitment. The total balance of SBA-guaranteed debentures outstanding as of August 3, 2022 was $300,000,000.

Dividends Declared

On July 13, 2022, the Board declared a regular monthly dividend for each of July 2022, August 2022 and September 2022 as follows:

	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
7/13/2022	7/28/2022	7/29/2022	8/15/2022	$	0.0933
7/13/2022	8/30/2022	8/31/2022	9/15/2022	$	0.0933
7/13/2022	9/29/2022	9/30/2022	10/14/2022	$	0.0933

51

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

On July 13, 2022, the Board declared an addiitonal monthly dividend for each of July 2022, August 2022 and September 2022 as follows:

	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
7/13/2022	7/28/2022	7/29/2022	8/15/2022	$	0.02
7/13/2022	8/30/2022	8/31/2022	9/15/2022	$	0.02
7/13/2022	9/29/2022	9/30/2022	10/14/2022	$	0.02

52

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

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or Stellus Capital Investment Corporation’s (“we”, “us”, “our” and the “Company”) future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, related to the current COVID-19 pandemic and otherwise, including statements as to:

● our future operating results;

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

● the effect of investments that we expect to make;

● our contractual arrangements and relationships with third parties;

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

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

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

● the ability of our portfolio companies to achieve their objectives;

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

● the adequacy of our financing sources and working capital;

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

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

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

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

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

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

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

53

Overview

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

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

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

We have elected, qualified, and intend to continue to qualify annually to be treated for tax purposes as a RIC under Subchapter M of the internal Revenue Code of 1986, as amended (the “Code”). To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of June 30, 2022, we were in compliance with the RIC requirements. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income we distribute to our stockholders.

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

On April 4, 2018, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At our 2018 annual meeting of stockholders our stockholders also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio applicable to us was decreased from 200% to 150%, effective June 28, 2019 which effectively increased the amount of leverage we may incur. As of June 30, 2022, our asset coverage ratio was 192%. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

COVID-19 Developments

The effect on the U.S. and global economy of the ongoing Coronavirus (also referred to as “COVID-19” or “Coronavirus”) pandemic, uncertainty relating to new variants of the Coronavirus that have emerged in the United States and globally, vaccine distribution, hesitancy and efficacy, the length of economic recovery, and policies of the U.S. presidential administration have created stress on the market and could affect our portfolio companies. Each portfolio company has been assessed on an individual basis to identify the impact of the COVID-19 pandemic on the valuation of our investments in such company. We believe that any such COVID-19 pandemic impacts have been reflected in the valuation of our investments.

The extent of the impact of the COVID-19 pandemic on the financial performance of our current and future investments will depend on future developments, including the duration and spread of the virus, related advisories and restrictions, and the health of the financial markets and economy, all of which are highly uncertain and cannot be predicted. To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments and our financial condition.

Supply Chain and Inflation

Economic activity has continued to accelerate across sectors and regions. Nevertheless, due to global supply chain issues, geopolitical events, a rise in energy prices and strong consumer demand as economies continue to reopen, inflation is showing signs of acceleration in

54

the U.S. and globally. Inflation is likely to continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten in response, including but not limited to increases in certain interest rates by the U.S. Federal Reserve. Persistent inflationary pressures could affect our portfolio companies’ profit margins.

Portfolio Composition and Investment Activity

Portfolio Composition

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

As of June 30, 2022, we had $852.0 million (at fair value) invested in 83 portfolio companies. As of June 30, 2022, our portfolio included approximately 85% of first lien debt, 7% of second lien debt, 0% of unsecured debt and 8% of equity investments at fair value. The composition of our investments at cost and fair value as of June 30, 2022 was as follows:

	Cost		Fair Value
Senior Secured – First Lien(1)	$	733,421,205	$	723,546,004
Senior Secured – Second Lien		84,796,893		59,163,915
Unsecured Debt		5,375,569		4,806,853
Equity		49,982,275		64,483,546
Total Investments	$	873,575,942	$	852,000,318

(1) Includes unitranche investments, which account for 1.5% of our portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans and our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.

As of December 31, 2021, we had $772.9 million (at fair value) invested in 73 portfolio companies. As of December 31, 2021, our portfolio included approximately 84% of first lien debt, 7% of second lien debt, 1% of unsecured debt and 8% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2021 was as follows:

	Cost		Fair Value
Senior Secured – First Lien(1)	$	652,561,144	$	646,352,935
Senior Secured – Second Lien		79,806,598		56,733,110
Unsecured Debt		5,030,143		4,883,854
Equity		47,608,072		64,903,427
Total Investments	$	785,005,957	$	772,873,326

(1) Includes unitranche investments, which account for 1.6% of our portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans and our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms and conditions of the underlying loan agreements. As of June 30, 2022 and December 31, 2021, we had unfunded commitments of $32.6 million and $31.0 million, respectively, to provide debt financing to 47 and 32 portfolio companies, respectively. As of June 30, 2022, we had sufficient liquidity to fund such unfunded commitments through borrowings under our Credit Facility and/or cash on hand should the need arise.

55

The following is a summary of geographical concentration of our investment portfolio as of June 30, 2022:

					% of Total
	Cost		Fair Value		Investments
Texas	$	191,356,832	$	169,776,005	19.93	%
California		160,913,314		158,044,991	18.55	%
Illinois		68,721,498		67,559,526	7.93	%
Florida		55,692,720		55,732,399	6.54	%
Arizona		43,194,619		43,078,225	5.05	%
Pennsylvania		42,916,188		41,997,779	4.93	%
Washington		38,473,288		37,823,942	4.44	%
Ohio		34,234,928		36,765,543	4.31	%
Wisconsin		25,787,604		25,160,341	2.95	%
New Jersey		25,445,033		23,922,006	2.81	%
District of Columbia		17,670,356		20,455,496	2.40	%
Georgia		10,818,150		18,606,812	2.18	%
United Kingdom		21,446,820		17,502,763	2.05	%
South Carolina		17,020,942		17,180,965	2.02	%
Maryland		16,925,646		16,870,016	1.98	%
Minnesota		17,017,320		16,159,616	1.90	%
Colorado		15,298,589		14,916,723	1.75	%
Canada		13,375,176		13,435,395	1.58	%
New York		10,953,260		13,365,561	1.57	%
Idaho		11,219,962		11,219,769	1.32	%
North Carolina		10,492,620		10,593,354	1.24	%
Massachusetts		10,247,968		10,529,901	1.24	%
Missouri		9,618,897		10,188,307	1.20	%
Virginia		500,000		990,723.00	0.12	%
Michigan		124,688		124,160.00	0.01	%
Puerto Rico		4,109,524		—	—	%
	$	873,575,942	$	852,000,318	100.00	%

56

The following is a summary of geographical concentration of our investment portfolio as of December 31, 2021:

					% of Total
					Investments
	Cost		Fair Value		at fair value
California	$	153,793,390	$	157,446,299	20.37	%
Texas		161,550,893		142,657,160	18.46	%
Illinois		69,780,236		71,066,882	9.20	%
Pennsylvania		42,866,707		42,604,002	5.51	%
Washington		41,067,458		40,790,941	5.28	%
Ohio		36,551,789		38,218,517	4.94	%
Arizona		31,165,320		31,117,284	4.03	%
New York		25,161,998		27,334,823	3.54	%
Wisconsin		25,880,018		25,893,643	3.35	%
New Jersey		25,518,474		23,548,670	3.05	%
United Kingdom		21,320,828		19,537,231	2.53	%
Georgia		11,066,059		19,045,442	2.46	%
Maryland		16,838,603		16,974,999	2.20	%
Minnesota		15,922,220		15,688,073	2.03	%
Colorado		15,151,135		14,980,283	1.94	%
South Carolina		13,270,660		13,270,530	1.71	%
Canada		13,418,371		13,265,324	1.71	%
Florida		12,966,130		13,220,344	1.71	%
District of Columbia		11,798,134		13,137,892	1.70	%
Missouri		9,871,933		10,600,866	1.37	%
North Carolina		10,503,957		10,360,521	1.34	%
Massachusetts		10,281,055		10,348,341	1.34	%
Puerto Rico		8,760,589		1,149,047	0.15	%
Virginia		500,000		616,212	0.08	%
	$	785,005,957	$	772,873,326	100.00	%

57

The following is a summary of industry concentration of our investment portfolio as of June 30, 2022:

					% of Total
	Cost		Fair Value		Investments
Services: Business	$	214,235,418	$	223,284,680	26.21	%
Healthcare & Pharmaceuticals		94,795,145		93,213,886	10.94	%
Aerospace & Defense		66,202,910		60,427,604	7.09	%
Consumer Goods: Non-Durable		55,824,798		53,111,821	6.23	%
Media: Advertising, Printing & Publishing		52,970,556		51,414,106	6.04	%
Consumer Goods: Durable		35,801,148		35,533,255	4.17	%
Beverage, Food, & Tobacco		34,241,139		32,317,433	3.79	%
Media: Broadcasting & Subscription		24,827,646		29,382,355	3.45	%
Chemicals, Plastics, & Rubber		29,800,892		29,142,345	3.42	%
Software		28,339,576		28,806,882	3.38	%
Capital Equipment		27,387,701		27,390,755	3.21	%
Construction & Building		27,217,743		26,531,393	3.11	%
Environmental Industries		26,930,206		25,702,628	3.02	%
Services: Consumer		43,325,138		25,112,968	2.95	%
Transportation & Logistics		17,210,909		17,752,504	2.08	%
Containers, Packaging, & Glass		17,496,907		16,914,238	1.99	%
Metals & Mining		16,773,472		16,718,626	1.96	%
FIRE: Real Estate		15,668,125		14,666,329	1.72	%
Automotive		11,084,175		11,084,175	1.30	%
Education		11,015,341		10,773,276	1.27	%
Utilities: Oil & Gas		9,911,447		9,750,000	1.15	%
Energy: Oil & Gas		9,790,057		9,208,451	1.08	%
Finance		2,626,480		2,948,480	0.35	%
Hotel, Gaming, & Leisure		—		713,115	0.08	%
Media: Diversified & Production		99,013		99,013	0.01	%
Total	$	873,575,942	$	852,000,318	100.00	%

58

The following is a summary of industry concentration of our investment portfolio as of December 31, 2021:

					% of Total
					Investments
	Cost		Fair Value		at fair value
Services: Business	$	167,253,835	$	177,242,299	22.93	%
Healthcare & Pharmaceuticals		104,933,428		99,584,343	12.89	%
Aerospace & Defense		66,503,939		63,467,579	8.21	%
Media: Advertising, Printing & Publishing		53,136,718		51,125,659	6.62	%
Media: Broadcasting & Subscription		39,319,912		42,892,137	5.55	%
Consumer Goods: Durable		36,216,806		36,537,445	4.73	%
Beverage, Food, & Tobacco		34,089,805		33,791,047	4.37	%
Consumer Goods: Non-Durable		30,597,444		29,447,632	3.81	%
Construction & Building		27,333,360		27,282,504	3.53	%
Environmental Industries		26,826,229		26,355,789	3.41	%
Software		21,498,947		23,841,617	3.08	%
Services: Consumer		40,034,415		22,682,119	2.93	%
Transportation & Logistics		18,583,797		18,934,004	2.45	%
Containers, Packaging, & Glass		17,557,212		17,710,907	2.29	%
Metals & Mining		16,838,603		16,974,999	2.20	%
FIRE: Real Estate		15,694,701		15,824,998	2.05	%
Chemicals, Plastics, & Rubber		14,638,210		14,288,322	1.85	%
Education		11,053,167		11,053,167	1.43	%
Automotive		11,064,612		10,800,000	1.40	%
Energy: Oil & Gas		11,098,912		10,461,417	1.35	%
Utilities: Oil & Gas		9,901,900		9,800,000	1.27	%
Capital Equipment		8,322,806		8,182,736	1.06	%
Finance		2,507,199		4,108,356	0.53	%
Hotel, Gaming, & Leisure		—		484,250	0.06	%
	$	785,005,957	$	772,873,326	100.00	%

At June 30, 2022, our average portfolio company investment at amortized cost and fair value was approximately $10.5 million and $10.3 million, respectively, and our largest portfolio company investment at amortized cost and fair value was $21.3 million and $20.5 million, respectively. At December 31, 2021, our average portfolio company investment at amortized cost and fair value was approximately $10.8 million and $10.6 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $21.3 million and $20.5 million, respectively.

At June 30, 2022, 97% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 3% bore interest at fixed rates. At December 31, 2021, 96% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 4% bore interest at fixed rates.

The weighted average yield on all of our debt investments as of June 30, 2022 and December 31, 2021 was approximately 8.5% and 8.0%, respectively. The weighted average yield on all of our investments, including non-income producing equity positions, as of June 30, 2022 and December 31, 2021 was approximately 8.0% and 7.5%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of original issue discount. The weighted average yield of our debt investments is not the same as a return on investment for our stockholder, but rather relates to a portion of our investment portfolio and is calculated before the payment of all of our subsidiaries’ fees and expenses.

As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of $26.5 million and $44.2 million, respectively.

59

Investment Activity

During the six months ended June 30, 2022, we made an aggregate of $142.1 million of investments in thirteen new portfolio companies and eighteen existing portfolio companies. During the six months ended June 30, 2022, we received an aggregate of $58.2 million in proceeds from repayments of our investments.

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

Asset Quality

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

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

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

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

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

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

	As of June 30, 2022					As of December 31, 2021
	(dollars in millions)					(dollars in millions)
					Number of					Number of
			% of Total		Portfolio			% of Total		Portfolio
Investment Category	Fair Value		Portfolio		Companies	Fair Value		Portfolio		Companies
1	$	146.6	17	%	19	$	63.6	8	%	12
2		548.5	64	%	48		585.0	76	%	48
3		135.1	16	%	12		118.4	15	%	10
4		21.1	3	%	2		3.7	1	%	1
5		0.7	—	%	2		2.2	—	%	2
Total	$	852.0	100	%	83	$	772.9	100	%	73

Loans and Debt Securities on Non-Accrual Status

We will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As of June 30, 2022, we had loans to four portfolio companies that were on non-accrual status which represented approximately 5.7% of our loan portfolio at cost and 2.8% at fair value. As of December 31, 2021, we had loans to three portfolio companies that were on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 0.8% at fair value. As of June 30, 2022 and December 31, 2021, $4.5 million and $10.4 million of income from investments on non-accrual has not been accrued, respectively.

60

Results of Operations

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

Comparison of the three months and six months ended June 30, 2022 and 2021

Revenues

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

The following shows the breakdown of investment income for the three and six months ended June 30, 2022 and 2021 (in millions).

	For the three months ended				For the six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Interest income(1)	$	15.3	$	13.9	$	30.0	$	26.5
PIK interest		0.3		0.2		0.7		0.4
Miscellaneous fees(1)		0.5		1.0		0.9		2.2
Total	$	16.1	$	15.1	$	31.6	$	29.1

(1) For the three and six months ended June 30, 2022, we recognized ($0.2) million and ($0.1) million, respectively, of non-recurring income related to early repayments, interest write-offs and amendments to specific loan positions. For the three and six months ended June 30, 2021, we recognized $0.1 million and 0.4 million of non-recurring income related to early repayments, and amendments to specific loan positions.

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

Expenses

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

● organization and offering costs;

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

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

61

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

● offerings of our commons stock and other securities;

● base management and incentive fees;

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

● transfer agent and custodial fees and expenses;

● U.S. federal and state registration fees;

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

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

● independent directors’ fees and expenses;

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

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

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

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

● proxy voting expenses; and

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

The following shows the breakdown of operating expenses for the three and six months ended June 30, 2022 and 2021 (in millions).

	For the three months ended				For the six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Operating Expenses
Management fees	$	3.7	$	3.3	$	7.2	$	6.2
Valuation fees		—		—		0.2		0.2
Administrative services expenses		0.5		0.5		0.9		0.9
Income incentive fees		—		0.1		—		0.1
Capital gains incentive (reversal) fees		(1.0)		—		(1.0)		0.1
Professional fees		0.2		0.2		0.5		0.5
Directors' fees		0.1		0.1		0.2		0.2
Insurance expense		0.1		0.1		0.3		0.2
Interest expense and other fees		5.5		4.7		10.4		9.0
Income tax expense		0.4		0.3		0.7		0.5
Other general and administrative expenses		0.4		0.3		0.5		0.6
Total Operating Expenses	$	9.9	$	9.6	$	19.9	$	18.5

62

The increase in operating expenses for both the three months ended June 30, 2021 and six months ended June 30, 2021 was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures and Notes and (2) higher management fees due to a larger investment portfolio.

Net Investment Income

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

For the three months ended June 30, 2021, net investment income was $5.5 million, or $0.28 per common share (based on 19,486,003 weighted average shares outstanding for the quarter ended June 30, 2021).

For the six months ended June 30, 2022, net investment income was $11,7 million, or $0.60 per common share (based on 19,530,509 weighted average shares outstanding for the six months ended June 30, 2022).

For the six months ended June 30, 2021, net investment income was $10.6 million, or $0.54 per common share (based on 19,486,003 weighted average shares outstanding for the six months ended June 30, 2021).

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

Net Realized Gains and Losses

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

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

Repayments and sales of investments and amortization of other certain investments for the three months ended June 30, 2021 totaled $24.8 million, and net realized losses totaled ($1.8) million, primarily attributable to the loss after the restructuring of one specific investment.

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

Repayments and sales of investments and amortization of other certain investments for the six months ended June 30, 2021 totaled $56.0 million, and net realized losses totaled ($1.3) million, primarily attributable to the loss after the restructuring of one specific investment.

Net Change in Unrealized Appreciation (Depreciation) of Investments

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

Net change in unrealized (depreciation) appreciation on investments and cash equivalents for the three months ended June 30, 2022 and 2021 totaled ($4.3) million and $1.7 million, respectively.

Net change in unrealized (depreciation) appreciation on investments and cash equivalents for the six months ended June 30, 2022 and 2021 totaled ($8.0) million and $1.8 million, respectively.

63

The change in unrealized depreciation over the respective periods was due to the accounting reversal upon realization of one portfolio company and the widening of credit spreads and swap rates caused by the macro-economic environment which have been reflected in the valuation of our investments.

Provision for Taxes on Unrealized Appreciation on Investments

We have direct wholly owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are “pass through” entities for U.S. federal income tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with us for U.S. federal income tax purposes and may generate U.S. federal income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The U.S. federal income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For the three months ended June 30, 2022 and 2021, we recognized a (provision) benefit for income tax on unrealized investments of ($160.7) thousand and $187.7 thousand for the Taxable Subsidiaries, respectively. For the six months ended June 30, 2022 and 2021, we recognized a (provision) benefit for income tax on unrealized investments of ($181.8) thousand and $19.9 thousand, respectively. As of June 30, 2022 and December 31, 2021, there was ($30.5) thousand of deferred tax liabilities and $151.3 thousand of deferred tax assets on the Consolidated Statements of Assets and Liabilities, respectively.

Net Increase in Net Assets Resulting from Operations

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

For the three months ended June 30, 2021, net increase in net assets resulting from operations totaled $5.6 million, or $0.29 per common share (based on 19,486,003 weighted average shares outstanding for the quarter ended June 30, 2021).

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

For the six months ended June 30, 2021, net increase in net assets resulting from operations totaled $10.5 million, or $0.54 per common share (based on 19,486,003 weighted average shares outstanding for the six months ended June 30, 2021).

The net increase in net assets between the respective periods was due to a larger amount of realized gains on investments and an increase in net investment income, offset by net unrealized depreciation.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

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

Our operating activities used net cash of ($114.5) million for the six months ended June 30, 2021, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the six months ended June 30, 2021 provided cash of $114.7 million due to the issuance of our 4.875% fixed-rate notes due 2026 (the “2026 Notes”) offset by the repayment of our 5.75% fixed-rate notes due 2022 (the “2022 Notes”) and net repayments on our Credit Facility.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from the Credit Facility, 2026 Notes, SBA-guaranteed debentures and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of dividends to the holders of our common stock.

64

We used, and expect to continue to use, these capital resources as well as proceeds from turnover within our portfolio and from public and private offerings of securities to finance our investment activities.

Although we expect to fund the growth of our investment portfolio through the net proceeds from future public and private equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, if our common stock trades at a price below our then-current net asset value per share, we may be limited in our ability to raise equity capital given that we cannot sell our common stock at a price below net asset value per share unless our stockholders approve such a sale and our Board makes certain determinations in connection therewith. A proposal, approved by our stockholders at our 2022 annual stockholders meeting, authorizes us to sell up to 25% of our outstanding common shares at a price equal to or below the then current net asset value per share in one or more offerings. This authorization will expire on June 23, 2023, the one-year anniversary of our 2022 annual stockholders meeting. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of the senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 150% effective June 29, 2018 (at least 200% prior to June 29, 2018). This requirement limits the amount that we may borrow. We have received exemptive relief from the SEC to permit us to exclude the debt of Stellus Capital SBIC, LP (“SBIC subsidiary”) and Stellus Capital SBIC II, LP (“SBIC II subsidiary”) (together, “the SBIC subsidiaries”) guaranteed by the Small Business Administration (“SBA”) from the definition of senior securities in the asset coverage test under the 1940 Act. We were in compliance with the asset coverage ratios at all times. As of June 30, 2022 and December 31, 2021, our asset coverage ratio was 192% and 203%, respectively. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of $26.5 million and $44.2 million, respectively.

Credit Facility

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

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

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

65

Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10.0 million, including cash, liquid investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.0, and (iii) maintaining a minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 2.00 to 1.00. As of June 30, 2022, we were in compliance with these covenants.

As of June 30, 2022 and December 31, 2021, $203.6 million and $177.3 million, respectively, was outstanding under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair values of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We incurred costs of $3.9 million in connection with the current Credit Facility, which are being amortized over the life of the facility. Additionally, $0.3 million of costs from a prior credit facility will continue to be amortized over the remaining life of the Credit Facility. As of June 30, 2022 and December 31, 2021, $1.7 million and $1.9 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

Interest is paid quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the three and six months ended June 30, 2022 and 2021 (in millions):

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Interest expense	$	1.8		$	1.4		$	3.2		$	2.5
Loan fee amortization		0.1			0.1			0.3			0.2
Total interest and financing expenses	$	1.9		$	1.5		$	3.5		$	2.7
Weighted average interest rate		3.4	%		2.8	%		3.1	%		2.8	%
Effective interest rate (including fee amortization)		3.8	%		3.2	%		3.5	%		3.3	%
Average debt outstanding	$	206.5		$	189.1		$	199.7		$	165.0
Cash paid for interest and unused fees	$	1.9		$	1.5		$	3.2		$	2.5

SBA-Guaranteed Debentures

Due to the SBIC subsidiaries’ status as licensed SBICs, we have the ability to issue debentures guaranteed by the SBA at favorable interest rates (“SBA-guaranteed debentures”). Under the regulations applicable to SBIC funds, a single licensee can have outstanding SBA-guaranteed debentures, subject to a regulatory leverage limit, up to two times the amount of regulatory capital. As of both June 30, 2022 and December 31, 2021, the SBIC subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA and $150.0 million of SBA-guaranteed debentures outstanding.

As of June 30, 2022 and December 31, 2021, the SBIC II subsidiary had $87.5 million in regulatory capital, respectively, and $143.6 million and $100.0 million of SBA-guaranteed debentures outstanding, respectively.

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

On a stand-alone basis, the SBIC subsidiaries held $446.1 million and $403.3 million in assets at June 30, 2022 and December 31, 2021, respectively, which accounted for approximately 50.5% and 49.1% of our total consolidated assets, respectively.

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

66

the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

As of June 30, 2022 and December 31, 2021, the carrying amount of the SBA-guaranteed debentures approximated their fair value. The fair values of the SBA-guaranteed debentures are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the SBA-guaranteed debentures is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At June 30, 2022 and December 31, 2021, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of June 30, 2022, we have incurred $10.4 million in financing costs related to the SBA-guaranteed debentures since the SBIC subsidiaries received their licenses, which were recorded as prepaid loan fees. As of June 30, 2022 and December 31, 2021, $5.9 and $5.4 million of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and six months ended June 30, 2022 and 2021 (dollars in millions):

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Interest expense	$	1.9		$	1.6		$	3.7		$	3.0
Debenture fee amortization		0.3			0.3			0.6			0.5
Total interest and financing expenses	$	2.2		$	1.9		$	4.3		$	3.5
Weighted average interest rate		2.7	%		2.9	%		2.7	%		2.9	%
Effective interest rate (including fee amortization)		3.1	%		3.3	%		3.2	%		3.4	%
Average debt outstanding	$	287.8		$	224.1		$	271.1		$	207.2
Cash paid for interest	$	—		$	—		$	3.4		$	2.7

Notes Offering

On August 21, 2017, we issued $42.5 million in aggregate principal amount of 5.75% fixed-rate notes due September 15, 2022 (the “2022 Notes”). On September 8, 2017, we issued an additional $6.38 million in aggregate principal amount of the 2022 Notes pursuant to a full exercise of the underwriters’ overallotment option. On January 13, 2021, we caused notices to be issued to the holders of its 2022 Notes regarding the Company’s exercise of its option to redeem all of the issued and outstanding 2022 Notes, pursuant to the Second Supplemental Indenture dated as of August 21, 2017, between the Company and U.S. Bank National Association, as trustee. We redeemed all $48.875 million in aggregate principal amount of the 2022 Notes on February 12, 2021. The 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest thereon through the redemption date. As a result of the redemption, we recognized a loss on debt extinguishment of $0.5 million due to the write off of the remaining deferred financing costs on the 2022 Notes. This loss is included in the Consolidated Statements of Operations for the three months ended June 30, 2021.

67

The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the six months ended June 30, 2021 (dollars in millions):

	For the six months ended
	June 30,
	2021
Interest expense	$	0.3
Deferred financing costs		0.1
Total interest and financing expenses	$	0.4
Loss on extinguishment of debt(1)		0.5
Weighted average interest rate(2):		5.7	%
Effective interest rate (including fee amortization)(2)		6.4	%
Average debt outstanding(3)	$	48.9
Cash paid for interest	$	0.5

(1) The loss on debt extinguishment is not included in interest expense or net investment income.

(2) Excludes the loss on debt extinguishment.

(3) For the six months ended June 30, 2021, the average is calculated for the period January 1, 2021 through February 12, 2021; the repayment date of the 2022 Notes.

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

We used the net proceeds from this offering to fully redeem the 2022 Notes and repay a portion of the amount outstanding under the Credit Facility. As of both June 30, 2022 and December 31, 2021, the aggregate carrying amount of the 2026 Notes were approximately $100.0 million.

Prior to their redemption on February 12, 2021, the 2022 Notes were listed on New York Stock Exchange under the trading symbol “SCA”. As of December 31, 2020, the fair value of the 2022 Notes was $49.2 million. The carrying value of the 2026 Notes approximates fair value.

In connection with the issuance of the 2026 Notes, we have incurred $2.3 million of fees which are being amortized over the term of the 2026 Notes, of which $1.7 million and $1.9 million remains to be amortized as of June 30, 2022 and December 31, 2021, respectively. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following table summarizes the interest expense and deferred financing costs on the 2026 Notes for the three and six months ended June 30, 2022 and 2021 (dollars in millions):

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Interest expense	$	1.2		$	1.2		$	2.4		$	2.3
Deferred financing costs		0.1			0.1			0.3			0.2
Total interest and financing expenses	$	1.3		$	1.3		$	2.7		$	2.5
Weighted average interest rate		4.9	%		4.9	%		4.9	%		4.9	%
Effective interest rate (including fee amortization)		5.3	%		5.3	%		5.4	%		5.4	%
Average debt outstanding	$	100.0		$	100.0(1)		$	100.0		$	100.0(1)
Cash paid for interest	$	—		$	—		$	2.4		$	—

(1) Calculated for the period from January 14, 2021, the date of the 2026 Notes offering, through June 30, 2021.

68

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of June 30, 2022 and December 31, 2021, our off-balance sheet arrangements consisted of $32.6 million and $30.7 million, respectively, of unfunded commitments to provide debt and equity financings to 47 and 32 of our portfolio companies, respectively. As of June 30, 2022, we had sufficient liquidity to fund such unfunded commitments (through cash on hand and available borrowings under the Credit Facility) should the need arise.

Regulated Investment Company Status and Dividends

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

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

To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we maintain our qualification as a RIC, we must also satisfy certain distribution requirements each calendar year in order to avoid a federal excise tax on our undistributed earnings of a RIC. As of December 31, 2021, we had $25,182,518 of undistributed taxable income that will be carried forward toward distributions paid during the year ending December 31, 2022.

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

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

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

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

69

Recent Accounting Pronouncements

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

Critical Accounting Policies

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

Subsequent Events

Investment Portfolio

On July 1, 2022, we invested $0.1 million in the first lien term loan and committed $0.1 million in the revolver of Heat Makes Sense Shared Services, LLC, a branded haircare platform. Additionally, we invested $0.1 million in the equity of the company.

On July 5, 2022, we invested $13.9 million in the first lien term loan of Baker Manufacturing Company, LLC, a manufacturer of water well equipment, specialized filtration pumps, and custom castings. Additionally, we invested $0.7 million in the equity of the company.

On July 15, 2022, we received full repayment on the first lien term loan and revolver of International Designs Group, LLC for total proceeds of $0.1 million.

On July 15, 2022, we received full repayment on the first lien term loan of ASC Communications, LLC for total proceeds of $8.2 million. We also received $1.8 million in full realization on the equity of the company, resulting in a $1.8 million realized gain.

On July 15, 2022, we invested $1.0 million in the first lien term loan of Exacta Land Surveyors, LLC, an existing portfolio company. Additionally, we invested $0.1 million in the equity of the company.

On July 20, 2022, we invested $2.2 million in the first lien term loan of SIB Holdings, LLC, an existing portfolio company.

On July 28, 2022, we invested $0.1 million in the equity of USASF Blocker IV LLC, an existing portfolio company.

On July 29, 2022, we invested $13.0 million in the first lien term loan and committed $0.1 million in the revolver and $0.1 million in the delayed draw term loan of a provider of product testing and consumer insights. Additionally, we invested $0.7 million in the equity of the company.

Credit Facility

The outstanding balance under the Credit Facility as of August 3, 2022 was $198.2 million.

SBA-guaranteed Debentures

On July 1, 2022, the Company contributed $5.0 million of capital to its SBIC II subsidiary. To date, the Company has contributed $78.0 million of its $87.5 million regulatory capital commitment.The total balance of SBA-guaranteed debentures outstanding as of August 3, 2022 was $300.0 million.

70

Dividend Declared

On July 13, 2022, the Board declared a regular monthly dividend for each of July 2022, August 2022 and September 2022 as follows:

	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
7/13/2022	7/28/2022	7/29/2022	8/15/2022	$	0.0933
7/13/2022	8/30/2022	8/31/2022	9/15/2022	$	0.0933
7/13/2022	9/29/2022	9/30/2022	10/14/2022	$	0.0933

On July 13, 2022, the Board declared an additional monthly dividend for each of July 2022, August 2022 and September 2022 as follows:

	Ex-Dividend	Record	Payment	Amount per
Declared	Date	Date	Date	Share
7/13/2022	7/28/2022	7/29/2022	8/15/2022	$	0.02
7/13/2022	8/30/2022	8/31/2022	9/15/2022	$	0.02
7/13/2022	9/29/2022	9/30/2022	10/14/2022	$	0.02

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. In connection with the COVID-19 pandemic, the U.S. Federal Reserve (the "Federal Reserve") and other central banks had reduced certain interest rates. However, in March 2022, the Federal Reserve raised interest rates by 0.25%, the first increase since December 2018. In July, the Federal Reserve against raised rates by 0.75% to 2.25%-2.5%, marking its fourth consecutive rate hike, and indicated that it would consider future rate hikes if inflation does not slow. At June 30, 2022 and December 31, 2021, 97% and 96% of the loans in our portfolio bore interest at floating rates, respectively. These floating rate loans typically bear interest in reference to LIBOR, SOFR, or the Sterling Overnight Index Average, which are indexed to 30-day or 90-day rates, subject to an interest rate floor. As of June 30, 2022 and December 31, 2021, the weighted average interest rate floor on our floating rate loans was 1.09% and 1.13%, respectively.

Assuming that the Consolidated Statements of Assets and Liabilities as of June 30, 2022 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates:

	($ in millions)
	Interest			Interest		Net Interest
Change in Basis Points(2)	Income			Expense(3)		Income(1)
Up 200 basis points	$	15.2	$	(4.1)	$	11.1
Up 150 basis points		11.4		(3.1)		8.3
Up 100 basis points		7.6		(2.0)		5.6
Up 50 basis points		3.8		(1.0)		2.8
Down 25 basis points		(1.7)		0.5		(1.2)
Down 50 basis points		(3.3)		1.0		(2.3)
Down 100 basis points		(5.7)		2.0		(3.7)
Down 150 basis points		(6.7)		2.9		(3.8)
Down 200 basis points		(6.8)		2.9		(3.9)

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

(2) At June 30, 2022, the three month LIBOR rate was 229 basis points and the three month SOFR rate was 210 basis points. This table assumes floating rates would not fall below zero.

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

Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net

71

assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the three and six months ended June 30, 2022 and 2021, we did not engage in hedging activities.

Item 4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Control Over Financial Reporting

The Company’s management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2022 that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

72

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

There have been no material changes in the information provided under the heading “Risk Factors” in our Annual Report on Form 10-K as of December 31, 2021 other than as provided below. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, financial condition and/or operating results.

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

No shares were issued under the distribution reinvestment program (“DRIP”) during either of the six months ended June 30, 2022 and 2021.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

The following table is being provided to update, as of June 30, 2022, and correct certain information previously provided in our annual report on Form 10-K for the year ended December 31, 2021. The following table is intended to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. The footnotes to the fee table state which items are estimates. The following table should not be considered a representation of our future expenses; actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this quarterly report on Form 10-Q contains a reference to fees or expenses paid by “you,” “us,” “the Company” or “Stellus,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.

Stockholder transaction expenses:​​​​​​​​
Sales load (as percentage of offering price)	—	(1)​
Offering expenses born by us (as a percentage of offering price)	—	(2)​
Dividend reinvestment plan expenses	—	(3)​
Total stockholder transaction expenses paid by us (as a percentage of offering price)	—	(4)​
Annual expenses (as a percentage of net assets attributable to common stock)(5):
Base management fee	5.30%	(6)​
Incentive fees payable under Investment Advisory Agreement	—	(7)​
Interest payments on borrowed funds	7.90%	(8)​
Other expenses	2.41%	(9)​
Total annual expenses	15.61%	(10)​

73

(1) In the event that securities are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load.

(2) In the event that we conduct an offering of any of our securities, a corresponding prospectus will disclose the estimated offering expenses because they will be ultimately borne by the Company (and indirectly by our stockholders).

(3) The expenses of administering our dividend reinvestment plan are included in other expenses.

(4) Total stockholder transaction expenses may include a sales load and will be disclosed in a future prospectus supplement, if any.

(5) Net assets attributable to common stock assumes average net assets as of June 30, 2022 remains constant.

(6) Our base management fee is 1.75% of the average value of our total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts). This item represents actual base management fees incurred for the year ended December 31, 2021. We may from time to time decide it is appropriate to change the terms of the Investment Advisory Agreement. Under the 1940 Act, any material change to our Investment Advisory Agreement must be submitted to stockholders for approval. The 5.30% reflected in the table is calculated on our net assets (rather than our total assets). See "Item 1. Business - Management Agreements - Investment Advisory Agreement" of our most recent Annual Report on Form 10-K.

(7) This item represents actual fees incurred on pre-incentive fee net investment income (income incentive fee) for the quarter ended June 30, 2022, which were $0 and assumes no income incentive fee will be earned for the next 12 months. The incentive fee consists of two parts, please See Item 1. Business, Incentive Fee of our most recent Annual Report on Form 10-K for additional information on the ordinary income and capital gains components of our incentive fee. For the quarter ended June 30, 2022, the Company recorded a capital gain incentive fee reversal of $983,575. For purposes of this table, we have assumed no capital gains incentive fee over the next 12 months.  

(8) As of June 30, 2022, we had outstanding SBA debentures of $243.6 million; we had $203.6 million of outstanding balance under our senior secured revolving credit agreement with certain lenders party thereto and ZB, N.A., dba Amegy Bank, as administrative agent (the “Credit Facility”), which has total commitment of $280.0 million.

(9) Other expenses represent our estimated annual operating expenses, as a percentage of net assets attributable to common shares estimated for the current year, including professional fees, directors’ fees, insurance costs, expenses of our dividend reinvestment plan and payments under the Administration Agreement based on our allocable portion of overhead and other expenses incurred by our administrator. See "Item 1. Business - Management Agreements - Administration Agreement" of our most recent Annual Report on Form 10-K. Other expenses exclude interest payments on borrowed funds, and if we issue debt securities or preferred stock, interest payments on debt securities and distributions with respect to preferred stock. “Other expenses” are based on actual other expenses for the quarter ended June 30, 2022.

(10) “Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the “total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less total liabilities), rather than the total assets, including assets that have been purchased with borrowed amounts. If the “total annual expenses” percentage were calculated instead as a percentage of average consolidated total assets, our “total annual expenses” would be 4.95% of average consolidated total assets.

Example

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in us. In calculating the following expense amounts, we have assumed we would have no additional leverage, that none of our assets are cash or cash equivalents and that our annual operating expenses would remain at the levels set forth in the table above. Transaction expenses are not included in the following example.

	1 year			2 years		5 years		10 years
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return	$	148	$	398	$	598	$	939
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return resulting entirely from net realized capital gains (all of which is subject to our incentive fee on capital gains)	$	156	$	417	$	620	$	955

The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. Assuming a 5.0% annual return, the incentive fee under the Investment Advisory

74

Agreement would either not be payable or have an insignificant impact on the expense amounts shown above. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all distributions at net asset value, if our board of directors authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution.

This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.

Item 6.EXHIBITS.

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

Exhibit Number	Description
3.1	Articles of Amendment and Restatement (Incorporated by reference to Exhibit (a)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).
3.2	Bylaws (Incorporated by reference to Exhibit (b)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).
4.1	Form of Stock Certificate (Incorporated by reference to Exhibit (d) to the Registrant’s Registration Statement on Form N-2 (File No. 333-184195), filed on October 23, 2012).
10.1	Third Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of May 13, 2022, among Stellus Capital Investment Corporation, the lenders party thereto, and Zions Bancorporation, N.A. dba Amegy Bank, as the administrative agent. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 814-00971), filed on May 13, 2022).
31.1	Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Chief Financial Officer Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith

75

SIGNATURES

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

Dated: August 3, 2022	STELLUS CAPITAL INVESTMENT CORPORATION
	By:	/s/ Robert T. Ladd
		Name:	Robert T. Ladd
		Title:	Chief Executive Officer and President
	By:	/s/ W. Todd Huskinson
		Name:	W. Todd Huskinson
		Title:	Chief Financial Officer

76